UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x | ||
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to
Commission file number 1-13627
GOLDEN MINERALS COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE | 26-4413382 |
350 Indiana Street, Suite 800 | 80401 |
(303) 839-5060
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |||
---|---|---|---|---|
Common Stock, $0.01 par value | NYSE |
Securities registered pursuant to Section 12(g) of the Act:None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ýx
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ýx
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ýx No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ýx No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer” and "smaller“smaller reporting company"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer | |||||
Non-accelerated filer o | Smaller reporting company | |||||
Do not check if a |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ýx
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchanges Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ýx No o
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 20112014 was approximately $159.8$37.2 million, based on the closing price of the registrant'sregistrant’s common stock of $17.78$1.15 per share on the NYSE AmexMKT on June 30, 2011.2014. For the purpose of this calculation, the registrant has assumed that its affiliates as of June 30, 20112014 included two shareholders who collectivelyall directors and officers and one shareholder that held approximately 38%22.3% of its outstanding common stock. The number of shares of common stock outstanding on March 5, 2012February 25, 2015 was 35,714,035.53,162,833.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant'sregistrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the 20122015 Annual Meeting of Stockholders are incorporated by reference in Part III of this Reportannual report on Form 10-K.
References to "Golden“Golden Minerals," "our," "we," the “Company,” “our,” “we,” or "us"“us” mean Golden Minerals Company, its predecessors and consolidated subsidiaries, or any one or more of them, as the context requires. Many of the terms used in our industry are technical in nature. We have included a glossary of some of these terms below.
Some information contained in or incorporated by reference into this annual report on Form 10-K may contain forward-looking statements and forward-looking information (collectively, “forward-looking statements”) within the meaning of the United States Private Securities Litigation Reform Act of 1995.1995 and other applicable securities laws. These statements include statements relating to our plans, expectations and assumptions concerning the Velardeña OperationsProperties (as defined below), the El Quevar project and certain properties in our exploration portfolio, the timing and budget for explorationcosts related to our Velardeña Properties, our El Quevar project and potential monetization of our portfolio of exploration properties, our expected cash needs, and statements concerning our financial condition, operatingbusiness strategies and operatingbusiness and legal risks.
We use the words "anticipate," "continue," "likely," "estimate," "expect," "may," "could," "will," "project," "should," "believe"“anticipate,” “continue,” “likely,” “estimate,” “expect,” “may,” “could,” “will,” “project,” “should,” “believe” and similar expressions (including negative and grammatical variations) to identify forward-looking statements. Statements that contain these words discuss our future expectations and plans, including plans for mining and processing at the Velardeña Properties and planned exploration activities, and contain projections of production,2015 expenditures or other matters, or state other forward-looking information. Although we believe the expectations and assumptions reflected in those forward-looking statements are reasonable, we cannot assure you that these expectations and assumptions will prove to be correct. Our actual results could differ materially from those expressed or implied in these forward-looking statements as a result of various factors described in this annual report on Form 10-K, including:
·Higher than anticipated costs or interruptions related to optimizing mining and processing at the Velardeña Properties in Mexico;
·Risks related to the integration of the businesses of Golden Minerals and ECU Silver Mining Inc.;
·
· The results of future exploration at our evaluationexploration properties and our ability to raise the necessary capital to finance advancement of the project;further advance certain exploration properties;
·
·
·
·The factors set forth under "“Risk Factors"” in Item 1A of this annual report on Form 10-K.
Many of these factors are beyond our ability to control or predict. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, such expectations may prove to be materially incorrect due to known and unknown risk and uncertainties. You should not unduly rely on any of our forward-looking statements. These statements speak only as of the date of this annual report on Form 10-K. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect future events or developments. All subsequent written and oral forward-looking statements attributable to us and persons acting on our behalf are qualified in their entirety by the cautionary statements contained in this section and elsewhere in this annual report on Form 10-K.
CAUTIONARY STATEMENT REGARDING MINERALIZED MATERIAL
“Mineralized material” as used in this annual report on Form 10-K, although permissible under the United States Securities and Exchange Commission’s (“SEC”) Industry Guide 7, does not indicate “reserves” by SEC standards. We cannot be certain that any deposits at the Velardeña Properties or any part of the Yaxtché deposit at the El Quevar project will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves”. Investors are cautioned not to assume that all or any part of the disclosed mineralized material estimates will ever be confirmed or converted into reserves or that mineralized material can be economically or legally extracted.
CONVERSION TABLE
In this annual report on Form 10-K, figures are presented in both United States standard and metric measurements. Conversion rates from United States standard measurement systems to metric and metric to United States standard measurement systems are provided in the table below. All currency references in this annual report on Form 10-K are to United States dollars, unless otherwise indicated.
U.S. Unit | Metric Measure | Metric Unit | U.S. Measure | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| ||||||||||||
1 | 0.4047 hectares | 1 | 2.47 acres | |||||||||
1 | 0.3048 meters | 1 | 3.28 feet | |||||||||
1 mile | 1.609 kilometers | 1 kilometer | 0.62 miles | |||||||||
1 ounce (troy) | 31.103 grams | 1 gram | 0.032 ounces (troy) | |||||||||
1 ton | 0.907 tonnes | 1 tonne | 1.102 tons |
GLOSSARY OF SELECTED MINING TERMS
"“Assay"” means to test ores or minerals by chemical or other methods for the purpose of determining the amount of valuable metals contained.
"“Base Metal"” means a classification of metals usually considered to be of low value and higher chemical activity when compared with the precious metals (gold, silver, platinum, etc.). This nonspecific term generally refers to the high-volume, low-value metals copper, lead, tin, and zinc.
"“Breccia"” means rock consisting of fragments, more or less angular, in a matrix of finer-grained material or of cementing material.
"“Calcareous Clastic” means sedimentary rock composed of siliciclastic particles usually of conglomerate, sand, or silt-size and cemented by calcium carbonate in the form of calcite.
“Claim"” means a mining interest giving its holder the right to prospect, explore for and exploit minerals within a defined area.
"Cleavage" means the property or tendency of a rock to split along secondary, aligned fractures or other closely spaced planes or textures, produced by deformation or metamorphism.
"“Concentrates"” means the clean product of ore or metal separated from its containing rock or earth by froth flotation or other methods of mineral separation.
"“Concession"” means a grant or lease of a tract of land made by a government or other controlling authority in return for stipulated services or a promise that the land will be used for a specific purpose.
"Diamond “Core" Drill” means a rotary type of rock drill that cuts a core of rock and is recovered in long cylindrical sections, two centimeters or more in diameter.
"“Deposit"” means an informal term for an accumulation of mineral ores.minerals.
“Development Stage” means a project with an established resource, not in production, engaged in the process of additional studies preparing for completion of a feasibility study or for commercial extraction.
“Diorite” means a grey to dark grey intermediate intrusive igneous rock composed principally of plagioclase feldspar (typically andesine), biotite, hornblende, and/or pyroxene.
“Doré"” means gold and silver bullion that remains in a cupelling furnace after the lead has been oxidized and skimmed off.
"“Epithermal Calcite-Quartz” means deposits, typically occurring in veins, of calcite-quartz from hydrothermal fluids at shallow depths under conditions in the lower ranges of temperature and pressure.
Exploration Stage"“Euhedral” means a prospectwell-developed degree of which mineral grains show external crystal faces (fully crystal-faced).
“Exploration Stage” means a project that is not yet in either the developmentDevelopment Stage or production stage.Production Stage.
"“Feasibility Study"” means an engineering study designed to define the technical, economic, and legal viability of a mining project with a high degree of reliability.
"“Felsic” means igneous rocks that are relatively rich in elements that form feldspar and quartz.
“Flotation"” means the separating of finely crushed minerals from one another by causing some to float in a froth and others to remain in suspension in the pulp. Oils and various chemicals are used to activate, make floatable, or depress the minerals.
"“Formation"” means a distinct layer of sedimentary rock of similar composition.
"“Fracture System"” means a set or group of contemporaneous fractures related by stress.
"“Grade"” means the metal content of ore, usually expressed in troy ounces per ton (2,000 pounds) or in grams per ton or metric tonnes which contain 2,204.6 pounds or 1,000 kilograms.
"“Hypabyssal rock” means an intrusive igneous rock that originates at medium to shallow depths within the crust, and has intermediate grain size and often porphyritic texture between that of volcanic and plutonic rocks.
“Inferred Mineral Resource” means the part of a mineral resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.
“Laramide Orogeny” means a period of mountain building in western North America, which started in the Late Cretaceous age, 70 to 80 million years ago, and ended 35 to 55 million years ago.
“Mineralization"” means the concentration of metals within a body of rock.
"“Mineralized Material” means a mineralized body that has been defined by appropriate drilling and/or underground sampling to establish continuity and support an estimate of tonnage and an average grade of the selected metals.
“Mining"” means the process of extraction and beneficiation of mineral reserves or mineral deposits to produce a marketable metal or mineral product. Exploration continues during the mining process and, in many cases, mineral reserves or mineral deposits are expanded during the life of the mine operationsactivities as the exploration potential of the deposit is realized.
"“Monzodiorite” means coarse-grained igneous rock consisting of essential plagioclase feldspar, orthoclase feldspar, hornblende and biotite, with or without pyroxene, with plagioclase being the dominant feldspar making up 6% to 90% of the total feldspar and varying from oligoclase to andesine in composition. The presence of the orthoclase feldspar distinguishes this rock from a diorite.
“National Instrument 43-101” or “43-101” means the standards of disclosure for mineral projects prescribed by the Canadian Securities Administrators.
“Net Smelter Return Royalty"” means a defined percentage of the gross revenue from a resource extraction operation, less a proportionate share of transportation, insurance, and processing costs.
"“Open Pit"” means a mine working or excavation open to the surface.
"“Ore"” means material containing minerals that can be economically extracted.
"“Outcrop"” means that part of a geologic formation or structure that appears at the surface of the earth.
"“Oxide"” means mineralized rock in which some of the original minerals have been oxidized (i.e.(i.e., combined with oxygen).
"“Precious Metal"” means any of several relatively scarce and valuable metals, such as gold, silver, and the platinum-group metals.
"“Preliminary Economic Assessment” or “PEA” means a study, other than a pre-Feasibility or Feasibility Study, that includes an economic analysis of the potential viability of mineral resources.
“Probable Mineral Reserves"” means mineral reserves for which quantity and grade and/or quality are computed from information similar to that used for Proven Mineral Reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for Proven Mineral Reserves, is high enough to assume continuity between points of observation.
"“Production Stage"” means a project that is actively engaged in the process of extraction and beneficiation of mineral reserves or mineral deposits to produce a marketable metal or mineral product.
"“Proven Mineral Reserves"” means mineral reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.well established.
"“Reclamation"” means the process of returning land to another use after mining is completed.
"“Recovery"” means that portion of the metal contained in the ore that is successfully extracted by processing, expressed as a percentage.
"“MineralReserves"” means that part of a mineral deposit that could be economically and legally extracted or produced at the time of mineral reserve determination.
"“Sampling"” means selecting a fractional part of a mineral deposit for analysis.
"“Sediment"” means solid fragmental material that originates from weathering of rocks and is transported or deposited by air, water, or ice, or that accumulates by other natural agents, such as chemical precipitation from solution or secretion by organisms, and that forms in layers on the Earth'searth’s surface at ordinary temperatures in a loose, unconsolidated form.
"“Sedimentary"” means formed by the deposition of sediment.Sediment.
"“Silver Equivalent” means silver and gold only, with gold converted to silver equivalents at a 70 to 1 ratio.
“Skarn” means a coarse-grained metamorphic rock formed by the contact metamorphism of carbonate rock often containing garnet, pyroxene epodite and wollastonnite.
“Stock” means discordant igneous intrusion having a surface exposure of less than 40 square miles.
“Sulfide"” means a compound of sulfur and some other element.
"Tailing“Tailings Pond"” means a low-lying depression used to confine tailings, the prime function of which is to allow enough time for heavy metals to settle out or for cyanide to be destroyed before water is discharged into the local watershed.
"“Tertiary"” means the first period of the Cenozoic Era (after the Cretaceous of the Mesozoic Era and before the Quaternary), thought to have covered the span of time between 652 to 3 million years ago and 3 to 265 million years ago.
“Vein"” means a fissure, fault or crack in a rock filled by minerals that have traveled upwards from some deep source.
"“Waste"” means rock lacking sufficient grade and/or other characteristics of ore.
ITEMS 1 AND 2: BUSINESS AND PROPERTIES
Overview
We are an emerginga mining company, and we own the Velardeña and Chicago precious metals producer, primarily engaged in the operation and further development of our recently acquired Velardeñmining properties (the “Velardeña gold, silver and base metals minesProperties”) in the State of Durango, Mexico, and in the advancement of the 100% owned El Quevar advanced silver exploration property in the province of Salta, Argentina.Argentina, and a diversified portfolio of precious metals and other mineral exploration properties located primarily in or near historical precious metals producing regions of Mexico. The Velardeña Properties and the El Quevar advanced exploration property are our only material properties. Our management team is comprised of experienced mining professionals with extensive expertise in mineral exploration, mine construction and development and mine operations. Our principal offices are located in Golden, Colorado at 350 Indiana Street, Suite 800, Golden, CO 80401, and our registered office is the Corporation Trust Company, 1209 Orange Street, Wilmington, DE 19801. We also maintain an office at the Velardeña mining operations officeProperties in Mexico and exploration offices in Argentina Mexico and Peru.Mexico.
In addition to our current efforts to increase production
We recommenced mining activities at the Velardeña OperationsProperties in July 2014 and advancebegan processing material from the El Quevar project, weVelardeña mine in November 2014. Our decision to restart mining activities followed an extensive evaluation period, which began after the shutdown of the Velardeña Properties in June 2013 and included a 9,000-meter drill program that concluded in June 2014.
We are analyzingprimarily focused on efforts to optimize mining and processing activities at our Velardeña Properties in order to achieve positive net cash flows at the potential monetizationVelardeña Properties. We are focused on establishing a second group of certainmining assets, which may include those recently acquired assets in the Parral District in Chihuahua Mexico, and obtaining oxide feed from outside sources to enable us to restart the oxide plant, in order to generate sufficient revenue, along with revenue from our Velardeña Properties, to fund our continuing business activities.
We are continuing our exploration efforts on selected properties in our portfolio of approximately 8030 exploration properties located primarily in Mexico, including our Celaya property in the State of Guanajuato Mexico. We continue to hold our El Quevar property on care and South America.maintenance and to reduce holding costs until we can find a partner to further advance the project. We reduced general and administrative expenses in 2014 by approximately 17% over 2013 expenses. We expect this reduced level of spending to continue in 2015. We also are reviewing strategic opportunities, focusing primarily on development or operating properties in North America, including Mexico.
No Proven or Probable Mineral Reserves/Exploration Stage Company
We are considered an exploration stage company under SEC criteria since we have not demonstrated the existence of proven or probable mineral reserves at our Velardeña Properties or any of our other properties. In Industry Guide 7, the SEC defines a “reserve” as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Proven or probable mineral reserves are those reserves for which (a) quantity is computed and (b) the sites for inspection, sampling, and measurement are spaced so closely that the geologic character is defined and size, shape and depth of mineral content can be established (proven) or the sites are farther apart or are otherwise less adequately spaced but high enough to assume continuity between observation points (probable). Mineral Reserves cannot be considered proven or probable unless and until they are supported by a feasibility study, indicating that the mineral reserves have had the requisite geologic, technical and economic work performed and are economically and legally extractable.
Prior to suspending mining and processing at the Velardeña Properties in June 2013, we had revenues from the sale of silver, gold, lead and zinc products from the Velardeña and Chicago mines. We have not completed a feasibility study with regard to all or a portion of any of our properties to date. Any mineralized material discovered or extracted by us should not be considered proven or probable mineral reserves. As of December 31, 2014, none of our mineralized material met the definition of proven or probable mineral reserves. We expect to remain an exploration stage company for the foreseeable future, even though we were extracting and processing mineralized material. We will not exit the exploration stage until such time, if ever, that we demonstrate the existence of proven or probable mineral reserves that meet the guidelines under SEC Industry Guide 7.
Company History
We were incorporated in Delaware under the Delaware General Corporation Law in March 2009, and we are the successor to Apex Silver Mines Limited ("(“Apex Silver"Silver”) for purposes of reporting under the U.S. Securities Exchange Act. SinceAct of 1934, as amended (the “Exchange Act”). From March 2009 through September 2011, we have focused on the advancement of our El Quevar silver project in
Argentina. On September 2, 2011, we completed a business combination transaction with ECU Silver Mining Inc. ("ECU"(“ECU”) and now own the Velardeña and operate ECU'sChicago silver, gold silver and base metals mines at its Velardeña and Chicago properties (together, the "Velardeña Operations," as further described under the heading "Velardeña Operations"), located in the Velardeña mining district in the State of Durango, Mexico.Mexico as further described under “—Velardeña Properties”. Since the business combination with ECU, we have focused primarily on the further advancement and improvement of the Velardeña Properties.
Corporate Structure
Golden Minerals Company, headquartered in Golden, Colorado, is the operating entity through which we conduct our business. Following our September 2, 2011 business combination, ECU isbecame a wholly-owned subsidiary of Golden Minerals, and three of ECU'sECU’s wholly-owned Mexican subsidiaries hold the assets and rights associated with the Velardeña Operations.Properties. We have a number of other wholly-owned subsidiaries organized throughout the world, including in Canada, Mexico, Central America, South America, the Caribbean Europe, and Australia.Europe. We generally hold our exploration rights and properties through subsidiaries organized in the countries in which our rights and properties are located.
Our Competitive Strengths and Business Strategy
Our business strategy is to establish Golden Minerals as a mid-tier precious metals producer,mining company, focusing on expansion of productionmining in Mexico, mining and operational improvementsprocessing activities at the Velardeña OperationsProperties, establishing a second group of mining assets, which may include our recently acquired exploration properties, obtaining oxide feed for our oxide plant and continued advancementexploration efforts on selected properties in our exploration portfolio. We also are focused on strategic opportunities, primarily on development or operating properties in North America, including Mexico.
Velardeña Properties. On July 1, 2014 we restarted mining at the Velardeña Properties and began processing material from the mine on November 3, 2014. During 2014 we generated payable metals totaling approximately 42,000 silver equivalent ounces (equivalents calculated at 70:1 silver to gold) and included approximately 29,000 ounces of silver and 194 ounces of gold. We are focused on optimizing mining and processing at the Velardeña Properties in order to ramp up to the 285 tonnes per day (“tpd”) rate, which we expect to achieve late in the first quarter 2015. We expect feed material grades to gradually increase through the second quarter of 2015 as new stopes in the mine are developed and access to the Terneras vein increases. In the first quarter 2015, the engineering firm Tetra Tech updated our estimate of mineralized material at the Velardeña Properties, and also plans to complete a Preliminary Economic Assessment and a technical report pursuant to Canadian National Instrument 43-101 in respect of the Velardeña Properties.
El Quevar project.Project. We continue to hold our El Quevar property on care and maintenance and to reduce holding costs until we can find a partner to fund further exploration.
Velardeña Operational Improvements.Exploration Focus. We are focused on increasing silverestablishing a second group of mining assets, which may include our Los Azules property and gold production from the Velardeñour Santa Maria property, each of which contains a Operations through the continuing improvement insmall underground mining practices, the optimization of the current oxide and sulfide plants, and phased expansions of the sulfide plant. We produced 90,000 ounces of silver and 1,300 ounces of gold from September through December 2011. We currently expect to approximately triple that rate of production during the fourth quarter of 2012.
El Quevar Project. Following the completion of additional underground exploration and surface drilling in 2011 at the El Quevar projectmine located in the Salta Province of Argentina, we are continuing to analyze whether the Yaxtché deposit is amenable to bulk mining, which could include an open pit on
the eastern and central areasParral District in Chihuahua, Mexico. We completed drill programs at each of the Yaxtché depositLos Azules and bulk underground miningSanta Maria properties during 2014 and expect to release reports on these results in the western area. Asfirst quarter 2015. During 2015 we plan to focus our analysis continues, we may consider whether to solicit a joint venture partnerexploration efforts primarily on these properties in the Parral District, and exploration on certain other properties, including our Celaya project in the State of Guanajuato Mexico. We expect our expenditures for the project.
Financial Strength. Following the prepayment of ECU's third party debtexploration program in December 2011, we now have no debt, no hedging and a strong cash position. We currently project that revenues from our Velardeña Operations will exceed operating costs by mid-2012, and therefore our Velardeña Operations will2015 to be operationally cash flow positive, assuming $30.00 per ounce average silver prices and $1,500.00 per ounce average gold prices.approximately $3.1 million.
Rationalization of Exploration Portfolio. We have commenced a process to rationalize our portfolio of approximately 80 exploration properties located primarily in certain traditional precious metals producing regions of Mexico and South America. We are analyzing the prospects and potential monetization of certain properties. We expect the potential monetization of selected assets to generate value as well as significantly reduce exploration expenditures in 2012 and going forward.
Experienced Management Team. We are led by a team of mining professionals with over 125approximately 130 years of combined experience in exploration, project development, construction and operations all over the world. Our executive officers have held senior positions at various large mining companies including, among others, Cyprus Amax Minerals Company, Phelps Dodge Corporation, Inco Limited, Homestake Mining Company, Kinross Gold Corporation, Barrick Gold Exploration and Placer Dome Exploration, Inc.Noranda Exploration. Our executive team has a proven ability to manage large projects in challenging environments.
Velardeña OperationsProperties
Location, Access and AccessFacilities
The Velardeña OperationsProperties are comprised of fourtwo underground mines and two processing plants within the Velardeña mining district, which is located in the municipality of Cuencamé, in the northeast quadrant of the State of Durango, Mexico, approximately 9565 kilometers southwest of the city of Torreón, in the State of Coahuila and approximately 140 kilometers northeast of the city of Durango, which is the capital of the State of Durango. The mines are reached by a seven kilometer road from the village of Velardeña which is reached by highway from Torreón and Durango. The Velardeña mining district is situated in a hot, semi-arid region.
Of the fourtwo underground mines comprising the Velardeña Operations,Properties, the Velardeña mine includes five different major vein systems including the Terneras, Roca Negra, San Mateo, Santa Juana and San Juanes systems. During 2014 we were mining from the
San Mateo, Terneras and Roca Negra vein systems as well as the Santa Juana San Juanesvein system to augment grades as mining and processing rates ramped up. During 2015 we plan to mine primarily from the Terneras, Roca Negra and San Mateo underground mines are located onveins with some feed coming from the Velardeña property. The Santa Juana mine, which has been the focus of ECU's mining efforts since 1995, is currently a producing mine, as is the San Juanes mine.vein. The San Mateo mine is currently in the development stage. We are in the process of building the San Mateo Ramp, which will provide new access routes to facilitate ore removal from all the mines on the Velardeña property. The fourth mine, the underground Chicago mine is a producing mine and is located on the Chicago property approximately two kilometers south of the Velardeña property. We did not mine from the Chicago mine during 2014, and do not have current plans to mine from the Chicago mine during 2015.
We own a 320 tonne-per-day300 tonne per day flotation sulfide mill situated near the town of Velardeña.a, which accounted for approximately 100% and 42% of our revenue from saleable metals during 2014 and 2013, respectively. The mill has a fully operationalincludes lead, zinc and pyrite flotation circuitcircuits in which produceswe can process the sulfide ore to make lead, zinc and pyrite concentrates from the sulfide ore. Mostconcentrates. In 2014 most of the silver isand gold was contained in the lead concentrate. In 2013 most of the silver was contained in the lead concentrate and most of the gold iswas contained in the pyrite concentrate. During 2014 we processed all our mined material through the sulfide plant.
We also own a conventional 500 tonne-per-day550 tonne per day cyanide leach oxide mill with a Merrill CroweMerrill-Crowe precipitation circuit which isand flotation circuit located approximately two kilometers from the Santa Juana mine site and nearadjacent to our Chicago mine. Themine, which accounted for approximately 58% of our revenue from saleable metals during 2013. We currently are not processing material through the oxide plant. We previously used the mill is used to process oxide and mixed sulfide/oxide material from the Velardeña OperationsProperties and generatesduring the first half of 2013, generated silver and gold bearing precipitates and silver doré bars. The mill also generates gold and silver bearing precipitate to belead concentrates that were sold to third party refineries. We continue to search for oxide feed from outside sources, which could enable us to restart the oxide plant. There is also a small refinery at the oxide plant capable of matching the throughput of the oxide plant up to about 300 tpd, or slightly more than half the maximum capacity of the oxide plant to make doré silver and gold bars. We did not make any doré in 2013 or 2014.
For the currently producing mines, ore
Ore is trucked from the Velardeña mine mouth to the appropriate processingsulfide plant, and each plantwhich has its own tailingtailings ponds. We recentlyIn January 2012 we completed a tailings pond expansion at the sulfide plant, which is fully permitted and has a five year capacity.capacity to treat tailings for approximately four years at the processing rate of 285 tpd. For the oxide plant,
we currently have a permit forcompleted the first stage of a new tailings pond with an approximate five-yearduring May 2013. If oxide mining activities resume, the first stage provides capacity and we plan to start building this pond bytreat tailings for approximately one year at the processing rate of 500 tpd. We would expect to complete the second quarterstage approximately six months after the resumption of 2012. oxide mining activities, which would provide tailings treatment capacity for approximately an additional two years at 500 tpd. Completion of the third stage would provide tailings treatment capacity for approximately an additional 14 years at the 500 tpd processing rate.
Power for all of the mines and plants is provided through a substationsubstations connected to the national grid. Water is provided for all of the mines by wells located in the valley adjacent to the Velardeña Operations.Properties. We hold title to three wells located near the sulfide plant and hold certificates of registration to three wells located near the oxide plant. We are licensed to pump water from all six wells up to a permitted amount. We are currently only using water from two wells near the sulfide plant and one well near the oxide plant. Under our current mining plan, we may need additional water to run the sulfide plant, which we can truck from the two unused wells near the oxide plant or obtain from outside sources, both of which will increase our water costs. To avoid these higher water costs, we plan to construct a pipeline to transport water from the two unused wells near the oxide plant. We are waiting on certain environmental permitting and expect to have this pipeline complete by the end of 2015.
The following map shows the location of the Velardeña Operations.Properties.
Property History
Exploration and mining in the Velardeña district extends back to at least the late 1500's1500s or early 1600's,1600s, with large scale operationsmining beginning in 1888 with the Velardeña Mining and Smelter Company. In 1902, the mining operationsproperties were acquired by ASARCO, who operatedmined the property until 1926 when the mines were closed. For the next 35 years, the mines were operated from time to time by small companies and local miners. The property was subsequently nationalized in 1961, and in 1968 the sulfide processing plant was built by the Mexican Government.government. In 1994, William Resources acquired the concessions comprising the Velardeña and Chicago properties.Properties. In 1997, ECU Gold (the predecessor to ECU Silver Mining Inc.) purchased from William Resources the subsidiaries that owned the concessions. ECU built the oxide processing plant in 1998.
Title and Ownership Rights
We hold the concessions comprising the Velardeña OperationsProperties through our wholly-owned Mexican subsidiaries Minera William S.A. de C.V. and BLM Minera Mexicana S.A. de C.V. At present, a total of 3329 mineral concessions comprise the Velardeña Operations, which include four concessions under a purchase option agreement with remaining aggregate payments due of $200,000.Properties. The Velardeña OperationsProperties encompass approximately 600557 hectares. The mineral concessions vary in size, and the
concessions comprising each mineral property are contiguous within each of the Velardeña and Chicago properties. We are required to pay annual concession holding fees to the Mexican government to maintain our rights to the Velardeña mining concessions. In 2014, we made such payments totaling approximately $12,000 and expect to pay approximately $12,000 in 2015.
The Velardeña OperationsProperties are also subject to the Mexican ejido system requiring us to contract with the local communities, or ejidos, surrounding our properties in order to obtain surface access rights needed in connection with our mining operations and exploration activities. We recently executedcurrently have contracts with two ejidos to secure surface rights for our Velardeña Properties with a total annual cost of approximately $35,000. The first contract is a ten-year contract with the Velardeña ejido, thatwhich provides surface rights forto certain access roads to ourand other infrastructure at the Velardeña Operations. OurProperties through 2021. The second contract is a 25-year contract with the Vista Hermosa ejido signed in March 2013, which provides for surfaceexploration access and access rights for the oxide plantroads and tailings area and access to the Chicago mine. We are in the process of negotiatingutilities for our Velardeña Properties. In 2012 we entered into an agreement with the Vista Hermosa ejido to purchase the surface rights to the 144 hectares area that contains the oxide plant, tailings area and access to the Chicago mine, along with all surface lands that may be required for potential plant
expansions. The title for the proposedpurchase has been issued by the National Agrarian Registry (RAN) and is in the process of being transferred to us.
The following Velardeña Properties exploitation concessions are identified below by name and number in the Federal government Public Registry of Mining.
