EX-99.1 2 d394768dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

THREE MONTHS ENDED

MARCH 31, 2017 AND 2016

(Presented in thousands of United States dollars, unless otherwise stated)

Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

In accordance with Canadian National Instrument 51-102, paragraph 4.3(3)(a), the Company advises that these condensed consolidated interim financial statements have not been reviewed by the Company’s auditors.

 

page 2

Fortuna Silver Mines Inc.

Condensed Interim Consolidated Income Statements

(Unaudited – Presented in thousands of US dollars, except per share amounts)

 

     Three months ended
March 31		  
     2017     2016  

Sales (note 21)

    $ 64,834     $ 42,692  

Cost of sales (note 22)

      37,651       27,138  
  

 

 

    

 

 

  

Mine operating earnings

      27,183       15,554  
  

 

 

    

 

 

  

Other expenses

     

Selling, general and administrative (note 23)

      5,345       9,703  

Exploration and evaluation

      89       100  

Share of loss of equity-accounted investee

      65       —    

Foreign exchange

      2,132       (383 ) 

Other expenses

      (4 )      —    
  

 

 

    

 

 

  
     7,627       9,420  
  

 

 

    

 

 

  

Operating income

      19,556       6,134  

Finance items

     

Interest income

      (284 )      (78 ) 

Interest expense

      479       478  

Accretion of provisions

      163       145  

Gain on financial assets and liabilities carried at fair value

      1,622       —    
  

 

 

    

 

 

  
     1,980       545  
  

 

 

    

 

 

  

Income before income taxes

      17,576       5,589  

Income tax expense

     

Current

      8,003       3,943  

Deferred

      (3,426 )      (932 ) 
  

 

 

    

 

 

  
     4,577       3,011  
  

 

 

    

 

 

  

Net income for the period

    $ 12,999     $ 2,578  
  

 

 

    

 

 

  

Earnings per share (note 20)

     

Basic

    $ 0.08     $ 0.02  

Diluted

    $ 0.08     $ 0.02  

Weighted average number of common shares outstanding during the period (000's)

     

Basic

      153,835       129,333  

Diluted

      154,289       129,904  

 

The accompanying notes are an integral part of these financial statements

page 3

Fortuna Silver Mines Inc.

Condensed Interim Consolidated Statements of Comprehensive Income

(Unaudited – Presented in thousands of US dollars)

 

     Three months ended
March 31		  
     2017      2016  

Net income for the period

    $ 12,999      $ 2,578  

Items that may in future be reclassified to profit or loss:

      

Change in fair value of hedging instruments, net of nil tax

      154        (579 ) 

Change in fair value of marketable securities, net of nil tax

      248        —    
  

 

 

     

 

 

  

Comprehensive income for the period

    $ 13,401      $ 1,999  
  

 

 

     

 

 

  

 

The accompanying notes are an integral part of these financial statements.

page 4

Fortuna Silver Mines Inc.

Condensed Interim Consolidated Statements of Financial Position

(Unaudited – Presented in thousands of US dollars)

 

     March 31
2017		      December 31
2016		  

ASSETS

      

CURRENT ASSETS

      

Cash and cash equivalents

    $ 82,211      $ 82,484  

Short term investments (note 5)

      108,990        41,100  

Marketable securities (note 6)

      —          1,579  

Derivative assets (note 10)

      —          973  

Accounts receivable and other assets (note 8)

      31,293        24,987  

Income tax receivable

      92        72  

Prepaid expenses

      1,558        2,145  

Inventories (note 9)

      14,371        13,572  
  

 

 

     

 

 

  
     238,515        166,912  

Deposits on non-current assets (note 11)

      2,048        572  

Investment in associates (note 7)

      2,821        —    

Other non-current receivables

      794        562  

Deferred income tax assets

      353        471  

Mineral properties (note 12)

      266,586        263,535  

Plant and equipment (note 13)

      127,168        130,863  
  

 

 

     

 

 

  

Total assets

    $ 638,285      $ 562,915  
  

 

