| Basis of Preparation | 2. BASIS OF
PREPARATION
2.1
Statement of compliance These consolidated financial statements have been
prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting
Standards Board. These consolidated financial statements were
authorized for issue by the Board of Directors on February 11,
2019.
2.2
Basis of measurement, judgment and
estimation These consolidated financial statements have been
prepared on a historical cost basis except those measured at fair
value through profit or loss, fair value through other
comprehensive income, available-for-sale These consolidated financial statements are
presented in Canadian dollars, which is the Company’s
functional currency. Foreign currency monetary assets and
liabilities are translated into Canadian dollars at the closing
exchange rate as at the balance sheet date. Foreign currency
non-monetary The preparation of these consolidated financial
statements in conformity with IFRS requires management to make
judgments, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from
these estimates. Estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in
any future periods affected. In the process of applying the Company’s
accounting policies, significant areas where judgment is required
include the determination of a joint arrangement, determining the
timing of transfer of control of inventory for revenue recognition,
functional currency, determination of the accounting treatment of
the advance payment under the silver purchase and sale agreement
reported as deferred revenue (Note 18) and recovery of other
deferred tax assets. Significant areas of estimation include reserve and
resource estimation; asset valuations and the measurement of
impairment charges or reversals; valuation of inventories; plant
and equipment lives; tax provisions; provisions for environmental
rehabilitation; valuation of financial instruments and derivatives;
capitalized stripping costs and share-based compensation. Key
estimates and assumptions made by management with respect to these
areas have been disclosed in the notes to these consolidated
financial statements as appropriate. The accuracy of reserve and resource estimates is a
function of the quantity and quality of available data and the
assumptions made and judgment used in the engineering and
geological interpretation, and may be subject to revision based on
various factors. Changes in reserve and resource estimates may
impact the carrying value of property, plant and equipment; the
calculation of depreciation expense; the capitalization of
stripping costs incurred during production; and the timing of cash
flows related to the provision for environmental
rehabilitation. Changes in forecast prices of commodities, exchange
rates, production costs and recovery rates may change the economic
status of reserves and resources. Forecast prices of commodities,
exchange rates, production costs and recovery rates, and discount
rates assumptions, either individually or collectively, may impact
the carrying value of derivative financial instruments,
inventories, property, plant and equipment, and intangibles, as
well as the measurement of impairment charges or reversals.
2.3
Basis of consolidation The consolidated financial statements comprise the
financial statements of the Company and controlled entities as at
December 31, 2018. Control is achieved when the Company is
exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns
through its power over the investee. The Company reassesses whether or not it controls
an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control.
Consolidation of a subsidiary begins when the Company obtains
control over the subsidiary and ceases when the Company loses
control of the subsidiary. Assets, liabilities, income and expenses
of a subsidiary acquired or disposed of during the year are
included in the consolidated statement of comprehensive income
(loss) from the date the Company gains control until the date the
Company ceases to control the subsidiary. When necessary,
adjustments are made to the financial statements of subsidiaries to
bring their accounting policies into line with the Company’s
accounting policies. All intercompany transactions between members
of the Company are eliminated in full on consolidation. The Company applies the acquisition method in
accounting for business combinations. The consideration transferred
by the Company to obtain control of a subsidiary is calculated as
the sum of the acquisition-date fair values of assets transferred,
liabilities incurred and the equity interests issued by the
Company, which includes the fair value of any asset or liability
arising from a contingent consideration arrangement. Acquisition
costs are expensed as incurred. The Company recognizes identifiable assets acquired
and liabilities assumed in a business combination regardless of
whether they have been previously recognized in the
acquiree’s financial statements prior to the acquisition.