Mine/Area | Name of Exploitation | Concession | ||
Velardeña | AMPL. DEL ÁGUILA MEXICANA | 85580 | ||
ÁGUILA MEXICANA | 168290 | |||
LA CUBANA | 168291 | |||
TORNASOL | 168292 | |||
SAN MATEO NUEVO | 171981 | |||
SAN MATEO | 171982 | |||
RECUERDO | 171983 | |||
SAN LUIS | 171984 | |||
LA NUEVA ESPERANZA | 171985 | |||
LA PEQUEÑA | 171988 | |||
BUEN RETIRO | 172014 | |||
UNIFICACIÓN SAN JUAN EVANGELISTA | 172737 | |||
UNIFICACIÓN VIBORILLAS | 185900 | |||
BUENAVENTURA No. 3 | 188507 | |||
EL PÁJARO AZÚL | 188508 | |||
BUENAVENTURA 2 | 191305 | |||
BUENAVENTURA | 192126 | |||
LOS DOS AMIGOS | 193481 | |||
VIBORILLAS NO. 2 | 211544 | |||
KELLY | 218681 | |||
Chicago | SANTA TERESA | 171326 | ||
SAN JUAN | 171332 | |||
LOS MUERTOS | 171986 | |||
EL GAMBUSINO | 171987 | |||
AMPLIACIÓN SAN JUAN | 183883 | |||
MUÑEQUITA | 196313 | |||
SAN AGUSTÍN | 210764 | |||
EL PISTACHÓN | 220407 | |||
LA CRUZ | 189474 |
We hold water concessions in wells that provide water for the Velardeña Properties. In Mexico water concessions are granted by the National Commission of Water (“CNA”). Currently no new water concessions are being granted by the CNA; however companies can acquire water concessions through purchase or lease from current concession holders. We hold title to three wells located near the sulfide plant expansion.and hold certificates of registration to three wells located near the oxide plant. We are licensed to pump water from all six wells up to a permitted amount. We are required to make annual payments to the CNA to maintain our rights to these wells. In 2014 we made such payments totaling approximately $28,000 and expect to pay approximately the same amount in 2015. We are required to pay a fine to the CNA each year if we use too much water from a particular well or alternatively if we do not use a minimum amount of water from a particular well. During 2014 we paid fines of approximately $20,800 for our overuse of one well and approximately $3,000 for our underuse of another well.
Geology and Mineralization
The Velardeña district is located at the easternmost limit of the Sierra Madre Occidental on the boundary between the Sierra Madre Oriental and the Mesa Central sub-provinces. Both of these terrains are underlain by Paleozoic and possibly Precambrian basement rocks.
The regional geology is characterized by a thick sequence of limestoneslimestone and minor calcareous clastic sediments of Cretaceous age, intruded by Tertiary plutons of acidic to intermediate composition. During the Laramide Orogeny, the sediments were folded into symmetrical anticlines and synclines that were modified into a series of asymmetrical overturned folds by a later stage of compression.
A series of younger Tertiary stocks have intruded the older Cretaceous limestoneslimestone over a distance of approximately 15 kilometers along a northeast to southwest trend. The various mineral deposits of the Velardeña mining district occur along the northeast-southwestnortheast southwest axis and are spatially associated with the intrusions and their related alteration.
An important northwest-southeastnorthwest southeast fracture system is associated with these intrusions and, in many cases, acts as the main focus of mineralization. The Velardeña OperationsProperties are underlain by a thick sequence of limestone that corresponds to rocks of the Aurora and Cuesta del Cura formations of Lower Cretaceous age.
Several types of Tertiary intrusive rocks are present in the Velardeña district. The largest of these rocks outcrops on the western flank of the Sierra San Lorenzo and underlies a portion of the Velardeña Operations.Properties. It is referred to as the Terneras pluton and forms a northeast oriented, slightly elongated body, considered to represent a diorite or monzodiorite that outcrops over a distance of about 2.5 kilometers. The adjacent limestones havelimestone has been altered by contact metamorphism (exoskarn), and locally the intrusive has been metamorphosed (endoskarn).
The following is a description of the individual geological characteristics and mineralization found on each of the properties comprising the Velardeña Operations.Properties.
Velardeña MinesMine
The Aurora Formation hosts the Santa Juana, Terneras, San Juanes and San Mateo vein deposits on the Velardeña property.property are hosted by Aurora Formation limestone, the Terneras intrusion and related skarn. The limestones arelimestone is intruded by a series of multiphase diorite or monzodiorite stocks (Terneras intrusion) and dikes of Tertiary age that outcrop over a strike length of approximately 2.5 kilometers.
Two main vein systems are present on the Velardeña property. The first is a northwest striking system as found in the Santa Juana deposit, while the second is east-west trending and is present in the Santa Juana, Terneras, San Juanes and San Mateo deposits.
In the Santa Juana deposit, two main sets of fracture cleavagevein trends are observed. The most significant is a steeply northeast dipping, northwest-trending cleavagenorthwest trending set that has acted as the main conduit for the mineralizing fluids in the Santa Juana deposit. This direction includes both linear and curved northwest vein sets.
The Terneras, San Juanes and San Mateo veins all strike east-west and dip steeply north. The most prevalentextensive of these is the Terneras vein, which was mined in the past over a strike length of 1,100 meters. All of these veins are observed to have extensive strike lengths and vertical continuity for hundreds of meters. The mineralogy of the east-westeast west system is somewhat different in that they containit contains less arsenic than the northwest Santa Juana veins.
Mineralization in the deposits located at the Velardeña minesmine belongs primarily belongs to low- temperature calcite-quartzepithermal calcite quartz veins with associated lead, zinc, silver, gold and copper mineralization, typical of the polymetallic vein deposits of northern Mexico. The veins are usually thin, normally in the 0.2 meter to 0.5 meter range, but consistent along strike and down dip. Coxcomb and rhythmically banded textures are common.
Chicago Mine
On the Chicago property, the oldest rocks outcropping are Cretaceous limestoneslimestone of the Aurora Formation which are highly folded. These limestones are affectedThis limestone is locally metamorphosed by the intrusion of the Tertiary dioritic stocks and dykes. The general geology of the Chicago property is very similar to the geology of the Velardeña property. The mineralization is similarChicago veins strike northeast and dip steeply southeast. Chicago ore tends to that encounteredbe higher in lead and zinc and lower in arsenic than the Santa Juana ore. Vein widths at Chicago are variable and tend to be narrower than at the Santa Juana minedeposit, especially in terms of mineralogy, host rocks, geometry of the structures and continuity at depth and laterally.skarn host.
20122014 Technical Report and PEA
We expect to complete an updated NI 43-101 compliant resource estimate for the Velardeña Operations near the end of
During the first quarter 2015, the engineering firm of 2012 orTetra Tech (“Tetra Tech”) completed an estimate of mineralized material at the beginningVelardeña Properties, set forth in the following table:
Mineralized Material |
| Tonnes |
| Silver |
| Gold |
| Lead |
| Zinc (Zn) |
|
Mineralized Material at December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
Velardeña Mine |
|
|
|
|
|
|
|
|
|
|
|
Oxide and mixed |
| 572 |
| 295 |
| 4.1 |
| 1.34 |
| 1.07 |
|
Sulfide |
| 1,032 |
| 274 |
| 3.9 |
| 1.11 |
| 1.42 |
|
Chicago Mine |
|
|
|
|
|
|
|
|
|
|
|
Oxide and mixed |
| 91 |
| 208 |
| 3.2 |
| 3.77 |
| 2.8 |
|
Sulfide |
| 98 |
| 165 |
| 2.8 |
| 2.97 |
| 3.49 |
|
Total Mineralized Material at December 31, 2014 |
| 1,793 |
| 272 |
| 3.8 |
| 1.42 |
| 1.49 |
|
Note: Results may not tie precisely due to rounding. Additionally, silver ounces, zinc pounds and leads pounds are rounded to the nearest thousand and gold ounces are rounded to the nearest ounce and tonnes. The variance in rounding different commodities and units is for convenience and does not reflect any differences in the level of accuracy of the second quartercalculated mineralized material estimate.
The Tetra Tech mineralized material estimate assumed a silver price of 2012. $25 per troy ounce, a gold price of $1,446 per troy ounce, and a cutoff grade of a net smelter return (“NSR”) of $100 per tonne.
The independent consulting firmfollowing table shows the commodity prices and metallurgical recoveries used to determine the cutoff grade.
Metal |
| Metal Prices* |
| Sulfide |
| Oxide |
| Mixed Metallurgical |
| |
Silver |
| $ | 25 (oz) |
| 89 |
| 68 |
| 50 |
|
Gold |
| $ | 1,446 (oz) |
| 68 |
| 71 |
| 29 |
|
Lead |
| $ | 0.96 (lb) |
| 83 |
| — |
| 25 |
|
Zinc |
| $ | 0.91 (lb) |
| 83 |
| — |
| 37 |
|
* Amounts represent three-year average prices.
The cutoff grade of Chlumsky Armbrust$100 NSR per tonne of mineralized material was determined by adding the estimated average costs of mining ($53 per tonne), processing ($27 per tonne) and Meyer has been retainedgeneral and administration ($20 per tonne). The average cost estimates are the same for both the Velardeña and Chicago mines. The NSR value of mineralized material was determined for each type of mineralized material (sulfide, mixed, and oxide) by multiplying a fractional factor that represents an estimated combination of metallurgical recovery, treatment charges, penalties and payment terms by the unit value of each metal and then multiplying by the expected amount of that metal in each block of inventoried material.
The following table shows the recovery rates for silver, gold, lead and zinc at each of our processing facilities for 2013 and 2014.
|
| 2013 |
| 2014(1) |
|
Oxide plant recovery |
|
|
|
|
|
Silver |
| 78.0 | % | — | % |
Gold |
| 40.1 | % | — | % |
Sulfide plant recovery |
|
|
|
|
|
Silver |
| 72.1 | % | 56.6 | % |
Gold |
| 61.2 | % | 29.0 | % |
Lead |
| 62.3 | % | 51.7 | % |
Zinc |
| 82.2 | % | 45.6 | % |
(1) Recoveries were low in 2014 due to provide the updated resource estimate,buildup of in-process inventories in accordancethe sulfide plant associated with the requirementsstart-up of the SEC's Guide 7processing activities in November 2014.
For further detail regarding mineralized material, see “CAUTIONARY STATEMENT REGARDING MINERALIZED MATERIAL”.
Velardeña Properties and Canadian National Instrument 43-101—Standards of Disclosure for Mineral Projects, of the Canadian Securities Administrators ("NI 43-101").Plans
The Company expects to complete a Preliminary Economic Assessment ("PEA") by the end of the third quarter of 2012. The PEA will be based on the updated resource estimate and proposed expansion plans for the Velardeña Operations.
Phased Expansion Plans for Velardeña Operations
Since the business combination with ECU,In June 2013 we have made significantsuspended mining and processing improvements at the Velardeña Operations. Our initial focus has been on improving head grade in the feed supplied to the mills. We have completed approximately 1,200 meters of mine development since early September 2011 and have commenced excavation on the San Mateo Ramp, the main production ramp that will access six major ore zones. Additionally,Properties. In July 2014 we have commenced plant optimization and other work to improve recoveries and product quality in both the oxide and sulfide plants, and we plan to add a flotation circuit ahead of the current oxide plant to recover and divert to the sulfide plant more of the sulfide material that is currently mixed with the oxides. In the fourth quarter of 2011, we initiated the transfer of approximately $4.0 million of mobile undergroundrecommenced mining and ancillary equipment that is no longer required at El Quevar to the Velardeña Operations. The transferred equipment, as well as additional mobile equipment to be purchased, will be used to advance the San Mateo ramp and to modernize the Velardeña Operations. Safety related improvementsactivities at the Velardeña Operations haveProperties and began processing material from the mines in November 2014. During the fourth quarter
2014, the processing facilities generated payable metals totaling approximately 42,000 silver equivalent ounces (equivalents calculated at 70:1 silver to gold) and included the installation of 15 face ventilation fans, establishment of three trained and equipped mine rescue teams, and safety refresher training for all personnel.
We expect the proposed phased expansion to result in an increase in total oxide and sulfide plant capacity to 1,300 tonnes per day with the planned addition of a new 800 tonne per day grinding mill, and the installation of additional flotation cells and concentrate handling equipment. The proposed expansion will allow for the continued processing of both oxide and sulfide ores until the oxide ore is depleted, at which time the plant will process only sulfide ores. The proposed phased expansion is planned to be operational in 2013 and is anticipated to have annual production of two millionapproximately 29,000 ounces of silver 29,000and 194 ounces of gold. Payable silver equivalents include only silver and gold four millionequivalent ounces. Also, during the fourth quarter 2014, the processing facilities generated approximately 111,000 pounds of payable lead and eight million135,000 pounds of payable zinc. We expect to have more information regarding proposed costs for the phased expansion by the end of the first quarter of 2012, but we currently expect costs in the range of approximately $10.0 million. Engineering studies are now also underway to expand sulfide production to 2,000 tonnes per day through the completion of a proposed 2,000 tonne per day sulfide plant, which might occur as early as 2015. The 2,000 tonne per day sulfide plant could result in annual production of up to approximately four million ounces of silver, 80,000 ounces of gold, and ten million pounds each of lead and zinc.
Production Guidance
Payable metals production from the Velardeña Operations for September through year-end 2011 exceeded guidance previously provided in September by approximately 30% for gold and 114% for silver, primarily due to the increase in head grades resulting from reduced dilution. The following table shows actual silver, gold and silver productionequivalent payables for Septemberthe first six months of 2013 and the fourth quarter 2014.
|
| Payable Metal |
| ||
|
| 2013(1) |
| 2014(2) |
|
|
|
|
|
|
|
Silver (oz) |
| 252,256 |
| 28,746 |
|
Gold (oz) |
| 2,349 |
| 194 |
|
Silver equivalent (AgEq)(oz)(3) |
| 416,686 |
| 42,326 |
|
(1) Mining and processing activities were suspended at the Velardeña Properties on June 19, 2013.
(2) Mining activities at the Velardeña Properties recommenced on July 1, 2014 and processing activities recommenced on November 3, 2014.
(3) Equivalents calculated at 70:1 silver to gold.
The table below sets forth the mining and processing statistics of our Velardeña Properties for the first six months of 2013 and the last six months of 2014.
|
| The Year Ended December 31, |
| ||
|
| 2013(1) |
| 2014(2) |
|
Tonnes Milled |
|
|
|
|
|
(includes stockpiles) |
|
|
|
|
|
Oxide plant |
| 41,383 |
| — |
|
Sulfide plant |
| 30,680 |
| 14,322 |
|
|
| 72,063 |
| 14,322 |
|
Combined plant grades |
|
|
|
|
|
(Grams per tonne) |
|
|
|
|
|
Silver |
| 163 |
| 119 |
|
Gold |
| 2.56 |
| 1.57 |
|
Combined plant recovery (3) |
|
|
|
|
|
Silver |
| 75.8 | % | 56.6 | % |
Gold |
| 48.7 | % | 29.0 | % |
|
|
|
|
|
|
Contained Metals (3) |
|
|
|
|
|
(includes stockpiles) |
|
|
|
|
|
Silver ounces |
| 286,394 |
| 30,615 |
|
Gold ounces |
| 2,885 |
| 209 |
|
Silver equivalent ounces (70:1) |
| 488,344 |
| 45,245 |
|
Lead - pounds (000) |
| 564 |
| 124 |
|
Zinc - pounds (000) |
| 836 |
| 155 |
|
|
|
|
|
|
|
Payable Metals (3) |
|
|
|
|
|
(includes stockpiles) |
|
|
|
|
|
Silver ounces |
| 252,256 |
| 28,746 |
|
Gold ounces |
| 2,349 |
| 194 |
|
Silver equivalent ounces (70:1) |
| 393,196 |
| 42,326 |
|
Lead - pounds (000) |
| 500 |
| 111 |
|
Zinc - pounds (000) |
| 706 |
| 135 |
|
|
|
|
|
|
|
Products sold |
|
|
|
|
|
Doré - kilograms |
| — |
| — |
|
Precipitate - kilograms |
| 9.07 |
| — |
|
Lead concentrates - tonnes |
| 1,147 |
| 72 |
|
Zinc concentrates - tonnes |
| 1,054 |
| 36 |
|
Pyrite concentrates - tonnes |
| 2,789 |
| — |
|
Copper concentrates - tonnes |
| — |
| — |
|
|
|
|
|
|
|
Payable metals in products sold |
|
|
|
|
|
Silver ounces |
| 310,791 |
| 9,489 |
|
Gold ounces |
| 2,845 |
| 75 |
|
Silver equivalent ounces (70:1) |
| 509,941 |
| 14,739 |
|
Lead - pounds (000) |
| 720 |
| 40 |
|
Zinc - pounds (000) |
| 927 |
| 34 |
|
(1) Mining and processing activities were suspended at the Velardeña Properties on June 19, 2013.
(2) Mining activities at the Velardeña Properties recommenced on July 1, 2014 and processing activities recommenced on November 3, 2014.
(3) Current payable metals and recoveries include final metal settlements pertaining to sales of previously reported payable metals.
Following the shutdown of the Velardeña Properties in June 2013, we continued to develop and evaluate plans to restart mining. We completed this evaluation and new mine plans in the second quarter 2014 and on July 1, 2014 we restarted mining at the Velardeña Properties and began processing material from the mine on November 3, 2014. As discussed above, during 2014 we generated payable metals totaling approximately 42,000 silver equivalent ounces (equivalents calculated at 70:1 silver to gold) and included approximately 29,000 ounces of silver and 194 ounces of gold. In 2015 we expect output of approximately 0.8 to 1.0 million silver equivalent ounces (including silver and gold but excluding lead and zinc and calculated at a ratio of 70 silver ounces to 1 gold ounce), with cash costs in 2015 between $12.00 and $15.00 per payable silver ounce net of by-product gold, lead and zinc credits, assuming a price for gold of $1,250 per ounce. “Cash costs per payable silver ounce, net of by-product credits” is a non-GAAP financial measure defined below in “Item 7: Management’s Discussion and Analysis—Non-GAAP Financial Measures”.
We completed the evaluation of a 9,000-meter drill program at the Velardeña Properties during June 2014 in vein systems located largely outside the boundaries of our 2012 mineralized material estimate. This drill program represents the first known drilling of the Terneras and Roca Negra vein sulfides in the area below the historic Terneras mine workings.
We reopened Velardeña as a leaner and lower cost mine, with new management throughout the mine. We have hired 177 new employees under a new labor union agreement and are mining two ten-hour shifts per day. To date, we are employing approximately 250 people at the Velardeña Properties. This is about half of the employees prior to the June 2013 shutdown when we were running both sulfide and oxide plants and processing approximately 500 tpd.
Under our new mine plan, we are using shrinkage stope mining, standard mechanized cut and fill and an overhand cut and fill mining method and slusher mucking in the stopes in the narrower veins. This later mining method should allow us to mine vein widths as narrow as 0.5 meters, which should significantly decrease dilution and allow higher grade material to be hauled to the mill. For conservative planning purposes, we have assumed dilution of the veins to one meter widths. We are removing material from the mine using the new 1.9 kilometer San Mateo access ramp, which we completed prior to suspending mining in June 2013. This ramp is providing more efficient and lower cost removal of mined material compared to pre-suspension haulage primarily from a low capacity internal shaft. The mining plan calls for the processing of mined material to make silver and gold bearing lead, zinc and pyrite concentrates. In 2014 we processed mined material to make silver and gold bearing lead and zinc concentrates, and in 2015 we expect to also make saleable pyrite concentrates.
During 2014 we focused on mining on the San Mateo, Terneras and Roca Negra veins. Drilling results and metallurgical studies indicate that these sulfide veins, mined minimally in the past, contain higher grade material over more consistent widths in the 0.5 to 1.0 meter range, with significantly lower arsenic levels than those in the Santa Juana vein system that was the focus of our previous mining activity. We expect that the lower arsenic will allow for improved payment terms and metallurgical recovery of the metals. The Roca Negra vein, not considered in the initial restart plan, should add greater flexibility in achieving the objectives of the mine plan, providing an additional vein for mining. In 2015 we expect mining to focus primarily on the Terneras, Roca Negra and San Mateo veins with some feed coming from the Santa Juana vein.
We began processing material through the sulfide mill in November 2014. During November 2014 we tested new equipment in the mill including a revamped electrical system, concentrate filters for our concentrate products, refurbished flotation cells and other equipment. Grades were low in November 2014 as we processed material from stope access drifts and raises to test plant circuits that
were refurbished as part of the restart. Average grades in November were 109 grams per tonne silver and 1.3 grams per tonne gold with payable metals generated from the processing facilities of approximately 12,000 silver equivalent ounces, which is exclusive of process inventory in the circuit that required build up. In December 2011, and currently forecast 2012 production.
| Sep - Dec 2011 Actual | First Quarter 2012 | Second Quarter 2012 | Third Quarter 2012 | Fourth Quarter 2012 | Full Year 2012 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Production (payable metals) | |||||||||||||||||||
Gold (oz) | 1,300 | 1,300 | 2,000 | 2,600 | 3,100 | 9,000 | |||||||||||||
Silver (oz) | 90,000 | 90,000 | 150,000 | 230,000 | 270,000 | 740,000 |
In order2014 the mill began operating at nearly full capacity of an average 264 tpd. We are continuing to ramp up to the 285 tpd rate, which we expect to achieve these production increases, we remain focused on improving head gradelate in the first quarter 2015. Average grades in December had increased to 127 grams per tonne silver and recoveries.1.8 grams per tonne gold with payable metals generated from the processing facilities of approximately 31,000 silver equivalent ounces. We haveexpect feed material grades to gradually increase through the second quarter of 2015 as new stopes in the mine are developed and access to the Terneras vein increases. We also commenced plant optimization and other workcontinue to improve recoveries and product quality in bothactively search for oxide feed from outside sources, which could enable us to restart the oxide plant.
Product Mix
Our mining plan calls for the processing of mined material to make silver and sulfide plants. Based on these efforts,gold bearing lead, zinc and pyrite concentrates. In 2014 we sold from the Velardeña Properties lead and zinc concentrates containing payable quantities of silver, gold, lead and zinc, selling approximately 16,000 ounces of silver and approximately 95 ounces of gold. Silver sales accounted for approximately 70% and 65% of our revenue from saleable metals during 2014 and 2013, respectively, while gold sales accounted for approximately 30% and 35% of our revenue from saleable metals during 2014 and 2013, respectively. Except as otherwise noted, the information below discusses the product mix for 2014, which we expect to be representative of the product mix during 2015.
Concentrates
The sulfide plant at the Velardeña OperationsProperties contains a typical flotation circuit that processes material from the Velardeña Properties into lead, zinc and pyrite concentrate products.
Lead concentrates comprise approximately 50% to be operationally cash flow positive60% of total concentrate products from the sulfide plant. The lead concentrates have typical assays of 30% to 35% lead, 5,000 to 6,000 grams per tonne silver, 25 to 35 grams per tonne gold, 4% to 5% zinc and 3% to 5% copper. After metal deductions, we are typically paid for 95% of contained lead, silver and gold. Concentrate treatment charges are negotiated annually and generally reflect market terms for the industry for similar products. Treatment charges in mid-year 2012 at current metals prices.2014 were approximately $300.00 per tonne. Additional charges are incurred for silver and gold refining, and penalties are assessed for certain elements, such as arsenic and antimony that exceed agreed limits.
Zinc concentrates comprise approximately 40% to 50% of total concentrate products from the sulfide plant. The zinc concentrates have typical assays of 50% to 55% zinc, 500 to 600 grams per tonne silver, 1 to 2 grams per tonne gold and 1% to 2% lead. After metal deductions, we are typically paid for approximately 80% of contained zinc and 55% of silver with lesser amounts payable for the contained gold. Concentrate treatment charges are negotiated annually and generally reflect market terms for the industry for similar products. Treatment charges in 2014 were approximately $260.00 per tonne. Additional charges are incurred for silver and gold refining, and penalties are assessed for certain elements, such as arsenic, that exceed agreed limits.
We did not sell any pyrite concentrates during 2014 because the contained silver and gold in the pyrite concentrates were too low to provide economic value. Ore grades for silver and gold are anticipated to increase during 2015. We anticipate generating and selling pyrite concentrates, in addition to the lead and zinc concentrates that are generated currently. To provide economic value, pyrite concentrates generally must have assays of greater than 12 to15 grams per tonne gold. The pyrite concentrates will also typically contain approximately 200 grams per tonne silver and 33% to 38% sulfur. In 2013, when we previously made pyrite concentrates, we were paid for approximately 60% to 65% of the contained gold and incurred treatment charges of approximately $260.00 per tonne with additional penalties assessed for certain elements, such as zinc and copper, that exceed agreed upon limits. Concentrate treatment charges are negotiated annually and generally reflect market terms for the industry for similar products. Treatment charges can vary significantly depending on the gold content of the pyrite concentrate.
In 2014 we incurred approximately $55,000 in smelting and refining charges and approximately $10,000 in penalty charges, primarily for arsenic and antimony included in our lead and zinc concentrates. Treatment and penalty charges are netted against revenue in our consolidated statement of operations.
Customers
During 2014 all of our revenues from mining were attributable to the sale of products from the Velardeña Properties, including lead and zinc concentrates. In 2014 we sold lead and zinc concentrate products to one customer under an exclusive contract that will expire on March 31, 2015. Our sales contract includes terms typical for the industry, including deductions for smelting and refining charges (or treatment charges) and penalties for contaminates present in our products sold.
Our customer contracts, including our one customer contract through March 31, 2015, are such as ordinarily accompany the kind of business conducted by us and our subsidiaries and are entered into in the ordinary course. Typically our customer contracts are not material in amount, and any contract that is material in amount is not a contract on which our business is substantially dependent.
Most of our customer contracts are for a term of one year or less, and many of the contract terms are negotiable during the term of the contract. The global silver and gold markets are competitive with numerous refineries willing to buy concentrates on short notice. If any one of our customer contracts were terminated, we have identified other customers during the bidding process as additional avenues in which to sell our product. We do not believe that a loss of one particular customer would materially delay, disrupt or reduce revenues in the future.
Environmental Matters and Permitting
We have conductedhold environmental audits of thelicenses and environmental impact assessments that allow us to run our mines, plants and tailing facilities at our Velardeña OperationsProperties. In environmental reviews conducted in 2011, 2012 and 2013, we identified non-compliance matters related to our mining and processing activities that will bewere remediated, including general site clean-up and permit renewals. We currently do not expect thatrecently retained a consultant to complete an environmental review to identify and address any current non-compliance items. In 2012, for the cost of remediating or otherwise addressing these issues will exceed $200,000. In early 2012,sulfide plant, we applied for and were accepted into the Mexican National Environmental Auditing Program ("NEAP"(“NEAP”). Under NEAP, we will participate in an audit program to verify compliance with existing regulations and identify non-regulated potential issues that could result in environmental contingencies. Under the program, we will receive recommendations regarding steps to be taken to achieve compliance, following, which we can agree to a schedule for achieving compliance. If we comply with the recommendations, we will obtain a "clean industry" certification issued by the Mexican government.
We hold various permits required for conducting our current operations at the Velardeña Operations, and our participation in NEAP allows uscompanies to continue our current operationsmining activities during the remediation of non-compliance matters. In June 2013, when we suspended mining activities at the Velardeña Properties, we suspended our participation in NEAP. Once we complete the 2015 environmental review, we plan to re-apply for acceptance into the NEAP for the sulfide plant.
We are required to update our environmental licenses and environmental impact assessments for any expansion of or modification to any of the existing two plants. The construction of new infrastructure beyond the current plant facilities also would require additional permitting, includingwhich could include environmental impact assessments and land use permits. We do not expect to have difficulty obtaining additional permits or environmental impact assessments.
United Mexican StatesCertain Laws Affecting Mining in Mexico
Mexico, officially the United Mexican States, is a federal constitutional republic in North America and bordered by the United States of America, Belize and Guatemala. Mexico is a federal democratic republic with 31 states and one federal district. Each state has its own constitution and its citizens elect a governor, as well as representatives, to their respective state congresses. The President of Mexico is the head of the executive federal government. Executive power is exercised by the President, while legislative power is vested in the two chambers of the Congress of the Union. The three constitutional powers are the Judiciary, the Executive and the Legislative,Legislature which are independent of each other.
Certain Laws Affecting Mining in Mexico
Legislation Affecting Mining
The Mining Law, originally published in 1992 and amended in 1996, 2005 and 2006, is the primary legislation governing mining activities in Mexico. Other significant legislation applicable to mining operations in Mexico includes the regulations to the Mining Law, the Federal Law of Waters, the Federal Labour Law, the Federal Law of Fire Arms and Explosives, the General Law on Ecological Balance and Environmental Protection and regulations, the Federal Law of Duties and the Federal Law on Metrology and Standards.
The Concession System
Under Mexican law, mineral resourcesdeposits are property of the Mexican republic, and a mining concession, granted by the Executiveexecutive branch of the federal government, is required for the exploration, exploitation and processing of mineral resources.deposits. Mining concessions may only be granted to Mexican individuals domiciled in Mexico or companies incorporated and validly existing under the laws of Mexico. Mexican companies that have foreign shareholders must register with the National Registry of Foreign Investments and renew their registration on an annual basis. Mining concessions grant rights to explore and exploit mineral resourcesdeposits but do not grant surface rights over the land where the concession is located. Mining concession holders are required to negotiate surface access with the land owner or holder (e.g., agrarian communities) or, should such negotiations prove unsuccessful, file an application with the courtscorresponding administrative authority (Ministry of Economy or Ministry of Agrarian-Territorial-Urban Development) to obtain an easement, temporary occupancy, or expropriation of the land, as the case may be. An application for a concession must be filed with the Mining Agency or Mining Delegation located closest to the area to which the application relates.
Mining concessions have a term of 50 years from the date on which title is recorded in the Public Registry of Mining. Holders of mining concessions are required to comply with various obligations, including the payment of certain mining duties based on the number of hectares of the concession and the number of years the concession has been in effect. Failure to pay the mining duties can lead to cancellation of the relevant concession. Holders of mining concessions are also obliged to carry out and prove assessment works in accordance with the terms and conditions set forth in the Mining Law and its regulations. The regulations to the Mining Law establish minimum amounts that must be spent or invested on exploration and exploitationmining activities. A report must be filed in May of each year regarding the assessment works carried out during the preceding year. The mining authorities may impose a fine on the mining concession holder if one or more proof of assessment workswork reports is not timely filed.
Pursuant to amendments to the federal corporate income tax law, effective January 2014, additional duties are imposed on mining concession holders; see “—Taxes in Mexico”.