 

     

 

 

  

LIABILITIES

      

CURRENT LIABILITIES

      

Trade and other payables (note 14)

    $ 38,903      $ 40,160  

Closure and rehabilitation provisions (note 17)

      1,148        1,121  

Income taxes payable

      12,263        14,447  

Current portion of finance lease obligations

      2,144        2,128  

Derivative liabilities (note 10)

      567        254  
  

 

 

     

 

 

  
     55,025        58,110  

Bank loan

      39,794        39,768  

Lease obligations

      363        906  

Other liabilities (note 16)

      761        3,544  

Closure and rehabilitation provisions (note 17)

      12,508        12,091  

Deferred income taxes

      21,801        25,345  
  

 

 

     

 

 

  

Total liabilities

      130,252        139,764  
  

 

 

     

 

 

  

EQUITY

      

Share capital

      416,679        342,153  

Reserves

      15,259        17,902  

Retained earnings

      76,095        63,096  
  

 

 

     

 

 

  

Total equity

      508,033        423,151  
  

 

 

     

 

 

  

Total liabilities and equity

    $ 638,285      $ 562,915  
  

 

 

     

 

 

  

Subsequent event (note 27)

 

/s/ Jorge Ganoza Durant     /s/ Robert R. Gilmore
Jorge Ganoza Durant     Robert R. Gilmore
Director     Director

 

The accompanying notes are an integral part of these financial statements.

page 5

Fortuna Silver Mines Inc.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited – Presented in thousands of US dollars)

 

     Three months ended
March 31		  
     2017     2016  

OPERATING ACTIVITIES

     

Income for the period

    $ 12,999     $ 2,578  

Adjustments for:

     

Depletion, depreciation, and amortization

      10,737       6,259  

Accretion

      163       145  

Income taxes

      4,577       3,011  

Share based payments

      127       215  

Share of loss of equity-accounted investee

      65       —    

Unrealized foreign exchange

      —         —    

Unrealized gain on financial assets carried at fair value

      1,527       —    

Accrued interest on long terms loans

      (5 )      (7 ) 

Other

      (230 )      2  
  

 

 

    

 

 

  
     29,960       12,203  

Accounts receivable and other assets

      (6,634 )      (16,455 ) 

Prepaid expenses

      586       141  

Inventories

      (746 )      712  

Trade and other payables

      223       5,422  

Share units payable

      (3,871 )      3,808  

Provisions

      (87 )      (82 ) 
  

 

 

    

 

 

  
     19,431       5,749  

Income taxes paid

      (10,207 )      (5,665 ) 

Interest paid

      (450 )      (431 ) 

Interest received

      120       15  
  

 

 

    

 

 

  

Cash provided by (used for) operating activities

      8,894       (332 ) 
  

 

 

    

 

 

  

INVESTING ACTIVITIES

     

Purchase of term deposits

      (83,590 )      —    

Redemption of term deposits

      15,700       4,431  

Investment in common shares of associate

      (1,139 )      —    

Purchase of mineral properties and plant and equipment

      (9,790 )      (16,115 ) 

Deposits to contractors and suppliers, net

      (1,501 )      2,260  

Disposition of mineral properties and plant and equipment

      15       —    
  

 

 

    

 

 

  

Cash used for investing activities

      (80,305 )      (9,424 ) 
  

 

 

    

 

 

  

FINANCING ACTIVITIES

     

Proceeds from issuance of common shares

      76,408       1,810  

Share issuance costs

      (4,974 )      —    

Repayments of finance lease obligation

      (527 )      —    

Other

      —         (6 ) 
  

 

 

    

 

 

  

Cash provided by financing activities

      70,907       1,804  
  

 

 

    

 

 

  

Decrease in cash and cash equivalents

      (504 )      (7,952 ) 

Effect of exchange rate changes on cash held

      231       —    
  

 

 

    

 

 

  
     (273 )      (7,952 ) 

Cash and cash equivalents, beginning of period

      82,484       72,218  
  

 

 

    

 

 

  

Cash and cash equivalents, end of period

    $ 82,211     $ 64,266  
  

 

 

    

 

 

  

Cash and cash equivalents consists of:

     

Cash

    $ 21,474     $ 62,465  

Cash equivalents

      60,737       1,800  
  

 

 

    

 

 

  

Cash and cash equivalents, end of period

    $ 82,211     $ 64,265  
  

 

 

    

 

 

  

 

The accompanying notes are an integral part of these financial statements.

page 6

Furtuna Silver Mines Inc.

