Silver Standard Resources Inc.
Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2011
(unaudited)
Silver Standard Resources Inc.
Consolidated Interim Financial Statements for the three and nine months ended September 30, 2011
CONTENTS
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Silver Standard Resources Inc. |
Consolidated Interim Statement of Financial Position |
(expressed in thousands of United States dollars, except per share amounts - unaudited) |
September 30 | December 31 | January 1 | ||||||||||
Note | 2011 | 2010 | 2010 | |||||||||
$ | $ | $ | ||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 355,903 | 232,311 | 26,659 | |||||||||
Trade and other receivables | 34,563 | 35,916 | 8,251 | |||||||||
Other financial assets | 3 | 39,218 | 33,651 | 19,722 | ||||||||
Inventory | 4 | 78,771 | 40,176 | 20,565 | ||||||||
508,455 | 342,054 | 75,197 | ||||||||||
Non-current assets | ||||||||||||
Property, plant and equipment | 5 | 500,508 | 499,632 | 496,824 | ||||||||
Investment in associate | 6 | 136,499 | 226,271 | - | ||||||||
Deferred income tax asset | 8 | 17,326 | - | - | ||||||||
Value added tax receivable | 85,015 | 70,782 | 54,095 | |||||||||
Other non-current financial assets | 3 | 1,767 | 9,251 | 8,015 | ||||||||
Total assets | 1,249,570 | 1,147,990 | 634,131 | |||||||||
Current liabilities | ||||||||||||
Trade and other payables | 42,972 | 35,163 | 50,682 | |||||||||
Taxes payable | 8 | 28,902 | - | - | ||||||||
Warrant liability | 7 | 7,954 | - | - | ||||||||
79,828 | 35,163 | 50,682 | ||||||||||
Non-current liabilities | ||||||||||||
Deferred tax liabilities | 8 | 36,995 | 20,472 | 1,202 | ||||||||
Taxes payable | 2,777 | 3,672 | 3,370 | |||||||||
Close down and restoration provision | 12,521 | 12,671 | 10,340 | |||||||||
Convertible notes | 9 | 122,908 | 116,125 | 107,895 | ||||||||
Derivative liabilities | 9 | 6,817 | 21,735 | 20,728 | ||||||||
Total liabilities | 261,846 | 209,838 | 194,217 | |||||||||
Shareholders' equity | ||||||||||||
Share capital | 10 | 704,264 | 676,651 | 538,700 | ||||||||
Other reserves | 8,167 | 63,257 | 46,966 | |||||||||
Retained earnings | 275,293 | 197,748 | (146,248 | ) | ||||||||
Total shareholders' equity attributable to shareholders of the Company | 987,724 | 937,656 | 439,418 | |||||||||
Non-controlling interest | 5 | - | 496 | 496 | ||||||||
Total shareholders' equity | 1,249,570 | 1,147,990 | 634,131 |
The accompanying notes are an integral part of the consolidated interim financial statements
Approved by the Board of Directors and authorized for issue on November 9, 2011
“John R. Brodie” | “John Smith” | |
John R. Brodie, FCA, Director | John Smith, Director |
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Silver Standard Resources Inc. |
Consolidated Interim Statement of Income (Loss) |
(expressed in thousands of United States dollars, except per share amounts - unaudited) |
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
Note | 2011 | 2010 | 2011 | 2010 | |||||||||||
$ | $ | $ | $ | ||||||||||||
Revenue | 26,152 | 41,557 | 133,476 | 67,179 | |||||||||||
Cost of sales | 11 | (14,660 | ) | (34,131 | ) | (78,287 | ) | (78,020 | ) | ||||||
Income / (Loss) from mine operations | 11,492 | 7,426 | 55,189 | (10,841 | ) | ||||||||||
General and administrative expenses | 11 | (6,748 | ) | (6,251 | ) | (20,348 | ) | (19,617 | ) | ||||||
Exploration and evaluation expenses | (1,678 | ) | (169 | ) | (5,139 | ) | (449 | ) | |||||||
Operating income (loss) | 3,066 | 1,006 | 29,702 | (30,907 | ) | ||||||||||
Gain (loss) on sale of mineral property | 5 | 51,359 | (65 | ) | 50,536 | 13,073 | |||||||||
Gain on partial disposal of associate | 6 | - | - | 39,266 | - | ||||||||||
Interest earned and other finance income | 12 | 449 | 409 | 1,989 | 1,030 | ||||||||||
Interest expense and other finance costs | 12 | (4,329 | ) | (4,265 | ) | (12,866 | ) | (12,041 | ) | ||||||
Other income (expenses) | 13 | 7,388 | (2,025 | ) | 13,798 | 12,352 | |||||||||
Foreign exchange loss | (5,209 | ) | (6,218 | ) | (3,132 | ) | (6,887 | ) | |||||||
Income (loss) before tax | 52,724 | (11,158 | ) | 119,293 | (23,380 | ) | |||||||||
Income tax (expense) recovery | (30,888 | ) | 751 | (41,748 | ) | 211 | |||||||||
Net income (loss) and net income (loss) attributable to shareholders | 21,836 | (10,407 | ) | 77,545 | (23,169 | ) | |||||||||
Weighted average shares outstanding (thousands) | |||||||||||||||
Basic | 80,549 | 78,767 | 80,223 | 77,531 | |||||||||||
Diluted | 80,897 | 78,767 | 80,686 | 77,531 | |||||||||||
Earnings (loss) per share | |||||||||||||||
Basic | $ | 0.27 | $ | (0.13 | ) | $ | 0.97 | $ | (0.30 | ) | |||||
Diluted | $ | 0.27 | $ | (0.13 | ) | $ | 0.96 | $ | (0.30 | ) |
The accompanying notes are an integral part of the consolidated interim financial statements
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Silver Standard Resources Inc. |
Consolidated Interim Statement of Comprehensive Income (Loss) |
(expressed in thousands of United States dollars - unaudited) |
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||
$ | $ | $ | $ | |||||||||
Income (loss) for the period attributable to shareholders | 21,836 | (10,407 | ) | 77,545 | (23,169 | ) | ||||||
Other comprehensive income (loss) | ||||||||||||
Unrealized gain (loss) on marketable securities, net of tax | (2,501 | ) | 5,406 | (10,725 | ) | 4,049 | ||||||
Realized gain on the disposal of marketable securities recycled to net income (loss), net of tax | (4,731 | ) | (628 | ) | (4,731 | ) | (2,645 | ) | ||||
Share of other comprehensive income of associate | (10,066 | ) | - | (4,821 | ) | - | ||||||
Cumulative translation adjustment | (2,711 | ) | 5,566 | (2,210 | ) | 2,061 | ||||||
Other comprehensive income (loss) for the period | (20,009 | ) | 10,344 | (22,487 | ) | 3,465 | ||||||
Total comprehensive income (loss) for the period attributable to shareholders | 1,827 | (63 | ) | 55,058 | (19,704 | ) | ||||||
Non-controlling interests | - | - | - | - | ||||||||
Total comprehensive income (loss) for the period | 1,827 | (63 | ) | 55,058 | (19,704 | ) |
The accompanying notes are an integral part of the consolidated interim financial statements
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Silver Standard Resources Inc. |
Consolidated Interim Statement of Changes in Shareholders’ Equity |
(expressed in thousands of United States dollars - unaudited) |
Note | Common Shares | Other | Retained earnings | Total | Non- | Total | ||||||||||||||||||
Shares | Amount | reserves | (accumulated | attributable to | controlling | shareholders' | ||||||||||||||||||
deficit) | shareholders | Interest | equity | |||||||||||||||||||||
000's | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Balance, January 1, 2010 | 71,965 | 538,700 | 46,966 | (146,248 | ) | 439,418 | 496 | 439,914 | ||||||||||||||||
Issue of ordinary shares, net of costs | 6,729 | 107,758 | - | - | 107,758 | - | 107,758 | |||||||||||||||||