Assets acquired and liabilities assumed are generally measured at
their acquisition-date fair values. Goodwill is stated after separate recognition of
identifiable intangible assets. It is calculated as the excess of
the sum of a) fair value of consideration transferred, b) the
recognized amount of any non-controlling
2.4
Significant Accounting Policies
(a)
Revenue recognition The Company has adopted IFRS 15, Revenue
Contracts with Customers
and is accounted for under IAS 18 Revenue Under IFRS 15, revenue is recognized when a
customer obtains control of the goods or services and the Company
has satisfied its performance obligation. Determining the timing of
the transfer of control, at a point in time or over time, requires
judgment. Cash received in advance of meeting these conditions is
recorded as advance payments or deferred revenue. Under the terms of the Company’s concentrate
sales contracts, the final sales amount is based on final assay
results and quoted market prices which may be in a period
subsequent to the date of sale. Revenues for these sales, net of
treatment and refining charges are recorded when the customer
obtains control of the concentrate, based on an estimate of metal
contained using initial assay results and forward market prices for
the expected date that final sales prices will be fixed. The period
between provisional pricing and final settlement can be up to four
months. This settlement receivable is recorded at fair value each
reporting period by reference to forward market prices until the
date of final pricing, with the changes in fair value recorded as
an adjustment to revenue. Prior to January 1, 2018, the Company’s
revenue recognition accounting policy under IAS 18 Revenue,
(b)
Cash and equivalents Cash and equivalents consist of cash and
highly-liquid investments having terms of three months or less from
the date of acquisition and that are readily convertible to known
amounts of cash. Cash and equivalents exclude cash subject to
restrictions.
(c)
Financial instruments Financial assets and liabilities are recognized on
the balance sheet when the Company becomes party to the contractual
provisions of the instrument. The classification of financial
instruments dictates how these assets and liabilities are measured
subsequently in the Company’s consolidated financial
statements. The Company adopted the new accounting standard
IFRS 9, Financial Instruments Under IFRS 9, on initial recognition, a financial
asset is classified as measured at: amortized cost; Fair Value
through Other Comprehensive Income (FVOCI); or Fair Value through
Profit or Loss (FVPL). The classification of financial assets under
IFRS 9 is generally based on the business model in which a
financial asset is managed and its contractual cash flow
characteristics. A financial asset is measured at amortized cost if:
(i) it is held within a business model whose objective is to
hold assets to collect contractual cash flows; and (ii) its
contractual terms give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal
amount outstanding; and (iii) it is not designated as FVPL.
This category of financial assets is subsequently measured at
amortized cost using the effective interest method, and reduced by
impairment losses. Interest income, foreign exchange gains and
losses and impairment are recognized in profit or loss. Any gain or
loss on derecognition is recognized in profit or loss. On initial recognition of an equity investment that
is not held for trading, the Company may irrevocably elect to
present subsequent changes in the investment’s fair value in
OCI. This election is made on an investment-by-investment All financial assets not classified as measured at
amortized cost or FVOCI as described above are measured at FVPL.
This includes all derivative financial assets. On initial
recognition, the Company may irrevocably designate a financial
asset as FVPL if doing so significantly reduces an accounting
mismatch that would otherwise arise. Financial assets classified as
FVPL are subsequently measured at fair value, with net gains and
losses, including any interest or dividend income, recognized in
profit or loss. Financial assets at
amortized cost Loans and receivables are financial assets with
fixed or determinable payments that are not quoted in an active
market. Subsequent to initial recognition, these financial assets
are recorded at amortized cost using the effective interest method,
except for short-term receivables when the recognition of interest
would be immaterial. Accounts receivable are assessed for evidence
of impairment at each reporting date, with any impairment
recognized in earnings for the period. Financial assets in this
category include cash and cash equivalents and accounts
receivables. Financial assets at fair
value through other comprehensive income (FVOCI) Marketable securities, investment in subscription
receipts and reclamation deposits are designated as FVOCI and
recorded at fair value. Dividends are recognized as income in
profit or loss unless the dividend clearly represents a recovery of