Condensed Consolidated Interim Statements of Changes in Equity

(Unaudited – Presented in thousands of US dollars)

 

     Share capital      Reserves                
     Number
of common
shares		      Amount      Equity
reserve		     Hedging
reserve		     Fair
value
reserve		      Foreign
currency
reserve		      Retained
earnings		      Total
equity		  

Balance at January 1, 2017

      146,978,173      $ 343,963      $ 14,865     $ (222 )    $ 334      $ 1,115      $ 63,096      $ 423,151  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

Total comprehensive income

                      

Net income for the period

      —          —          —         —         —          —          12,999        12,999  

Other comprehensive income

      —          —          —         154       248        —          —          402  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

Total comprehensive income

      —          —          —         154       248        —          12,999        13,401  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

Transactions with owners of the Company

                      

Issuance of common shares

      11,873,750        69,830        —         —         —          —          —          69,830  

Exercise of warrants

      238,515        1,083        —         —         —          —          —          1,083  

Exercise of stock options

      133,060        522        —         —         —          —          —          522  

Transfer upon exercise of stock options

      —          198        (198 )      —         —          —          —          —    

Transfer upon exercise of warrants

      —          1,083        (1,083 )      —         —          —          —          —    

Share-based payments (note 18)

      —          —          46       —         —          —          —          46  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  
     12,245,325        72,716        (1,235 )      —         —          —          —          71,481  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

Balance at March 31, 2017

      159,223,498      $ 416,679      $ 13,630     $ (68 )    $ 582      $ 1,115      $ 76,095      $ 508,033  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

Balance at January 1, 2016

      129,240,567      $ 203,953      $ 14,169     $ (307 )    $ —        $ 1,115      $ 45,238      $ 264,168  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

Total comprehensive income

                      

Net income for the period

      —          —          —         —         —          —          2,578        2,578  

Other comprehensive loss

      —          —          —         (579 )      —             —          (579 ) 
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

Total comprehensive income

      —          —          —         (579 )      —          —          2,578        1,999  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

Transactions with owners of the Company

                      

Exercise of stock options

      740,310        1,810        —         —         —          —          —          1,810  

Transfer upon exercise of stock options

      —          804        (804 )      —         —          —          —          —    

Share-based payments (note 18)

      —          —          215       —         —          —          —          215  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  
     740,310        2,614        (589 )      —         —          —          —          2,025  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

Balance at March 31, 2016

      129,980,877        206,567        13,580       (886 )      —          1,115        47,816      $ 268,192  

 

The accompanying notes are an integral part of these financial statements.

page 7

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

1. Reporting Entity

Fortuna Silver Mines Inc. and its subsidiaries (the “Company”) is a publicly traded company incorporated and domiciled in British Columbia, Canada.

The Company is engaged in precious and base metal mining and related activities in Latin America, including exploration, extraction, and processing. The Company operates the Caylloma silver, lead, and zinc mine (“Caylloma”) in southern Peru and the San Jose silver and gold mine (“San Jose”) in southern Mexico, and is developing the Lindero Gold Project in northern Argentina.

Its common shares are listed on the New York Stock Exchange under the trading symbol FSM, and on the Toronto Stock Exchange under the trading symbol FVI.

The Company’s registered office is located at Suite 650, 200 Burrard Street, Vancouver, Canada, V6C 3L6.