Environmental Legislation
Mining development projects in Mexico are subject to Mexican federal, state and municipal environmental laws and regulations for the protection of the environment. The principal legislation applicable to mining projects in Mexico is the federal General Law of Ecological Balance and Environmental Protection, which is enforced by the Federal Bureau of Environmental Protection, commonly known as "PROFEPA"“PROFEPA”. PROFEPA is the federal entity in charge of carrying out environmental inspections and negotiating compliance agreements. Voluntary environmental audits, coordinated through PROFEPA, are encouraged under the federal General Law of Ecological Balance and Environmental Protection. PROFEPA monitors compliance with environmental legislation and enforces Mexican environmental laws, regulations and official standards. If warranted, PROFEPA may
initiate administrative proceedings against companies that violate environmental laws, which proceedings may result in the temporary or permanent closure of non-complying facilities, the revocation of operating licenceslicenses and/or other sanctions or fines. According to the Federal Criminal Code, PROFEPA must inform the relevant governmental authorities of any environmental crimes that are committed by a mining company in Mexico.
Concession holders may submit themselves to comply with the Mexican Official Norm: NOM-120-SEMARNAT-1997, which provides, among other things, that mining exploration activities to be carried out within certain areas must be conducted in accordance with the environmental standards set forth in NOM-120-SEMARNAT-1997; otherwise, concession holders are required to file a preventive report or an environmental impact study prior to the commencement of the exploration, exploitation and processing of mineral resources. However, an environmental impact study may not be necessary if the concessionaire files an application with the environmental authorities confirming the concessionaire'sconcessionaire’s commitment to observe and comply with NOM-120-SEMARNAT-1997.
In 2014 Mexico developed an Energy sector applicable to private investment companies whereby new mining concessions are now subject to prior approval from the Ministry of Energy. Current mining concessions forming the Velardeña Properties are not subject or affected by this approval requirement, but any new mining concessions acquired will be subject to this additional approval.
Mexico has a federal corporate income tax rate of 30%, which will decrease to 29% in 2013 and 28% in 2014, according to a transitory provision of the Income Tax law. Therethere are no state taxes on corporate net income. In determining their corporate income tax, entities are allowed to subtract from gross income various deductions permitted by law, and they are allowed a ten yearten-year carry-forward of net operating losses. OncePursuant to amendments to the federal tax laws effective January 1, 2014, a corporation has paid its income10% withholding tax after-tax earnings may beis charged on dividends distributed to the shareholders, with no tax charge at the corporate level and without income tax withholding regardless of the tax residence of the recipient. Foreignrecipient, out of after tax profits. A foreign resident companies arecompany is subject to income tax if they haveit has a permanent establishment in Mexico. In general, a permanent establishment is a place of business where the activities of an enterprise are totally or partially carried out and includes, among others, offices, branches and mining sites.
Mexico has several taxes in addition to income tax that are relevant to most business operations, including (i) the Single Rate Business Tax (the "Flat Tax"), Value Added Tax ("VAT"(“VAT”),; (ii) import duties,duties; (iii) various payroll taxes, andtaxes; (iv) statutorily entitled employee profit sharing ("PTU"(“PTU”). Annual; and (v) mining duties and royalties. In addition, annual mining concession fees are charged by the government, but there is no royalty on the extraction or sale of precious metals. The Flat Tax applies to taxpayers' income from worldwide sources, as well as to foreign residents on the income attributed to their permanent establishments located in Mexico, at a rate of 17.5%. In general, the Flat Tax follows a cash flow system, and in many ways operates similar to an alternative minimum tax. Any income tax effectively paid in the same fiscal year is creditable against the Flat Tax, thus entities will pay the higher of income tax or the Flat Tax in a given year. government.
VAT in Mexico is charged upon alienation of goods, performance of independent services, grant of temporary use or exploitation of goods, or import of goods or services that occur within Mexico'sMexico’s borders, at a rate of 16% except in certain border areas where the tax rate is 11%. There is no VAT in the case of export of goods or services or for the sale of gold, jewelry, and gold metalwork with a minimum gold content of 80%, excluding retail sale to the general public. The sale of mining concessions is subject to VAT as concessions are not considered to be land. VAT paid by a business enterprisesenterprise on theirits purchases and expenses may usually be credited against theirits liability for VAT collected from customers on theirits own sales. In addition, VAT may also be refunded, or overpayments may be used to offset tax liabilities arising from other federal taxes.
Import duties apply for goods and services entering the country, unless specifically exempted due to a free trade agreement or if registered under specific programs like IMMEX, under which we are currently registered. Payroll taxes are payable in most states including Durango, and social security, housing and pension contributions must be made to the federal government when paying salaries. Also, employees
Employees of Mexico entities are statutorily entitled to a portion of the employer'semployer’s pre-tax profits, called PTU. The rate of profit sharing is currently 10% of the employer'semployer’s taxable income as defined by the Income Tax law. Taxpayers are able toA taxpayer may reduce theirits income
tax base by an amount equal to the PTU.
Certain companies are exempt from paying PTU, which include companies in the extractive industry (principally the mining industry) during the period of exploration.
Under the 2013 amendments to the federal corporate income tax law, titleholders of mining concessions are required to pay an annual special duty of 7.5% of their mining related profits, determined by deducting from mining related revenues certain specified types of cash expenditures. Payment of the special duty will be due at the end of March each year commencing in 2015.
Titleholders of mining concessions also will be required to pay a 0.5% special mining duty, or royalty, on an annual basis, on revenues obtained from the sale of silver, gold and platinum. Similar to the 7.5% annual special duty, the 0.5% duty will be due at the end of March each year commencing in 2015.
El Quevar
Location and Access
Our El Quevar silver project is located in the San Antonio de los Cobres municipality, Salta province,Province, in the Altiplanoaltiplano region of northwestern Argentina, approximately 300 kilometers by road northwest of the city of Salta, the capital city of the province. The project is also accessible by a 300 kilometer dirt and gravel road from the city of Calama in northern Chile. The small village of Pocitos, located about 20 kilometers to the west of El Quevar, is the nearest settlement. We have established a camp approximately 10 kilometers west of the project which housesto house project workers. A high tension power line is located approximately 40 kilometers from the site, and a high pressure gas line devoted to the mining industry and subsidized by the Salta government is located within four kilometers of the El Quevar camp.
The El Quevar project is located near Nevado Peak with altitudes at the concessions ranging from 3,800 to 6,130 meters above sea level. The climate of the area is high mountain desert, with some precipitation in summer (as(such as snow) and little snow in winter.
The following map shows the location of the El Quevar project.
Property History
Mining activity in and around the El Quevar project dates back at least 80 years. Between 1930 and 1950, there was lead and silver productionextraction of mineralized materials from small workings in the area, but we do not have productionno mining records from that period. The first organized exploration activities on the property occurred during the 1970s, although no data from that period remains. Over the last 30 years, several companies have carried out exploration activity in the area, including BHP Billiton, Industrias Peñoles, Mansfield
Minerals and Hochschild Mining Group, consisting primarily of local sampling with some limited drilling programs in the area.programs.
Title and Ownership Rights
According to Argentine law, mineral resources are subject to regulation in the provinces where the resources are located. Each province has the authority to grant mining exploration permits and mining exploitation concession rights to applicants. The Federal Congress has enacted the National Mining Code and other substantive mining legislation, which is applicable throughout Argentina; however, each province has the authority to regulate the procedural aspects of the National Mining Code and to organize the enforcement authority within its own territory.
In the province of Salta, where the El Quevar project is located, all mining concessions are granted by a judge in the Salta Mining Court. The El Quevar project is comprised of exploitation concessions. Exploitation concessions are subject to a canon payment fee (maintenance fee) which is paid in advance twice a year (before June 30th and December 31st of each calendar year). Each time a new mining concession is granted, concession holders are exempt from the canon payment fee for a period of three years from the concession grant date. However, this exemption does not apply to the grant of vacant exploitation concessions; only to the grant of new mining concessions.
The El Quevar project is currently comprised of 32 exploitationmining concessions. We hold 31 of the concessions directly, and we control the Nevado I concession, located approximately four kilometers from the Yaxtché target, pursuant to a purchase option agreement from an existing third-partywith the third party concession owner. We made one payment in 2014 totaling $50,000 on the Nevado I option agreement. Our remaining payment on the Nevado I option agreement totals $750,000$550,000 and is due byhas been extended to June 22, 2012.2015. In total, the El Quevar project encompasses approximately 55,00059,000 hectares. The area of most of our exploration activities at El Quevar is within the concessions that are owned by Silex Argentina S.A., our wholly-owned subsidiary.
In addition, under the terms of an option agreement covering the El Quevar II concession and one-half of the Castor concession, which option we exercised and paid in full, we
We are required to pay a 1% net smelter return royalty on the value of all metalsminerals extracted from the El Quevar II concession and a 1% net smelter return royalty on one-half of the minerals extracted from the Castor concession.concession to the third party from whom we acquired these concessions. The Yaxtché targetdeposit is located primarily on or near these concessions.the Castor concession. We are also required to pay a 3% royalty to the Salta provinceProvince based on the mine mouth value of minerals extracted from any of our concessions. Also, toTo maintain all of the El Quevar concessions, in 2014, we make yearly aggregate rental paymentspaid canon payment fees to the Argentine government of approximately $27,000.$35,000. In 2015 we expect to pay approximately $110,000. The increase in 2015 and subsequent years is the result of a January 2015 amendment to the National Mining Code, increasing the annual canon payment by approximately four times.
The following El Quevar mine concessions are identified below by name and file number in the Salta Province Registry of Mines.
Name of Mine Concession | Concession | |
Quevar II | 17114 | |
Nevado I | 18359 | |
Quirincolo I | 18036 | |
Quirincolo II | 18037 | |
Castor | 3902 | |
Vince | 1578 | |
Armonia | 1542 | |
Quespejahuar | 12222 | |
Toro I | 18332 | |
Quevar Primera | 19534 | |
Quevar Novena | 20215 | |
Quevar Decimo Tercera | 20501 | |
Quevar Tercera | 19557 | |
Quevar Vigesimo Tercero | 21043 | |
Quevar 10 | 20219 | |
Quevar Vigesimo Primera | 20997 | |
Quevar Vigesimo Septima(1) | 22403 | |
Quevar IV | 19558 | |
Quevar Vigesimo Cuarto | 21044 | |
Quevar 11 | 20240 | |
Quevar Quinta | 19617 | |
Quevar 12 | 20360 | |
Quevar Decima Quinta | 20445 | |
Quevar Sexta | 19992 | |
Quevar 19 | 20706 | |
Quevar Vigesimo Sexta | 22087 | |
Quevar Vigesimo Segundo | 21042 | |
Quevar Séptima | 20319 | |
Quevar Veinteava | 20988 | |
MARIANA CANTERA | 15190 | |
Arjona | 18080 | |
Quevar Vigesimo Quinto | 21054 |
(1) The Quevar Vigesimo Septima concession is still undergoing the registration process with the Salta Province Mining Court. We expect final registration in the second quarter 2015.
The surface rights at El Quevar are controlled by the Salta Province. There are no private properties within the concession area. To date, no issues involving surface rights have impacted the project. Although we have unrestricted access to our facilities, we have recently applied for servitudesbeen granted easements to further protect our access rights.
Geology and Mineralization
The geology of the El Quevar project is characterized by silver-rich veins and disseminations in Tertiary volcanic rocks that are part of an eroded stratovolcano. Silver mineralization at El Quevar is hosted within a broad, generally east-west-trending structural zone and occurs as a series of north-dipping parallel sheeted vein zones, breccias and mineralized faults situated within an envelope of pervasively silicified brecciated volcanic rocks and intrusive breccias.rocks. There are at least three sub-parallel structures that extend for an aggregate length of approximately 6.5 kilometers. Several volcanic domes (small intrusive bodies) have been identified and mineralization is also found in breccias associated with these domes, especially where they are intersected by the structures. The silver mineralization at the Yaxtché zone is of epithermal origin. The cross-cutting nature of the mineralization, the assemblage of sulfide and alteration minerals, and the presence of open spaces with euhedral minerals, all point to an origin at shallow to moderate depths (a few hundred meters below surface) from hydrothermal solutions.
The Company expects to complete
During 2012 RungePincockMinarco (“RPM”) completed an updated technical report for theestimate of mineralized material at our El Quevar project nearproject. This SEC Industry Guide 7 estimate assumed mining of oxide material from an open pit on the east end of the first quarter of 2012 orYaxtché deposit and sulfide material from both the beginningopen pit and an underground mine on the western portion of the second quarter of 2012. The independent consulting firm of Pincock Allen & Holt has been retained to provide the updated report, in accordance with the requirements of the SEC's Guide 7 and NI 43-101.
Micon International Limited ("Micon") prepared a technical report for the El Quevar project in August 2010 in accordance with the requirements of the SEC's Guide 7 and NI 43-101. Data from 168 drill holes was used in the August 2010 estimate. The August 2010 resource estimate assumes
highly selective underground mining with continuity along strike and down dip supported by geologic interpretation of almost all holes logged to date in the mineralized zone. We have assumed concentration by flotation.
Yaxtché deposit. According to the August 2010 Micon technical report, estimatedRPM estimate, based on results from 270 core drill holes, mineralized material in the Yaxtché zone, at a cut-off grade of 26 grams per tonne silver for the open pit and 100 grams of silver per tonne silver for underground material, and using a three-year average silver price of $24.41 per ounce, was as follows:
Tonnes (000s) | Average silver grade (g/tonne) | |||
---|---|---|---|---|
902 | 310 |
Tonnes |
| Average silver |
|
6,024 |
| 147.5 |
|
The MiconRPM estimate includes a smaller tonnage of mineralized material in the possible open pit at a higher likely grade as compared to the technical report prepared by RPM pursuant to Canadian National Instrument 43-101 (“43-101”). In the RPM report pursuant to 43-101, RPM used inferred resources beneficially to the possible operation in the optimization of a resource level open pit. When preparing its mineralized material estimate assumed a three meter minimum mining width, which results in a partially diluted resource grade of drill hole assay values. Micon also capped the grade at 3,000 grams per tonne of silver for the entire resource. The capping technique tends to reduce the overall grade and contained ounces.
"Mineralized material" as used in this annual report, although permissible under SEC's Guide 7, does not indicate "reserves" by SEC standards. The Company cannot be certain that any part of the Yaxtché deposit will ever be confirmed or converted into SEC Industry Guide 7, compliant "reserves." Investors are cautionedRPM did not use the inferred resources calculated pursuant to assume that all or any part43-101 to beneficially optimize the pit. As such, optimization without the benefit of theinferred material yielded a smaller tonnage of mineralized material will ever be confirmed or converted into reserves or thatin the possible open pit at a higher likely grade as compared to the RPM report pursuant to 43-101.
For further detail regarding mineralized material, can be economically or legally extracted.see “CAUTIONARY STATEMENT REGARDING MINERALIZED MATERIAL”.
Drill cores are maintained in a secure facility at the
Exploration and Advancement of El Quevar campsite before and after splitting. Golden Minerals personnel were responsible for logging, sampling, splitting, and shipping cores to the laboratory facilities. The insertion of standards and blanks is carried out at the project site, while the duplicate coarse rejects and pulps are selected by each commercial laboratory. El Quevar samples have been analyzed at two independent laboratories. The quality assurance/quality control program used at El Quevar includes regular insertion and analysis of blanks and standards to monitor laboratory performance. Blanks are used to check for contamination and standards are used to check for grade-dependent biases. Duplicate samples are used to monitor sample batches for potential sample mix-ups and to monitor the data variability as a function of laboratory error and sample homogeneity. Standard reference materials were not inserted at the project site or at the lab after April 2011. Select high grade samples are being re-assayed.
Metallurgical Analysis
We have completed metallurgical analyses of composites made from core samples from the central and west portions of the El Quevar project. This test work was focused on determining the response to various types of processing and recovery methods, including whole ore cyanidation, sulfide flotation, and a combination of cyanidation of flotation concentrates and tailings leach. As drilling activities at El Quevar have continued, our understanding of the potential orebody has increased.
Exploration
The Yaxtché deposit is the primary target currently identified at the El Quevar project. As of February 2012, we have completed approximately 100,000 meters of diamond drilling in 400 drill holes. Of these holes, 272 were drilled to test the Yaxtché zone for potential mineralization, with about 75% of the holes intersecting significant silver mineralization. Our work indicatesWe believe that the Yaxtché deposit is at least 2 kilometers in strike length and is continuous laterally and to depths of more than 300 meters below surface in the main area. From the inception of our exploration activities in 2004 through December 31, 2011, we have spent approximately $65.0 million on exploration and related activities at El Quevar.
Advancement of El Quevar
Our early work at El Quevar indicated that underground mining of the Yaxtché deposit should be more economically feasible than open pit mining methods. Following initial drill programs, we determined to conduct underground drifting to provide us with more accurate and conservative data than relying solely on drilling results.
In 2011 the drifting encountered more than 40 mineralized structures believed to be tension faults that were not anticipated in the early modeling of the El Quevar deposit, in which mineral concentrations were modeled to follow the alteration envelope. Although the structures are narrow, generally less than a quarter of a meter in width, results from detailed sampling show that the structures tend to be of substantial grade, typically in excess of one kilogram per tonne of silver. Our evaluation of the features seen in the development drift should contribute to the understanding of these newly discovered structures and provide further information regarding confirmation of the mine model. We decided to delay completion of a NI 43-101 compliant Preliminary Economic Assessment and a planned mid-year 2011 resource update to allow further work to assess the impact that these newly discovered structures may have on the mining plan and global El Quevar resource.
Further drilling and analysis conducted during the remainder of 2011 suggested the El Quevar deposit may be amenable to bulk mining, which could include an open pit on the eastern and central areas of the Yaxtché deposit and bulk underground mining in the western area. Our work indicates that the Yaxtché deposit is at least 2 kilometers in strike length and is continuous laterally and to depths of more than 300 meters below surface in the main area. More recent results also support a possible eastward extension of the Yaxtché deposit and recognize an emerging new mineralized trend five kilometers north of the Yaxtché deposit. We continuedcontinue to encounter relatively wide, high grade silver intercepts during an additional 50-hole surface drill program.
In 2012 we expect to spend approximately $4.0 million athold our El Quevar projectproperty on holdingcare and maintenance costs and continued project evaluation. Followinguntil we can find a resource update expected near the end of the first quarter of 2012 or the beginning of the second quarter of 2012, we will consider completing a Preliminary Economic Assessment and may consider soliciting a joint venture partner.
Environmental Liability and Permitting
partner to fund further exploration. We have obtained allcompleted environmental baseline studies, and a further environmental impact assessment process would be required to support the permits necessary permits for our current exploration activities at the El Quevar project. In order to construct the underground driftconstruction and related workings as described above, we obtained a permit from the Mining Secretary of the Salta Province, Argentina in January 2010.mining. If the El Quevar project proceeds to development and construction, we willwould be required to obtain numerous additional permits from national, provincial and municipal authorities in Argentina. We have selected an environmental contractor, completed the environmental baseline studies, and initiated the environmental impact assessment process required to support the permits necessary for construction and operations. While
In 2014 we are not aware of any significant obstacle to obtaining the required permits, we have not yet formally begun to seek the necessary approvals.
Republic of Argentina
The Republic of Argentina is a federal republic located in South America and bordered by Chile, Bolivia, Paraguay, Brazil and Uruguay. The federal government coexists with the governments of 23 provinces and one autonomous city, Buenos Aires. Each province regulates its own administrative, legislative and judicial structure, complying with the republican system of government and the division of powers.
Certain Laws Affecting Mining in Argentina
According to Argentine law, mineral resources are subject to regulation in the provinces where the resources are located. Each province has the authority to grant exploration permits and exploitation concession rights to applicants. The Federal Congress has enacted the National Mining Code and other
substantive mining legislation, which is applicable throughout Argentina; however, each province has the authority to regulate the procedural aspects of the National Mining Code and to organize the enforcement authority within its own territory.
In the province of Salta, where the El Quevar project is located, all concessions are granted by a judge in the Salta Mining Court. The types of mineral concessions relevant to the El Quevar project are exploration concessions and exploitation concessions. Exploration concessions are granted for up to 1,100 days depending on the size of the concession. The size of an exploration concession must be reduced periodically unless the owner applies to the Salta Mining Court to convert it, orspent approximately $1.6 million at least part of it, to an exploitation concession. Exploitation concessions are subject to a yearly payment, which is fixed each year by the federal government. For 2011, we paid a total of approximately $27,000 to maintain our El Quevar exploitation concessions, and we expect our total payments in 2012 to be approximately the same. An exploration plan must be filed for each exploration concession along with an environmental report that must be approved by the provincial mining authority. Additional environmental reports are required on a bi-annual basis while the exploration concession is valid. Upon expiration of the exploration concession, all data and documentation from the activities carried out on the concession must be filed with the provincial mining authority.
Exploitation concessions may be granted if any mineral discovery is made either by the concessionaire or authorized third parties. An exploitation concession may be maintained indefinitely by timely payment of annual fees, capital investment, and continuity of work program (exploration, infrastructure, or mining). In addition to the annual payment of maintenance fees, metals mines in the Salta Province are subject to a mine mouth royalty of 3% of metals extracted.
Our activities in Argentina are also subject to both federal and provincial environmental laws and regulations. We currently expect the impact of such laws and regulations on our El Quevar project to be minimal. New legislation passed by Argentina's federal legislature intended to protecton holding and maintenance costs. From the country's glaciers could potentially affect the mining industryinception of our exploration activities in Argentina.2004 through December 31, 2014 we have spent approximately $74.2 million on exploration and related activities at El Quevar. In order to offset the effect of the new legislation, many provincial legislative bodies, including those in the province of Salta, have passed or have indicated that they2015 we expect to pass their own glacier-related legislation. Neither the federal nor the provincial legislation is currently expected to affect the El Quevar project.
Additionally, on October 26, 2011, the president of Argentina announced, by way of a presidential decree, that mining companies with operations in Argentina will now have to repatriate all their export proceeds. Under the new decree, all export revenues generated by mining companies will be repatriated into Argentina for local foreign-exchange conversion prior to transfer overseas. As such, if we ultimately produce minerals from thespend approximately $1.0 million at our El Quevar project in Argentina, the new repatriation policy may increase foreign exchange transactionon maintenance and holding costs.
Argentina has a federal income tax rate of 35%, and the income tax law allows for a five-year carryforward of net operating losses. Argentina has several taxes in addition to income tax. The more significant taxes under the general tax system include (i) a Value Added Tax ("VAT") charged at an average rate of 21% for the majority of goods and services provided in Argentina, as well as for imports into Argentina, unless specifically exempted, and which is refunded through exports or other procedures; (ii) an import duty for goods and services entering the country, unless specifically exempted due to the mining investment legislation or free trade agreements; (iii) a provincial gross receipts tax of 1% applied to non-exported sales transactions in addition to VAT; (iv) a minimum presumed tax equivalent to 1% of the total asset value of an entity; (v) a wealth tax of 0.5% of the equity value of an entity; (vi) a bank tax of 0.6% of each debit and credit transaction and (vii) a stamp tax of 1% applied over the gross value of executed agreements. For the metals extraction business, there is a 5% royalty on the mine mouth value of the mineral extracted for those companies not inscribed under the
Argentina Mining Investment Law (described below). Also, for exported minerals, Argentina imposes an export tax of 5% for silver doré and 10% for silver concentrates.
The tax laws applicable to exploration, prospecting, development, and mining extraction, as set forth in the Argentina Mining Investment Law, as well as other legislation provide for significant benefits to the general tax system for those companies inscribed under this law and which meet certain conditions. These benefits include: (i) fiscal stability; (ii) double deductions for certain exploration costs; (iii) voluntary accelerated depreciation; (iv) import duty exemptions; (v) an exemption from the minimum presumed tax, the provincial gross receipts tax and the stamp tax described in the previous paragraph; (vi) a decrease from 5% to 3% on the royalty on minerals extracted; and (vii) a partial refund of the export tax on doré and concentrate. A fiscal stability agreement with the federal government can be obtained with a term of 30 years from the date a project's economic feasibility is presented to the government along with the corresponding application. During the 30 year term, in general, a party to such an agreement with the federal government will not suffer a change in its total effective tax rate. New taxes or increases/decreases in tax rates could occur while keeping the effective tax unchanged. However, a fiscal stability agreement does not limit changes in VAT, contributions to the social security system, provincial mining royalty, indirect taxes, or partial refund of the export tax, and it does not prevent the government from extending rules passed for a specified term or exempt the government from eliminating tax exemptions that have a scheduled date of expiration. Also, for companies that initiate production, VAT paid on the import and purchase of goods and services is refunded through exports. On the other hand, for companies that do not initiate production, so long as the company remains an exploration company, VAT paid on the import and purchase of goods and services used to carry out exploration activities, that remains as a credit for greater than 12 months, may be refunded. Argentina also allows for the exemption from import duties when importing capital goods and special equipments or components, spare parts of said goods, or leased goods used to carry out mining and exploration activity defined by the Mining Department.
As mentioned in the preceding paragraph, the Argentina Mining Investment Law provides a double deduction on certain mining related costs. If we begin production at El Quevar, activities such as prospecting, exploration, special studies of mineralogy, metallurgy, feasibility and pilot plant studies may be offset 100% against taxable profits, and such costs may also be depreciated for tax purposes. In addition, we may benefit from tax depreciation on an accelerated basis on investments in infrastructure, machinery, equipment and vehicles used in developing production capacity or carrying out new mining projects.
Exploration Properties
In addition to El Quevar, we currently control a portfolio of approximately 8030 exploration properties located primarily in certain traditional precious metals producing regions of Mexico and South America,Mexico. We do not consider any of our exploration properties to be material, including severalthose noted below.
In 2015 we plan to focus propertiesour exploration efforts on selected targets in Mexico. We are focused on establishing a second group of mining assets, which may include those recently acquired assets in the Zacatecas stateParral District in Chihuahua Mexico, in order to generate sufficient revenue, along with revenue from our Velardeña Properties, to fund our continuing business activities. During 2015 we expect our expenditures for the exploration program to total approximately $3.1 million, approximately $0.4 million of which is expected to be attributable to property holding costs in Mexico.
The Parral District
Los Azules (Mexico)
In 2013 we acquired the 233 hectare Los Azules property in Chihuahua, Mexico under a purchase agreement with Minera Socavato, a private Mexico mining company. The purchase agreement, which we can terminate at any time following a short notice period, requires a series of option payments over a four-year period totaling $2.0 million, with approximately $1.7 million to be paid in 2016 and 2017, and a 5% net smelter return royalty, half of which may be repurchased for $1.0 million.
The Los Azules property is located 20 kilometers west of San Francisco de Oro in southernmost Chihuahua, Mexico. Los Azules hosts a north south trending gold bearing epithermal quartz vein system cutting Tertiary felsic volcanics and a felsic hypabyssal stock. We hold the concessions in the Los Azules property through our wholly-owned Mexican subsidiary Minera de Cordilleras, S. De R.L. de C.V.
In the first quarter 2014, we completed a 2,000 meter drill program to test down dip targets on the previously mined vein system. Based on results from this phase one drilling program, we conducted a phase two drill program and have completed in both programs a total of 7,475 meters in 30 holes drilled from both surface and underground. Based on these drill results and underground sampling, we believe we have identified a silver and gold deposit and expect to issue a report regarding the results of these programs in the first quarter 2015.
Santa Maria (Mexico)
On August 1, 2014, we entered into an agreement giving us the right to acquire for $1.6 million the Santa Maria mine, a privately held property comprised of a single mining claim of 18 hectares near the Parral District of southern Chihuahua State, Mexico, located approximately 20 kilometers from the Los Azules project. We have commencedcompleted an initial drill program of 11 holes totaling 2,300 meters at Santa Maria and identified a processsilver and gold deposit. We expect to issue a report on the results in the first quarter 2015. Initial payments of rationalizing our current$190,000 have been made toward the purchase of the claim with the next optional payment of $410,000 due in April 2015, and subsequent payments of $500,000 due every six months until the full $1.6 million is paid.
Celaya
Our Celaya properties total 6,000 hectares encompassing a strongly developed alteration system on the main Mexico Silver Belt trend located approximately 10 km east of the Plata Latina Naranjillo discovery and 50 km southeast of the historic and producing veins of the Guanajuato district. Since 2012 we have been conducting mapping and sampling exploration portfolioactivities on the properties. In 2015 we plan to drill test northwest trending, southwest dipping structures we believe represent the tops of epithermal veins. Clay and we expectsilica alteration hosting strongly anomalous arsenic and antimony values characterize these target areas at surface. We plan to start a 2,000 meter initial drill program in the potential monetizationfirst half of selected assets to generate value as well as significantly reduce greenfield exploration expenditures in 2012 and going forward.2015.
Other
Zacatecas (Mexico)
Our 100% controlled Zacatecas silver and base metals project in Mexico is in an advanced stage of exploration. Although we believe that the Zacatecas project may contain significant silver and other mineralization, we have not completed a feasibility study on the property, and the property may not advance further.
Location and Access
The Zacatecas Mining District is located in the central part of Mexico, in the Faja de Plata mineral belt. Our Zacatecas project surrounds the municipalities of Zacatecas, Veta Grande, Guadalupe, Pánuco, and Morelos in the state of Zacatecas, Mexico. All of our Zacatecas properties can be easily reached within 10 kilometers from the city of Zacatecas by paved and dirt roads. A location map is shown below.
Title and Ownership Rights
We own or control approximately 195149 concessions totaling approximately 15,0007,900 hectares in the Zacatecas project. Of these concessions, all but five are currently owned exclusively by us, and those five are under our exclusive control under purchase options with private third-party owners. The purchase options require option payments of $386,500 in 2012.
To maintain all of the concessions in the Zacatecas project, we also pay approximately $160,000$120,000 per year to the Mexican government. We are party to a finder'sfinder’s fee agreement with an individual, which requires that we pay a 1% net smelter return royalty on any mineral production from certain of our Zacatecas claims. We also have the obligation to pay a 1% net smelter return royalty on the San Sabino concession, which we may buy back for $1.0 million and a 2% net smelter return royalty on the San Gil concession. For the San Gil concession, whichon the first anniversary of production, we have the optionwill be required to purchase the San Gil royalty for $575,000.