part of the cost of the investment. Other net gains and losses are
recognized in OCI and are never reclassified to profit or loss. Financial instruments at fair value through
profit or loss (FVPL) All financial assets not classified as measured at
amortized cost or FVOCI are measured at FVPL. Derivative financial
instruments that are not designated and effective as hedging
instruments are classified as FVPL. Financial instruments
classified as FVPL are stated at fair value with any changes in
fair value recognized in earnings for the period. Financial assets
in this category include derivative financial instruments that the
Company acquires to manage exposure to commodity price
fluctuations. These instruments are non-hedge Financial
liabilities Financial liabilities are initially recorded at
fair value, net of transaction costs, and are subsequently measured
at amortized cost using the effective interest method. The Company
has accounted for accounts payable and accrued liabilities and
long-term debt under this method. Fair value measurement Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The fair value hierarchy establishes three levels to classify the
inputs to valuation techniques used to measure fair value, by
reference to the reliability of the inputs used to estimate the
fair values. Level 1 – quoted prices (unadjusted) in
active markets for identical assets or liabilities; Level 2 – inputs other than quoted
prices included within Level 1 that are observable for the
asset or liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices); and Level 3 – inputs for the asset or
liability that are not based on observable market data
(unobservable inputs). The classification and measurement of financial
instruments prior to the adoption of IFRS 9, Financial
Instruments Financial instruments at fair value through
profit or loss (FVTPL) Financial instruments are classified as FVTPL when
they are held for trading. A financial instrument is held for
trading if it was acquired for the purpose of selling in the near
term. Derivative financial instruments that are not designated and
effective as hedging instruments are classified as FVTPL. Financial
instruments classified as FVTPL are stated at fair value with any
changes in fair value recognized in earnings for the period.
Financial assets in this category include derivative financial
instruments that the Company acquires to manage exposure to
commodity price fluctuations. These instruments are non-hedge Available-for-sale Marketable securities,
subscription receipts and reclamation deposits are designated as
available-for-sale Loans and
receivables Loans and receivables are
financial assets with fixed or determinable payments that are not
quoted in an active market. Subsequent to initial recognition,
these financial assets are recorded at amortized cost using the
effective interest method, except for short-term receivables when
the recognition of interest would be immaterial. Accounts
receivable are assessed for evidence of impairment at each
reporting date, with any impairment recognized in earnings for the
period. Financial assets in this category include cash and cash
equivalents and accounts receivable. Financial
liabilities Financial liabilities are
initially recorded at fair value, net of transaction costs, and are
subsequently measured at amortized cost using the effective
interest method. The Company has accounted for accounts payable and
accrued liabilities and long-term debt under this
method.
(d) Exploration
and evaluation Exploration and evaluation expenditures relate to
the initial search for a mineral deposit and the subsequent
evaluation to determine the economic potential of the mineral
deposit. The exploration and evaluation stage commences when the
Company obtains the legal right or license to begin exploration.
Exploration and evaluation expenditures are recognized in earnings
in the period in which they are incurred. Capitalization of development costs as mineral
property, plant and equipment commences once the technical
feasibility and commercial viability of the extraction of mineral
reserve and resources associated with the Company’s
evaluation properties are established and management has made a
decision to proceed with development.
(e) Inventories Inventories are valued at the lower of cost and net
realizable value. Cost is determined on a weighted average basis
and includes direct labour and materials; non-capitalized Ore stockpiles represent stockpiled ore that have
not yet completed the production process, and are not yet in a
saleable form. Finished goods inventories represent metals in
saleable form that have not yet been sold. Materials and supplies
inventories represent consumables used in the production process,
as well as spare parts and other maintenance supplies that are not
classified as capital items. The quantity of recoverable metal in stockpiled ore
and in the processing circuits is an estimate which is based on the
tons of ore added and removed, expected grade and recovery. The
quantity of recoverable metal in concentrate is an estimate using
initial assay results.
