Asset Retirement Obligation and Reclamation Liabilities

9 Months Ended

Sep. 30, 2022

Asset Retirement Obligation and Reclamation Liabilities

Asset Retirement and Reclamation Liabilities

12. Asset Retirement Obligation and Reclamation Liabilities

The Company retained the services of a mining engineering firm to prepare a detailed closure plan for the Velardeña Properties. The plan was completed during the second quarter 2012 and indicated that the Company had an ARO and offsetting ARC of approximately $1.9 million at that time.

In the fourth quarter of 2021, due to the current operating success at Rodeo and the potential of a restart of operations at the Velardeña mine based on recent technical studies and an updated PEA that would further delay the start of any reclamation activity, the Company retained the services of an environmental consultant to review the closure plan to determine the appropriateness of the scope and cost estimates used in the calculation of the ARO. The consultant confirmed the adequacy of the scope of the closure plan and provided certain adjustments to cost estimates.  In addition, the timing for the incurrence of reclamation activity was extended approximately seven years to take into account the likelihood of a restart of operations at the Velardeña mine that would further delay the start of any reclamation activity.

The Company will continue to accrue additional estimated ARO amounts based on an asset retirement plan as activities requiring future reclamation and remediation occur. During the first nine months of 2022, the Company recognized approximately $211,000 of accretion expense.

The following table summarizes activity in the ARO.  The majority of the balance and activity relates to the Velardeña Property, but there is also a nominal amount related to the El Quevar project in Argentina:

	Nine Months Ended
	September 30,
	2022		2021
	(in thousands)
Beginning balance	$	3,569	$	3,156
Changes in estimates, and other		25		(86)
Accretion expense		211		196
Ending balance	$	3,805	$	3,266

The change in estimates of the ARO recorded during 2021 is primarily the result of changes in assumptions related to inflation factors used in the determination of future cash flows.