Property History
The Zacatecas Mining District is located in At that time we will no longer be obligated to pay the central part of Mexico, in the Faja de Plata mineral belt. A map of the mineral belt is shown below. Production from the Zacatecas district is estimated by the Mexican Federal Mining Agency to exceed 750 million ounces of silver. The existence of mining operations or mineral deposits on adjacent properties is not indicative of whether mineral deposits occur on our properties.
Exploration Activities
From 1994 to 2005, we performed sporadic reconnaissance work on some of the Zacatecas concessions, including taking approximately 2,000 surface samples. In 2006, we began systematic reconnaissance work on all concessions that we controlled. On the basis of this and our previous work in the Zacatecas region, we identified the Pánuco, Muleros, El Cristo, San Manuel-San Gil, San Pedro de Hercules, and Adriana areas of interest. In these areas, we performed more detailed mapping work, as well as trenching and detailed sampling, and in the Muleros area, we completed a two-stage diamond drilling program of 37 holes totaling approximately 6,800 meters. We have also completed a three stage drilling program at the Pánuco target, which is located in the northeastern part of the Zacatecas district. At the Adriana area, located in the southern part of the Zacatecas district, we completed a program of drilling that included twelve diamond core holes totaling approximately 7,300 meters. We believe that each of the target areas has potential for the discovery of silver with associated base metals and gold. We have spent approximately $15.0 million through December 31, 2011 on exploration and property acquisition in the Zacatecas Mining District.
Geology and Mineralization
At a regional level, the Zacatecas Mining District is located within the physiographical provinces of the Western Sierra Madre and the Central Plateau. The basement rock units in the area include the metamorphic rocks of the Zacatecas Formation of Upper Triassic age. Overlying these rocks are the
volcano-sedimentary units of the Chilitos Formation of Upper Jurassic-Lower Cretaceous age. During the Tertiary period, a polymictic conglomerate known as the "Red Zacatecas Conglomerate" was discordantly deposited, and overlying this, andesitic to rhyolitic flows and tuffs were deposited. All units are intruded by small stocks and plugs of rhyolitic to andesitic composition.2% royalty.
The Zacatecas Formation is composed of a sequence of sericitized phyllites and metamorphosed shales, sandstones, conglomerates and limestones. These rocks are host to some veins such as those of the El Bote vein system and the deeper portions of the Mala Noche vein system.
The Chilitos Formation of Upper Jurassic-Lower Cretaceous age is a volcano-sedimentary sequence made up of massive and pillowed lavas of basaltic-andesitic composition with intercalations of sedimentary, volcaniclastic and calcareous rocks, metamorphosed to greenschist facies. This sequence is locally thrust over the Zacatecas Formation and is the main host rock for mineral systems in several mining districts in the region, including Zacatecas and Fresnillo.
During the Oligocene-Miocene period, extensive deformation occurred that produced normal faulting, forming grabens and horsts bearing generally north-northeast/south-southwest. It was during this phase of deformation that most of the epigenetic mineral deposits were formed.
Pánuco
The Pánuco target area is located in the northeastern part of the Zacatecas district about 10 kilometers east of the Muleros area and is comprised of two main veins hosted in sedimentary rocks that outcrop for an aggregate of about five kilometers in a northwesterly direction. Vein widths range from one to three meters. Several small pits indicate mining of silver from oxidized surface rocks during Colonial times. There has been no modern exploration at Pánuco other than our activities. We have mapped the area in detail and collected approximately 400 samples from the veins and wall rocks.
We have completed a total of 74 holes at Pánuco, including a third phase drill program consisting of 40 diamond core holes at an estimated cost of approximately $1,300,000. Our work indicates that the mineralization at Pánuco is reasonably continuous along strike and at depth. We are analyzing the information from this work to determine the next phase for the project.
Adriana
We have identified a prospective copper-silver target in the southern part of the Zacatecas district. The Adriana area is located to the west of Capstone Mining's Cozamin mining property, where they announced the discovery of significant copper-silver mineralization in the footwall of the Mala Noche vein, the principal host of the mineralization in the Cozamin mine. Our claims abut the Capstone claims immediately to the west of their property. We have determined that both the Mala Noche structure and the footwall structure extend onto our property. Our mapping and sampling has traced these structures for more than one kilometer to the west and northwest, and we have obtained copper, zinc and silver values from sampling that appear to be consistent with the upper part of the Mala Noche vein. Capstone has drilled at least six exploration holes within 25 meters of our common property boundary. We completed a program of drilling that included twelve diamond core holes totaling approximately 7,300 meters to test the Mala Noche structures. We intercepted zinc rich sulfide bearing vein material with associated silver and copper in ten of the twelve drill holes. We are analyzing our results to determine the next phase of work at Adriana.
San Diego (Mexico)
Following our business combination with ECU in September of 2011, we
We own a 50% interest in the San Diego silver and gold exploration property, which is subject to a joint venture agreement between ECU and Golden Tag Resources Ltd. (“Golden Tag”), with each company holding 50% of the joint venture. The
property consists of four concessions and the operationsexploration activities of the joint venture are currently being managed by Golden Tag. Until March 2015, Golden Tag has the option to earn an additional 10% interest in this joint venture by making expenditures related to further exploration drilling and completing an updated resource assessment. We hold the concessions in the San Diego property through our wholly-owned Mexican subsidiary Minera William S.A. de C.V.
The San Diego property, located in the State of Durango, Mexico, is situated approximately nine kilometers northeast of the Velardeña propertyProperties and contains the La Cruz-La Rata and El Trovador mines as well as a number of other shallower shafts which were sunk on narrower veins such as the Cantarranas, Montanez and El Jal. The mineralization at San Diego is similar in many respects to that at our Velardeña OperationsProperties but appears to contain less gold. During 2011, the joint venture conducted a Phase 5 program of diamond core drilling to test for continuity of the narrow veins and other mineralization at depth and along strike. The program included 11 holes totaling about 10,400 meters. We intercepted the targeted veins and other mineralized zones in most of the holes. The results of this work are being compiled and analyzed to determine the next phase of work.
Farm-outs, Royalties and Other Dispositions
Exploration properties that we determinechoose not to advance are evaluated for joint venture, sale of all or a partial interest and royalty potential. We currently have minority ownership interests and/or royalties in or have disposed of the following properties that were once part of our exploration portfolio:
Platosa·Zacatecas Royalty (Mexico). During 2004, we soldWith respect to Excellon the mineral rights tocertain concessions in a portion of our Platosa silver-lead-zinc propertyZacatecas project in Mexico and we retained a 3% net smelter return royalty interest over the portion sold. In November 2009, we sold our 49% joint venture interest in the Platosa project to Excellon. We received a cash payment of $2.0 million and converted our 3% net smelter return royalty in a portion of the property to a 1% net smelter return royalty over all of the Platosa property.
·
·Zacatecas Concessions (Mexico). During the issued and outstanding shares of a Bolivian subsidiary that held a 100% interestthird quarter 2014 we sold 45 mining concessions totaling 770 hectares located in the Paca PulacayoZacatecas District, Zacatecas State, Mexico, to Capstone Mining Group for the sum of $700,000 and recorded a $0.5 million gain on the sale.
· Minera Silex Peru Sale (Peru). During the third quarter 2014 we entered into an option agreement with a private party to sell our 1,100 hectare Peruvian Otuzco property for $450,000. At that time we had received $150,000 under this agreement, with the remainder payable in Bolivia. Pursuant to2015 if the agreement, Apogee issued to us 5,000,000 common shares, which we subsequently sold. In June 2012, Apogeeoption is required to issue to us an additional 3,000,000 common sharesmaintained and pay us $500,000.exercised.
Executive Officers of Golden Minerals
Name | Age | Position | |||||||
---|---|---|---|---|---|---|---|---|---|
Jeffrey G. Clevenger | 65 | Chairman, President and Chief Executive Officer | |||||||
| |||||||||
Deborah J. Friedman(1) | 62 | Senior Vice President, General Counsel and Corporate Secretary | |||||||
Warren M. Rehn | 60 | Senior Vice President, Exploration and Chief Geologist | |||||||
Robert P. Vogels | 57 | Senior Vice President and Chief Financial Officer |
(1)Ms. Friedman is a partner at Davis Graham & Stubbs LLP and devotes approximately half her time to service as Senior Vice President, General Counsel and Corporate Secretary of Golden Minerals.
Jeffrey G. Clevenger. Mr. Clevenger has served as our Chairman of the Board and as our President and Chief Executive Officer since March 2009. He served as a director and President and Chief Executive Officer of Apex Silver from October 2004 throughuntil March 2009. Mr. Clevenger worked as an independent consultant from 1999 when Cyprus Amax Minerals Company, his previous employer, was sold until he joined us in 2004. Mr. Clevenger served as Senior Vice President and Executive Vice President of Cyprus Amax Minerals Company from 1993 to 1998 and 1998 to 1999, respectively, and as President of Cyprus Climax Metals Company and its predecessor, Cyprus Copper Company, a large integrated producer of copper and molybdenum with operations in North and South America, from 1993 to 1999. He was Senior Vice President of Cyprus Copper Company from August 1992 to January 1993. From 1973 to 1992, Mr. Clevenger held various technical, management and executive positions at Phelps Dodge Corporation, including President and General Manager of Phelps Dodge Morenci, Inc. He is a Member of the American Institute of Mining, Metallurgical and Petroleum Engineers and the Metallurgical Society of America. Mr. Clevenger holds a B.S. in Mining Engineering with Honors from the New Mexico Institute of Mining and Technology and is a graduate of the Advanced International Senior Management Program of Harvard University.
Jerry W. Danni. Mr. Danni was appointed Executive Vice President on May 27, 2010, after serving as Senior Vice President, Corporate Affairs since March 24, 2009. Mr. Danni joined Apex Silver Mines Limited in February 2005 as the Senior Vice President, Environment, Health and Safety and in March 2005 was appointed Senior Vice President, Corporate Affairs. Prior to joining Apex Silver Mines Limited, Mr. Danni served as Senior Vice President, Environment Health and Safety of Kinross Gold Corporation from January 2000 until February 2005 and as Vice President, Environmental Affairs from July 2000 until January 2003. While at Kinross he was instrumental in the design and implementation of integrated environmental, and health and safety systems and processes for Kinross operations worldwide, and was also responsible for management of the Reclamation Operations Business Unit. From 1994 to July 2000, Mr. Danni was the Vice President of Environmental Affairs for Cyprus Climax Metals Company. Prior to working for Cyprus, Mr. Danni held senior environmental, and health and safety management positions with Lac Minerals Ltd. and Homestake Mining Company. Mr. Danni holds a B.S. in Chemistry from Western State College, and is a member of the Society of Mining Engineers and a past director of the National Mining Association.
Deborah J. Friedman. Ms. Friedman was appointed Senior Vice President, General Counsel and Corporate Secretary onin March 24, 2009. She was previously appointedserved as Senior Vice President, General Counsel and Corporate Secretary of Apex Silver Mines Limited infrom July 2007.2007 until March 2009. Ms. Friedman is also a partner at Davis Graham & Stubbs LLP, where her practice focuses primarily on securities, finance and transactional matters for publicly-traded mining companies. She was on leave from Davis Graham & Stubbs LLP from July 2007 to May 2009 while she was employed by Apex Silver Mines Limited.Silver. Ms. Friedman has been a partner at Davis Graham & Stubbs LLP since August 2000, and she was of counsel to the firm from May 1999 through August 2000. From 1982 through 1994, Ms. Friedman held
various positions in the law department of Cyprus Amax Minerals Company, including General Counsel and Associate General Counsel, and served from 1994 to 1998 as the General Counsel of AMAX Gold Inc. Prior to working for Cyprus, Ms. Friedman was an associate in several Denver law firms from 1977 to 1982. Ms. Friedman holds a B.A. in History from the University of Illinois and a J.D. from the University of Michigan Law School.
Warren M. Rehn. Mr. Rehn was appointed Vice President, Exploration and Chief Geologist onin February 13,2012 and subsequently promoted to Senior Vice President, Exploration and Chief Geologist in December 2012. From 2006 until February 2012, Mr. Rehn held various positions at Barrick Gold Exploration, Inc., serving most recently as Chief Exploration Geologist.Geologist for the Bald Mountain and Ruby Hill mining units. From 2005 until 2007, Mr. Rehn was a consultantconsulting geologist for Gerson Lehman Group, which provides consulting services to various industries, including geology and mining. Mr. Rehn served as a Consulting Senior Geologist at Placer Dome Exploration, Inc. in 2004 and as an independent consulting geologist throughout the Americas from 1994 until 2003. He served as a Senior Geologist at Noranda Exploration, Inc. from 1988 until 1994. Mr. Rehn holds an M.S. in Geology from the Colorado School of Mines and a B.S. in Geological Engineering from the University of Idaho.
Robert P. Vogels. Mr. Vogels was named Senior Vice President and Chief Financial Officer onin March 24, 2009. Mr. Vogels served as Controller of Apex Silver from January 2005 to March 2009 and was named Vice President in January 2006. Prior to joining Apex Silver, Mr. Vogels served as corporate controller for Meridian Gold Company from January 2004 until December 2004. He served as the controller of INCO Limited'sLimited’s Goro project in New Caledonia from October 2002 to January 2004. Prior to joining INCO, Mr. Vogels worked from 1985 through October 2002 for Cyprus Amax Minerals Company, which was acquired in 1999 by Phelps Dodge Corp. During that time, he served in several capacities, including as the controller for its El Abra copper mine in Chile from 1997 until March 2002. Mr. Vogels began his career in public accounting as a CPA. He holds a B.Sc. in accounting and an MBA degree from Colorado State University.
Board of Directors of Golden Minerals
Name | Age | Occupation | ||
Jeffrey G. Clevenger | 65 | Chairman, President and Chief Executive Officer, Company | ||
W. Durand Eppler (1),(3) | 61 | Partner, Sierra Partners, LLC | ||
Michael T. Mason (3) | 70 | Chief Executive Officer and Director, Geovic Mining Corporation | ||
Ian Masterton-Hume (2) | 64 | Corporate Director and Member, Sentient Business Council | ||
Kevin R. Morano (2),(3) | 61 | Managing Principal, KEM Capital LLC | ||
Terry M. Palmer (1),(3) | 70 | Principal, Marrs, Sevier & Company LLC | ||
Andrew N. Pullar | 43 | Chief Executive Officer and Director, The Sentient Group | ||
David H. Watkins (1),(2) | 70 | Chairman, Atna Resources Ltd. |
Committee Membership
(1) Audit
(2) Compensation
(3) Corporate Governance
Metals Market Overview
We are an emerging precious metals producerexploration company with silver and gold mining operationsproperties in Mexico and a large silver advanced exploration project in Argentina. Descriptions of the markets for these metals are provided below.
Silver has traditionally served as a medium of exchange, much like gold. Silver'sSilver’s strength, malleability, ductility, thermal and electrical conductivity, sensitivity to light and ability to endure extreme changes in temperature combine to make it a widely used industrial metal. While silver continues to be used as a form of investment and a financial asset, the principal uses of silver are industrial, primarily in electrical and electronic components, photography, jewelry, silverware, batteries, computer chips, electrical contacts, and high technology printing. Silver'sSilver’s anti-bacterial properties also make it valuable for use in medicine and in water purification. Additionally, the use of silver in the photovoltaic and solar panel industries is growing rapidly, and new uses of silver are being developed in connection with the use of superconductive wire and radio frequency identification devices.
Most silver productionproduct is obtained from mining operations in which silver is not the principal or primary product. The CPM Group, a precious metal and commodities consultant,Silver Institute, an international silver industry association, estimates in its Yearbook 20112014 World Silver Survey that approximately 80%only around 30% of minedoutput comes from so-called primary silver mines, where silver is produced as a by-productthe main source of mining lead, zinc, gold or copper deposits.revenue.
The following table sets forth for the periods indicated on the London Fix high and low silver fixes in U.S. dollars per troy ounce. On March 5, 2012,February 25, 2015, the closing price of silver was $34.18$16.51 per troy ounce.
|
| Silver |
| ||||
Year |
| High |
| Low |
| ||
2009 |
| $ | 19.18 |
| $ | 10.51 |
|
2010 |
| $ | 30.70 |
| $ | 15.14 |
|
2011 |
| $ | 48.70 |
| $ | 26.16 |
|
2012 |
| $ | 37.23 |
| $ | 26.67 |
|
2013 |
| $ | 32.23 |
| $ | 18.61 |
|
2014 |
| $ | 22.05 |
| $ | 15.28 |
|
2015* |
| $ | 18.23 |
| $ | 15.71 |
|
| Silver | ||||||
---|---|---|---|---|---|---|---|
Year | High | Low | |||||
2007 | $ | 15.82 | $ | 11.67 | |||
2008 | $ | 20.92 | $ | 8.88 | |||
2009 | $ | 19.18 | $ | 10.51 | |||
2010 | $ | 30.70 | $ | 15.14 | |||
2011 | $ | 48.70 | $ | 26.16 | |||
2012* | $ | 37.23 | $ | 28.78 |
*Gold Market
Through February 25, 2015.
Gold Market
Gold has two main categories of use: fabrication and investment. Fabricated gold has a variety of end uses, including jewelry, electronics, dentistry, industrial and decorative uses, medals, medallions and official coins. Gold investors buy gold bullion, official coins and jewelry. The supply of gold consists of a combination of production from mining and the draw-down of existing stocks of gold held by governments, financial institutions, industrial organizations and private individuals.
The following table sets forth for the periods indicated on the London Fix AM high and low gold fixes in U.S. dollars per troy ounce. On March 5, 2012,February 25, 2015, the closing price of gold was $1,698.00$1,204.75 per troy ounce.
|
| Gold |
| ||||
Year |
| High |
| Low |
| ||
2009 |
| $ | 1,218.25 |
| $ | 813.00 |
|
2010 |
| $ | 1,426.00 |
| $ | 1,052.25 |
|
2011 |
| $ | 1,896.50 |
| $ | 1,316.00 |
|
2012 |
| $ | 1,790.00 |
| $ | 1,537.50 |
|
2013 |
| $ | 1,693.75 |
| $ | 1,192.00 |
|
2014 |
| $ | 1,385.00 |
| $ | 1,142.00 |
|
2015* |
| $ | 1,275.95 |
| $ | 1,172.00 |
|
| Gold | ||||||
---|---|---|---|---|---|---|---|
Year | High | Low | |||||
2007 | $ | 841.75 | $ | 608.30 | |||
2008 | $ | 1,023.50 | $ | 692.50 | |||
2009 | $ | ,1218.25 | $ | 813.00 | |||
2010 | $ | 1,426.00 | $ | 1,052.25 | |||
2011 | $ | 1,896.50 | $ | 1,316.00 | |||
2012* | $ | 1,788.00 | $ | 1,590.00 |
Employees*Through February 25, 2015.
Employees
We currently have approximately 680293 employees, including 159 in Golden, approximately 600250 in Torreón, Mexico or at the Velardeña Operations, approximately 15Properties, 9 in Argentina in connection with the El Quevar project, and approximately 5025 in various foreign exploration offices.
CustomersCompetition
Following our business combination with ECU in September 2011, all of our revenues from mining operations have been attributable to gold and silver doré bars that we sold to a single customer pursuant to a purchase contract with a three year term expiring on September 17, 2013. Under the purchase contract, we are required to sell to the customer all of the doré bars produced from the Velardeña Operations. The doré bars sold to the customer are transported by truck from the Velardeña Operations to third party refineries, currently to a refinery located in Chicago, Illinois. The global gold and silver markets are competitive with numerous banks and refineries willing to buy doré on short notice. Therefore, we believe that the loss of this customer as the buyer of our doré bars would not materially delay or disrupt revenues. We also expect that, as our production increases beyond our doré production capacity, future sales of additional products, such as concentrates and precipitates, to other
third party refineries will generate an increasing portion of our revenues and decrease our reliance on the sale of doré bars.
Competition
There is aggressive competition within the mining industry for the acquisition and development of a limited number of mineral resource opportunities, and many of the mineral resource developmentmining companies with which we compete have greater financial and technical resources than we do. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, as well as on exploration and developmentadvancement of their mineral properties. We also compete with other mining companies for the acquisition and retention of skilled mining engineers, mine and processing plant operators and mechanics, geologists, geophysicists and other experienced technical personnel. Our competitive position depends upon our ability to successfully and economically developadvance new and existing silver and gold properties. Failure to achieve and maintain a competitive position could adversely impact our ability to obtain the financing necessary for us to developadvance our mineral properties.
Available Information
We make available, free of charge through our website atwww.goldenminerals.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act, of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after such material is electronically filed with or furnished to the United States Securities and Exchange Commission ("SEC").SEC. Information on our website is not incorporated into this annual report on Form 10-K and is not a part of this report. Additionally, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
Investors in Golden Minerals should consider carefully, in addition to the other information contained in, or incorporated by reference into, this annual report on Form 10-K, the following risk factors:
We have historically incurred operating losses and operating cash flow deficits and we expect we will continue to incur operating losses and operating cash flow deficits through 2012.2015; our potential profitability in the foreseeable future would depend on our ability to mine at our Velardeña Properties on a profitable basis and on our ability to generate sufficient revenue from other sources to fund our continuing activities.
We have a history of operating losses and we expect that we will continue to incur operating losses unless and until such time as our Velardeña Operations in Central Mexico, theProperties, our El Quevar project, in Argentina, or another of our exploration properties, including those recently acquired assets in the Parral District in Chihuahua Mexico, generates sufficient revenue to fund our continuing operations. Our current projectionbusiness activities. If we are successful at mining at the Velardeña Properties on a profitable basis, it is unlikely that revenues generated by productionthose activities will generate sufficient revenue to fund all of our continuing business activities as currently conducted. In that case, operating losses would continue until we develop or acquire
sufficient additional sources of revenue. There is no assurance that we will develop additional sources or revenue.
In addition, the potential profitability of mining and processing at ourthe Velardeña Operations will exceed our company-wide expenses by the end of 2012Properties is subject tobased on a number of assumptions. For example, we may not achieveprofitability will depend on metal prices, costs of materials and supplies, costs at the significant increases in production that we project to occur during 2012,mines and silverprocessing plants and gold prices may not average $30.00 per ounce and $1,500.00 per ounce, respectively. In addition, we expect our operating expenses, capital expenditures and other expenses will increase as we advance the anticipated expansion of the Velardeña Operations and exploration, development and commercial production of our properties. The amounts and timing of expenditures, will depend on the progress of our effortsand assumptions related to expand productionprofitability at other than the Velardeña Operations, advanceProperties could include expenditures to maintain our El Quevar project and to continue exploration at these and other exploration properties, the results of consultants' analyses and recommendations, the rate at which operating losses are incurred, prices for our saleable metals, costs of materials and supplies, the execution of any joint venture agreements withpotential strategic partners, if any, and our potential future acquisition of additional properties,acquisitions or other transactions, in addition to other factors, many of which are and will be beyond our control. If our expectations for 2012 proveWe cannot be certain we will be able to be incorrect, we could face substantialgenerate sufficient revenue from the Velardeña Properties or other sources, to achieve profitability and eliminate operating cash lossesflow deficits, or to cease to require additional funding.
We may require additional external financing to fund our continuing business activities in the future.
As of December 31, 2014, we had approximately $8.6 million in cash and be required to significantly change our operating and expansion plans. Wecash equivalents. With anticipated costs during 2015, we expect that our current cash and cash equivalent balance would be depleted to approximately $2.0 million by the advancementend of 2015. Even with the restart of mining at the Velardeña Properties in July 2014, our cash balance for 2015 might not be sufficient to provide adequate cash reserves in the event of decreasing metals prices, unexpected costs in connection with optimization of mining and processing at the Velardeña Properties or developmentto pursue further exploration of our properties in Mexico, requiring us to seek additional funding from equity or debt or from monetization of non-core assets.
We do not have a credit, off-take or other commercial financing arrangement in place that would finance our general and anyadministrative costs and other propertiesworking capital needs to fund our continuing business activities in the future, and we believe that securing credit for these purposes may acquire will requirebe difficult given our limited history and the commitmentcontinuing volatility in global credit and commodity markets. In addition, commercial financing arrangements may not be available on favorable terms or on terms that would not further restrict our flexibility and ongoing ability to meet our cash requirements over a reasonable period of substantial resources. There cantime. Access to public financing has been negatively impacted by the volatility in the credit markets and metals prices, which may affect our ability to obtain equity or debt financing in the future and, if obtained, to do so on favorable terms. We also may not be no assuranceable to obtain funding by monetizing additional non-core exploration or other assets at an acceptable price. We cannot assure you that we will continuebe able to generate revenuesobtain financing to fund our general and administrative costs and other working capital needs to fund our continuing business activities in the future on favorable terms or at all.
Since we have recommenced mining at our Velardeña Properties, we are likely to enter into a collective bargaining agreement with a union in the future and we will ever achieve profitability.remain subject to Mexican labor and employment regulations, which may adversely affect our mining activities and financial condition.
Prior to the suspension of our Velardeña Properties in June 2013, our employees in Mexico were represented by a union, and our relationship with our employees was governed by collective bargaining agreements. Upon recommencement of mining at our Velardeña Properties, our mining activities are not subject to collective bargaining agreements. However, we currently have an agreement with the union that allows us to mine without a full scale collective bargaining agreement, which we will likely have to enter into in the future. Any collective bargaining agreement that we enter into with the union may restrict our mining flexibility in and impose additional costs on our mining activities. In addition, relations between us and our employees in Mexico may be affected by changes in regulations or labor union requirements regarding labor relations that may be introduced by the Mexican authorities or by labor unions. Changes in legislation or in the relationship between us and our employees may have a material adverse effect on our mining activities and financial condition.
Our ability to successfully conduct mining and processing activities at our Velardeña Properties and potentially obtain long-term cash flow and profitability from our Velardeña Properties or other properties in the future will be affected by changes in prices of silver, gold and other metals.
Our ability to successfully conduct mining and processing activities at our Velardeña Properties, to establish reserves and advance our exploration properties, and to become profitable in the future, as well as our long-term viability, depend, in large part, on the market prices of silver, gold, zinc, lead, copper and other metals. The market prices for these metals are volatile and are affected by numerous factors beyond our control, including:
·global or regional consumption patterns;
·supply of, and demand for, silver, gold, zinc, lead, copper and other metals;
·speculative activities and hedging activities;
·expectations for inflation;
·political and economic conditions; and
·supply of, and demand for, consumables required for extraction and processing of metals.
The declines in silver and gold prices in 2013 and 2014 had a significant impact on our mining activities and a similar decline in these prices in the future could negatively affect mining activities at the Velardeña Properties. Additionally, future weakness in the global economy could increase volatility in metals prices or depress metals prices, which could also affect our mining and processing plans at our Velardeña Properties or make it uneconomic for us to engage in mining or exploration activities. Volatility or sustained price declines may also adversely affect our ability to build or continue our business.
Products processed from our Velardeña Properties could contain higher than expected contaminates, thereby negatively impacting our financial condition.
Our mining plan calls for the processing of mined material to make gold and silver bearing lead, zinc and pyrite concentrates. In 2014 we processed mined material to make gold and silver bearing lead and zinc concentrates, and in 2015 we expect to also make saleable pyrite concentrates. Concentrate treatment charges paid to smelters and refineries include penalties for certain elements, including arsenic and antimony that exceed contract limits. It is possible that our concentrates will contain higher amounts of these elements than we anticipate. This can occur due to unexpected variations in the occurrence of these elements in the material mined, problems that occur during blending of material from various locations in the mine prior to processing and other unanticipated events. If our concentrates include higher than expected contaminants, we would incur higher treatment expenses and penalty charges, which could increase our costs and negatively impact our business, financial condition and results of operations.
As a result of our business combination with ECU, presents challenges associated with integrating operations, personnel and other aspectswe have assumed all historical ECU liabilities, some of the companies and assumption of liabilities that may exist at ECU andwhich are known or which may bebecome known or unknown by Golden.Golden Minerals.
On
In September 2, 2011, we completed a business combination with ECU (the "Transaction"“Transaction”), which at that time owned and operated mines in the Velardeña Mining District in the State of Durango, Mexico that produce silver, gold, zinc and lead. Our future operating and financial results will depend in part upon our ability to integrate our business with ECU's business in an efficient and effective manner. Our efforts to integrate two companies that have previously operated independently mayProperties. As a result in significant challenges, and we may be unable to accomplish the integration smoothly or successfully. In particular, the necessity of coordinating geographically dispersed organizations and addressing possible differences in corporate cultures and management philosophies may increase the difficulties of integration. We have not previously conducted mining operations in Mexico. We are dedicating significant management resources to the operation of ECU's former mines in Mexico, which may temporarily distract management's attention from the day-to-day operations of the businesses of the combined company. We are changing certain aspects of the Mexican mining operations and the ways in which the business related to the mining operations was conducted, which is requiring retraining and development of new procedures and methodologies, additions and changes in personnel and other changes. The process of integrating operations and making such adjustments could cause an interruption of, or loss of momentum in, the activities of one or more of our businesses and the loss of key personnel. Employee uncertainty, lack of focus or turnover during the integration process may also disrupt our businesses.
Any inability of management to integrate the operations successfully could have a material adverse effect on our business and financial condition.
In addition,Transaction, we are now subject to the environmental, contractual, tax and other obligations and liabilities of ECU, some of which may be unknown. For example, we received notices from Mexican tax authorities regarding approximately $1.4 million in social security taxes alleged to be due for previous years, which have been paid by us but are currently beingwhich we have challenged for refund. There can be no assurance that we are aware of all obligations and liabilities related to the historical operationsbusiness of ECU. These liabilities, and other liabilities related to ECU's operationsECU’s business not currently known to us or that prove to be more significant than we currently anticipate, could negatively impact our business, financial condition and results of operations.
The presentation of historical financial statements of ECU will not be comparable to the presentation of financial results from the Velardeña Operations.