(f) Property,
plant and equipment Land, buildings, plant and
equipment Land, buildings, plant and equipment are recorded
at cost, including all expenditures incurred to prepare an asset
for its intended use. Repairs and maintenance costs are charged to
expense as incurred, except when these repairs significantly extend
the life of an asset or result in an operating improvement. In
these instances, the portion of these repairs relating to the
betterment is capitalized as part of plant and equipment. Depreciation is based on the cost of the asset less
residual value. Where an item of plant and equipment is comprised
of major components with different useful lives, the components are
accounted for as separate items and depreciated separately.
Depreciation commences when an asset is available for use.
Estimates of remaining useful lives and residual values are
reviewed annually. Changes in estimates are accounted for
prospectively. The depreciation rates of the major asset
categories are as follows:
Land Not depreciated
Buildings Straight-line basis over
10-25
Plant and equipment Units-of-production
Mining equipment Straight-line basis over
5-20
Light vehicles and other mobile equipment Straight-line basis over
2-5
Furniture, computer and office equipment Straight-line basis over
2-3 Mineral
properties Mineral properties consist of the cost of acquiring
and developing mineral properties. Once in production, mineral
properties are amortized on a units-of-production Property acquisition costs arise either as an
individual asset purchase or as part of a business combination, and
may represent a combination of either proven and probable reserves,
resources, or future exploration potential. When management has not
made a determination that technical feasibility and commercial
viability of extracting a mineral resource are demonstrable, the
entire amount is considered property acquisition costs and not
amortized. When such property moves into development, the property
acquisition cost asset is transferred to mineral properties within
property, plant and equipment. Mineral property development costs include:
stripping costs incurred in order to provide initial access to the
ore body; stripping costs incurred during production that generate
a future economic benefit by increasing the productive capacity,
extending the productive life of the mine or allowing access to a
mineable reserve; capitalized project development costs; and
capitalized interest. Construction in
progress Construction in progress includes the purchase
price and any costs directly attributable to bringing the asset to
the location and condition necessary for its intended use.
Construction in progress includes advances on long-lead items.
Construction in progress is not depreciated. Once the asset is
complete and available for use, the costs of construction are
transferred to the appropriate category of property, plant and
equipment, and depreciation commences. Capitalized
interest Interest is capitalized for qualifying assets.
Qualifying assets are assets that require a substantial period of
time to prepare for their intended use. Capitalization ceases when
the asset is substantially complete or if construction is
interrupted for an extended period. Where the funds used to finance
a project form part of general borrowings, the amount capitalized
is calculated using a weighted average of rates applicable to
relevant general borrowings of the Company during the period. Leased
assets Leased assets in which the Company receives
substantially all the risks and rewards of ownership of the asset
are capitalized as finance leases at the lower of the fair value of
the asset or the estimated present value of the minimum lease
payments. The corresponding lease obligation is recorded within
debt on the balance sheet. Assets under operating leases are not
capitalized and rental payments are expensed on a straight-line
basis. Impairment The carrying amounts of the Company’s
non-financial The recoverable amount of an asset or cash
generating unit (CGU) is the higher of fair value less costs to
sell and value in use. Fair value is determined as the amount that
would be obtained from the sale of the asset in an arm’s-length pre-tax
cash inflows that are largely independent of the
cash flows of other assets or CGU’s. If the recoverable
amount of an asset or its related CGU is estimated to be less than
its carrying amount, the carrying amount of the asset or CGU is
reduced to its recoverable amount and the impairment loss is
recognized in earnings for the period. Where an impairment loss subsequently reverses, the
carrying amount of the asset or CGU is increased to the revised
estimate of its recoverable amount, but not to an amount that
exceeds the carrying amount that would have been determined had no
impairment loss been recognized for the asset or CGU in prior
years. A reversal of an impairment loss is recognized immediately
in earnings. The carrying amount of the CGU to which goodwill
has been allocated is tested annually for impairment or when there
is an indication that the goodwill may be impaired. Any
goodwill impairment is recognized as an expense in the profit or
loss. Should there be a recovery in the value of a CGU, any
impairment of goodwill previously recorded is not subsequently
reversed.