Exercise of stock options | 125 | 2,643 | (812 | ) | - | 1,831 | - | 1,831 | ||||||||||||||||
Share-based compensation | - | - | 5,742 | - | 5,742 | - | 5,742 | |||||||||||||||||
Total comprehensive income (loss) for the period | - | - | 3,465 | (23,169 | ) | (19,704 | ) | - | (19,704 | ) | ||||||||||||||
Balance, at September 30, 2010 | 78,819 | 649,101 | 55,361 | (169,417 | ) | 535,045 | 496 | 535,541 | ||||||||||||||||
Balance, January 1, 2011 | 79,665 | 676,651 | 63,257 | 197,748 | 937,656 | 496 | 938,152 | |||||||||||||||||
Exercise of stock options | 950 | 27,613 | (8,410 | ) | - | 19,203 | - | 19,203 | ||||||||||||||||
Share-based compensation | - | - | 4,003 | - | 4,003 | - | 4,003 | |||||||||||||||||
Transactions with non-controlling interests | 5 | - | - | (28,196 | ) | - | (28,196 | ) | (496 | ) | (28,692 | ) | ||||||||||||
Total comprehensive income (loss) for the period | - | - | (22,487 | ) | 77,545 | 55,058 | - | 55,058 | ||||||||||||||||
Balance, at September 30, 2011 | 80,615 | 704,264 | 8,167 | 275,293 | 987,724 | - | 987,724 |
The accompanying notes are an integral part of the consolidated interim financial statements
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Silver Standard Resources Inc. |
Consolidated Interim Statement of Cash Flows |
(expressed in thousands of United States dollars - unaudited) |
Nine Months Ended September 30 | ||||||
2011 | 2010 | |||||
$ | $ | |||||
Cash flows from operating activities | ||||||
Net income (loss) for the period | 77,545 | (23,169 | ) | |||
Adjustments for: | ||||||
Depletion, depreciation and amortization | 13,645 | 16,504 | ||||
Share-based payments | 4,003 | 5,524 | ||||
Close down and restoration provision | 1,207 | 1,238 | ||||
Gain on sale of mineral property and property plant and equipment | (50,536 | ) | (13,073 | ) | ||
Accretion expense on convertible notes | 6,855 | 6,111 | ||||
Accretion income on convertible debenture | (636 | ) | (630 | ) | ||
Other income | (13,798 | ) | (12,352 | ) | ||
Gain on partial disposal of associate | (39,266 | ) | - | |||
Deferred income tax expense (recovery) | 1,744 | (211 | ) | |||
Foreign exchange loss (gain) | (7,700 | ) | 2,435 | |||
Net changes in non cash working capital items | 19,840 | (1,165 | ) | |||
Cash generated by (used in) operating activities | 12,903 | (18,788 | ) | |||
Cash flows from investing activities | ||||||
Purchase of property, plant and equipment | (20,402 | ) | (42,931 | ) | ||
Mineral property expenditures | (24,531 | ) | (41,416 | ) | ||
Increase in value added tax recoverable | (10,317 | ) | (15,216 | ) | ||
Proceeds from sale of marketable securities | - | 11,015 | ||||
Net proceeds from partial disposal of associate | 112,873 | - | ||||
Net proceeds from sale and acquisition of mineral properties | 33,864 | 6,927 | ||||
Cash generated by (used in) investing activities | 91,487 | (81,621 | ) | |||
Cash flows from financing activities | ||||||
Proceeds from issuance of common shares (net of costs) | - | 107,758 | ||||
Proceeds from exercise of stock options | 19,202 | 1,831 | ||||
Cash generated by financing activities | 19,202 | 109,589 | ||||
Increase in cash and cash equivalents | 123,592 | 9,180 | ||||
Cash and cash equivalents, beginning of period | 232,311 | 26,659 | ||||
Cash and cash equivalents, end of period | 355,903 | 35,839 |
Supplemental cash flow information (note 15)
The accompanying notes are an integral part of the consolidated interim financial statements
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Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
1. | NATURE OF OPERATIONS |
Silver Standard Resources Inc. (the “Company”) is a limited liability company incorporated under the laws of the Province of British Columbia, Canada and its shares are publicly listed on the Toronto Stock Exchange in Canada and the NASDAQ in the United States. The Company together with its subsidiaries (the “Group”) are principally engaged in the exploration, development and production of silver-dominant resource properties located in the Americas. The Company is the ultimate parent of the Group. | |
The Company’s address is Suite 1400, 999 West Hastings Street, Vancouver, British Columbia, V6C 2W2. | |
The Company’s strategic focus is to optimize the production of silver from its Pirquitas mine in Argentina, and to advance other principal development and exploration projects including San Luis in Peru, Diablillos in Argentina, and Pitarrilla, Nazas and San Agustin in Mexico. In addition to its principal projects, the Company holds a geologically- diverse portfolio of other predominantly silver projects in various stages of exploration. | |
2. | SIGNIFICANT ACCOUNTING POLICIES |
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. |
a) | Basis of preparation and adoption of International Financial Reporting Standards |
The Company prepares its financial statements in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) as set out in the Handbook of the Canadian Institute of Chartered Accountants (“CICA Handbook”). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards (“IFRS”), and require publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly, the Company commenced reporting on this basis in its 2011 interim consolidated financial statements. In the financial statements, the term Canadian GAAP refers to Canadian GAAP before the adoption of IFRS.
These interim consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, “Interim Financial Reporting” and IFRS 1, “First-time adoption of International Financial Reporting Standards” using accounting policies consistent with IFRS as issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”). The accounting policies followed in these interim financial statements are the same as those applied in the Company’s interim financial statements for the period ended March 31, 2011. The Company has consistently applied the same accounting policies throughout all periods presented, as if these policies had always been in effect. The impact of the transition to IFRS on the Company’s reported equity as at September 30, 2010 and comprehensive income for the three and nine months ended September 30, 2010 is provided in note 17. This note also includes the nature and effect of significant changes in accounting policies from those used in the Company’s consolidated financial statements for the year ended December 31, 2010.
The policies applied in these interim consolidated financial statements are based on IFRS issued and outstanding as of November 9, 2011, the date the Board of Directors approved the statements. Any subsequent changes to IFRS that are given effect in the Company’s annual consolidated financial statements for the year ending December 31, 2011 could result in restatement of these interim consolidated financial statements, including the transition adjustments recognised on change-over to IFRS.