Until completion ofProperties, the Transaction, ECU was a publicly-traded Québec corporation whose financial statements, until December 31, 2010, were prepared in accordance with Canadian GAAP,El Quevar project and since January 1, 2011, have been prepared in accordance with IFRS. ECU is now our wholly-owned subsidiary, and its financial statements after September 2, 2011 are and will continue to be consolidated with ours and prepared in accordance with U.S. GAAP. Under Canadian GAAP and IFRS, ECU capitalized exploration and development costs incurred during the development stage, including operating expenses at the Velardeña Operations, and offset those capitalized costs with revenue generated from saleable minerals. Under U.S. GAAP, we are reporting operating expenses at the Velardeña Operations as expenses on the statement of operations, and revenues generated from our sales are reported as revenues on the statement of operations. In 2012, this may have the effect of increasing our losses. For example, if ECU had reported in U.S. GAAP on this basis for the fiscal year ended December 31, 2010, its net losses would have increased by approximately $2.5 million. Because of these and other differences, ECU's historical financial results related to the Velardeña Operations will not be comparable to the results of those operations as they will appear in our consolidated financial statements.
Our properties may not contain mineral reserves.
None
We are considered an exploration stage company under SEC Industry Guide 7, and none of the properties at our Velardeña Operations,Properties, the El Quevar project, or any of our other properties have been shown to contain proven or probable mineral reserves. Expenditures made in mining at the Velardeña OperationsProperties or the exploration and advancement of our El Quevar project or other properties may not result in positive cash flow or in discoveries of commercially recoverable quantities of ore. Most exploration projects do not result in the discovery of commercially mineable ore deposits, and we cannot assure you that any mineral deposit we identify will qualify as an orebody that can be legally and economically exploited or that any particular level of recovery from discovered mineralization will in fact be realized.
Micon International Limited has
Tetra Tech completed a technical reportsreport on our Velardeña Properties, which indicated the presence of mineralized material, and RungePincockMinarco completed a technical report on our El Quevar property, which indicated the presence of "mineralized material," and on the Velardeña District properties formerly owned by ECU, which indicated the presence of measured, indicated and inferred resources.mineralized material. Mineralized material and measured, indicated and inferred resource figures based on estimates made by geologists are inherently imprecise and depend on geological interpretation and statistical inferences drawn from drilling and sampling that may prove to be unreliable or inaccurate. We cannot assure you that these estimates will beare accurate or that proven and probable mineral reserves will be identified at El Quevar, the Velardeña OperationsProperties, El Quevar or any of our other properties. Even if the presence of reserves is established at a project, the economic viability of the project may not justify exploitation. We have spent significant amounts on the evaluation of El Quevar prior to establishing the economic viability of that project.
Estimates of reserves, mineral deposits and productionmining costs also can be affected by factors such as governmental regulations and requirements, fluctuations in metals prices or costs of essential materials or supplies, environmental factors, unforeseen technical difficulties and unusual or unexpected geological formations. In addition, the grade of ore ultimately mined may differ from that indicated by drilling results, sampling, feasibility studies or technical reports. Short termShort-term factors relating to reserves, such as the need for orderly development of ore bodies or the processing of new or different grades, may also have an adverse effect on mining operations and on the results of operations. Silver, gold or other minerals recovered in small scalesmall-scale laboratory tests may not be duplicated in large scalelarge-scale tests under on-site productionprocessing conditions.
We would require substantial external funding to continue the advancement of theThe Velardeña Operations beyond the current phased expansion and for the potential development of the El Quevar project.
We would require substantial funds from external sources in order to advance the Velardeña Operations beyond the current phased expansion and for the potential development of the El Quevar project, as we do not expect that cash generated by the Velardeña Operations will be sufficient to fund these activities. The size and capital cost for additional expansion of the Velardeña Operations, including the completion of the proposed 2,000 tonne per day sulfide plant, or a possible mine and processing facilities at El Quevar have not been determined and would depend, among other things, on the results of our ongoing efforts to further analyze the potential Velardeña Operations expansion and to further define the Yaxtché deposit at El Quevar. We do not have a credit agreement in place that would finance the completion of the proposed 2,000 tonne per day sulfide plant or the possible development ofProperties, the El Quevar project and we believe that securing credit for these projects may be difficult given our limited history and the continuing volatility in global credit markets. Access to public financing has been negatively impacted by the volatility in the credit markets, which may impact our ability to obtain equity or debt financing in the future and, if obtained, to do so on favorable terms. We also may not be able to obtain funding by monetizing non-core exploration portfolio assets at an acceptable price. We cannot assure you that we will be able to obtain the necessary financing for the advancement of the Velardeña Operations beyond the current phased expansion or the potential development of the El Quevar project on favorable terms or at all.
Ourother properties are subject to foreign environmental laws and regulations which could materially adversely affect our future operations.business.
We conduct mining activities in Mexico and mineral exploration activities primarily in Argentina Mexico and Peru.Mexico. These countries have laws and regulations that control the exploration and mining of mineral properties and their effects on the environment, including air and water quality, mine reclamation, waste generation, handling and disposal, the protection of different species of flora and fauna and the preservation of lands. These laws and regulations require us to acquire permits and other authorizations for conducting certain activities. In many countries, there is relatively new comprehensive environmental legislation, and the permitting and authorization process may not be established or predictable. We may not be able to acquire necessary permits or authorizations on
a timely basis, if at all. Delays in acquiring any permit or authorization could increase the cost of our projects and could suspend or delay the commencement of production.extraction and processing of mineralized material.
Environmental legislation in many countries is evolving in a manner that will likely require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. We cannot predict what environmental legislation or regulations will be enacted or adopted in the future or how future laws and regulations will be administered or interpreted. For example, in September 2010, the Argentine National Congress passed legislation which prohibits mining activity in glacial and surrounding areas. Although we do not
currently anticipate that this legislation will impact the El Quevar project, the legislation provides an example of the evolving environmental legislation in the areas in which we operate. Compliance with more stringent laws and regulations, as well as potentially more vigorous enforcement policies or regulatory agencies or stricter interpretation of existing laws, may (i) necessitate significant capital outlays, (ii) cause us to delay, terminate or otherwise change our intended activities with respect to one or more projects, or (iii) materially adversely affect our future exploration activities.
Many of our exploration properties are located in historic mining districts where prior owners may have caused environmental damage that may not be known to us or to the regulators. In most cases, we have not sought complete environmental analyses of our mineral properties and have not conducted comprehensive reviews of the environmental laws and regulations in every jurisdiction in which we own or control mineral properties. To the extent we are subject to environmental requirements or liabilities, the cost of compliance with these requirements and satisfaction of these liabilities could have a material adverse effect on our financial condition and results of operations. If we are unable to fully fund the cost of remediation of any environmental condition, we may be required to suspend activities or enter into interim compliance measures pending completion of the required remediation.
Our Velardeña OperationsProperties are subject to regulation by SEMARNAT, the environmental protection agency of Mexico. In order to permit new facilities at or expand existing facilities, such as the proposed 2,000 tonne per day sulfide plant, regulations require that an environmental impact statement, known in Mexico as a Manifestación de Impacto Ambiental, be prepared by a third-party contractor for submission to SEMARNAT. Studies required to support the Manifestación de Impacto Ambiental include a detailed analysis of soil, water, vegetation, wildlife, cultural resources and socio-economic impacts. The Manifestación is then published on SEMARNAT'sSEMARNAT’s web page and in its official gazette in a national and local newspaper. The Manifestación is discussed at various open hearings, including hearings in the local communities, at which third parties may voice their views. We would be required to provide proof of local community support of the Manifestación as a condition to final approval.
Environmental legislation in Mexico is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their officers, directors and employees. For example, onin January 28, 2011, Article 180 of the Mexican Federal General Law of Ecological Balance and Environmental Protection was amended. Among other things, this amendment extendsextended the term during which an individual or entity having a legitimate interest may contest administrative acts, including environmental authorizations, permits or concessions granted, without the need to demonstrate the actual existence of harm to the environment, natural resources, flora, fauna or human health, making it sufficient to argue that harm may be caused. Further, the amendment permits the contesting party to challenge a Manifestación de Impacto Ambiental through a variety of administrative or court procedures. As a result of the amendment, more legal actions supported or sponsored by non-governmental groups interested in halting projects may be filed against companies operating in all industrial sectors, including the mining sector. Mexican operations are also subject to the environmental agreements entered into by Mexico, the United States and Canada in connection with the North American Free Trade Agreement. Further, onin August 30, 2011, certain amendments to the Civil Federal Procedures Code ("CFPC"of Mexico (“CFPC”) were published in the Official Daily of the Federation. The amendments establish three categories of collective actions by which 30 or more people claiming injury resulting from, among other things, environmental harm, will be deemed to have a sufficient and legitimate interest in seeking, through a civil procedure, restitution, economic compensation or suspension of the activities from which the alleged injury derived. TheThese amendments to the CFPC will become effective six months after the date of their publication and may result in more litigation by plaintiffs seeking remedies for alleged environmental harms, including suspension of the activities alleged to cause harm.
Future changes in environmental regulation in the jurisdictions where the minesVelardeña Properties are located may adversely affect our operations,business, make our operationsbusiness prohibitively expensive, or prohibit themit altogether.
Environmental legislation in many other countries, in addition to Mexico, is evolving in a manner that will likely require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. We cannot predict what environmental legislation or regulations will be enacted or adopted in the future or how future laws and regulations will be administered or interpreted. For example, in September 2010, the Argentine National Congress passed legislation which prohibits mining activity in glacial and surrounding areas. Although we do not currently anticipate that this legislation will impact the El Quevar project, the legislation provides an example of the evolving environmental legislation in the areas in which we operate. Compliance with more stringent laws and regulations, as well as potentially more vigorous enforcement policies or regulatory agencies or stricter interpretation of existing laws, may (i) necessitate significant capital outlays, (ii) cause us to delay, terminate or otherwise change our intended activities with respect to one or more projects, or (iii) materially adversely affect our future exploration activities.
The Velardeña Properties and many of our exploration properties are located in historic mining districts where prior owners, including ECU in the case of the Velardeña Properties, may have caused environmental damage that may not be known to us or to the regulators. At the Velardeña Properties and in most other cases, we have not sought complete environmental analyses of our mineral properties. We have not conducted comprehensive reviews of the environmental laws and regulations in every jurisdiction in which we own or control mineral properties. Insurance fully covering many environmental risks (including potential liability for pollution or other hazards as a result of disposal of waste products occurring from exploration and mining) is not generally available. To the extent environmental hazards may exist on the properties in which we currently hold interests, or may hold interests in the future, that are unknown to us at present and that have been caused by us, or previous owners or operators, or that may have occurred naturally. Wenaturally, and to the extent we are subject to environmental requirements or liabilities, the cost of compliance with these requirements and satisfaction of these liabilities could have a material adverse effect on our financial condition and results of operations. If we are unable to fully fund the cost of remediation of any environmental condition, we may be liable for remediating any damage that ECU may have caused. The liability could include response costs for removingrequired to suspend activities or remediatingenter into interim compliance measures pending completion of the release of hazardous materials and damage to natural resources, including ground water, as well as the payment of fines and penalties.required remediation.
Insurance fully covering many environmental risks (including potential liability for pollution or other hazards as a result of disposal of waste products occurring from exploration and production) is not generally available.
In addition, U.S. or international legislative or regulatory action to address concerns about climate change and greenhouse gas emissions could negatively impact our operations.business.
Title to the Velardeña Properties and our other properties may be defective or may be challenged.
Our policy is to seek to confirm the validity of our rights to, title to, or contract rights with respect to, each mineral property in which we have a material interest. However, we cannot guarantee that title to our properties will not be challenged. Title insurance generally is not available for our mineral properties, and our ability to ensure that we have obtained secure rights to individual mineral properties or mining concessions may be severely constrained. Accordingly, the Velardeña Properties and our other mineral properties may be subject to prior unregistered agreements, transfers or claims, and title may be affected by, among other things, undetected defects. In addition, we may be unable to conduct activities on our properties as permitted or to enforce our rights with respect to our properties, and the title to our mineral properties may also be impacted by state action. We have not conducted surveys of all of the exploration properties in which we hold direct or indirect interests and, therefore, the precise area and location of these exploration properties may be in doubt. Accordingly, our mineral properties may be subject to prior unregistered agreements, transfers or claims, and title may be affected by, among other things, undetected defects. In addition, we may be unable to operate our properties as permitted or to enforce our rights with respect to our properties, and the title to our mineral properties may also be impacted by state action.
In somemost of the countries in which we operate, failure to comply with applicable laws and regulations relating to mineral right applications and tenure could result in loss, reduction or expropriation of entitlements, or the imposition of additional local or foreign parties as joint venture partners. Any such loss, reduction or imposition of partners could have a material adverse affecteffect on our financial condition, results of operations and prospects.
Under the laws of Mexico, mineral resources belong to the state, and government concessions are required to explore for or exploit mineral reserves. Mineral rights derive from concessions granted, on a discretionary basis, by the Ministry of Economy, pursuant to the Mexican mining law and regulations thereunder. We hold title to the concessions comprising the Velardeña OperationsProperties and our other properties in Mexico through these government concessions, but there is no assurance that title to the concessions comprising the Velardeña OperationsProperties and other properties will not be challenged or impaired. The Velardeña OperationsProperties and other properties may be subject to prior unregistered agreements, interests or native land claims, and title may be affected by undetected defects. There maywould be valid challenges to the title of any of the claims comprising the Velardeña OperationsProperties that, if successful, could impair development and operationsmining with respect to such properties in the future. A defect could result in our losing all or a portion of our right, title, and interest in and to the properties to which the title defect relates.
Mining
Our Velardeña Properties mining concessions and our other mining concessions in Mexico may be terminated if our obligations to maintain the obligations of the concessionaireconcessions in good standing are not satisfied, including obligations to explore or exploit the relevant concession, to pay any relevant fees, to comply with all environmental and safety standards, to provide information to the Ministry of Economy and to allow inspections by the Ministry of Economy. In addition to termination, failure to make timely concession maintenance payments and otherwise comply strictly with applicable laws, regulations and
local practices relating to mineral right applications and tenure could result in reduction or expropriation of entitlements. Additionally, effective in 2014, new mining concessions are now subject to additional review and approval by the Mexico Ministry of Energy.
Mining concessions in Mexico give exclusive exploration and exploitation rights to the minerals located in the concessions but do not include surface rights to the real property, which requires that we negotiate the necessary agreements with surface landowners. Many of our mining properties are subject to the Mexican ejido system requiring us to contract with the local communities surrounding the properties in order to obtain surface rights to land needed in connection with our mining operations or exploration activities. In connection with our Velardeña Operations,Properties, we have contracts with two ejidos to secure surface rights with a total annual cost of approximately $20,000.$35,000. The first contract is with the Vista Hermosa ejido, which is effective through the year 2034 and provides surface rights to the oxide plant, the oxide tailings ponds and the Chicago mine portal. The seconda ten-year contract is with the Velardeña ejido, which was recently renewed for a ten-year term and provides surface rights to certain roads and other infrastructure at the Velardeña Operations.Properties through 2021. The second contract is a 25-year contract with the Vista Hermosa ejido signed in March 2013, which provides exploration access and access rights for roads and utilities for our Velardeña Properties. Our inability to maintain and periodically renew or expand these surface rights on favorable terms or otherwise could have a material adverse effect on our operationsbusiness and financial condition.
Continuation of our mining and processing activities at our Velardeña Properties is dependent on the availability of sufficient water supplies to support our mining activities.
We require significant quantities of water for mining and processing at our Velardeña Properties. Continuous mining and processing is dependent on our ability to maintain our water rights and claims. Water is provided for all of the mines comprising our Velardeña Properties by wells located in the valley adjacent to the Velardeña Properties. We hold title to three wells located near the sulfide plant and hold certificates of registration to three wells located near the oxide plant. We are actively engagedlicensed to pump water from all six wells up to a permitted amount. We are currently only using water from two wells near the sulfide plant and one well near the oxide plant. We are required to make annual payments to the Mexican government to maintain our rights to these wells. In 2014 we made such payments totaling approximately $28,000 and expect to pay approximately the same amount in 2015. We are required to pay a fine to the Mexican Government each year if we use too much water from a particular well or alternatively if we do not use a minimum amount of water from a particular well. In addition to these fines, the Mexican Government reserves the right to cancel our
title to the wells for abuse of these rules. During 2014 we paid fines of approximately $20,800 for our overuse of one well and approximately $3,000 for our underuse of another well.
Under our current mining plan, in the near term, we will likely need additional water to run the sulfide plant, which we can truck from the two unused wells near the oxide plant or obtain from outside sources, both of which will increase our water costs. To avoid these higher water costs, we plan to construct a pipeline to enable us to pull water from the unused wells near the oxide plant. We are waiting on certain environmental permitting and expect to have this pipeline complete by the end of 2015. If we cannot complete this pipeline at all or in a timely manner, we will likely incur higher overall mining and processing costs as a result of paying higher water costs to truck water from the two unused wells near the oxide plant or from outside sources to run the sulfide plant. Additionally, once we begin processing material from both the sulfide and oxide plants, we may face shortages in our water supply, and therefore will need to obtain water from outside sources at higher costs. The loss of some or all water rights for any of our wells, in whole or in part, or shortages of water to which we have rights would require us to seek water from outside sources at higher costs and could require us to curtail or shut down mining and processing. Laws and regulations may be introduced in the future which could limit our access to sufficient water resources in mining activities, and therethus adversely affecting our business.
There are significant hazards involved in underground mining and processing activities at our Velardeña Properties, not all of which are fully covered by insurance. To the extent we must pay the costs associated with such risks, our business may be negatively affected.
The operationmining and processing of underground mines andour Velardeña Properties, as well as the conduct of our exploration programs, are subject to numerous risks and hazards, including, but not limited to, environmental hazards, industrial accidents, encountering unusual or unexpected geological formations, formation pressures, cave-ins, underground fires or floods, power outages, labor disruptions, flooding, seismic activity, rock bursts, accidents relating to historical workings, landslides and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in damage to, or destruction of, mineral properties or productionprocessing facilities, personal injury or death, environmental damage, reduced productionextraction and processing and delays in mining, asset write-downs, monetary losses and possible legal liability. Although we maintain insurance against risks inherent in the operationconduct of our business in amounts that we consider reasonable, suchthis insurance will containcontains, as in the case of our Velardeña Properties, exclusions and limitations on coverage, our insuranceand will not cover all potential risks associated with mining and exploration operations,activities, and related liabilities might exceed policy limits. As a result of any or all of the forgoing, particularly if the facilities are older, we could incur significant liabilities and costs that could adversely affect our results of operation and financial condition.
Our newly acquired mining operationsVelardeña Properties are located in Mexico and are subject to various levels of political, economic, legal and other risks with which we have limited or no previous experience.risks.
Our newly acquired mining operationsVelardeña Properties are conductedlocated in Mexico, and, as such, our operations are exposed to various levels of political, economic, legal and other risks and uncertainties, including local acts of violence, such as violence from drug cartels; military repression; extreme fluctuations in currency exchange rates; high rates of inflation; labor unrest; the risks of war or civil unrest; local acts of violence, including violence from drug cartels; expropriation and nationalization; renegotiation or nullification of existing concessions, licenses, permits and contracts; illegal mining; acts of political corruption; changes in taxation policies; restrictions on foreign exchange and repatriation; and changing political conditions, currency controls and governmental regulations that favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction.
In the past, Mexico has been subject to political instability, changes and uncertainties, which have resulted in changes to existing governmental regulations affecting mineral exploration and mining activities. Mexico'sMexico’s status as a developing country may make it more difficult for us to obtain any required funding for the expansion of theour Velardeña OperationsProperties or other projects in Mexico in the future.
Our Mexican operations and properties are subject to a variety of governmental regulations governing health and worker safety, employment standards, waste disposal, protection of historic and archaeological sites, mine development, protection of endangered and protected species, purchase, storage and use of explosives and other matters. Specifically, our activities related to the Velardeña OperationsProperties are subject to regulation by SEMARNAT, the Comision Nacional del Agua, which regulates water rights, and Mexican mining laws. Mexican regulators have broad authority to shut down and levy fines against facilities that do not comply with regulations or standards.
Our Velardeña Properties and mineral exploration and mining activities in Mexico may be adversely affected in varying degrees by changing government regulations relating to the mining industry or shifts in political conditions that increase the costs related to our Mexican operationsmining and exploration activities or the maintenance of our properties. For example, effective January 2014, amendments to the Mexico federal corporate income tax law impose additional duties on mining concession holders, which will have a significant impact on the annual costs to maintain the concessions comprising the Velardeña Properties and our other Mexico exploration properties.
Changes, if any, in mining or investment policies, changes or increases in the legal rights of indigenous populations or in the difficulty or expense of obtaining rights from them that are necessary for our Velardeña Properties or shifts in political attitude may adversely affect our operationsbusiness and financial condition. OperationsOur mining and exploration activities may be affected in varying degrees by government regulations with respect to restrictions on production,extraction, price controls, export controls, currency remittance, income and other taxes, expropriation of property, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. Expansion ofMining and processing at our facilities will alsoVelardeña Properties continue to be subject to the need to assure the availability of adequate supplies of water and power, which could be affected by government policy and competing operationsbusinesses in the area. The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on our operationsmining and exploration activities and financial condition.
Future changes in applicable laws and regulations or changes in their enforcement or regulatory interpretation could negatively impact current or planned exploration and developmentor mining activities at our Velardeña OperationsProperties or in respect of any of our other projects in Mexico or with which we become involved in Mexico. Any failure to comply with applicable laws and regulations, even if inadvertent, could result in the interruption of explorationmining and development operationsexploration or material fines, penalties or other liabilities.
Our employees in Mexico are represented by a collective bargaining unit, and we are subject to Mexican regulations regarding labor and employment matters.
Our employees in Mexico are represented by collective bargaining units called Sindicatos. We have two Sindicatos, one for the mine and a second for the plant. Salaries are negotiated annually and labor contracts bi-annually. In addition to the negotiated terms of such agreements, relations between us and our employees may be affected by changes in regulations regarding labor relations that may be introduced by the Mexican authorities. Changes in such legislation or in the relationship between us and our employees may have a material adverse effect on our operations and financial condition.
Our long-term cash flow and profitability will be affected by changes in the prices of silver and other metals.
Our ability to establish reserves and develop our exploration properties, and our profitability and long-term viability, depend, in large part, on the market prices of silver, gold, zinc, lead, copper and other metals. The market prices for these metals are volatile and are affected by numerous factors beyond our control, including:
Future weakness in the global economy could increase volatility in metals prices or depress metals prices, which could in turn reduce the cash flow generated by our Velardeña Operations, or make it
uneconomical for us to continue our mining or exploration activities. Volatility or sustained price declines may also adversely affect our ability to build our business.
Results from our Velardeña OperationsProperties are subject to exchange control policies, the effects of inflation and currency fluctuations between the U.S. Dollardollar and the Mexican Peso.peso.
Our revenues are primarily denominated in U.S. dollars. However, operating costs of our Velardeña OperationsProperties are denominated principally in Mexican pesos. These costs principally include electricity, labor, water, maintenance, local contractors and fuel. Accordingly, when inflation in Mexico increases without a corresponding devaluation of the Mexican peso, our financial position, results of operations and cash flows could be adversely affected. The annual inflation rate in Mexico was 3.8%4.1% in 2011, 4.4%2014, 4.0% in 2010,2013 and 3.6% in 2009.2012. At the same time, the peso has been subject to significant devaluation,fluctuation, which may not have been proportionate to the inflation rate and may not be proportionate to the inflation rate in the future. The value of the peso decreased by 11.7%13% in 2011,2014, decreased by 0.6% in 2013 and increased by 5.5% and 6.0%7.0% in 2010 and 2009, respectively.2012. In addition, fluctuations in currency exchange rates may have a significant impact on our financial results. There can be no assurance that the Mexican government will maintain its current policies with regard to the peso or that the peso'speso’s value will not fluctuate significantly in the future. We cannot assure you that currency fluctuations, inflation and exchange control policies will not have an adverse impact on our financial condition, results of operations, earnings and cash flows.
If we are unable to obtain all of our required governmental permits or obtain property rights on favorable terms or at all, our operationsbusiness could be negatively impacted.
Our future operations, including
Mining and processing at our Velardeña Properties, the expansion of the Velardeña Operations, thecontinued evaluation of the El Quevar project and other exploration and potential development activities will require additional permits from various governmental authorities. Our operations arebusiness is and will continue to be governed by laws and regulations governing prospecting, development, mining, production,exploration, prospecting, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety, mining royalties and other matters. We may also be required to obtain certain property rights to access or use our properties. Obtaining or renewing licenses and permits, and acquiring property rights, can be complex and time-consuming processes. There can be no assurance that we will be able to acquire all required licenses, permits or property rights on reasonable terms or in a timely manner, or at all, and that such terms will not be adversely changed, that required extensions will be granted, or that the issuance of such licenses, permits or property rights will not be challenged by third parties. Delays in obtaining or a failure to obtain any licenses, permits or property rights or any required extensions; challenges to the issuance of licenses, permits or property rights, whether successful or unsuccessful; changes to the terms of licenses, permits or property rights; or a failure to comply with the terms of any licenses, permits or property rights that have been obtained could have a material adverse effect on our business by delaying, preventing or making mining and processing at our Velardeña Properties and other continued operationsmining activities economically unfeasible. U.S. or international legislative or regulatory action to address concerns about climate change and greenhouse gas emissions could also negatively impact our operations.business. While we will continue to monitor and assess any new policies, legislation or regulations regarding such matters, we currently believe that the impact of such legislation on our business will not be significant.
We own our interest in the San Diego exploration property in Mexico in a 50-50 joint venture and are therefore unable to control all aspects of exploration and developmentadvancement of this property.
We hold the San Diego exploration property in Mexico in a 50-50 joint venture with Golden Tag Resources Ltd., which, until March 2015, has a right to acquire an additional 10% interest by making expenditures related to further exploration drilling and completing an updated resource assessment at the property. Our interest in the San Diego property is subject to the risks normally associated with the conduct of joint ventures. A disagreement between joint venture partners on how to conduct business efficiently, the inability of joint venture partners to meet their obligations to the joint venture or third parties, or litigation arising between joint venture partners regarding joint venture matters
could have a material adverse effect on the viability of our interests held through the
joint venture. For example, in 2009, ECU received a notice of arbitration from Golden Tag Resources Ltd. The dispute was settled in September 2010 and resulted in an increase in ECU'sECU’s mining property costs of approximately $61,000. Additionally, if Golden Tag Resources Ltd. exercises its right to acquire an additional 10% interest, our ability to control exploration and advancement will be further reduced.
We depend on the services of key executives.
Our business strategy is based on leveraging the experience and skill of our management team. We are dependent on the services of key executives, including Jeffrey Clevenger, David Drips (who manages our Velardeña Operations), Jerry Danni, Robert Vogels and Warren Rehn. Due to our relatively small size, the loss of any of these persons or our inability to attract and retain additional highly skilled employees may have a material adverse effect on our business and our ability to manage and succeed in our developmentmining and exploration activities.
The exploration of our mineral properties is highly speculative in nature, involves substantial expenditures and is frequently non-productive.
Our future growth and profitability may depend, in large part, on the costs and results of our exploration programs at the El Quevar project, certain of our exploration portfolio properties, and other properties that we do not currently hold.
Mineral exploration is highly speculative in nature and is frequently non-productive. Substantial expenditures are required to:
·establish mineral reserves through drilling and metallurgical and other testing techniques;
·
·
·
If we discover ore at a property, it usually takes several years from the initial phases of exploration until production is possible. During this time, the economic feasibility of a project may change because of increased costs, lower metal prices or other factors. As a result of these uncertainties, we may not successfully acquire additional mineral rights, or our exploration programs may not result in proven and probable reserves at all or in sufficient quantities to justify developing the El Quevar project or any of our exploration properties.
The decisions about future developmentadvancement of exploration projects may be based on feasibility studies, which derive estimates of mineral reserves, operating costs and project economic returns. Estimates of economic returns are based, in part, on assumptions about future metal prices and estimates of average cash operating costs based upon, among other things:
·anticipated tonnage, grades and metallurgical characteristics of ore to be mined and processed;
·
·
·
Actual cash operating costs, production and economic returns may differ significantly from those anticipated by our studies and estimates.
Lack of infrastructure could forestall or prevent further exploration and development.advancement.
Exploration activities, as well as any developmentadvancement activities, depend on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important factors that affect capital and operating costs and the feasibility and economic viability of a project. Unanticipated or higher than expected costs and unusual or infrequent weather phenomena, or government or other interference in
the maintenance or provision of such infrastructure, could adversely affect our operations,business, financial condition and results of operations.
Our exploration activities are in countries with developing economies and are subject to the risks of political and economic instability associated with these countries.
We currently conduct exploration activities almost exclusively in Latin American countries with developing economies, including Argentina Mexico and Peru.Mexico. These countries and other emerging markets in which we may conduct operationsbusiness have from time to time experienced economic or political instability. We may be materially adversely affected by risks associated with conducting exploration activities in countries with developing economies, including:
·political instability and violence;
·
·
·
·
·
·
·
·
·
·
Changes in mining or investment policies or shifts in the prevailing political climate in any of the countries in which we conduct exploration activities could adversely affect our business.
We explore and operatemine in countries that may be adversely affected by changes in the local government'sgovernment’s policies toward or laws governing the mining industry, including for example the recent presidential decree in Argentina regarding the repatriation of export proceeds.industry.
We currently conducthave mining operationsactivities in Mexico and exploration activities primarily in Mexico and South America.Argentina. In these regions there exist uncertainties regarding future changes in applicable law related to mining and exploration. For instance, effective January 2014, amendments to the Mexico federal corporate income tax law require titleholders of mining concessions to pay annually a 7.5% duty of their mining related profits and a 0.5% duty on October 26, 2011,revenues obtained from the presidentsale of gold, silver and platinum. These additional duties applicable to Mexico mining concession titleholders will have a significant impact on the annual costs applicable to the Velardeña Properties if we have mining related profits or significant revenues in the future.
Additionally, effective January 2015, the Argentina announced,National Mining Code was amended, increasing the annual canon payment by wayapproximately four times. As a result, we expect our annual canon fees payable to the Argentine government to increase from approximately $35,000 in 2014 to approximately $110,000 in 2015.