(g)
Income taxes Income tax on the earnings for the periods
presented comprises current and deferred tax. Income tax is
recognized in earnings except to the extent that it relates to
items recognized directly in equity or in other comprehensive
income. Income tax is calculated using tax rates enacted or
substantively enacted at the reporting date applicable to the
period of expected realization or settlement. Current tax expense is the expected tax payable on
the taxable income for the year, adjusted for amendments to tax
payable with regards to previous years. Deferred tax is determined using the balance sheet
liability method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following
temporary differences are not provided for: the initial recognition
of assets or liabilities acquired (not in a business combination)
that affect neither accounting nor taxable profit on acquisition;
and differences relating to investments in subsidiaries,
associates, and joint ventures to the extent that they are not
probable to reverse in the foreseeable future. The amount of
deferred tax provided is based on the expected manner of
realization or settlement of the carrying amount of assets and
liabilities. A deferred tax asset is recognized only to the extent
that it is probable that future taxable profits will be available
against which the asset can be utilized. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent it is
no longer probable that the related tax benefit will be
realized.
(h)
Share-based compensation The fair-value method is used for the
Company’s share-based payment transactions. Under this
method, the cost of share options and equity-settled performance
share units is recorded based on their estimated fair value at the
grant date, including an estimate of the forfeiture rate. The
fair value of the share options and performance share units is
expensed on a graded amortization basis over the vesting period of
the awards, with a corresponding increase in equity. Share-based compensation expense relating to
cash-settled awards, including deferred share units, is recognized
based on the quoted market value of the Company’s common
shares on the date of grant. The related liability is
re-measured
(i) Provisions Environmental rehabilitation The Company records the present value of estimated
costs of legal and constructive obligations required to retire an
asset in the period in which the obligation occurs. Environmental
rehabilitation activities include facility decommissioning and
dismantling; removal and treatment of waste materials; site and
land rehabilitation, including compliance with and monitoring of
environmental regulations; and related costs required to perform
this work and/or operate equipment designed to reduce or eliminate
environmental effects. The provision for environmental
rehabilitation (“PER”) is adjusted each period for new
disturbances, and changes in regulatory requirements, the estimated
amount of future cash flows required to discharge the liability,
the timing of such cash flows and the pre-tax When a PER is initially recognized, the
corresponding cost is capitalized by increasing the carrying amount
of the related asset, and is amortized to earnings on a
unit-of-production Significant estimates and assumptions are made in
determining the provision for environmental rehabilitation as there
are numerous factors that will affect the ultimate liability
payable. These factors include estimation of the extent and cost of
rehabilitation activities; timing of future cash flows that are
impacted by changes in discount rates; inflation rate; and
regulatory requirements. Other provisions Other provisions are recognized when the Company
has a present obligation (legal or constructive) that has arisen as
a result of a past event and it is probable that a future outflow
of resources will be required to settle the obligation, provided
that a reliable estimate can be made of the amount of the
obligation. Where the effect is material, the provision is
discounted using a pre-tax
(j)
Finance income and expenses Finance income comprises interest income on funds
invested, gains on the disposal of marketable securities, and
changes in the fair value of derivatives included in cash and
equivalents and marketable securities. Interest income is
recognized as it accrues in earnings, using the effective interest
method. Finance expenses comprise interest expense on borrowings,
unwinding of the discount on provisions, the finance component on
deferred revenue, losses on the disposal of marketable securities,
changes in the fair value of derivatives included in cash and cash
equivalents and marketable securities, and impairment losses
recognized on financial assets. Borrowing costs that are not
directly attributable to the acquisition, construction or
production of a qualifying asset are recognized in earnings using
the effective interest method.
(k)
Earnings (loss) per share The Company presents basic and diluted earnings
(loss) per share data for its common shares, calculated by dividing
the earnings (loss) attributable to common shareholders of the
Company by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is determined by
adjusting the earnings attributable to common shareholders and the
weighted average number of common shares outstanding for the
effects of all dilutive potential common shares, which comprise
warrants and share options granted. There is no dilution impact
when the Company incurs a loss.