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Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
2. | SIGNIFICANT ACCOUNTING POLICIES (Cont’d) |
The interim consolidated financial statements should be read in conjunction with the Company’s Canadian GAAP annual financial statements for the year ended December 31, 2010, and the Company’s interim financial statements for the quarter ended March 31, 2011 prepared in accordance with IFRS applicable to interim financial statements. |
b) | Significant accounting judgements and estimates | |
The preparation of financial statements in conformity with IFRS requires the use of judgements and/or estimates that affect the amounts reported and disclosed in the interim financial statements and related notes. There has been no change to the Company’s significant accounting estimates from those disclosed in the unaudited interim consolidated financial statements (note 2) for the three months ended March 31, 2011 except for the impairment assessment and the determination of ore resources and mineral reserves at the Pirquitas mine that are discussed below. | ||
Review of asset carrying values and impairment assessmentIn accordance with the Company’s accounting policy, each asset or cash generating unit is evaluated every reporting period to determine whether there are any indications of impairment. If any such indication exists, a formal estimate of recoverable amount is performed and an impairment loss is recognised to the extent that the carrying amount exceeds the recoverable amount. The recoverable amount of an asset or cash generating group of assets is measured at the higher of fair value less costs to sell and value in use. | ||
The determination of fair value and value in use requires management to make estimates and assumptions about expected production, sales volumes, commodity prices, reserves, operating costs, closure and rehabilitiation costs and future capital expenditures. The estimates and assumptions are subject to risk and uncertainty, hence there is the possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances some or all of the carrying value of the assets may be further impaired or the impairment charge reduced with the impact recorded in the income statement. | ||
Determination of ore reserve and mineral resource estimatesThe Company estimates its ore reserves and mineral resources based on information compiled by Qualified Persons as defined by NI 43-101. Reserves determined in this way are used in the calculation of depreciation, amortization and impairment charges, and for forecasting the timing of the payment of close down and restoration costs. In assessing the life of a mine for accounting purposes, mineral resources are only taken into account where there is a high degree of confidence of economic extraction. There are numerous uncertainties inherent in estimating ore reserves, and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in reserve estimates being revised. Such changes in reserves could impact on depreciation and amortisation rates, asset carrying values and provisions for close down and restoration costs. | ||
As at September 30, 2011, the Company determined that there were impairment indicators for the Company’s wholly-owned operating Pirquitas mine as a result of revised mineral Resources and Reserve estimates. Management performed an impairment assessment to determine fair value based on estimates of discounted future after-tax cash flows expected to be derived from the Pirquitas mine using a discount rate of 9% and forecasted silver prices that reflect market consensus. The Company’s assessment concluded that the carrying value of the Pirquitas mine assets are not impaired at this time. |
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Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
2. | SIGNIFICANT ACCOUNTING POLICIES (Cont’d) |
c) | Future accounting changes |
On June 16, 2011 the IASB issuedPresentation of Items of Other Comprehensive Income(amendments to IAS 1,Presentation of Financial Statements). The amendments require the grouping of items presented in other comprehensive income into items that might be reclassified to profit or loss in subsequent periods and items that will not be reclassified to profit or loss in subsequent periods. The amendments are effective for annual periods beginning on or after July 1, 2012, with full retrospective application. The adoption of this standard will impact the presentation of the statement of other comprehensive income (loss) from the date of adoption; the Company has not determined whether it will adopt the standard early.
In October 2011 the IASB issued IFRIC 20Stripping Costs in the Production Phase of a Mine(“IFRIC 20”). This interpretation provides guidance on the accounting for the costs of stripping activity in the production phase when two benefits accrue to the entity: usable ore that can be used to produce inventory and improved access to further quantities of material that will be mined in future periods. IFRIC 20 is applicable for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.
3. | OTHER FINANCIAL ASSETS |
September 30, 2011 | December 31, 2010 | ||||||||||||
Non-current | Current | Non-current | Current | ||||||||||
$ | $ | $ | $ | ||||||||||
Restricted cash | 1,767 | - | 2,071 | - | |||||||||
Marketable securities | - | 36,403 | - | 33,465 | |||||||||
Convertible debenture receivable(a) | - | 2,815 | 7,180 | 186 | |||||||||
1,767 | 39,218 | 9,251 | 33,651 |
(a) | The Company received a $9,980,000 (C$10,000,000) convertible debenture with a coupon rate of 3% per annum from Aurcana Corporation (“Aurcana”) as part of the consideration received for the sale of the Shafter Silver property in 2008. The convertible debenture was repayable on July 15, 2011. In 2009 the coupon rate on the debenture was revised from 3% per year to 1.5% in the first year and 4% per year thereafter, which resulted in an impairment of $2,002,000 during that year. On March 25, 2011 the terms of the convertible debenture receivable were renegotiated so that Aurcana was required to pay C$7,000,000 on July 15, 2011 and the remaining C$3,000,000 in quarterly instalments until July 15, 2012. The interest rate for the remainder of the arrangement was increased to 9%. This resulted in a recovery of the previous impairment of $2,400,000 which was recorded within other income (expenses) (note 13) and the reclassification of $8,600,000 to current assets. On July 15, 2011, the Company received a payment for C$7,400,000 from Aurcana of which C$7,000,000 was applied to reduce the principal outstanding as per the March 25, 2011 amended terms and C$400,000 was in respect of the interest earned to July 15, 2011. |
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Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
4. | INVENTORY |
Inventory is comprised of the following:
September 30 | December 31 | |||||
2011 | 2010 | |||||
$ | $ | |||||
Finished goods | 31,714 | 6,919 | ||||
Stockpiled ore | 34,536 | 26,327 | ||||
Materials and supplies | 12,521 | 6,930 | ||||
78,771 | 40,176 |
5. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment comprises the following:
Period ended September 30, 2011 | ||||||||||||||||
Plant and | Producing | Assets | Exploration and | Total | ||||||||||||
equipment | properties | under | development | |||||||||||||
construction | expenditure(a) | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||
Cost | ||||||||||||||||
Balance, January 1, 2011 | 263,305 | 76,209 | 8,695 | 190,909 | 539,118 | |||||||||||
Additions | 1,989 | 102 | 18,554 | 25,501 | 46,146 | |||||||||||
Disposals | (3,542 | ) | (256 | ) | - | (19,630 | ) | (23,428 | ) | |||||||
Costs written off | - | - | - | (4,514 | ) | (4,514 | ) | |||||||||
Transfers | 15,717 | 224 | (15,941 | ) | - | - | ||||||||||
Balance, end of period | 277,469 | 76,279 | 11,308 | 192,266 | 557,322 | |||||||||||
Accumulated depreciation | ||||||||||||||||
Balance, January 1, 2011 | (35,450 | ) | (4,036 | ) | - | - | (39,486 | ) | ||||||||
Charge for the year | (18,281 | ) | (2,360 | ) | - | - | (20,641 | ) | ||||||||
Disposals | 3,313 | - | - | - | 3,313 | |||||||||||
Balance, end of period | (50,418 | ) | (6,396 | ) | - | - | (56,814 | ) | ||||||||
Net book value at September 30, 2011 | 227,051 | 69,883 | 11,308 | 192,266 | 500,508 |
No items of property, plant and equipment have been pledged as security for liabilities.