Furthermore, as a result of the termination of a presidential decree, that mining companies with operations inbilateral tax treaty among Spain and Argentina will now have(terminated January 2013), certain beneficial tax treatment arising from equity ownership between our Spain and Argentina subsidiaries was eliminated. Consequently, we recorded a liability of approximately $0.3 million as of December 31, 2014 and could be liable for up to repatriate all their export proceeds. Under the new decree, all export revenues generated by mining companies will be repatriated into Argentinaan additional $0.7 million stemming from a tax audit of this equity tax for local foreign-exchange conversion prior to transfer overseas. This decree overturns a previous exemption for mining companies from Argentina's currency repatriation laws that apply to oil and gas producers in the country. Consequently, if we ultimately produce minerals from the El Quevar project in Argentina, the new repatriation policy may increase foreign exchange transaction costs. years 2009 through 2012.
In addition to the risk of increased transaction costs, we do not maintain political risk insurance to cover losses that we may incur as a result of nationalization, expropriation or similar events in Mexico or Argentina or other Latin American countries in whichwhere we explore or operate.
We may lose rights to properties if we fail to meet payment requirements or development or production schedules.have mining and processing activities.
We derive the rights to some of our mineral properties from leaseholds or purchase option agreements that require the payment of option payments, rent or other installment fees or specified expenditures. If we fail to make these payments when they are due, our rights to the properties may terminate. Some contracts with respect to our mineral properties require development or production schedules. If we are unable to meet any or all of the development or production schedules, we could lose all or a portion of our interests in such properties. Moreover, we are required in certain instances to make payments to governments in order to maintain our rights to our mineral properties. The failure to make timely maintenance payments can result in the loss of our rights in the related mineral properties.
We compete against larger and more experienced companies.
The mining industry is intensely competitive. Many large mining companies are primarily producersmakers of precious or base metals and may become interested in the types of deposits on which we are focused, which include silver, gold and other precious metals deposits or polymetallic deposits containing significant quantities of base metals, including zinc, lead copper and gold.copper. Many of these companies have greater financial resources, operational experience and technical capabilities than we do. We may encounter increasing
competition from other mining companies in our efforts to acquire mineral properties and hire experienced mining professionals. Increased competition in our business could adversely affect our ability to attract necessary capital funding or acquire suitable producingmining properties or prospects for mineral exploration in the future.
We are dependent on information technology systems, which are subject to certain risks, including cybersecurity risks and data leakage risks.
We are dependent upon information technology systems in the conduct of our business. Any significant breakdown, invasion, virus, cyber attack, security breach, destruction or interruption of these systems by employees, others with authorized access to our systems, or unauthorized persons could negatively impact our business. To the extent any invasion, cyber attack or security breach results in disruption to our business, loss or disclosure of, or damage to, our data or confidential information, our reputation, business, results of operations and financial condition could be materially adversely affected. Our systems and insurance coverage for protecting against cyber security risks may not be sufficient. Although to date we have not experienced any material losses relating to cyber attacks, we may suffer such losses in the future. We may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
Our stockholders may suffer additional dilution to their equity and voting interests as a result of future financing transactions.
We will need external financingcould require additional funding to support the exploration, development,our business, including for general and expansion ofadministrative costs and other working capital needs to fund our Velardeña Operations in addition to the exploration and evaluation of El Quevar and our other exploration portfolio properties.continuing business activities as currently conducted. Because we do not expect cash from operations or dispositions of non-core assets to be sufficient to provide needed capital in the short term, and because debt financing is difficult to obtain for early stageearly-stage mining operations,companies, it is likely that we will seek such financing in the equity markets. If we were to engage in a privateany type of equity financing, or engage in a public equity offering, the current ownership interest of our stockholders would be diluted.
The existence of a significant number of optionswarrants and warrantsoptions may have a negative effect on the market price of our common stock.
In connection with our business combination with ECU,financing in September 2014, we issued warrants and options to purchase shares of our common stock. While certain of those warrants and options have expired, there remain outstanding warrants to purchase 1,831,929acquire 4,746,000 shares of our common stock at exercise prices of $19.00$1.21 per share expiring February 2014, as well as optionsin September 2019. In connection with our financing in September 2012, we issued five year warrants to purchase approximately 523,0003,431,649 shares of our common stock at an exercise prices ranging from $16.00price of $8.42 per share expiring September 2017. Pursuant to $31.80a weighted average dilution calculation based on the pricing in the September 2014 financing, the exercise price for the September 2012 warrants was reduced to $7.17 and expiring between October 2012 and October 2014.the number of shares issuable on exercise of the warrants increased to 4,031,409. The existence of securities available for exercise and resale is referred to as an "overhang",“overhang,” and, particularly if the options and warrants are "in“in the money",money,” the anticipation of potential sales could exert downward pressure on the market price of our common stock.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
None.
ITEM 4: MINE SAFETY DISCLOSURES
None.
Not applicable.
ITEM 5: MARKET FOR REGISTRANT'SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock began trading on the NYSE Amex, also referred to as "Amex",MKT under the symbol "AUMN"“AUMN” on March 19, 2010. The following table sets forth the high and low sales prices per share and volume traded on the AmexNYSE MKT from the commencement of trading on March 19, 2010January 1, 2013 through December 31, 2011.2014.
| High | Low | Volume Traded (shares) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
2010 | ||||||||||
March* | $ | 8.40 | $ | 7.66 | 774,600 | |||||
Second Quarter | $ | 9.60 | $ | 7.01 | 2,274,900 | |||||
Third Quarter | $ | 16.15 | $ | 6.83 | 3,131,200 | |||||
Fourth Quarter | $ | 28.90 | $ | 17.05 | 16,735,100 |
| High | Low | Volume Traded (shares) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
2011 | ||||||||||
First Quarter | $ | 27.48 | $ | 17.69 | 5,340,300 | |||||
Second Quarter | $ | 25.95 | $ | 16.19 | 8,826,900 | |||||
Third Quarter | $ | 19.30 | $ | 7.35 | 13,206,900 | |||||
Fourth Quarter | $ | 9.39 | $ | 5.25 | 17,025,300 |
Prior to the commencement of trading on Amex, our common stock traded in interdealer and over-the-counter transactions, and price quotations have been available in the "pink sheets" under the symbol "GDMN". The following table sets forth the high and low sales prices per share and volume traded as reported by The Pink Sheets LLC atwww.pinksheets.com. Although the prices and volumes have been obtained from a source believed to be reliable, no assurances can be given with respect to the accuracy of such prices. In addition, such prices reflect interdealer prices, which may not include retail mark-up, mark down or commission, and may not necessarily represent actual transactions.
| High | Low | Volume Traded (shares) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
2010 | ||||||||||
January | $ | 16.00 | $ | 10.00 | 152,646 | |||||
February | $ | 11.20 | $ | 7.70 | 99,472 | |||||
March* | $ | 9.60 | $ | 8.00 | 33,666 |
|
| High |
| Low |
| Volume |
| ||
2013 |
|
|
|
|
|
|
| ||
First Quarter |
| $ | 4.87 |
| $ | 2.16 |
| 22,167,600 |
|
Second Quarter |
| $ | 2.47 |
| $ | 1.26 |
| 23,835,600 |
|
Third Quarter |
| $ | 1.64 |
| $ | 0.90 |
| 21,376,400 |
|
Fourth Quarter |
| $ | 0.98 |
| $ | 0.42 |
| 12,190,000 |
|
|
| High |
| Low |
| Volume |
| ||
2014 |
|
|
|
|
|
|
| ||
First Quarter |
| $ | 1.28 |
| $ | 0.49 |
| 33,281,000 |
|
Second Quarter |
| $ | 1.58 |
| $ | 0.50 |
| 15,413,700 |
|
Third Quarter |
| $ | 1.59 |
| $ | 0.57 |
| 21,963,800 |
|
Fourth Quarter |
| $ | 0.78 |
| $ | 0.42 |
| 10,307,300 |
|
Our common stock is also listed on the Toronto Stock Exchange, also referred to as the "TSX"“TSX”, and trades under the symbol "AUM"“AUM”. The following table sets forth the high and low sales prices per
share expressed in Canadian dollars and volume traded on the Toronto Stock ExchangeTSX from January 1, 20102013 through December 31, 2011.2014.
|
| High |
| Low |
| Volume |
| ||
2013 |
|
|
|
|
|
|
| ||
First Quarter |
| $ | 4.79 |
| $ | 2.23 |
| 1,444,900 |
|
Second Quarter |
| $ | 2.53 |
| $ | 1.10 |
| 1,914,200 |
|
Third Quarter |
| $ | 1.74 |
| $ | 0.94 |
| 617,900 |
|
Fourth Quarter |
| $ | 1.00 |
| $ | 0.44 |
| 1,182,200 |
|
|
| High |
| Low |
| Volume |
| ||
2014 |
|
|
|
|
|
|
| ||
First Quarter |
| $ | 1.42 |
| $ | 0.54 |
| 2,556,600 |
|
Second Quarter |
| $ | 1.70 |
| $ | 0.55 |
| 1,543,500 |
|
Third Quarter |
| $ | 1.69 |
| $ | 0.65 |
| 1,377,300 |
|
Fourth Quarter |
| $ | 0.91 |
| $ | 0.53 |
| 784,900 |
|
| High(1) | Low(1) | Volume Traded (shares) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
2011 | ||||||||||
First Quarter | $ | 26.36 | $ | 17.65 | 1,350,900 | |||||
Second Quarter | $ | 24.71 | $ | 15.79 | 823,000 | |||||
Third Quarter | $ | 18.55 | $ | 7.52 | 1,282,000 | |||||
Fourth Quarter | $ | 9.52 | $ | 5.51 | 2,074,600 | |||||
2010 | ||||||||||
First Quarter | $ | 15.60 | $ | 7.90 | 359,400 | |||||
Second Quarter | $ | 9.75 | $ | 7.68 | 870,800 | |||||
Third Quarter | $ | 19.61 | $ | 7.40 | 1,059,800 | |||||
Fourth Quarter | $ | 29.69 | $ | 17.51 | 3,295,800 |
(1)
As of March 5, 2012,February 25, 2015, we had 170232 record holders of our common stock of record based upon the stockholders list provided by our transfer agent, Computershare Trust Company, N.A.
Dividends
We have nevernot declared or paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings, if any, to fund the development and growth of our business.
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for all periods presented has been derived from our audited financial statements for that period. Apex Silver emerged from Chapter 11 reorganization on March 24, 2009, and the Company became the successor to Apex Silver for purposes of reporting under the U.S. federal securities laws. In the table below references to "Successor" refer to the accounts of the Company and its subsidiaries on or after March 25, 2009, the day following emergence from Chapter 11. References to "Predecessor" refer to the accounts of Apex Silver and its subsidiaries prior to March 25, 2009. Our financial statements are reported in U.S. dollars and have been prepared in accordance with generally accepted accounting principles in the United States. The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the related notes thereto and "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” included in this Form 10-K.
|
| The Year Ended December 31, |
| |||||||||||||
|
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2010 |
| |||||
|
| (in thousands, except per share amounts) |
| |||||||||||||
Statement of Operations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Revenue |
| $ | 235 |
| $ | 10,680 |
| $ | 26,086 |
| $ | 1,836 |
| $ | 11,216 |
|
Net Loss(1) |
| $ | (18,823 | ) | $ | (240,380 | ) | $ | (92,025 | ) | $ | (62,671 | ) | $ | (33,274 | ) |
Net Loss per common share |
| $ | (0.41 | ) | $ | (5.61 | ) | $ | (2.45 | ) | $ | (2.94 | ) | $ | (3.72 | ) |
|
| At December 31, |
| |||||||||||||
|
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2010 |
| |||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
| |||||
Total assets |
| $ | 41,258 |
| $ | 54,881 |
| $ | 348,102 |
| $ | 413,015 |
| $ | 135,618 |
|
Long term liabilities |
| $ | 4,334 |
| $ | 2,655 |
| $ | 49,524 |
| $ | 59,672 |
| $ | 802 |
|
Dividends: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash dividends declared per common share |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| | | The Year Ended December 31, 2009 | | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| The Year Ended December 31, | The Year Ended December 31, | |||||||||||||||||
| For The Period March 25, 2009 Through December 31, 2009 | For The Period January 1, 2009 Through March 24, 2009 | |||||||||||||||||
| 2011 | 2010 | 2008 | 2007 | |||||||||||||||
| (Successor) | (Predecessor) | |||||||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||||
Statement of Operations: | |||||||||||||||||||
Revenue | $ | 1,836 | $ | 11,216 | $ | 11,067 | $ | 1,350 | $ | 5,400 | $ | 5,400 | |||||||
Income (loss) from continuing operations(1) | $ | (62,671 | ) | $ | (33,274 | ) | $ | (20,276 | ) | $ | 243,621 | $ | (63,734 | ) | $ | (51,209 | ) | ||
Income (loss) from continuing operations per common share | $ | (2.94 | ) | $ | (3.72 | ) | $ | (6.78 | ) | $ | 4.13 | $ | (1.18 | ) | $ | 0.87 |
| At December 31, | At December 31, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||
Balance Sheet Data: | ||||||||||||||||
Total assets | $ | 413,015 | $ | 135,618 | $ | 21,700 | $ | 606,347 | $ | 1,324,911 | ||||||
Long term liabilities | $ | 59,672 | $ | 802 | $ | 651 | $ | 73,504 | $ | 1,040,098 | ||||||
Dividends: | ||||||||||||||||
Cash dividends declared per common share | $ | — | $ | — | $ | — | $ | — | $ | — |
ITEM 7: MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes beginning on page F-1 in this annual report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under "Risk Factors"“Risk Factors” in this annual report on Form 10-K.
Our Company
During the year ended December 31, 2011, our only sources of income were revenues from the Velardeña Operations following our business combination transaction with ECU, payments in settlement of an arbitration claim, royalty and interest income, and sales of non-core properties. We incurred net operating losses for the years ended December 31, 2011, 2010, and 2009. We expect to report increased revenues from the Velardeña Operations during 2012 as a result of increased production rates.
We were incorporated in Delaware under the Delaware General Corporation Law in March 2009, and are the successor to Apex Silver for purposes of reporting under the U.S. Exchange Act. In January 2009, Apex Silver and its wholly-owned subsidiary, Apex Silver Mines Corporation, filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. References in this discussion and analysis to "Successor" refer to Golden Minerals and its subsidiaries on or after the March 25, 2009 emergence from Chapter 11 reorganization proceedings under the U.S. Bankruptcy Code. References to "Predecessor" refer to Apex Silver and its subsidiaries prior to March 25, 2009.
2011 Highlights
During the year ended December 31, 2011 we focused2014, our efforts primarily ononly sources of income were revenues from the sale of lead and zinc concentrates from our business combination with ECU, improvingVelardeña Properties, royalty and interest income, and sales of non-core exploration properties. We incurred net operating losses for the years ended December 31, 2014 and 2013.
2014 Highlights
We recommenced mining activities at the Velardeña Operations, advancingProperties in July 2014 and began processing material from the mine in November 2014. Our decision to restart mining activities followed an extensive evaluation period, which began after the shutdown of the Velardeña Properties in June 2013 and included a 9,000-meter drill program that concluded in June 2014. In addition to the Velardeña Properties, we are focused on establishing a second group of mining assets, which may include those recently acquired assets in the Parral District in Chihuahua Mexico. During 2014 we continued our exploration efforts on selected properties in our portfolio of approximately 30 exploration properties located primarily in Mexico. We continued to hold our El Quevar project,property on care and raising additional capital throughmaintenance until we can find a private placement of our common stock.partner to further advance the project. We havereduced general and administrative expenses in 2014 by approximately 17% over 2013 expenses. We also continued to make progressreview strategic opportunities, focusing on development or operating properties in advancing our portfolio of exploration properties. An overview of certain significant 2011 events is provided below:North America, including Mexico.
Financing Activities
·On September 2, 2011, we10, 2014, the Company completed an underwritten registered public offering and concurrent private placement for total net proceeds, after underwriter commissions and expenses, of $7.4 million. The Company sold 3,692,000 units in the registered offering, priced at $0.86 per unit, before discount to the underwriters, with each unit consisting of one share of the
Company’s common stock and a business combination with ECU (the "Transaction"five year warrant to purchase 0.50 of a share of the Company’s common stock at an exercise price of $1.21 per share. The Company sold an additional 5,800,000 units in a concurrent private placement to The Sentient Group (“Sentient”). With, the Company’s largest stockholder, at a price of $0.817 per unit, the same discounted price paid by the underwriter in the registered offering. Following the completion of the Transaction, we becamePrivate Placement and the Offering, Sentient holds approximately 27.2% (on a mining company with producing mines. At closing, each ECU common share was exchanged for the right to receive 0.05 of a share of Golden Minerals common stock and $0.000394 in cash, and ECU became a wholly-owned subsidiary of Golden Minerals. In connection with the Transaction and as consideration for the arrangement, we issued 16,004,111 shares of common stock, 653,000 replacement options, 2,218,292 replacement warrants, and paid approximately Cdn$126,112 in cash.
on September 30, 2011, resulting in gross proceeds to us of $30.6 million. Following the private placement, Sentient held approximately 19.9% of ourCompany’s outstanding common stock (excluding restricted common stock held by ourthe Company’s employees).
Sale of Assets
·We generated approximately $1.0 million in asset sales in 2014, including $700,000 from the extentsale of the Yaxtché deposit and conducting feasibility work at our 100% controlled El Quevar silver project,mining concessions totaling 770 hectares located in the Salta provinceZacatecas District in Mexico, $150,000 as partial payment for the sale of Argentina. The Yaxtché deposit is our primary target currently identified1,100 hectare Peruvian Otuzco property, and $130,000 from the sale of miscellaneous surplus equipment located in Argentina.
Restart of Mining at the Velardeña Properties
·Following the shutdown of the Velardeña Properties in June 2013, we continued to develop and evaluate plans to restart mining. We completed this evaluation and new mine plans in the second quarter 2014. In July 2014 we restarted mining at the Velardeña Properties and began processing material from the mine in November 2014. During 2014 we generated payable metals totaling approximately 42,000 silver equivalent ounces (equivalents calculated at 70:1 silver to gold) and included approximately 29,000 ounces of silver and 194 ounces of gold. In 2015 we expect output of approximately 0.8 to 1.0 million silver equivalent ounces (including silver and gold but excluding lead and zinc and calculated at a ratio of 70 silver ounces to 1 gold ounce), with cash costs in 2015 between $12.00 and $15.00 per payable silver ounce net of by-product gold, lead and zinc credits, assuming a price for gold of $1,250 per ounce. “Cash costs per payable silver ounce, net of by-product credits” is a non-GAAP financial measure defined below in “—Non-GAAP Financial Measures”.
·Under our new mine plan, we are using shrinkage stope mining, standard mechanized cut and fill and an overhand cut and fill mining method and slusher mucking in the stopes in the narrower veins. This later mining method should allow us to mine narrower vein widths with a significant decrease in dilution, which should allow higher grade material to be hauled to the mill. Since reopening Velardeña, we have employed about half of the employees prior to the June 2013 shutdown when we were running both sulfide and oxide plants and processing approximately 500 tonnes per day (“tpd”). In 2014 we processed mined material to make silver and gold bearing lead and zinc concentrates, and in 2015 we expect to also make saleable pyrite concentrates. During 2014 and 2015 we are focused primarily on mining on the San Mateo, Terneras and Roca Negra veins, which contain higher grade material over more consistent widths in the 0.5 to 1.0 meter range, with significantly lower arsenic levels than those in the Santa Juana vein system that was the focus of our previous mining activity.
·We began processing material through the sulfide mill in November 2014. During November 2014 we tested new equipment in the mill including a revamped electrical system, concentrate filters for our concentrate products, refurbished flotation cells and other equipment. Grades were low in November 2014 as we processed material from stope access drifts and raises to test plant circuits that were refurbished as part of the restart. Average grades in November were 109 grams per tonne silver and 1.3 grams per tonne gold, with payable metals generated from the processing facilities of approximately 12,000 silver equivalent ounces, which is exclusive of process inventory buildup in the circuit. In December 2014 the mill began operating at nearly full capacity of an average 264 tpd. We are continuing to ramp up to the 285 tpd rate, which we expect to achieve late in the first quarter 2015. Average grades in December had increased to 127 grams per tonne silver and 1.8 grams per tonne gold, with payable metals generated from the processing facilities of approximately 31,000 silver equivalent ounces. We expect feed material grades to gradually increase through the second quarter of 2015 as new stopes in the mine are developed and access to the Terneras vein increases. We also continue to actively search for oxide feed from outside sources, which could enable us to restart the oxide plant.
El Quevar
·We continue to hold our El Quevar project. To date,property on care and maintenance and to reduce holding costs until we can find a partner to fund further exploration.
Exploration
·In the first quarter 2014, we completed a 2,000 meter drill program at the 233 hectare Los Azules property in Chihuahua, Mexico. Based on results from this phase one drilling program, we conducted a phase two drill program and have completed in both programs a total of 7,475 meters in 30 holes drilled from both surface and underground. Based on these drill results and underground sampling, we believe we have identified a silver and gold deposit and expect to issue a report regarding the results of these programs in the first quarter 2015.
·In August 2014, we entered into an agreement giving us the right to acquire for $1.6 million the Santa Maria mine, a privately held property near the Parral District of southern Chihuahua State, Mexico, located approximately 100,000 meters of diamond drilling in 400 drill holes. Of these holes, 271 were drilled to test20 kilometers from the main Yaxtché zone for potential mineralization, with approximately 75% of the holes intersecting significant silver mineralization. In addition, weLos Azules project. We have completed an underground declineinitial drill program of 11 holes totaling 2,300 meters at Santa Maria and identified a silver and gold deposit. We expect to issue a report on the results in the central Yaxtché deposit to further define the mineral model. Current modeling suggests that the east and central Yaxtché deposit could be mined by open pit methods and that the west Yaxtché, which makes up approximately 75% of the deposit, could be mined by underground bulk mining methods.first quarter 2015.
Results of Operations
In this Form 10-K we include the historical financial statements of the Predecessor. These financial statements have been updated to reclassify the activity of the Predecessor's San Cristóbal mine and related subsidiaries to discontinued operations as the result of the sale of the San Cristóbal mine effective March 24, 2009. Because of the significant differences between the business operations of the Predecessor and Successor companies, the historical operating performance of the Predecessor does not compare to the operating results of the current company and may not be indicative of our future performance.
For the results of continuing operations discussed below, we compare the results from continuingof operations for the year ended December 31, 2011 of2014 to the Successor to (i) results of the continuing operations of the Successor for the year ended December 31, 2010, (ii) results of the continuing operations of the Successor for the period from March 25, 2009 through December 31, 2009 and (iii) the results of continuing operations of the Predecessor for the 83-day period ended March 24, 2009.2013.
The results of operations of the San Cristóbal mine and related subsidiaries that were sold during the first quarter of 2009 are aggregated and presented as discontinued operations of the Predecessor for the 83-day period ended March 24, 2009. The Successor has no discontinued operations to report.
Continuing Operations
Revenue from the sale of metals. We recorded $1.8$0.2 million and $10.7 million of revenue for the year ended December 31, 2011, all from the sale of dore metal produced at the Velardeña Operations. There were no revenues recorded for the years ended December 31, 2010 or December 31, 2009.
Management Service Fees. We recorded no management services fees for the year ended December 31, 2011 compared to $11.2 million of management service fees for the year ended December 31, 2010. The management service fees for the year ended December 31, 2010 are comprised of $5.5 million of fees, a $4.3 million early termination payment, resulting2014 and 2013, respectively, all from the early terminationsale of metals from our Velardeña Properties in Mexico. The decrease in revenue in 2014 is primarily the result of the agreement effectivesuspension of mining and processing at our Velardeña Properties from June 30, 2010, and $1.4 million for reimbursed withholding taxes. For the year ended December 31, 2009 we recorded $12.5 million of management service fee income ($11.1 million and $1.4 million for the Successor and Predecessor, respectively). The $11.1 million of revenue is primarily related to the San Cristóbal Management Services Agreement and is comprised of $8.7 million of fees, including $1.1 million for a bonus earned for 2009 under the terms of the agreement, and $1.3 million for reimbursed withholding taxes.2013 until processing mined material resumed in November 2014, as discussed above.
Costs of metals sold. We recorded $6.1$1.7 million and $17.5 million of costs applicable to sales for the yearyears ended December 31, 2011, all related to sales2014 and 2013, respectively. The decrease in cost of metals sold in 2014 is primarily the result of the suspension of mining and processing at our Velardeña Properties from the Velardeña OperationsJune 2013 until mining activity resumed in Mexico.July 2014 and processing resumed in November 2014, as discussed above. Included in costs of metals sold for the period ended December 31, 2014 was $3.8a $1.2 million for a write down of finished goods inventory to its estimated net realizable value. There were no costs of metals sold recorded for the years ended December 31, 2010 or December 31, 2009.
Costs of services. We recorded no costs of services for the year ended December 31, 2011 compared to $2.6 million of costs of services for the year ended December 31, 2010 and $3.8 million of costs of services (all related to the Successor) for the year ended December 31, 2009. The costs of services for the years ended December 31, 2010 and 2009 are comprised of reimbursed direct administrative expenses incurred by us related to the Management Services Agreement.
Exploration Expense. Our exploration expense, including property holding costs and allocated administrative expenses, totaled $17.8$5.5 million for the year ended December 31, 2011,2014, as compared to $13.4$4.6 million for the year ended December 31, 2010 and $16.1 million ($12.6 million and $3.5 million for Successor and Predecessor, respectively) for the year ended December 31, 2009.2013. Exploration expense for 2011both years was incurred primarily in Mexico, Peru, and Argentina (excluding amounts spent on the Yaxtché deposit at the El Quevar project) and includes property holding costs and costs incurred by our local exploration offices. Exploration expense for 2010 and 2009 was incurredThe increase in exploration expenses in 2014 is primarily in Argentina, Mexico and Peru. Exploration expense during 2011 was higher than in previous years due to increased drilling activity at advanced stage exploration projects, primarily in Mexico and Peru.
Velardeña Project Expense. During the year ended December 31, 2011, following the Transaction, we incurred $0.6 million of expenses related to the expansion project2014 drilling program at our Velardeña Operations in Mexico,Properties.
Velardeña Project Expense. During the years ended December 31, 2014 and 2013 we incurred approximately $3.1 million and $3.1 million of expenses, respectively, primarily related to developmentthe restart of mining and processing activities in 2014 and the construction of the San Mateo driftramp and other mine construction and engineering work.work in 2013 at our Velardeña Properties. In addition to amounts expensed, during 2011, we incurred capital expenditures of approximately $2.7$0.5 million and $1.8 million in 2014 and 2013, respectively for plant construction, mining and other equipmentequipment.
Velardeña shutdown and had outstanding approximately $1.3care and maintenance costs. We recorded $2.5 million of advance payments to equipment manufacturers atand $6.4 million for the years ended December 31, 2011.2014 and 2013, respectively, for expenses related to shutdown and care and maintenance at our Velardeña Properties as the result of the suspension of mining and processing activities at the Velardeña Properties from June 2013 until mining activity resumed in July 2014 and processing mined material resumed in November 2014, as discussed above.
El Quevar Project Expense. InDuring the first quarteryears ended December 31, 2014 and 2013 we incurred $1.6 million and $2.6 million of 2010 we began recording separately expenses, respectively, primarily related to the projectfurthering our evaluation work onand holding costs for the Yaxtché deposit at our El Quevar propertyproject in Argentina. DuringThe reduction in costs for 2014 is primarily the year ended December 31, 2011, we incurred $27.4 millionresult of expenses related to project work at El Quevar, primarily related to development ofplacing the exploration drift, drilling and engineering work. We incurred capital expenditures of approximately $5.6 million for mining and other equipment and had outstanding approximately $0.3 million of advance payments to equipment manufacturers at December 31, 2011. During the year ended December 31, 2010, we incurred $15.8 million of expenses related to project work at El Quevar, primarily related to development of the exploration drift, drilling and engineering work and we also purchased approximately $3.8 million of mining equipment and had outstanding approximately $0.9 million of advance payments to equipment manufacturers at December 31, 2010. We did not incur any costs related to El Quevar project work in 2009.a holding and maintenance state during 2014. For both the years, 2010 and 2011, costs incurred for work performed outside of the Yaxtché deposit in Argentina are included in "“—Exploration Expense"”, discussed above.
Administrative Expense. Administrative expenses totaled $8.7$4.6 million for the year ended December 31, 20112014 compared to $8.6$5.6 million for the year ended December 31, 2010 and to $13.2 million ($8.4 million and $4.8 million for the Successor and Predecessor, respectively) for the year ended December 31, 2009.2013. Administrative expenses, including costs associated with being a public company, are incurred primarily by our corporate activities in support of the Velardeña Operations,Properties, El Quevar project work, and our exploration portfolio. The $8.7$4.6 million of administrative expenses we incurred during 20112014 is comprised of $3.1$1.9 million of employee compensation $2.6and directors’ fees, $1.2 million of professional fees $0.4 million of travel expenses and $2.6$1.5 million of insurance, rents, utilities and other office costs. During 2010 we incurred $8.6 million of administrative expenses, which were comprised of $4.2 million of employee compensation, $2.0 million of professional fees, $0.6 million of travel expenses,
and $1.8 million of insurance, rents, utilities and other office costs. The $8.4$5.6 million of administrative expenses we incurred during 2009 as the Successor2013 is comprised of $3.5$2.2 million of employee compensation $2.8and directors’ fees, $1.4 million of professional fees $0.5and $2.0 million of insurance, travel expenses, and $1.6 million of insurance, rents, utilities and other office costs. Administrative expenses were lower in 2014 due primarily to fewer staff employees and lower auditing and other professional fees.
Severance and acquisition related costs.Stock based compensation. During the year ended December 31, 2011 we incurred $7.2 million of costs associated with the Transaction, including banker, legal, accounting and other professional fees, as well as severance related costs for several executives of ECU.
