Asset Retirement Obligation and Financial Reclamation Assurance

Asset Retirement Obligation

The total asset retirement obligation as of September 30, 2017, was $1.7 million (December 31, 2016 - $1.4 million).

The Company estimated its asset retirement obligation based on its requirements to reclaim and remediate its property based on its activities to date. As at September 30, 2017, the Company estimates the primary cash outflow related to these reclamation activities will commence in 2028. Reclamation provisions are measured at the expected value of future cash flows discounted to their present value using a discount rate based on a credit adjusted risk-free interest rate of 8.7% and an inflation rate of 2.45%.

The following is a summary of asset retirement obligations:

	September 30, 2017		December 31, 2016
Balance, beginning of the period	$	1,366	$	978
Accretion		92		90
Changes in cash flow estimates		261		298
Balance, end of the period	$	1,719	$	1,366

Reclamation Financial Assurance

The Company is required to provide the Bureau of Land Management, the State Office of Mine Reclamation and Kern County, California with a revised reclamation cost estimate annually. The financial assurance is adjusted once the cost estimate is approved. The Company’s provision for reclamation of the property is estimated each year by an independent consulting engineer. This estimate, once approved by state and county authorities, forms the basis for a cash deposit of reclamation financial assurance. The reclamation assurance provided as at September 30, 2017 is $1.5 million (December 31, 2016 - $1.5 million).

The Company is also required to provide financial assurance with the Lahontan Regional Water Quality Control Board (the “Regional Board”) for closure and reclamation costs related to the lined impoundments, which are defined as the Stage 1 heap leach pad, the overflow pond, and the solution collection channel. The reclamation financial assurance estimate as of September 30, 2017 is $1.2 million (December 31, 2016 - $1.2 million).

In addition to the above, the Company is required to obtain and maintain financial assurance for initiating and completing corrective action and remediation of a reasonably foreseeable release from the Mine’s waste management units as required by the Regional Board. The reclamation financial assurance estimate as of September 30, 2017, is $0.3 million (December 31, 2016 - $0.3 million).

During 2016, the Company entered into $3.0 million in surety bond agreements to maintain the necessary financial assurance as required by the relevant regulatory bodies, as described in the paragraphs above, and in order to release its reclamation deposits. The Company pays a yearly premium of $0.1 million. Golden Queen Mining Co. Ltd. has provided a corporate guaranty on the surety bonds (See Note 12).