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Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
5. | PROPERTY, PLANT AND EQUIPMENT (Cont’d) |
Year ended December 31, 2010 | ||||||||||||||||
Plant and | Producing | Assets | Exploration and | Total | ||||||||||||
equipment | properties | under | development | |||||||||||||
construction | expenditure (a) | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||
Cost | ||||||||||||||||
Balance, January 1, 2010 | 250,085 | 76,841 | 8,015 | 179,445 | 514,386 | |||||||||||
Additions | 7,644 | 5,017 | 15,806 | 55,942 | 84,409 | |||||||||||
Disposals | (8,455 | ) | (5,649 | ) | (1,095 | ) | (44,478 | ) | (59,677 | ) | ||||||
Transfers | 14,031 | - | (14,031 | ) | - | - | ||||||||||
Balance, end of period | 263,305 | 76,209 | 8,695 | 190,909 | 539,118 | |||||||||||
Accumulated depreciation | ||||||||||||||||
Balance, January 1, 2010 | (16,944 | ) | (618 | ) | - | - | (17,562 | ) | ||||||||
Charge for the year | (19,370 | ) | (3,418 | ) | - | - | (22,788 | ) | ||||||||
Disposals | 864 | - | - | - | 864 | |||||||||||
Balance, end of period | (35,450 | ) | (4,036 | ) | - | - | (39,486 | ) | ||||||||
Net book value at December 31, 2010 | 227,855 | 72,173 | 8,695 | 190,909 | 499,632 |
a) | Exploration and development expenditure by property |
September 30, 2011 | December 31, 2010 | ||||||||||||
Acquisition | Exploration | Total | Total | ||||||||||
costs | costs | ||||||||||||
$ | $ | $ | $ | ||||||||||
Exploration projects | |||||||||||||
Bowdens, Australia(i) | - | - | - | 19,685 | |||||||||
Challacollo, Chile | 2,990 | 5,504 | 8,494 | 9,206 | |||||||||
San Agustin, Mexico | 101 | 2,033 | 2,134 | 1,654 | |||||||||
Veta Colorada, Mexico | 3,688 | 1,039 | 4,727 | 4,845 | |||||||||
Nazas, Mexico(ii) | 565 | 349 | 914 | 1,423 | |||||||||
Berenguela, Peru | 10,645 | 6,111 | 16,756 | 16,480 | |||||||||
Candelaria, United States | 2,434 | 3,812 | 6,246 | 6,022 | |||||||||
Maverick Springs, United States | 565 | 2,074 | 2,639 | 2,628 | |||||||||
Other exploration projects | 2,772 | 3,270 | 6,042 | 5,743 | |||||||||
Development projects | |||||||||||||
Diablillos, Argentina | 4,516 | 16,179 | 20,695 | 18,765 | |||||||||
Pitarrilla, Mexico | 17,745 | 74,346 | 92,091 | 77,796 | |||||||||
San Luis, Peru(iii) | 661 | 30,867 | 31,528 | 26,662 | |||||||||
46,682 | 145,584 | 192,266 | 190,909 |
(i) | On September 23, 2011, the Company completed the sale of its 100% interest in the Bowdens project located in Australia to Kingsgate Consolidated Limited (“Kingsgate”). Under the terms of the agreement, the Company received total consideration of $70,473,000. The consideration received comprised cash of $44,908,000 of which $9,908,000 is payable in two equal installments on December 31, 2011 and June 30, 2012, and 3,440,367 common shares of Kingsgate with a fair value of $25,565,000. The total gain recorded on the sale of this mineral property was $51,359,000 before tax expense of $15,306,000. |
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Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
5. | PROPERTY, PLANT AND EQUIPMENT (Cont’d) |
(ii) | During the nine months ended September 30, 2011 the Company elected not to continue its option on the Navidad claims at the Nazas property, which is at the centre of the Nazas project. As a result, the Company wrote off accumulated costs of $4,514,000 which was recorded in other income (expense) (note 13). | |
(iii) | On July 28, 2011, the Company completed the 100% acquisition of the San Luis property in Peru (70% interest held at December 31, 2010) from Esperanza Resources Corp. (“Esperanza”). The Company paid consideration of $17,865,000 in cash and transferred to Esperanza the 6.459 million shares of Esperanza that it owned. In addition, under the terms of the agreement the Company will provide a 1% net smelter return royalty (“NSR”) on future production. The total fair value of the consideration paid to acquire the 30% interest held by Esperanza was $28,692,000, which includes transaction costs of $306,000. The carrying amount of the non-controlling interest in the San Luis project on the date of acquisition was $496,000. This transaction did not result in a change of control and therefore the Company recognised a decrease in non-controlling interest of $496,000 and a decrease in other reserves of $28,196,000. |
In February 2010 the Company completed the sale of its 100% interest in the Silvertip property located in British Columbia, Canada to Silvercorp Metals Inc. (“Silvercorp”). Under the terms of the agreement, Silvercorp paid total consideration of $14,957,000, comprising cash of $7,125,000 and 1,200,000 common shares of Silvercorp with a fair value of $7,832,000, for an after tax gain of $13,073,000.
6. | INVESTMENT IN ASSOCIATE |
September 30, 2011 | December 31, 2010 | ||||||||
$ | $ | ||||||||
Pretium Resources Inc. | Common shares | 136,499 | 187,202 | ||||||
Convertible note | - | 39,069 | |||||||
136,499 | 226,271 |
On December 21, 2010 the Company completed the sale of its 100% interest in the Snowfield and Brucejack properties located in British Columbia, Canada, to Pretium Resources Inc. (“Pretium”). Total consideration was $442,260,000 (C$450,000,000) which comprised 32,537,833 common shares of Pretium, with a fair value of $191,869,000, cash of $211,322,000 (before underwriters’ fees of $12,427,000), and a non-interest bearing promissory note in the principal amount of $39,069,000.
As at December 31, 2010 the convertible note was included in carrying value of the investment in Pretium as this most accurately reflected the substance of the arrangement. The note was partially repaid on January 6, 2011 whereby the Company received proceeds of $18,083,000 and on January 31, 2011 the balance of the note $20,986,000 was converted into 3,625,500 common shares of Pretium with a fair value of $22,946,000 resulting in a gain on settlement of $1,092,000. Total transaction costs of $1,631,000 were expensed in the period, and together with the gain on settlement of the note these were presented within the gain (loss) on sale of mineral property in the income statement as they are all interrelated with the original sale transaction.