Stock based compensation. During the year ended December 31, 20112014 we incurred expense related to stock based compensation in the amount of $5.5$0.9 million compared to $3.3$1.6 million for the year ended December 31, 2010 and $4.4 million ($1.7 million and $2.7 million for Successor and Predecessor, respectively) for the year ended December 31, 2009. Stock based compensation was higher in 2011 compared to previous years due to the accelerated vesting of stock grants at the completion of the Transaction, which resulted in a change of control of Golden Minerals.2013. Stock based compensation varies from period to period depending on the number and timing of shares granted, the type of grant, the market value of the shares on the date of grant and other variables.
Reclamation Expense.and accretion expense. During each of the yearyears ended December 31, 20112014 and 2013 we incurred $0.2 million of reclamation costsexpense related to activity at El Quevar and the accretion of an asset retirement obligation at the Velardeña Operations. We incurred no reclamation expenses for the years ended December 31, 2010 and 2009.Properties.
(Impairment) reversal of impairmentImpairment of long lived assets.assets and goodwill. DuringWe assess the recoverability of our long lived assets, including goodwill, at least annually or whenever events or changes in circumstances indicate that the carrying value of the assets may be impaired. There was no impairment of our long lived assets for the year ended December 31, 20102014. During 2013, the significant decrease in metals prices and the shutdown of mining and processing at the Velardeña Properties during June 2013 were events that required an assessment of the recoverability of the Velardeña Properties asset group and goodwill. We completed an impairment analysis using a market valuation approach which relies upon assumptions related to the Velardeña Properties asset group in comparison to other corroborated observable market data. At June 30, 2013 we determined that both the long lived assets and the goodwill associated with the Velardeña Properties and the San Diego property were impaired. As a result at June 30, 2013 we recorded a net write-up in$237.8 million impairment charge related to the long lived assets and an $11.2 million impairment charge related to goodwill. At December 31, 2013 we reviewed the remaining carrying value of the long lived assets of $0.9 million compared toand goodwill based on the corroborated observable market data at that date and determined that the long lived assets and goodwill were further impaired. As a $1.7result, at December 31, 2013 we recorded an additional $6.1 million impairment charge duringrelated to the year ended December 31, 2009. At December 31, 2009 we had recorded the carrying value of our Paca Pulacayo property as an asset held for sale. During the fourth quarter of 2009 we recordedlong lived assets and a $1.7$0.5 million impairment charge related to write down the carrying cost of the property to its fair value of $0.8 million at December 31, 2009. During 2010 we wrote up by approximately $1.0 milliongoodwill which reduced the carrying value of the Paca Pulacayo propertygoodwill to its fair value based on the estimated sales price less selling costs resulting in a fair market carrying value at December 31, 2010 of $1.8 million reflected as assets held for sale. During January 2011 the sale of the Paca Pulacayo property was completed and a gain of $0.4 million was recorded inOther Operating Income, Net. Also, during 2010 we sold an airplane we owned after recording a $0.1 million impairment charge included in the 2010 amount.zero.
Other Operating Income, Net. We recorded other operating income of $0.7 million for the year ended December 31, 2011. We recorded other operating income of $0.32014 compared to $3.5 million for the year ended December 31, 2010 and $1.0 million ($1.0 million and $0.0 million for the Successor and Predecessor, respectively) for the year ended December 31, 2009.2013. The net amounts for the threeboth years consist primarily of net gains recorded on the sales of certain fixed assets and non strategic mineralnon-strategic exploration properties.
Depreciation, depletion and amortization. During the year ended December 31, 20112014 we incurred depreciation, depletion and amortization expense of $2.8$3.1 million compared to $1.1$6.9 million for the year ended December 31, 2010 and $0.7 million ($0.6 million and $0.1 million for Successor and Predecessor, respectively) for the year ended December 31, 2009. During 2011, depreciation,2013. Depreciation, depletion and amortization includedincludes a $0.6 million related to a write down of finished goods inventory to its estimated net realizable value. Depreciation,value at December 31, 2014. There was no write down of finished goods inventory at December 31, 2013. The decrease in depreciation, depletion and amortization expense increased during 2011 asin 2014 is primarily the completionresult of the Transactionimpairment of long lived assets at the Velardeña Properties during 2013 which resulted in a significant increasedecrease in the carrying value of property, plant and equipment.
Interest and Other Income. During the year ended December 31, 2014 we recorded approximately $1.7 million of interest and other income primarily related to the reduction of a loss contingency liability related to foreign withholding taxes that the government could assert are owed by the Company, acting as withholding agent, on certain interest payments made to a third party. We recorded interest and other income of $11.6$0.4 million for the year ended December 31, 2011 compared2013, primarily related to $0.2this loss contingency liability.
Warrant Income. During the year ended December 31, 2014 we recorded approximately $1.8 million of other income related to a decrease in the fair value of the liability recorded for warrants to acquire the Company’s stock (see Note 15 of our consolidated financial statements filed as part of this annual report on Form 10-K). The warrant liability has been recorded at fair value as of December 31, 2014 based primarily on a valuation performed by a third party expert using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy. The valuation model takes into account the probability that the Company could issue additional shares in a future transaction at a lower price than the current exercise price of the warrants. Significant inputs to the valuation model included the Company’s closing stock price at December 31, 2014 of $0.54, the exercise prices for the warrants disclosed in Note 15 of our consolidated financial statements, the Company’s stock volatility of 90%, the applicable risk free interest rate of 1.6%, and the probability of an additional issuance of the Company’s common stock at a lower price than the current warrant exercise price.
Gain (Loss) on Foreign Currency. We recorded a $0.1 million foreign currency gain for the year ended December 31, 2010 and $1.3 million ($0.3 million and $1.0 million for Successor and Predecessor, respectively) for the year
ended December 31, 2009. The 2011 amount includes approximately $11.3 million of net proceeds received from the settlement of an arbitration claim partially offset by a net $0.1 million loss related to the sale of available for sale investments. The 2010 and 2009 amounts primarily relate to interest earned on cash and investments.
Royalty Income. We recorded royalty income from the Platosa property in Mexico, on which we retained a net smelter return royalty, of $0.4 million during the year ended December 31, 2011 as2014 compared to $0.3a $0.6 million for the year ended December 31, 2010 and $0.5 million ($0.4 million and $0.1 million for Successor and Predecessor, respectively) for the year ended December 31, 2009.
Interest and Other Expense. During 2011, interest and other expense of $1.3 million included $0.9 million of interest expense and $0.3 million of losses on investments. We had no interest and other expense for the year ended December 31, 2010 and $0.3 million of interest and other expense (all related to the Predecessor) for the year ended December 31, 2009.
Loss on Foreign Currency. We recorded $1.5 million of foreign currency loss for the year ended December 31, 2011, compared to $0.1 million for the years ended December 31, 20102013. Foreign currency gains and 2009. The foreign currency loss in 2011 islosses are primarily related to the convertible note received from ECU and the devaluationeffect of othercurrency fluctuations on monetary assets net of liabilities held by our foreign subsidiaries that are denominated in currencies other than US dollars.
Gain (Loss) on Extinguishment of Debt. For the year ended December 31, 2011 we recorded $0.5 million for the extinguishment of debt. The amount was associated with an early termination fee related to a debt obligation acquired in the Transaction. The debt obligation was fully repaid by the end of 2011. The Predecessor recorded a gain on the extinguishment of debt of $248.2 million for the period ended March 24, 2009 related to the cancellation of convertible senior subordinated notes pursuant to Chapter 11 reorganization proceedings under the U.S. Bankruptcy Code.
Loss on Auction Rate Securities ("ARS").Income Taxes. We hadrecorded no losses related to ARS investments for the years ended December 31, 2011 and 2010 compared to $3.0 million ($2.2 million and $0.8 million for the Successor and Predecessor, respectively) for the year ended December 31, 2009. During the second and third quarters of 2009 we sold all of the ARS securities, resulting in total proceeds of $3.0 million and the recognition of a $2.2 million loss on the sale. At December 31, 2011, 2010 and 2009 we had no remaining ARS investments.
Reorganization Costs. For the year ended December 31, 2009 reorganization expenses were $4.7 million ($1.0 million and $3.7 million for Successor and Predecessor, respectively). The reorganization expenses relate to expenses for professional services incurred as a result of the Predecessor's bankruptcy filing and the sale of its interest in the San Cristóbal mine. We incurred no such expenses for the years ended December 31, 2011 and 2010.
Income Taxes. Our income tax expense or benefit for the year ended December 31, 2011 was $2.1 million related primarily to an increase in net operating losses in Mexico and the amortization of the mineral resource in Mexico. Our income tax provisions of $1.4 million for the year ended December 31, 2010 and $1.2 million ($1.0 million and $0.2 million for the Successor and Predecessor, respectively) for the year ended December 31, 2009 consist primarily of withholding taxes either accrued or paid to Bolivia in connection with management services provided to the San Cristóbal mine.
Net Income and Losses attributable to Noncontrolling Interests (formerly Minority Interest). For the years ended December 31, 2011 and 2010 we did not allocate any income or losses to noncontrolling interests.2014. For the year ended December 31, 20092013 we allocatedrecorded an income to the noncontrolling interesttax benefit of $7.9$49.7 million (allprimarily related to the Predecessor). The 2009 amount is primarily related to Sumitomo's interest in income generated by the San Cristóbal Mineimpairment of long lived assets during the period.
Discontinued Operations—San Cristóbal.year.
During the years ended December 31, 2011 and 2010 we had no discontinued operations to report. The Predecessor reported losses from discontinued operations related to the San Cristóbal asset group, which was sold effective March 24, 2009, from discontinued operations for the year ended December 31, 2009 of $4.2 million (all related to the Predecessor). See Note 25, "Discontinued Operations," in our Consolidated Financial Statements for detailed components of the losses from discontinued operations for each of the periods presented.
Liquidity and Capital Resources
At December 31, 20112014 our aggregate cash and short-term investmentscash equivalents totaled $48.6 million, which were comprised entirely of$8.6 million. With the cash and cash equivalents. Our cash and short-term investment balance at December 31, 20112014 and the assumptions described below we expect to have sufficient funding to continue our long term business strategy through 2015, ending 2015 with a cash balance of approximately $2.0 million. Our cash and cash equivalents balance at December 31, 2014 of $8.6 million is $10.5 million lower than the $121.6$19.1 million in similar assets held at December 31, 20102013 due primarily to negative operating margin (defined as revenues less costs of sales) at the Velardeña Properties of $1.4 million; expenditures during the year of approximately $33.0$3.6 million on the restart of mining activities and plant capital and repairs at our Velardeña Properties; $2.5 million in care and maintenance and $1.0 million in drilling costs at our Velardeña Properties; $4.5 million in other exploration expenditures; $1.6 million in maintenance and property holding costs at the El Quevar project; $20.9and $4.6 million in general and administrative expenses; offset in part by net proceeds of $7.4 million received from the sale of shares of our common stock and warrants through an underwritten registered offering and concurrent private placement; $1.0 million in proceeds received from the sale of non-strategic property interests; and a reduction in working capital and other items of $0.3 million primarily related to debt service (including interest)collections of VAT receivables in Mexico and an increase in accounts payable for expenditures associated with the payoffrestart of debt and sales advances from customers related to the ECU Transaction; $17.8 million on exploration; $15.7 million on interim financing of ECU pending completion of the Transaction to fund ongoing operating expenses, exploration and capital equipmentmining activities at the Velardeña Operations and ECU corporate overhead and debt service; $8.7 million on general and administrative activities, $7.2 million on transaction costs related toProperties.
With the ECU Transaction, and $7.5 million on the Velardeña Operations following completioncash balance at December 31, 2014 of the Transaction. These expenditures were offset partially by $30.6 million of net proceeds received from the private placement to Sentient, $11.3 million of net proceeds from the settlement of an arbitration claim, and the receipt of approximately $1.0 million from royalties and other income, including the sale of Apogee common shares relating to the sale of the subsidiary holding the Paca Pulacayo exploration property.
On October 7, 2011, the Company completed a private placement (the "Private Placement") to certain investment funds managed by The Sentient Group ("Sentient") of 4,118,150 shares of the Company's common stock at a price of $7.44 per share, resulting in net proceeds to the Company of approximately $30.6 million after costs related to the transaction of less than $0.1 million.
On December 5, 2011 we repaid in full our term loan obligation assumed in the Transaction to two investment funds managed by IIG Capital, LLC. The repayment totaled approximately $15.0 million, consisting of the remaining principal balance of $14.4 million, an early prepayment fee of $0.5$8.6 million and accrued interesta positive operating margin of $0.1 million.
In accordance with our recent guidance, we expect to produce approximately 740,000 ounces of silver and 9,000 ounces of gold during 2012$2.5 million from the Velardeña Operations. AssumingProperties for the full year 2015, assuming metals prices of $30.00$17.00 per ounce of silver and $1,500$1,250 per ounce of gold, we expect to generate revenue from the sale of metals net of costs of metals sold of approximately $4.0 million during 2012. With our cash and investment balance at December 31, 2011 of $48.6 million, $4.0 million of revenue from the sale of metals net of cost of metals sold from the Velardeña Operations and approximately $1.0 million from royalties and other income during 2012, we plan to spend the following amounts totaling approximately $9.1 million during 2012 pursuant to our long-term business strategy:2015.
·Approximately $24.0$0.3 million onfor sustaining capital and development costs related to the phased intermediate expansion project atfor the Velardeña Operations, including continued development of the San Mateo drift and other mine development and capital expenditures intended to increase the capacity and productivity of mine operations and plant facilities associated with an increase in oxide and sulfide ore production to 1,300 tonnes per day by 2013;Properties;
·
·Approximately $7.0$3.0 million on other exploration activities and property holding costs related to ourthe Company’s portfolio of exploration properties located primarily in South AmericaMexico; and Mexico as we pursue strategies to monetize portions of the portfolio;
·
Based on these projections, and assuming no cash generated by monetization of the exploration properties, we would end the year 2012 with
In arriving at our forecast for a cash and investment balance of approximately $10.0 million. Assuming metals prices$2.0 million at the end of $30.002015 we assumed a price for silver and gold of $17.00 and $1,250 per ounce, respectively. For the full year 2015, a 10 percent change in the price per ounce of silver and $1,500would have a $0.9 million impact (positive or negative) on our cash balance at the end of 2015. A 10 percent change in the price per ounce of gold we expect that revenue from the sale of metals net of cost of metals sold will be positivewould have a $0.7 million impact (positive or negative) on our cash balance at the Velardeña Operations beginning mid-year 2012. By the end of 2012, pursuant to the Velardeña intermediate mine expansion plan and with metals prices as noted previously, we expect revenue from the sale of metals net of cost of metals sold will be sufficient to offset ongoing corporate general and administrative costs and expenditures related to our exploration activities.2015.
The actual amount that we spend through year end 2015 and the projected year end of 2012cash balance may vary significantly from the amounts specified above and will depend on a number of factors, including metals prices, the results of continuing operationsunexpected costs associated with mining and the success of the phased intermediate expansion projectprocessing at the Velardeña OperationsProperties, and the results of our continued project assessment work at El Quevar and our other exploration properties. There can be no assurance the expenditures planned for the intermediate expansionDespite projections of positive net cash flow by mid-2015 from the Velardeña Operations will resultProperties at metals prices of $17.00 per ounce of silver and $1,250 per ounce of gold, our projected cash balance at the end of 2015 would not be sufficient to provide adequate reserves in the anticipated increase in silver and gold production. If production does not increase, orevent of decreasing metals prices, declineinterruptions in mining and processing at the Velardeña Properties or to adequately pursue further exploration of our properties in Mexico, requiring us to seek additional funding from the levels noted previously, we would be required to preserve our cash and investments by reducing project evaluation, exploration work, and general and administrative expenses; relying on theequity or debt or from monetization of non-core assets; or securing additional funding from debt or equity.assets. There can be no assurance that we would be successful in obtaining sufficient funding from any of these actions or sources in the future on terms acceptable to us or at all.
In 2012, we
Non-GAAP Financial Measures
Cash costs, net of by-product credits, per payable ounce of silver is a non GAAP financial measure that is widely used in the mining industry. Under generally accepted accounting principles in the United States (GAAP), there is no standardized definition of cash cost, net of by-product credits, per payable ounce of silver, and therefore the Company’s forecasted cash costs may not be comparable to similar measures reported by other companies.
Forecasted cash costs for the Velardeña Properties were calculated based on the mining plan, and include all forecasted direct and indirect costs associated with the physical activities that would generate concentrate products for sale to continue evaluatingcustomers, including mining to gain access to mineralized materials, mining of mineralized materials and waste, milling, third-party related treatment, refining and transportation costs, on-site administrative costs and royalties. Forecasted cash costs do not include depreciation, depletion, amortization, exploration expenditures, reclamation and remediation costs, sustaining capital, financing costs, income taxes, or corporate general and administrative costs not directly or indirectly related to the expansionVelardeña Properties. By-product credits include forecasted revenues from gold, lead and zinc contained in the products sold to customers. Cash costs, after by-product credits, were divided by the quantity of payable silver forecasted for the period to arrive at cash costs, after by-product credits, per payable ounce of silver. Cost of sales is the most comparable financial measure, calculated in accordance with GAAP, to cash costs. As compared to
cash costs, cost of sales includes adjustments for changes in inventory and excludes net revenue from by-products and third-party related treatment, refining and transportation costs, which are reported as part of revenue in accordance with GAAP.
We provide cash costs, after by-product credits to provide additional information regarding the performance of the Velardeña Operations beyondProperties, and believe the planned phased intermediate expansion anduse of this measure provides investors with useful information about the underlying costs of our mining activities. Cash costs, after by-product credits, is an important statistic that the Company uses to continue the further advancement of the El Quevar project. If economic studies for eithermeasure the Velardeña Operations expansion or El Quevar projects are positive, significant additional funding would be requiredProperties’ performance. It also allows us to complete development and plant construction associated withbenchmark the projects. To fund completely either project would require additional equity or debt from external sources or funding from monetization of non-core assets. There can be no assurance that we would be successful in funding or obtaining funding in the future on terms acceptable to us or at all. If we were unable to obtain additional funding during 2012 or beyond, the potential further developmentperformance of the Velardeña Operations or El Quevar projects could be delayed.Properties against those operations of our competitors. The statistic is also useful in identifying acquisition and investment opportunities since it provides a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and mining and processing characteristics.
Critical Accounting Policies and Estimates
The selection and application of accounting policies is an important process that has developed as our business activities have evolved and as the accounting rules have changed. Accounting rules generally do not involve a selection among alternatives, but involve an implementation and interpretation of existing rules, and the use of judgment, to the specific set of circumstances existing in our business. Discussed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported.
Mineral Reserves
Mineral reserve estimates involve subjective judgment and are based on numerous assumptions that may later prove to be inaccurate. These estimates include engineering evaluations of assay values derived from samplings of drill holes and other openings. Additionally, changes in the market prices of
metals may render certain mineral reserves containing relatively lower grades of mineralization uneconomic to mine. Further, availability of permits, changes in operating and capital costs, and other factors could materially and adversely affect mineral reserves. We have not established proven or probable reserves at any of our operating or exploration properties.
Mineral Properties
When and if we determine that a mineral property has proven and probable reserves, subsequent development costs are capitalized to mineral properties. When mineral properties are developed and operations commence, capitalized costs are charged to operations using the units-of-production method over proven and probable reserves. "Mineralized material"“Mineralized material” as used in this annual report, although permissible under SEC'sSEC’s Industry Guide 7, does not indicate "reserves"“reserves” by SEC standards.standards, and therefore all development costs incurred by us are expensed when incurred. The Company cannot be certain that any part of the Yaxtché deposit ordeposits at the Velardeña OperationsProperties or the Yaxtché deposit at the El Quevar project will ever be confirmed or converted into SEC Industry Guide 7 compliant "reserves."“reserves”.
Asset Retirement Obligations
We record asset retirement obligations in accordance with ASCAuditing Standards Codification (“ASC”) 410, "Asset“Asset Retirement and Environmental Obligations" ("Obligations” (“ASC 410"410”), which establishes a uniform methodology for accounting for estimated reclamation and abandonment costs. According to ASC 410, the fair value of a liability for an asset retirement obligation ("ARO"(“ARO”) is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. An offsetting asset retirement cost is capitalized as part of the carrying value of the assets with which it is associated, and depreciated over the useful life of the asset.
Deferred TaxesLong Lived Assets and Goodwill
Our deferred tax liability is primarily
We assess the recoverability of our long lived assets, including goodwill, at least annually or whenever events or changes in circumstances indicate that the carrying value of the assets may be impaired. The significant decrease in metals prices during 2013 and the shutdown of mining and processing at the Velardeña Properties during June 2013 were events that required an assessment of the recoverability of the Velardeña Properties asset group and goodwill. We completed an impairment analysis using a market valuation approach which relies upon assumptions related to the ECU merger and was calculated by applyingVelardeña Properties asset group in comparison to other corroborated observable market data. At June 30, 2013 we determined that both the Mexico corporate income tax rate of 28% to the difference between the fair valuelong lived assets and the tax basis ofgoodwill associated with the assets acquiredVelardeña Properties and liabilities assumed. The ECU merger also resulted in the recognition ofSan Diego property were impaired. As a deferred tax asset related to certain net operating loss carry forwards available in Mexico. In accordance with ASC 740, the Company presents deferred tax assets net of its deferred tax liabilities onresult at June 30, 2013 we recorded a tax jurisdictional basis on its Consolidated Balance Sheets.
Goodwill
Goodwill is all$237.8 million impairment charge related to the ECU Mergerlong lived assets and is primarilyan $11.2 million impairment charge related to goodwill. At December 31, 2013 we reviewed the resultremaining carrying value of the requirement to recordlong lived assets and goodwill based on the corroborated observable market data at that date and determined that the long lived assets and goodwill were further impaired. As a deferred tax liability for the difference between the fair value and the tax basis of the assets acquired and liabilities assumedresult, at amounts that do not reflect fair value. The goodwill is not deductable for income tax purposes.
Business Combinations
We followed the acquisition method of accounting in accordance with ASC 805 "Business Combinations" ("ASC 805")December 31, 2013 we recorded an additional $6.1 million impairment charge related to the merger with ECU discussed above. Mineral properties and the asset retirement obligation are recorded at estimated fair market value based on valuations performed with the assistance of an independent appraisal firmlong lived assets and a minerals engineering company. The asset valuations were derived in accordance with$0.5 million impairment charge related to goodwill which reduced the guidance of ASC Topic 820 "Fair Value Measurements and Disclosures" ("ASC 820") using a combination of income, market and cost approach models depending on the asset. In applying the appropriate valuation model or models, the valuation consultants employed a variety of economic factors and market data, including discount rates, income tax rates, projections of future metals prices, and third party market surveys.
Fresh Start Accounting
Due to our emergence from bankruptcy, effective March 25, 2009, we applied fresh start accounting in accordance with ASC 805 "Business Combinations" ("ASC 805") and ASC 852 "Reorganizations" ("ASC 852"). ASC 852 requires, among other things, the determination of the reorganizationcarrying value of the successor upon emergence from bankruptcy. Reorganization value approximates the fair value of the entity, before considering liabilities, and approximates the amount a willing buyer would pay for the assets of the entity immediately after the restructuring. The fair value of our assets was determined with the assistance of a third party valuation expert and a minerals engineering firm, which used available comparable market data and quotations, discounted cash flow analysis, and other methods in determining the appropriate asset fair values.goodwill to zero.
Table of Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2011:2014:
Contractual Obligations |
| Total |
| Less Than |
| 1 - 3 |
| 3 - 5 |
| More |
|
|
| (in thousands of $) |
| ||||||||
Operating leases(1) |
| 1,254 |
| 270 |
| 490 |
| 493 |
| — |
|
El Quevar and Velardeña concession payments(2) |
| 610 |
| 122 |
| 244 |
| 244 |
| — | (3) |
Contractual Obligations | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands of $) | |||||||||||||||
Operating leases(1) | 1,766 | 739 | 992 | 35 | — | |||||||||||
El Quevar and Velardeña concession payments(2) | 250 | 50 | 100 | 100 | — | (4) | ||||||||||
Purchase option agreement payments(3) | 950 | 700 | 250 | — | — |
(1)The operating lease obligations are related primarily to our corporate headquarters office in Golden, Colorado, as well as otheranother office leaseslease associated with our exploration activities.Velardeña Properties. The currentlease for the corporate headquarters office space was renegotiated and extended during the first quarter 2014. The new lease reflects an approximately 46% reduction in space and an approximately 44% reduction in cost beginning March 1, 2014. The new lease expires in October, 2014. LeasesNovember 30, 2019. The lease for the other offices expire at various times not exceeding four years.
(2)We make annual maintenance payments of approximately $24,000$12,000 to the Mexico federal government to maintain the Velardeña OperationsProperties concessions and $27,000approximately $35,000 to the Argentine federal government to maintain the El Quevar project concessions. In 2015 and subsequent years, we expect to pay approximately $110,000 per year to the Argentina federal government as a result of an amendment to the National Mining Code effective January 2015, increasing the annual payment by approximately four times. These payments include payments for both owned concessions and concessions held under purchase option agreements.
(3)In addition to the annual maintenance payments to the Argentine and Mexican federal governments, we make payments to the current concession owners for the properties under option agreements in order to retain title to the properties. Amounts shown only include the concessions held for the Velardeña Operations. Option payments associated with other concessions at the El Quevar project are not included because the concessions do not involve areas that are vital to the project and the Company has the right to terminate the payments and release the concessions at any time.(4)OperationsProperties or El Quevar project. This table assumes that no annual maintenance payments will be made more than five years after December 31, 2011.2014. If we continue to operatemining and processing at the Velardeña OperationsProperties beyond five years, we expect that we would make annual maintenance payments of approximately $24,000$12,000 per year for the life of the Velardeña mine. If we continue to developconstruct a mine at the El Quevar project, we expect that we would make annual maintenance payments of approximately $27,000$110,000 per year for the life of the El Quevar mine.
In addition to the contractual obligations set forth above, at December 31, 2011 we have purchase orders outstanding in the amount of approximately $1.0 million related to equipment purchases at our Velardeña Operations in Mexico relating to payments remaining for mobile equipment that had been ordered at December 31, 2011 and will be delivered in 2012.
From time to time we enter into lease or option agreements related to exploration properties that are of interest to us. These agreements typically contain escalating lease payments required to maintain our exploration rights to the property. Such agreements are not included in the above table because exploration success is historically low and we have the right to terminate the agreements at any time. For example, at the El Quevar project we control the Nevado I concession pursuant to a purchase option agreement with a third party concession owner. Our remaining payment on the Nevado I option agreement totals $550,000 and has been extended to June, 2015.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We invest substantially all of our excess cash in U.S. government and debt securities rated "investment grade"“investment grade” or better. The rates received on such investments may fluctuate with changes in economic conditions. Based on the average cash, restricted cash, investments and restricted investment balances outstanding during the year ended December 31, 2011,2014, a 1.0% decrease in interest rates would have resulted in a reduction in interest income for the period of less than approximately $0.9$0.1 million.
Foreign Currency Exchange Risk
Although most of our expenditures are in U.S. dollars, certain purchases of labor, operating supplies and capital assets are denominated in other currencies. As a result, currency exchange fluctuations may impact the costs of our operations.mining and exploration activities. To reduce this risk, we maintain minimum cash balances in foreign currencies and complete most of our purchases in U.S. dollars.
Commodity Price Risk
We are primarily engaged in the operationexploration and further developmentmining of properties containing silver, gold, silver, zinc, lead and other minerals. As a result, decreases in the price of any of these metals have the potential to negatively impact our ability to establish reserves and developmine on our properties. For further detail regarding the effect on our expected cash flow from fluctuations in silver and operate our properties.gold prices, see “Item 7: Management’s Discussion and Analysis—Liquidity and Capital Resources” above.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary information filed as part of this Item 8 are listed under Part IV, Item 15, "Exhibits,“Exhibits, Financial Statement Schedules"Schedules” and contained in this annual report on Form 10-K at page F-1.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The management of Golden Minerals Company has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 31, 2011.2014.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2011,2014, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act")),Act) were effective and designed to provide reasonable assurance that (i) information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC'sSEC’s rules and forms, and (ii) information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
The management of Golden Minerals, Company, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Management'sManagement’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act, as amended)Act). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2011.2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO")(COSO) inInternal Control—Integrated Framework. Based on our assessment, management has concluded that, as of December 31, 2011,2014, our internal control over financial reporting is effective based on these criteria.
Management has excluded the operations of ECU Silver Mining Inc. and its subsidiaries, which was acquired on and consolidated by the Company as of September 2, 2011, from its assessment of internal control over financial reporting. The acquired operations had a combined total assets and combined sales representing 68% and 100% respectively of the related consolidated financial statement amounts as of and for the year ended December 31, 2011.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included in Item 8, "Financial Statements and Supplementary Data" of this annual report on Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company'sCompany’s internal control over financial reporting during the quarter ended December 31, 20112014 that have materially affected, or are reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.
None.
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
For Information regarding our executive officers, see "“Items 1 and 2: Business and Properties—Executive Officers of Golden Minerals” and “Items 1 and 2: Business and Properties—Board of Directors of Golden Minerals."”
Additional information is incorporated by reference from the information in our proxy statement for the 20122015 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates.
We have adopted a code of ethics that applies to all of our employees, including the principal executive officer, principal financial officer, principal accounting officer, and those of our officers performing similar functions. The full text of our code of ethics can be found on the Corporate Governance page on our website. In the event our boardBoard of Directors approves an amendment to or waiver from any provision of our code of ethics, we will disclose the required information pertaining to such amendment or waiver on our website.
ITEM 11: EXECUTIVE COMPENSATION
Incorporated by reference from the information in our proxy statement for the 20122015 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Incorporated by reference from the information in our proxy statement for the 20122015 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated by reference from the information in our proxy statement for the 20122015 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates.