(l) Interests in
joint arrangements IFRS defines a joint arrangement as one over which
two or more parties have joint control, which is the contractually
agreed sharing of control over an arrangement. This exists only
when the decisions about the relevant activities (being those that
significantly affect the returns of the arrangement) require the
unanimous consent of the parties sharing control. A joint operation is a type of joint arrangement
whereby the parties that have joint control of the arrangement have
rights to the assets and obligations for the liabilities, relating
to the arrangement. In relation to its interests in joint
operations, the Company recognizes its:
●
Assets, including its share of any assets held
jointly;
●
Liabilities, including its share of any liabilities
incurred jointly;
●
Revenue from the sale of its share of the output
arising from the joint operation; and
●
Expenses, including its share of any expenses
incurred jointly.
2.5
Impact of adoption of new accounting
standards The Company has applied the following revised or
new IFRS that were issued and effective January 1, 2018:
(a)
IFRS 15, Revenue from Contracts with
Customers The Company has adopted IFRS 15 effective
January 1, 2018 using the cumulative effect method.
Accordingly, the comparative information presented for 2017 has not
been restated and is accounted for under IAS 18 Revenue Deferred revenue arose from an up-front The Company identified a significant financing
component related to its streaming arrangement resulting from a
difference in the timing of the up-front The initial consideration received from the
streaming arrangement is considered variable, subject to changes in
the total silver ounces to be delivered. Changes to variable
consideration will be reflected in revenue in the consolidated
statement of income (loss) in the period the change is
identified. The following table summarizes the impact of
transition to IFRS 15 on deficit at January 1, 2018:
Deficit, as at December 31, 2017 (102,878 )
Deferred revenue adjustment, net of tax (Note 18)
(1,047 )
Deficit after adoption of IFRS 15, as at January 1, 2018
(103,925 ) The following table summarizes the impact of
adopting IFRS 15 on the Company’s consolidated balance sheet
as at December 31, 2018:
As reported
Adjustments
Amounts without
Current portion of deferred revenue 3,907 2,741 1,166
Deferred revenue 39,367 703 38,664
Deferred tax liability 83,793 (930) 84,723
Deficit
(139,699)
(2,514)
(137,185) The following table summarizes the impact of
adopting IFRS 15 on the Company’s consolidated statement of
comprehensive income (loss) for the year ended December 31,
2018 :
As reported
Adjustments
Amounts without IFRS 15
Revenue 343,870 2,173 341,697
Finance expenses (38,564) (4,182) (34,382)
Income tax recovery (expense) (448) 542 (990)
Net loss (35,774) (1,467) (34,307)
Total comprehensive loss
(22,099)
(1,467)
(20,632)
(b)
IFRS 9, Financial Instruments As described in Note 2.4(c), the Company adopted
IFRS 9 effective January 1, 2018 without restating comparative
information for prior periods. Accordingly, the comparative
information for 2017 is presented under IAS 39. There were no
changes to the carrying value of any of the Company’s assets
or liabilities as a result of this new accounting standard. The following table explains the original
measurement categories under IAS 39 and the new measurement
categories under IFRS 9 for each class of the Company’s
financial assets as at January 1, 2018:
Footnote
Original Classification under IAS 39
New IFRS 9
Financial assets
Cash and cash equivalents
Loans and receivables Amortized cost
Accounts receivables Loans and receivables Amortized cost
Settlement receivables
Fair value – non-hedge derivative instrument FVPL
Copper put option contracts
Fair value – non-hedge derivative instrument FVPL
Marketable securities Available-for-sale FVOCI
Investment in subscription receipts (1) Available-for-sale FVOCI
Reclamation deposits (1) Available-for-sale FVOCI
Restricted cash
Loans and receivables
Amortized cost
(1)
The Company has designated these equity related
investments at the date of initial application as measured at
FVOCI.
(c)
IFRS 16, Leases In January 2016, the IASB issued IFRS 16
Leases Revenue from Contracts with Customers |