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Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
6. | INVESTMENT IN ASSOCIATE (Cont’d) |
On April 8, 2011 the Company sold 11.5 million units in relation to the shares of Pretium it owns. Each unit contained one common share of Pretium and half of a warrant to acquire an additional common share of Pretium for C$12.50 within 12 months and was priced at C$10.00. The Company received cash proceeds of $120,117,000 before transaction costs of $7,244,000. In the nine months ended September 30, 2011, the Company recognized a gain on partial disposal of associate of $39,266,000 (after tax gain of $34,687,000). The warrants issued are recognized at fair value and recorded as a liability (note 7). Following the closing of the secondary offering the Company’s ownership interest in Pretium was approximately 28.86%. The investment is accounted for as an equity investment. | |
On July 15, 2011, Pretium completed a 1,390,000 flow-through common shares private placement. The Company did not participate in this placement which resulted in a dilution of the Company’s interest to 28.39% and a dilution gain of $1,803,000 which was recorded in other income (expenses) (note 13). | |
The carrying amount of the investment in associate represents the fair value at initial recognition, plus the Company’s share of comprehensive income or loss. Share of loss of associate for the three and nine months ended September 30, 2011 was $624,000 (2010: $nil) and $4,616,000 (2010: $nil) respectively. | |
7. | WARRANT LIABILITY |
On April 8, 2011 as part of the unit offering (note 6) the Company issued 5,750,000 common share purchase warrants of Pretium shares owned by the Company. Each warrant is exercisable at a price of C$12.50 for a period of 12 months. The Company initially recognized a warrant liability of $7,500,000, transaction costs of $453,000 were expensed, and this liability is recorded at fair value through profit and loss (“FVTPL”). For the three and nine months ended September 30, 2011, the Company recorded an unrealized loss upon re-measurement of the liability of $3,154,000 and $1,094,000 respectively. | |
8. | CURRENT AND DEFERRED INCOME TAX |
Current tax payable of $28,902,000 as at September 30, 2011 includes an estimate of $15,126,000 for taxes payable from the sale of the Bowdens project (note 5). Additional taxes payable result from the receipt of the Aurcana convertible debenture (note 3) and from the disposal of the investment in associate and the conversion of the convertible notes into common shares of Pretium (note 6). | |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. | |
The deferred income tax asset of $17,326,000 as at September 30, 2011 relates to property, plant and equipment and has been recognized only to the extent management believe it is probable that future taxable income will be available against which the temporary differences can be utilized. |
14 | P a g e
Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
9. | CONVERTIBLE NOTES |
In February 2008, the Company sold $138,000,000 in senior convertible unsecured notes (“Notes”) for net proceeds of $132,754,000 after payment of commissions and expenses related to the offering. The unsecured Notes mature on March 1, 2028 and bear an interest rate of 4.5% per annum, payable semi-annually. At initial recognition the value of the notes was allocated between the debt and the derivative components. The fair value of the debt portion was $99,144,000 and the fair value of the derivative was $38,856,000 upon inception. The debt component continues to be accreted to its maturity value using the effective interest rate method. | |
For the three and nine months ended September 30, 2011, the Company recorded an unrealized gain (loss) on the derivative of $8,584,000 (2010: ($2,704,800)) and $14,918,000 (2010: $9,645,000) respectively. The following assumptions were used to obtain the valuation: |
September 30 | ||
2011 | ||
Expected dividend yield (%) | 0% | |
Average risk-free interest rate (%) | 2.66 | |
Expected life (years) | 17 | |
Expected volatility (%) | 72.5 | |
Implied yield on straight debt (%) | 8.41 |
10. | SHARE CAPITAL AND SHARE-BASED COMPENSATION |
a) | Share capital |
During the nine months ended September 30, 2010, the Company closed a public share offering of 6,729,000 common shares at a price of $17.00 per share, for aggregate gross proceeds of $114,389,000. After deducting underwriting fees and estimated offering expenses of $6,631,000, net proceeds were approximately $107,758,000.
b) | Share-based compensation |
The Company has an incentive plan, approved by the Company’s shareholders at its annual general meeting held on May 14, 2008 and amended on May 11, 2011, under which options to purchase common shares may be granted to directors, officers, employees and others at the discretion of the Board of Directors. The plan provides for the issuance of incentive options to acquire up to a total of 8.5% of the issued and outstanding common shares of the company. The exercise price of each option is set at the date of grant and shall not be less than the closing market price of the company’s stock on the award date.
The options can be granted for a maximum term of 7 years with vesting provisions determined by the Board of Directors. Currently, the vesting periods range up to three years. New shares from treasury are issued on the exercise of stock options.
The Company also has plans for deferred share units (“DSUs”), restricted share units (“RSUs”), and performance share units (“PSUs”).
15 | P a g e
Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
10. | SHARE CAPITAL AND SHARE-BASED COMPENSATION (Cont’d) |
During the nine months ended September 30, 2011, 418,500 options were granted to employees exercisable over a 7 year period at a weighted average exercise price of C$26.97 and average fair value of C$12.30. The option valuations were based on an average expected option life of 4.6 years, a risk free interest rate of 2.4%, a dividend yield of nil and an expected volatility of 55%. In addition, 949,891 options were exercised at a weighted average exercise price of C$19.59. During the nine months ended September 30, 2010, 585,000 options were granted to an employee exercisable over a 10 year period at a strike price of C$17.52 and average fair value of C$9.21. | |
During the nine months ended September 30, 2011, 14,927 (2010: 29,498) DSUs were granted to non-executive directors, 77,800 RSUs were granted to employees, and 141,800 PSUs to senior executives. A total of 6,500 RSUs and 32,100 PSUs were forfeited. | |
The DSUs vest immediately and are redeemable in cash on the date the non-executive director ceases to be a director of the company. At September 30, 2011, there were 92,065 DSUs (2010: 80,461) outstanding with a fair value of $1,693,000 (2010: $1,602,000). | |
The RSUs vest over a three year period, and are cash-settled immediately upon vesting. At September 30, 2011, there were 71,300 RSUs outstanding with a fair value of C$19.27. The PSUs vest after a performance period of two to three years; the vesting of the award is based on the Company’s total shareholder return in comparison to its peer group, and awards range from 0% to 200% of initial PSUs granted. At September 30, 2011, there were 109,700 PSUs outstanding with fair values ranging from C$14.26 to C$16.43. | |
The share-based compensation expense, including all equity and cash-settled arrangements, recorded for the nine months period ended September 30, 2011 was $4,028,000 (September 30, 2010: $5,983,000) of which $nil (September 30, 2010: $207,000) was capitalized to exploration and development expenditures. | |
11. | OPERATING COSTS BY NATURE |
a) | Cost of sales |
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
$ | $ | $ | $ | ||||||||||
Cost of inventory | 11,532 | 25,013 | 53,436 | 56,067 | |||||||||
Depletion, depreciation and amortization | 2,410 | 5,554 | 13,439 | 16,291 | |||||||||
Export duties(1) | 718 | 3,564 | 11,412 | 5,662 | |||||||||
14,660 | 34,131 | 78,287 | 78,020 |
(1) | The Pirquitas mine has a fiscal stability agreement with the government of Argentina dating from 1998. In 2002, the government of Argentina implemented an export duty on concentrates that did not apply to companies with pre- existing fiscal stability agreements. In December 2007 the National Customs Authority of Argentina levied an export duty of approximately 10% on concentrates for projects with fiscal stability agreements predating 2002. The Company has been advised that the project is subject to this export duty despite rights under the fiscal stability agreement from 1998. The legality of the export duty has been challenged and is currently under review by the court in Argentina. In July 2010, the Company filed a claim in the provincial Argentina court for repayment of export duties paid to date and for an order to cease payment of the export duty until the matter is decided by the court. An order was granted effective September 29, 2010 to cease payment of the export duty pending the decision of the courts, and in April 2011 a government appeal against this order was denied. |
16 | P a g e
Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
11. | OPERATING COSTS BY NATURE (Cont’d) |
As of September 30, 2011 the Pirquitas mine has paid $6,646,000 in duties, however despite the order to cease payment the Company has continued to accrue duties in full until the outcome of the claim is known with certainty. At September 30, 2011 the accrual totalled $12,289,000, and $9,449,000 has been included in cost of sales for the nine months ended September 30, 2011. If these duties are recovered the benefit will be recognized in the statement of earnings for the full amount in the period recovery becomes virtually certain.