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference from the information in our proxy statement for the 20122015 Annual Meeting of Stockholders, which we will file with the Securities and Exchange Commission within 120 days of the end of the fiscal year to which this report relates.
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
(1)
(2)
(3)
EXHIBITS
Exhibit | Description | ||
1.1 | Underwriting Agreement between Golden Minerals Company and | ||
1.2 | Underwriting Agreement between Golden Minerals Company and Roth Capital Partners, LLC, dated as of September 5, 2014.(13) | ||
3.1 | Amended and Restated Certificate of Incorporation of Golden Minerals Company.(2) | ||
3.2 | First Amendment to the Amended and Restated Certificate of Incorporation of Golden Minerals Company. | ||
3.3 | Bylaws of Golden Minerals Company.(2) | ||
4.1 | Specimen of Common Stock Certificate. | ||
4.2 | Supplemental Warrant Indenture, dated as of September 2, 2011, by and among Golden Minerals, ECU Silver Mining | ||
4.3 | Third Supplemental Warrant Indenture, dated as of September 2, 2011, by and among Golden Minerals, ECU Silver Mining | ||
4.4 | Warrant Agreement by and between Golden Minerals Company and Computershare Trust Company N.A. dated as of September 19, 2012.(1) | ||
4.5 | Warrant by and between Golden Minerals Company and Sentient Global Resources Fund IV, L.P. dated as of September 19, 2012.(1) | ||
4.6 | Warrant Agreement by and between Golden Minerals Company and Computershare Trust Company N.A. dated as of September 10, 2014 (Public Offering). (13) | ||
4.7 | Warrant Agreement by and between Golden Minerals Company and Computershare Trust Company N.A. dated as of September 10, 2014 (Sentient Private Placement). (14) | ||
10.1 | Form of Indemnification Agreement.(2) | ||
10.2 | Form of Change of Control Agreement.(2) | ||
10.3 | Amendment No. 1 to Change of Control Agreement.(5) | ||
10.4 | Golden Minerals Company Amended and Restated 2009 Equity Incentive Plan.(6) | ||
10.5 | Form of Restricted Stock Award Agreement Pursuant to the 2009 Equity Incentive Plan.(7) | ||
10.6 | Golden Minerals Company Replacement Stock Option Plan. | ||
10.7 | Non-Employee Directors Deferred Compensation and Equity Award Plan.(7) | ||
10.8 | Form of Non-Qualified Stock Option Award Agreement Pursuant to the Amended and Restated 2009 Equity Incentive Plan. | ||
10.9 | |||
Registration Rights Agreement by and among Golden Minerals Company, Sentient Global Resources Fund III, L.P., SGRF III Parallel I, L.P. and Sentient Global Resources Fund IV, L.P. dated as of October 7, 2011. | |||
10.10 | Registration Rights Agreement between Golden Minerals Company and Sentient Global Resources Fund IV, L.P. dated as of September 19, 2012.(1) | ||
10.11 | Subscription Agreement between Golden Minerals Company and Sentient Global Resources Fund IV, L.P. dated as of September 10, 2014.(14) | ||
10.12 | Registration Rights Agreement between Golden Minerals Company and Sentient Global Resources Fund IV, L.P. dated as of September 10, 2014.(13) | ||
10.13 | Stock Surrender and Unit Grant Agreement dated as of December 13, 2013.(11) | ||
10.14 | Golden Minerals Company 2013 Key Employee Long-Term Incentive Plan.(11) |
Exhibit | Description | |
21.1 | Subsidiaries of the Company.* | |
23.1 | Consent of | |
23.2 | Consent of | |
23.3 | Consent of RungePincockMinarco.* | |
31.1 | Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002).* | |
31.2 | Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002).* | |
32.1 | Certificate of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).** | |
101.INS | XBRL Instance Document* | |
101.SCH | XBRL Taxonomy Extension Schema Document* | |
101.CAL | XBRL Taxonomy Calculation Linkbase Document* | |
101.DEF | XBRL Taxonomy Definition Document* | |
101.LAB | XBRL Taxonomy Label Linkbase Document* | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document* |
(1)Incorporated by reference to our Current Report on Form 8-K filed October 12, 2010.
(2)Incorporated by reference to our Current Report on Form 8-K filed March 30, 2009.
(3)Incorporated by reference to our Current Report on Form 8-K filed July 19, 2011.(4)Incorporated by reference to our Current Report on Form 8-K filed January 13, 2010.(5)(6)
(4)Incorporated by reference to our Form S-1/A Registration Statement filed November 16, 2009.
(5)Incorporated by reference to our Current Report on Form S-88-K filed May 8, 2009.
(6)Incorporated by reference to our Quarterly Report on Form 10-Q filed August 6, 2014.
(7)Incorporated by reference to our Quarterly Report on Form 10-Q filed August 10, 2009.
(8)Incorporated by reference to our Form S-8 Registration Statement filed September 2, 2011.
(9)Incorporated by reference to our Quarterly Report on Form 10-Q filed May 4, 2010.
(10)Incorporated by reference to our Current Report on Form 8-K filed October 11, 2011.(9)
(11)Incorporated by reference to our Current Report on Form S-8 Registration Statement8-K filed December 18, 2013.
(12)Incorporated by reference to our Current Report on Form 8-K filed August 15, 2013.
(13)Incorporated by reference to our Current Report on Form 8-K filed September 2, 2011.(10)
(14)Incorporated by reference to our Quarterly Report on Form 10-Q filed May 4, 2010.(11)Incorporated by reference to our Current Report on Form 8-K filed October 26, 2010.(12)Incorporated by reference to our Current Report on Form 8-K filed June 30, 2011.
*Filed herewith.
**These interactive data files are furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 27, 2015 | |||||
GOLDEN MINERALS COMPANY Registrant | |||||
By: | /s/ JEFFREY G. CLEVENGER | ||||
Jeffrey G. Clevenger | |||||
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||||||
---|---|---|---|---|---|---|---|---|
/s/ JEFFREY G. CLEVENGER | President and Chief Executive Officer | February 27, 2015 | ||||||
Jeffrey G. Clevenger | ||||||||
/s/ ROBERT P. VOGELS | Senior Vice President and Chief | February 27, 2015 | ||||||
Robert P. Vogels | ||||||||
/s/ W. DURAND EPPLER | Director | February 27, 2015 | ||||||
W.Durand Eppler | ||||||||
/s/ MICHAEL T. MASON | Director | February 27, 2015 | ||||||
Michael T. Mason | ||||||||
/s/ IAN MASTERTON-HUME | Director | February 27, 2015 | ||||||
Ian Masterton-Hume | ||||||||
/s/ KEVIN R. MORANO | Director | February 27, 2015 | ||||||
Kevin R. Morano | ||||||||
/s/ TERRY M. PALMER | Director | February 27, 2015 | ||||||
Terry M. Palmer | ||||||||
/s/ ANDREW N. PULLAR | Director | February 27, 2015 | ||||||
Andrew N. Pullar | ||||||||
/s/ DAVID H. WATKINS | Director | February 27, 2015 | ||||||
David H. Watkins |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX
Page | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Board of Directors and Stockholders Golden Minerals
We have audited the accompanying consolidated balance sheets of Golden Minerals Company and subsidiaries (the “Company”) as of December 31, We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
In our opinion, the
February 27, 2015 Denver, Colorado (Expressed in United States dollars)
The accompanying notes form an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (Expressed in United States dollars)
The accompanying notes form an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Expressed in United States dollars)
The accompanying notes form an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in United States dollars)
The accompanying notes form an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States dollars)
1.Basis of Preparation of Financial Statements Golden Minerals Company (the The Company is considered an exploration stage company under the criteria set forth by the Securities and Exchange Commission (“SEC”) as the Company has not yet demonstrated the existence of proven or probable mineral reserves, as defined by the SEC Industry Guide 7, at the Velardeña Properties, or any of the Company’s other properties. As a result, and in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for exploration stage companies, all expenditures for exploration and evaluation of the Company’s properties are expensed as incurred. As such the Company’s financial statements may not be comparable to the financial statements of mining companies that do have proven and probable mineral reserves. Such companies would typically capitalize certain development costs including infrastructure development and mining activities to access the ore. The capitalized costs would be amortized on a units-of-production basis as reserves are mined. The amortized costs are typically allocated to inventory and eventually to cost of sales as the inventories are sold. As the Company does not have proven and probable reserves, substantially all expenditures at the Company’s Velardeña Properties for mine construction activity, as well as costs associated with the mill facilities, and for items that do not have a readily identifiable market value apart from the mineralized material, have been expensed as incurred. Such costs are charged to cost of metals sold or project expense during the period depending on the nature of the costs. Certain of the costs may be reflected in inventories prior to the sale of the product. The term “mineralized material” as used herein, although permissible under SEC Industry Guide 7, does not indicate “reserves” by SEC standards. The Company cannot be certain that any deposits at the Velardeña Properties or any other exploration property will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves”. In June 2013 the Company suspended mining and processing at its Velardeña Properties. Following the shutdown, the Company continued to develop and evaluate plans to restart mining. The Company completed this evaluation and new mine plans in the second quarter 2014 and on July 1, 2014 restarted mining at the Velardeña Properties and began processing material from the mine on November 3, 2014. During 2014 the Company focused primarily on mining material from the San Mateo, Terneras and Roca Negra vein systems. Average grades in November were 109 grams per tonne silver and 1.3 grams per tonne gold, with payable metals generated from the processing facilities of approximately 12,000 ounces silver equivalent ounces, which is exclusive of process inventory in the circuit that required build up. In December 2014 the mill began operating at nearly full capacity of an average 264 tonnes per day (“tpd”). The Company is continuing to ramp up to the 285 tpd rate, which it expects to achieve late in the first quarter 2015. Average grades in December were 127 grams per tonne silver and 1.8 grams per tonne gold, with payable metals generated from the processing facilities of approximately 31,000 ounces silver equivalent ounces. During the fourth quarter 2014, the Company sold approximately 16,000 ounces of silver and approximately 95 ounces of gold. In the first quarter 2015, the engineering firm Tetra Tech updated the Company’s estimate of mineralized material at the Velardeña Properties, and plans to finalize a Preliminary Economic Assessment (“PEA”) and a technical report pursuant to Canadian National Instrument 43-101 in respect of the Velardeña
The financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the normal course of business. However, the continuing operations GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) of the Company are dependent upon its ability to secure sufficient funding and to generate future profitable operations. The underlying value and recoverability of the amounts shown as mineral properties in 2.
The The policies adopted, considered by management to be significant, are summarized as follows: a. All of the b.
Substantially all expenditures and sales are made in U.S. dollars. Accordingly, the Company and
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. d.
Metals
GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) Materials and supplies inventories are valued at the lower of average cost or net realizable value. Cost includes applicable taxes and freight. The Company routinely counts and evaluates its material and supplies to determine the existence of any obsolete stock that is subject to impairment. e
The Company expenses general prospecting costs and the costs of acquiring and exploring unevaluated mineral properties. When a mineral property is determined to have proven and probable reserves, subsequent development costs are capitalized to mineral properties. For acquired mineral properties with proven and probable reserves, the Company capitalizes acquisition costs and subsequent development costs. When mineral properties are developed and operations commence, capitalized costs are charged to operations using the units-of-production method over proven and probable reserves. Upon abandonment or sale of a mineral property, all capitalized costs relating to the specific property are written off in the period abandoned or sold and a gain or loss is As discussed in Note 1, the Company is considered an exploration stage company under the criteria set forth by the SEC since it has not yet demonstrated the existence of proven or probable reserves at the Velardeña Properties, or any of the Company’s other properties. As such, the Company expenses costs as incurred related to the extraction of mineralized material at its Velardeña Properties. The Company established a cost basis for the mineralized material at the Velardeña Properties as a result of purchase accounting for the Company’s business combination transaction with ECU Silver Mining Inc. (“ECU”) in September 2011, the transaction pursuant to which the Company acquired the Velardeña Properties. Mineral properties acquired in the ECU merger were recorded at estimated fair market value based on valuations performed with the assistance of an independent appraisal firm and a minerals engineering company. On a quarterly basis the Company evaluates its exploration properties to determine if they meet the
Buildings are depreciated using the As discussed above, the Company
Property, plant and equipment are recorded at cost and per the guidance of ASC 360 GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) ASC 350 requires that an entity assign its goodwill to reporting units and test each reporting unit’s goodwill for impairment at least annually or whenever events or changes in circumstances indicate the goodwill may be impaired. The Company wrote off the remaining balance of its goodwill related to the Velardeña Properties as of December 31, 2013 (see Note 9).
The Company records asset retirement obligations
The Company prepares estimates of the timing and amount of expected cash flows when an ARO is incurred. The fair value of the ARO is measured by discounting the expected cash flows using a discount rate that reflects the credit adjusted risk-free rate of interest. The Company records the fair value of an ARO when it is incurred and changes in the fair value of the ARO are recorded as an adjustment to the corresponding ARC. The ARO is adjusted to reflect the passage of time (accretion cost) calculated by applying the discount rate implicit in the initial fair value measurement to the beginning-of-period carrying amount of the ARO. The Company records accretion costs to expense as incurred. h.
Following the guidance of ASC 605,
i.
Stock based compensation costs are recognized per the guidance of ASC 718, j.
Basic income (loss) per share is computed by dividing net income (loss) available to holders of the
At December 31, GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars)
Comprehensive income (loss) is defined as all changes in equity (deficit), exclusive of transactions with stockholders, such as capital investments. Comprehensive income (loss) includes net income (loss) and changes in certain assets and liabilities that are reported directly in equity. For the years ended December 31, l.
The Company accounts for income taxes in accordance with the provisions of ASC 740,
The Company m. In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, “Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income”. The purpose of this accounting standard update is to improve the reporting of reclassifications out of accumulated other comprehensive income and
In July 2013 the
n. On August 27, 2014, the GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in Company’s ability to continue as a going concern within one year after the financial statements are issued on both an interim and
On May 28, 2014, FASB and the International Accounting Standards Board issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In On April 10, 2014 the FASB issued Accounting Standards Update No. 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU
3.Cash and Cash Equivalents and Short-Term Investments The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Short-term investments include investments with maturities greater than
Prepaid expenses and other assets consist of the following:
December 31,
The prepaid contractor fees and vendor advances consist of advance payments made to GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in
December 31, 2013 The prepaid contractor fees and vendor advances consist of advance payments made to contractors and suppliers primarily at the Company’s Velardeña Properties in Mexico. In addition, included in non-current assets at December 31,
5.Inventories
Inventories at the Velardeña
At December 31,
The Company had no metals or in process inventories at December 31,
The Company has recorded value added tax
The Company has also paid VAT in Mexico as well as other countries, primarily related to exploration projects, which has been charged to expense as incurred because of the uncertainty of recoverability.
Property, plant and equipment, net
The components of property, plant, and equipment, net were as follows:
GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars)
During the year ended December 31,
During the Also during 2013 the Company reduced the carrying value of the Velardeña Properties property, plant and equipment by $235.3 million and the carrying value of the San Diego mineral property by $8.7 million and recorded $244.0 million of impairment charges on the accompanying Consolidated Statement of Operations and Comprehensive Loss (see Note 8). The table below sets forth the detail of the impairment charges recorded to the Velardeña Properties property, plant and equipment and the San Diego mineral property at December 31, 2013:
The carrying value after the impairment represents the fair value of the assets as discussed in Note 8. The asset retirement cost (“ARC”) is all related to the Company’s Velardeña Properties. The decrease in the ARC during the period GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) 8.Impairment of Long Lived Assets Velardeña Properties Asset Group The Velardeña Properties asset group consists of the property, plant, and equipment and working capital related to the Velardeña Properties. Per the guidance of ASC 360, “Property, Plant and Equipment” (“ASC 360”), the Company Prices for silver and gold decreased approximately 34% and 26% respectively from March 31, 2013 to June 30, 2013. The significant decrease in metals prices and the shutdown of mining and processing at the Velardeña Properties at the end of the second quarter 2013 were events that required an assessment of the recoverability of the Velardeña Properties asset group at June 30, 2013. Per the guidance of ASC 360, recoverability of an asset group is not achieved if the projected undiscounted, pre-tax cash flows related to the asset group are less than its carrying amount. In its analysis of projected cash flows from the Velardeña Properties, the Company determined that the Velardeña Properties asset group was impaired. As a result, at June 30, 2013 and later at December 31, 2013 the Company recorded The Company also recomputed deferred tax assets and liabilities associated with the Velardeña Properties asset group and determined, based on the new carrying value of the Velardeña Properties asset group, that no net deferred tax liabilities exist. Therefore, the net deferred tax liabilities calculated prior to the impairment of approximately In arriving at a fair value for the Velardeña mineral deposit and exploration properties at June 30, 2013 the Company used a market valuation approach, which the Company deemed reasonable under the circumstances, that considered a combination of: (1) recently published market data reflecting an average in the ground mineral resource value for a representative group of junior silver mining companies primarily located in Mexico and South America, and (2) recent mineral resource acquisition and development cost data provided by a third party mining engineering consultant. From this data the Company inferred an enterprise value for the Velardeña Properties of approximately $0.29 per ounce of estimated equivalent silver ounces contained in the Velardeña Properties deposit. From the derived enterprise value the Company subtracted the fair value assigned to tangible assets and working capital to arrive at a residual value for the mineral and exploration properties. Using this approach, the Company determined that the Velardeña Properties asset group, including tangible assets, had a fair value of approximately $23.9 million at December 31, 2013, resulting in total impairment charges of $235.3 million for 2013. The tangible assets at the Velardeña Properties were separately analyzed by a third party valuation firm using available market data to determine a fair value based on the net realizable value that could be received in a sale to a third party. The market data was derived by researching the secondary equipment market on sales and/or offers for sale of similar assets. The tangible assets were determined to have a fair value of approximately $9.6 million, resulting in an impairment charge of approximately $14.3 million at June 30, 2013. The market valuation approach used in the determination of fair value falls within Level 3 of the fair value hierarchy per ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) (see Note 13) and relies upon assumptions related to the The following table details the components of the impairment of the Velardeña Properties Asset Group: GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars)
(1)The December 31, 2013 mineral properties net book value reflects a $0.1 million adjustment recorded during the fourth quarter of 2013 in addition to the impairment charge. (2)The December 31, 2013 tangible assets net book value reflects depreciation and asset disposals recorded during the third and fourth quarters of 2013. San Diego Property Asset Group At December 31, 2014 the Company had a 50% ownership interest in the San Diego exploration property, which is located approximately 10 kilometers from the Velardeña Properties. Because of its close proximity to the Velardeña Properties, the San Diego property could become a source of additional ore for the Velardeña Properties if developed in the future. The San Diego property is included in the Velardeña Properties reporting segment but is separate from the Velardeña Properties asset group. Per the guidance of ASC 360, the Company assesses the recoverability of its property, plant and equipment at least annually, or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Based on the Company’s assessment of the recoverability of the San Diego property at December 31, 2014 no impairment of the San Diego properties was deemed to have occurred during 2014. As discussed above relating to the impairment of long lived assets associated with the Velardeña Properties asset group, the significant decrease in metals prices in the early part of 2013 and the shutdown of mining and processing at the Velardeña Properties at the end of the second quarter 2013 were events that required the assessment of the recoverability of the carrying amounts of the San Diego property. Because the San Diego property is in the exploration stage a market valuation approach was used to determine the fair value for the property. Because of the close proximity and geological similarities of the San Diego property to the Velardeña Properties mineral deposit and exploration properties, and given that both the San Diego property and the Velardeña Properties mineral deposit and exploration properties were originally recorded at fair value at the same time as part of the ECU merger transaction, the Company determined that the impairment of the Velardeña mineral deposit and exploration properties provided a reasonable estimate for the decline in fair value of the San Diego property. As such, at June 30, 2013 and later at December 31, 2013 the Company recorded impairment charges totaling $8.7 million to arrive at a fair value for the San Diego property of $0.6 million at December 31, 2013, as shown in the table below. The market valuation approach used in the determination of fair value falls within Level 3 of the fair value hierarchy per ASC 820 (see Note 13) and relies upon assumptions related to the condition and location of the San Diego property in comparison to other corroborated observable market data. The following table details the components of the impairment of the San Diego Property Asset Group: GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars)
9.Impairment of Goodwill Prior to December 31, 2013 the Company reflected goodwill on its balance sheet related to the acquisition of the Velardeña Properties as part of the ECU merger transaction primarily as a result of the As discussed in Note 8, regarding the impairment of long lived assets related to the Velardeña Properties asset group, the significant decrease in metals prices and shutdown of mining and processing at the Velardeña Properties during 2013 were events that also required an assessment of whether goodwill had been impaired. In determining the impairment of goodwill, the Company used an analysis of discounted after-tax cash flows to calculate the implied fair value of the
10.Accounts Payable and Other Accrued Liabilities
The
GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) December 31,
Accounts payable and accruals at December 31,
Accrued employee compensation and benefits at December 31, December 31,
Accounts payable and accruals at December 31,
Accrued employee compensation and benefits at December 31, Key Employee Long-Term Incentive Plan In December 2013, the Board of Directors of the Company approved and the Company adopted the 2013 Key Employee Long-Term Incentive Plan (the “KELTIP”), which became effective immediately. The KELTIP provides for the grant of units (“KELTIP Units”) to certain officers and key employees of the Company, which units will, once vested, entitle such officers and employees to receive an amount, in cash or in Company common stock issued pursuant to the Company’s Amended and Restated 2009 Equity Incentive Plan, measured generally by the price of the Company’s common stock on the settlement date. KELTIP Units are not an actual equity interest in the Company and are solely unfunded and unsecured obligations of the Company that are not transferable and do not provide the holder with any stockholder rights. Payment of the settlement amount of vested KELTIP Units is deferred generally until the earlier of a change of control of the Company or the date the grantee ceases to serve as an officer or employee of the Company. The KELTIP Units are marked to market at each reporting period. At December 31, 2014 and December 31, 2013 the Company had recorded liabilities of $93,000 and $81,000, respectively, related to KELTIP Unit grants which are included in accrued employee compensation and benefits in the table above. 11.Asset Retirement and Reclamation Liabilities
The Company The Company will continue to accrue additional estimated ARO amounts based on an asset retirement plan as activities requiring future reclamation and remediation occur.
The following table summarizes activity in the Velardeña
GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars)
The decrease in the ARO recorded during the year ended December 31, 2014 is the result of changes in assumptions related to inflation factors and discount rates used in the determination of future cash flows. The increase in ARO recorded during the year ended December 31, 2013 relates to a change in assumption related to inflation factors used in the determination of future cash flows. The corresponding increase in ARO was discounted using the Company’s current credit-adjusted risk-free interest rate. The ARO set forth on the accompanying Condensed Consolidated Balance Sheets at December 31, 2014 and December 31, 2013 include approximately 12.
The Company recorded other current liabilities The December 31, 2014 amount also includes a net liability of approximately $0.2 million related to the Argentina tax on equity due for years 2009 through 2012 stemming from a tax audit of those years. The amount includes interest and penalties and is net of certain VAT credits due the Company. The tax authorities have agreed in principle to offset a portion of the
as much as $0.7 million (see Note 20).
Financial assets and liabilities and nonfinancial assets and liabilities are measured at fair value on a recurring (annual) basis under a framework of a fair value hierarchy which prioritizes the inputs into valuation techniques used to measure fair value into three broad levels. This hierarchy gives the highest priority to quoted prices (unadjusted) in active markets and the lowest priority to unobservable inputs. Further, financial assets and liabilities should be classified by level in their entirety based upon the lowest level of input that was significant to the fair value measurement. The three levels of the fair value hierarchy per ASC 820 are as follows:
Level 1:Unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2:Quoted prices in inactive markets for identical assets or liabilities, quoted prices for similar assets or liabilities in active markets, or other observable inputs either directly related to the asset or liability or derived principally from corroborated observable market data.
Level 3:Unobservable inputs due to the fact that there is little or no market activity. This entails using assumptions in models which estimate what market participants would use in pricing the asset or liability.
GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) The Company has consistently applied the valuation techniques discussed in Notes 8 and 9 in all periods presented. The following table summarizes the
The
The At December 31, 2014 the Company has recorded a liability for warrants to acquire the Company’s stock as a result of anti-dilution clauses in GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars)
The Company did not have any Level 2 or Level 3 financial assets at December 31, 2013. Non-recurring Fair Value Measurements There were no non-recurring fair value measurements at December 31, 2014. The following table summarizes the Company’s non-recurring fair value measurements at December 31, 2013 by respective level of the fair value hierarchy:
The Company assesses the fair value of its long lived assets, including goodwill, at least annually or more frequently if circumstances indicate a change in the fair value has occurred. The valuation policies are approved by the Chief Financial Officer who reviews and approves the inputs used in the fair value calculations and the changes in fair value measurements from period to period for reasonableness. Fair value measurements are discussed with the Company’s Chief Executive Officer, as deemed appropriate. To determine the fair value of mineral properties and exploration properties the Company uses a market
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) 14.Income Taxes
The Company accounts for income taxes in accordance with the provisions of ASC 740
The provision for income taxes consists of the following:
Income (loss) from
In 2014 the Company recorded no current or deferred tax expense or benefit, as any tax expense or benefit incurred during the year
A reconciliation of the provision for income taxes computed at the statutory rate to the provision for income taxes as shown in the consolidated statements of operations and comprehensive income (loss) is summarized below.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars)
The components of the deferred tax assets and deferred tax liabilities are as follows:
In accordance with ASC 740, the Company presents deferred tax assets net of its deferred tax liabilities on a tax jurisdictional basis on its Consolidated Balance Sheets. The net deferred tax liability as of
At December 31,
The valuation allowance offsetting the deferred tax assets of the Company of
The Company, a Delaware corporation, and its subsidiaries file tax returns in the United States and in various foreign jurisdictions. The tax rules and regulations in these countries are highly complex and subject to interpretation. The
GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) The Company had no unrecognized tax benefits
Tax years as early as
On September In arriving at the value of the Shares and Warrants the Company Private placement On September
GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) Following the completion of the Private Placement and the Offering, Sentient holds approximately 27.2% (on a non-diluted basis) of the Company’s outstanding common stock (excluding restricted common stock held by the Company’s employees). In Equity Incentive Plans In May 2014, the Company’s 2009 Equity Incentive
compensation costs using a graded vesting attribution method whereby costs are recognized over the requisite service period for each separately vesting portion of the award. The following table summarizes the status of the
In connection with performance and reductions in work force, the Company’s Compensation Committee and Board of Directors approved a Restrictions were lifted on 444,633 shares during the year ended December 31, Included in the forfeitures for 2013 are 199,500 unvested shares related to the resignation of two officers of the Company
GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) determined to be in excess of the 150,000 share limit. Per the terms of a Stock Surrender and Grant Agreement entered into on December 13, 2013 with the officer, the officer was granted 172,500 KELTIP Units (see Note 10). For the years ended December 31,
The following table summarizes the status of the
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model using the assumptions noted in the following table. Expected volatilities are based on the historical volatilities of the
The options that expired during 2014 were options issued to former ECU
Also, pursuant to the Equity Plan, the
The following table summarizes the status of the RSU grants issued under the Deferred Compensation Plan at December 31,
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars)
For the years ended December 31,
Pursuant to the KELTIP (see Note 10) KELTIP Units may be granted to certain officers and key employees of the Company, which units will, once vested, entitle such officers and employees to receive an amount in cash or in Company common stock measured generally by the price of the Company’s common stock on the settlement date. The KELTIP Units are recorded as a liability as discussed in detail in Note 10.
Common stock warrants The following
The warrants granted during the period are related to the
In September 2012, the Company closed on a registered offering and concurrent private placement with Sentient in which it sold units, consisting of one share of common stock and a five-year warrant to acquire one half of a share of common stock at an exercise price of $8.42 per share (the “September 2012 Warrants”). Pursuant to certain dilution adjustment provisions in the warrant agreement governing the September 2012 Warrants, the number of shares of common stock issuable upon exercise of the September 2012 Warrants was increased from 3,431,649 shares to 4,031,409 shares (599,760 share increase) and the exercise price was reduced from $8.42 per share to $7.17 per share pursuant to a weighted average dilution calculation based on the pricing of the Offering and the Private Placement. The GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) The warrants issued in September 2012 and September 2014 are being recorded as a liability on the balance sheet as a result of anti-dilution clauses in the warrant agreements that could result in a resetting of the warrant exercise price in the event the Company were to issue additional shares of its common stock in a future transaction at a an offering price lower than the current exercise price of the warrants. At December 31, 16.Sale of Metals and Cost of Metals Sold During the years ended December 31, 2014 and 2013, the Company sold marketable
including a charge to the cost of metals sold of approximately
The Company
17.Interest and Other Income For the year ended December 31, 2014 the Company The Company recorded interest and other income of $0.4 million for the 18.Warrant Income During the
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars)
19.Cash flow information The following table reconciles net income (loss) for the period to cash from operations:
The Company did not make any cash payments for interest or income taxes during the years ended December 31, 2014 and 2013.
20.Commitments and Contingencies Leases and Purchase Commitments
The Company is required to make
GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) The Company is required to
The
The dedicated communications link provides high band width communications to our Velardeña Properties in Mexico. The Company has entered into an agreement with communications services provider that requires monthly payments of $7,000 through October of 2015. The purchase option
The
Payments associated with other exploration concessions the Company owns are not included because the Company has not completed exploration work on these concessions. Exploration success is historically low and the Company has the right to terminate the payments and release the concessions at any time.
Contingencies—
The Company conducts exploration and
The GOLDEN MINERALS COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Expressed in United States dollars) administrative activities. Intercompany revenue and expense amounts have been eliminated within each segment in order to report on the basis that management uses internally for evaluating segment performance. The financial information relating to the
Lesser amounts of revenues, costs applicable to sales, and depreciation were recorded in 2014 as the Velardeña Properties were on care and maintenance much of the year until processing of mined material resumed in early November 2014. The decline in the Corporate, Exploration and Other segment for total assets from December 31, 2013 to December 31, 2014 is
All of the revenue
|