b) | General and administrative |
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
$ | $ | $ | $ | ||||||||||
Salaries and benefits | 3,074 | 2,110 | 8,609 | 7,466 | |||||||||
Share-based compensation | 619 | 2,165 | 4,028 | 5,776 | |||||||||
Travelling expense | 362 | 352 | 1,216 | 709 | |||||||||
Consulting and professional fees | 503 | 353 | 1,333 | 1,960 | |||||||||
Insurance expense | 228 | 245 | 630 | 580 | |||||||||
Depreciation and amortization | 80 | 70 | 206 | 213 | |||||||||
Other expenses | 1,882 | 956 | 4,326 | 2,913 | |||||||||
6,748 | 6,251 | 20,348 | 19,617 |
12. | FINANCE INCOME AND EXPENSES |
a) | Interest earned and other finance income |
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
$ | $ | $ | $ | ||||||||||
Interest earned | 236 | 192 | 1,353 | 400 | |||||||||
Accretion earned on convertible debenture receivable | 213 | 217 | 636 | 630 | |||||||||
Total interest earned and other finance income | 449 | 409 | 1,989 | 1,030 |
b) | Interest expense and other finance costs |
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
$ | $ | $ | $ | ||||||||||
Interest expense on convertible notes | (1,565 | ) | (1,566 | ) | (4,644 | ) | (4,645 | ) | |||||
Accretion expense on convertible notes | (2,346 | ) | (2,113 | ) | (6,855 | ) | (6,111 | ) | |||||
Accretion of close down and restoration provision | (399 | ) | (532 | ) | (1,207 | ) | (1,231 | ) | |||||
Other interest expense | (19 | ) | (54 | ) | (160 | ) | (54 | ) | |||||
Total interest expense and other finance costs | (4,329 | ) | (4,265 | ) | (12,866 | ) | (12,041 | ) |
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Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
13. | OTHER INCOME (EXPENSES) |
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
$ | $ | $ | $ | ||||||||||
Reversal of impairment of convertible debenture | - | - | 2,400 | - | |||||||||
Unrealized gain (loss) on financial instruments at FVTPL(1) | 5,362 | (2,766 | ) | 13,477 | 9,237 | ||||||||
Gain on sale of marketable securities | 5,453 | 741 | 5,453 | 3,115 | |||||||||
Write-off of mineral property costs | (4,514 | ) | - | (4,514 | ) | - | |||||||
Gain on dilution of associate | 1,803 | - | 1,803 | - | |||||||||
Share of loss of associate | (624 | ) | - | (4,616 | ) | - | |||||||
Miscellaneous expense | (92 | ) | - | (205 | ) | - | |||||||
7,388 | (2,025 | ) | 13,798 | 12,352 |
(1) | Financial instruments held at FVTPL include the conversion option of the convertible debenture receivable (note 3), the warrant liability (note 7) and the share purchase option embedded in the convertible notes (note 9). |
14. | OPERATING SEGMENTS |
The Company has identifed its operating segments based on the information used by the President and Chief Executive Officer (who is considered to be the chief operating decision maker (“CODM”)) to manage the business. The Company primarily manages its business by looking at individual extractive projects and typically segregates them between production, development and exploration. For reporting purposes all exploration and development projects have been aggregated into a single reportable segment ‘exploration and development’ because they all have similar characteristics and none exceed the quantitative thresholds for individual disclosure. The only production property, Pirquitas, is considered a single operating segment which derives its revenues from the sale of silver and zinc concentrates. The corporate division only earns income that is considered incidental to the activities of the Company and therefore does not meet the definition of an operating segment.
The following reporting segments have been identified:
Pirquitas mine
Exploration and development properties
18 | P a g e
Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
14. | OPERATING SEGMENTS (Cont’d) |
The following is a summary of the carrying amounts of income or loss, and segment assets and liabilities by operating segment:
Pirquitas Mine | Exploration and | Other | Total | ||||||||||
Development | reconciling | ||||||||||||
Properties | items(i,ii) | ||||||||||||
Three months ended September 30, 2011 | |||||||||||||
$ | $ | $ | $ | ||||||||||
Revenue from external customers | 26,152 | - | - | 26,152 | |||||||||
Cost of inventory and export duties | (12,250 | ) | - | - | (12,250 | ) | |||||||
Depletion, depreciation and amortization | (2,410 | ) | - | - | (2,410 | ) | |||||||
Cost of sales | (14,660 | ) | - | - | (14,660 | ) | |||||||
Income from mine operations | 11,492 | - | - | 11,492 | |||||||||
Operating income (loss) | 10,249 | (333 | ) | (6,850 | ) | 3,066 | |||||||
Income (loss) before income tax | 7,510 | 46,552 | (1,338 | ) | 52,724 | ||||||||
Interest income earned and other finance income | - | - | 449 | 449 | |||||||||
Interest expense and other finance costs | (322 | ) | (29 | ) | (3,978 | ) | (4,329 | ) | |||||
Write-off of mineral property costs | - | (4,514 | ) | - | (4,514 | ) | |||||||
Income tax recovery (expense) | (7,447 | ) | (17,438 | ) | (6,003 | ) | (30,888 | ) | |||||
As at September 30, 2011 | |||||||||||||
Total assets | 516,208 | 234,937 | 498,425 | 1,249,570 | |||||||||
Non-current assets | 409,175 | 194,865 | 137,075 | 741,115 | |||||||||
Total liabilities | (65,907 | ) | (23,737 | ) | (172,202 | ) | (261,846 | ) |
Pirquitas Mine | Exploration and | Other | Total | ||||||||||
Development | reconciling | ||||||||||||
Three months ended September 30, 2010 | Properties | items(i) | |||||||||||
$ | $ | $ | $ | ||||||||||
Revenue from external customers | 41,557 | - | - | 41,557 | |||||||||
Cost of inventory and export duties | (28,577 | ) | - | - | (28,577 | ) | |||||||
Depletion, depreciation and amortization | (5,554 | ) | - | - | (5,554 | ) | |||||||
Cost of sales | (34,131 | ) | - | - | (34,131 | ) | |||||||
Income from mine operations | 7,426 | - | - | 7,426 | |||||||||
Operating income (loss) | 7,499 | (137 | ) | (6,356 | ) | 1,006 | |||||||
Income (loss) before income tax | 3,651 | (97 | ) | (14,712 | ) | (11,158 | ) | ||||||
Interest income earned and other finance income | - | - | 409 | 409 | |||||||||
Interest expense and other finance costs | (237 | ) | (84 | ) | (3,944 | ) | (4,265 | ) | |||||
Income tax recovery | - | - | 751 | 751 |
19 | P a g e
Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
14. | OPERATING SEGMENTS (Cont’d) |
Pirquitas Mine | Exploration and | Other | Total | ||||||||||
Development | reconciling | ||||||||||||
Nine months ended September 30, 2011 | Properties | items(i,ii) | |||||||||||
$ | $ | $ | $ | ||||||||||
Revenue from external customers | 133,476 | - | - | 133,476 | |||||||||
Cost of inventory and export duties | (64,848 | ) | - | (64,848 | ) | ||||||||
Depletion, depreciation and amortization | (13,439 | ) | - | (13,439 | ) | ||||||||
Cost of sales | (78,287 | ) | - | - | (78,287 | ) | |||||||
Income from mine operations | 55,189 | - | - | 55,189 | |||||||||
Operating income (loss) | 51,190 | (912 | ) | (20,576 | ) | 29,702 | |||||||
Income (loss) before income tax | 44,652 | 45,912 | 28,729 | 119,293 | |||||||||
Interest income earned and other finance income | - | - | 1,989 | 1,989 | |||||||||
Interest expense and other finance costs | (1,077 | ) | (87 | ) | (11,702 | ) | (12,866 | ) | |||||
Write-off of mineral property costs | - | (4,514 | ) | - | (4,514 | ) | |||||||
Income tax recovery (expense) | (16,741 | ) | (17,193 | ) | (7,814 | ) | (41,748 | ) |
Pirquitas Mine | Exploration and | Other | Total | ||||||||||
Development | reconciling | ||||||||||||
Nine months ended September 30, 2010 | Properties | items(i) | |||||||||||
$ | $ | $ | $ | ||||||||||
Revenue from external customers | 67,179 | - | - | 67,179 | |||||||||
Cost of inventory and export duties | (61,729 | ) | - | - | (61,729 | ) | |||||||
Depletion, depreciation and amortization | (16,291 | ) | - | - | (16,291 | ) | |||||||
Cost of sales | (78,020 | ) | - | - | (78,020 | ) | |||||||
Loss from mine operations | (10,841 | ) | - | - | (10,841 | ) | |||||||
Operating loss | (10,841 | ) | (297 | ) | (19,769 | ) | (30,907 | ) | |||||
Income (loss) before income tax | (18,317 | ) | (451 | ) | (4,612 | ) | (23,380 | ) | |||||
Interest income earned and other finance income | - | - | 1,030 | 1,030 | |||||||||
Interest expense and other finance costs | (858 | ) | (162 | ) | (11,021 | ) | (12,041 | ) | |||||
Income tax recovery (expense) | - | 758 | (547 | ) | 211 |
(i) | Other reconciling items refer to items that are not reported as part of segment performance as they are managed on a group basis. | |
(ii) | Includes the equity accounted investment in Pretium. |
20 | P a g e
Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
14. | OPERATING SEGMENTS (Cont’d) |
Segment revenue by product
September 30, 2011 | September 30, 2010 | ||||||
% | % | ||||||
Silver | 94 | 100 | |||||
Zinc | 6 | - |
Segment revenue by location of customer
100% of revenues were sold to a single customer which is based in Switzerland, and is the customer of the Pirquitas mine segment.
Non-current assets by location
September 30, 2011 | December 31, 2010 | ||||||
$ | $ | ||||||
Canada | 138,395 | 235,563 | |||||
Argentina | 430,352 | 397,447 | |||||
Mexico | 104,195 | 89,540 | |||||
Peru | 48,620 | 43,456 | |||||
United States | 10,717 | 10,419 | |||||
Australia | - | 19,970 | |||||
Chile | 8,836 | 9,541 | |||||
Total | 741,115 | 805,936 |
15. | SUPPLEMENTAL CASH FLOW INFORMATION |
During the three and nine months ended September 30, 2011 and 2010 the Company made the following cash payments for interest and taxes:
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
$ | $ | $ | $ | ||||||||||
Interest paid | 3,105 | 3,105 | 6,210 | 6,210 | |||||||||
Taxes paid | 1,510 | - | 14,195 | - | |||||||||
4,615 | 3,105 | 20,405 | 6,210 |
16. | RELATED PARTY TRANSACTIONS |
During the period ended September 30, 2011, the Company recorded administrative, technical services and expense reimbursements of $179,000 (December 31, 2010 - $19,000) from companies related by common directors or officers including our equity accounted investee. At September 30, 2011, trade and other receivables include $257,000 (December 31, 2010 - $2,000) and trade and other payables include $329,000 (December 31, 2010 - $nil) with these related parties. Any amounts due from and payable to related parties are non-interest bearing and without specific terms of repayment. Any transactions for expense reimbursement with related parties are under normal business terms.
21 | P a g e
Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
17. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS |
The accounting policies set out in these interim consolidated financial statements have been applied for the three and nine months ended September 30, 2011 and 2010.
The Company’s transition from Canadian GAAP to IFRS was on January 1, 2010 and the effect of this adoption on the Company’s opening IFRS balance sheet as at January 1, 2010, statement of financial position as at December 31, 2010 and income statement for the period ended December 31, 2010 is included in the notes to the unaudited interim financial statements for the three months ended March 31, 2011. The impact of the IFRS adoption on the previously reported Company’s shareholders’ equity position as at September 30, 2010 and comprehensive loss for the three and nine months ended September 30, 2010 is set out in the following tables and accompanying notes;
a) | Reconciliation of shareholders’ equity as at September 30, 2010: |
September 30 | |||||||
2010 | |||||||
$ | |||||||
Total shareholders' equity reported under Canadian GAAP | 624,460 | ||||||
Increase (decrease) net of tax in respect of: | |||||||
Valuation of Pirquitas mine | (i) | (80,868 | ) | ||||
Share-based compensation | (iii) | (52 | ) | ||||
Functional currency | (iv) | 6,667 | |||||
Convertible notes | (v) | (7,945 | ) | ||||
Deferred tax liabilities | (vi) | (6,721 | ) | ||||
Total shareholders' equity reported under IFRS | 535,541 |
b) | Reconciliation of comprehensive income (loss) for the three and nine months ended September 30, 2010: |
3 months ended | 9 months ended | |||||||||
September 30 | September 30 | |||||||||
2010 | 2010 | |||||||||
$ | $ | |||||||||
Total comprehensive loss as reported under Canadian GAAP | (2,722 | ) | (28,932 | ) | ||||||
Increase (decrease) net of tax in respect of: | ||||||||||
Valuation of Pirquitas mine | (i) | 1,040 | 3,150 | |||||||
Share-based compensation | (iii) | 238 | 824 | |||||||
Functional currency | (iv) | 2,973 | 1,634 | |||||||
Convertible notes | (v) | (2,892 | ) | 9,140 | ||||||
Deferred tax liabilities | (vi) | 1,300 | (5,520 | ) | ||||||
Total comprehensive loss as reported under IFRS | (63 | ) | (19,704 | ) |
22 | P a g e
Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
17. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Cont’d) |
c) | Explanations of the key differences between Canadian GAAP and IFRS giving rise to adjustments in the reconciliations | |
(i) Valuation of the Pirquitas mine | ||
The Company elected under IFRS 1 to deem the fair value of the Pirquitas mine as cost at January 1, 2010. The fair value of the mine was determined to be approximately US$317 million following a discounted cash flow analysis using a discount rate of 10%. The resulting difference between the carrying value under Canadian GAAP and the deemed cost was charged to accumulated deficit. | ||
In addition to the adjustment to the carrying value of the Pirquitas mine additional adjustments following the transition to IFRS were recorded. These relate to close down and restoration provisions for $720,000, capitalized interest $797,000 and deferred tax liabilities $20,262,000. The impacts of these adjustments on the carrying value of the Pirquitas mine at January 1, 2010 are detailed below: |
Canadian GAAP | Transition to IFRS adjustment | IFRS | |||||||||||||||||
Fair value as | Close down and | Capitalised | |||||||||||||||||
deemed cost of | restoration | borrowing | Deferred | ||||||||||||||||
January 1, 2010 | Pirquitas | provision | costs | taxes | January 1, 2010 | ||||||||||||||
(i) | (ii) | (vi) | (vii) | ||||||||||||||||
$ | $ | $ | $ | $ | $ | ||||||||||||||
Producing properties | 180,018 | (84,018 | ) | 313 | 797 | (20,262 | ) | 76,848 | |||||||||||
Construction in progress | 8,015 | 8,015 | |||||||||||||||||
Mining equipment | 12,478 | 12,478 | |||||||||||||||||
Plant and equipment | 219,305 | 407 | 219,712 | ||||||||||||||||
Other | 222 | 222 | |||||||||||||||||
Total | 420,038 | (84,018 | ) | 720 | 797 | (20,262 | ) | 317,275 |
The lower carrying value of the producing property balance under IFRS also impacts the periodic depletion expense charged. Depletion is charged using the percentage of completion method based on the tonnage of ore mined as a ratio to the total ore expected to be mined over the life of the mine. The lower cost base of the asset has reduced depletion for the three and nine months ended September 30, 2010;
Three months ended September 30 | Nine months ended September 30 | ||||||
2010 | 2010 | ||||||
Cost of Sales | 1,040 | 3,150 |
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Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
17. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Cont’d) |
(ii) Close down and restoration provision
Under Canadian GAAP asset retirement obligations for close down and decommissioning costs are measured at the initial date of recognition using a discounted cash flow analysis with the Company’s credit-adjusted risk free interest rate. The liability (and corresponding asset) is only re-measured in the event of changes in the amount or timing of cash flows required to settle the obligation.
IFRS (IAS 37) requires initial measurement of the obligation using a pre-tax discount rate that reflects the risk associated with the liability; furthermore the liability is required to be re-measured at each reporting date.
The Company elected to use the IFRS 1 transition exemption from full retrospective adjustment that would have been required under IFRIC 1.
For the three and nine month period ended September 30, 2010 no adjustment was recorded as it was insignificant.
(iii) Share-based compensation
The Company’s accounting policy for share based compensation under Canadian GAAP was broadly consistent with the requirements of IFRS, however, under IFRS 2 the Company is required to make adjustments to the compensation expense recorded for estimates of non-market vesting conditions, such as options that are not expected to vest i.e. forfeited. The initial estimation of non-market vesting conditions is not mandatory under Canadian GAAP. As a result the Company’s accounting policy choice was to make adjustments only when events occurred so that non-market vesting conditions were not met, such as when options were forfeited. The Company elected to apply the IFRS 1 transition exemption, whereby adjustments were only required to be made to options that had been granted after November 7, 2002 and had not vested at the date of transition to IFRS.
The Company estimated the amount of options that would not vest by using historical data, for the three and nine months ended September 30, 2010 the impact was a reduction to stock based compensation of $249,000 and $876,000 of which $238,000 and $824,000 was credited to the income statement and the balance of $11,000 and $52,000 was credited to mineral properties.
(iv) Functional currency and cumulative translation adjustment account
Under Canadian GAAP the Company determines whether a subsidiary is an integrated operation or a self-sustaining entity which determines the method of translation into the presentation currency of the Group. IFRS requires that an entity determine the functional currency of each subsidiary individually, prior to consolidation into the Group’s presentation currency.
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Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
17. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Cont’d) |
The Company determined that certain subsidiaries had a functional currency other than the US dollar, which under Canadian GAAP had been classified as being integrated operations. Those subsidiaries under Canadian GAAP were consolidated using the temporal method (i.e. monetary assets and liabilities translated at the current rate and non-monetary assets and liabilities at historic exchange rates with gains or losses being charged to income), whereas under IFRS those entities with non US dollar functional currencies are translated into US dollars using the current rate method (whereby all assets and liabilities are translated using the reporting date exchange rates with any gains or losses being recorded in equity).
For the three and nine month period ended September 30, 2010 the impact was an increase in mineral properties of $2,973,000 and $1,634,000.
(v) Convertible notes
The Company issued US$138 million of convertible notes (“Notes”) in 2008. Under Canadian GAAP the Company accounted for the Notes as a split instrument allocating the value of the notes between the debt and equity components. The debt was valued using a discounted cash flow model, with the residual balance being allocated to equity. At initial recognition the transaction costs were allocated to the debt and equity components pro rata. The debt portion was designated as an ‘other liability’, those transaction costs allocated to the debt were expensed, those allocated to equity were treated as a reduction of the value of the equity component. Subsequently, the difference in carrying value of the debt and its final redemption amount was recognised as accretion expense in the income statement over the period to maturity using the effective interest rate method.
There are two GAAP differences in relation to this instrument. Firstly, under Canadian GAAP the conversion feature is considered to be an equity instrument, but under IFRS it is considered as an embedded derivative liability due to the fact that if the holder elects to exercise their conversion option, the instrument can be cash-settled at the option of the Company. Secondly, under Canadian GAAP the debt component of the instrument was designated as an ‘other liability’, and it was similarly designated under IFRS. However, under IFRS, transaction costs relating to an instrument that is designated as an ‘other liability’ must be netted against the carrying value of the instrument, whereas under Canadian GAAP the Company made an accounting policy election to expense those costs.
At initial recognition under IFRS, similar to Canadian GAAP, the fair value of the debt component and conversion option were estimated but under IFRS the conversion option was recognised as a derivative liability. Transaction costs incurred were allocated pro rata to the two components, again consistent with Canadian GAAP. For IFRS the debt has been designated as an ‘other liability’, which means that the instrument is recorded at amortized cost, net of transaction costs. Subsequently, the accounting is the same as Canadian GAAP whereby the instrument is accreted over an expected life of 5 years using the effective interest method.
The accretion expense each reporting period under IFRS is greater than under Canadian GAAP due to the lower value attributed to the debt portion upon initial recognition, due to the fact that transaction costs are netted against the carrying value of the debt. Differences in accretion expense have been charged to accumulated deficit at the date of transition.
Under IFRS the derivative liability is recognised as FVTPL so all transaction costs were expensed and the instrument is re-measured at each reporting period using a binomial tree approach.
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Silver Standard Resources Inc. |
Notes to Consolidated Interim Financial Statements |
For the three and nine months ended September 30, 2011 |
(tabular amounts expressed in thousands of United States dollars unless otherwise stated - unaudited) |
17. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Cont’d) |
The following table illustrates the differences in the income statement for the nine months ended September 30, 2010:
Canadian GAAP | IFRS | ||||||
Nine months ended | Nine months ended | ||||||
September 30, 2010 | September 30, 2010 | ||||||
Balance sheet impact | $ | $ | |||||
Income statement impact | |||||||
Interest expense | 4,645 | 4,645 | |||||
Interest accretion | 5,600 | 5,928 | |||||
Unrealised (gain) or loss on derivative | |||||||
instruments | - | (9,645 | ) |
(vi) Deferred income tax
Under Canadian GAAP deferred tax liabilities were calculated following the acquisition of various mineral property assets. IFRS does not allow the recognition of deferred tax liabilities for temporary differences that arise in a transaction other than a business combination that at the time of the transaction affects neither the taxable nor accounting profit or loss. As a result deferred tax liabilities recognized on asset acquisitions under Canadian GAAP have been derecognized under IFRS and credited to accumulated deficit.
Non-monetary assets and liabilities of an entity are measured in its functional currency. If an entity’s taxable income or loss is determined in a different currency, changes in exchange rate will give rise to a temporary difference that results in a deferred tax asset or liability under IAS 12. Effectively, the carrying value of the non-monetary asset/liability (as measured in the functional currency based on historical exchange rates) is translated from the functional currency to the local currency at the current rate and compared to the tax value in the local currency. The resulting temporary difference (measured in the local currency) is multiplied by the appropriate tax rate to arrive at the deferred tax balance in the local currency. This deferred tax balance is then translated into the functional currency at the current rate and charged/credited to profit or loss.
The above result is different from Canadian GAAP which prohibits the recognition of deferred taxes for temporary differences caused by exchange gains and losses related to foreign non-monetary assets and liabilities that are remeasured into the functional currency using historical exchange rates.
The impact on retained earnings as a result of these differences in the three and nine months ended September 30, 2010 was an increase of $1,300,000 and a reduction of $5,520,000 respectively.
d) | Adjustments to Statement of Cash Flows | |
The transition from Canadian GAAP to IFRS had no significant impact on cash flows generated by the Company. |
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