 

2. Basis of Accounting

 

  (a) Statement of Compliance

These unaudited condensed interim consolidated financial statements (“interim financial statements”) were prepared in accordance with IFRS as issued by the IASB applicable to the preparation of interim financial statements, including IAS 34 «Interim Financial Reporting». They do not include all of the information required for full annual financial statements. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2016, which includes information necessary for understanding the Company’s business and financial presentation, with the exception of the accounting policy for investments in associates, described in note 4(a). The same accounting policies and methods of computation are followed in these interim financial statements as compared with the most recent annual financial statements.

On May 23, 2017, the Company’s Board of Directors approved these financial statements for issuance.

 

3. Functional and Presentation Currency

The presentation currency of the Company is the United States Dollar (“$” or “US$”). All amounts in these financial statements have been rounded to the nearest thousand US dollars, unless otherwise stated.

 

page 8

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

4. Significant Accounting Policies

 

  (a) New Accounting Policy

Investment in Associates

Associates are those entities in which the Company has significant influence, but not control or joint control, over the entity’s financial and operating policies. Interests in associates are accounted for using the equity method. They are initially recognized at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company’s share of the profit or loss and other comprehensive income of equity-accounted investees, until the date on which significant influence ceases.

 

  (b) Significant Accounting Judgements and Estimates

The preparation of these interim financial statements requires management to make judgements and estimates that affect the reported amounts of assets and liabilities at the balance sheet date and reported amounts of expenses during the reporting period. Such judgements and estimates are, by their nature, uncertain. Actual outcomes could differ from these estimates.

The impacts of such judgements and estimates are pervasive throughout the interim financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and are accounted for prospectively.

In preparing these interim consolidated financial statements for the three months ended March 31, 2017, the Company applied the critical judgements and estimates disclosed in note 5 of its audited consolidated financial statements for the year ended December 31, 2016.

 

  (c) Adoption of New Accounting Standards

The following standards or amendments were adopted effective January 1, 2017. They had no significant impact on the financial position, results of operations, or cash flows of the Company previously reported.

 

  •   Amendments to IAS 12 «Recognition of Deferred Tax Assets for Unrealized Losses»

 

  •   Amendments to IAS 7 «Statement of Cash Flows» Disclosure Initiative

 

5. Short Term Investments

 

     March 31
2017		      December 31
2016		  

Term deposits and similar instruments

    $ 108,990      $ 41,100  
  

 

 

     

 

 

  

The term deposits have maturies in excess of 90 days.

 

page 9

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

6. Marketable Securities

 

     March 31
2017		      December 31
2016		  

Common shares of Medgold Resources Corp.

    $ —        $ 1,266  

Warrants of Medgold Resources Corp.

      —          313  
  

 

 

     

 

 

  
   $ —        $ 1,579  
  

 

 

     

 

 

  

In June 2016, the Company acquired 10 million common shares and 10 million warrants of Medgold Resources Corp. (“Medgold”). In February 2017, the Company exercised all the Medgold warrants it held. Upon exercise, the Company held 24.0% of the common shares of Medgold (20.4% on a fully diluted basis). See note 7.

 

7. Investment in Associate

Medgold is a Canadian public company which trades on the TSX Venture Exchange under the ticker symbol MED and is quoted in Canadian dollars (“C$”). Medgold’s principal business activity is the acquisition and exploration of resource properties in Europe.

On February 7, 2017, the Company exercised its warrants of Medgold (note 6). Upon the exercise of these warrants, the Company held a 24.0% interest in Medgold. The Company, through this shareholding, has significant influence over Medgold and accounts for this investment using the equity method.

 

Medgold shares and warrants presented as marketable securities, January 1, 2017

    $ 1,579

Cash paid upon exercise of warrants

      1,372  

Fair value adjustments prior to February 7, 2017

      (65 ) 
  

 

 

  

Cost of investment in Medgold upon acquisition of significant influence

      2,886

Share of Medgold’s loss for the period February 7, 2017 to March 31, 2017

      (65 ) 
  

 

 

  

Balance March 31, 2017

    $ 2,821
  

 

 

  

The trading price of Medgold’s common shares on March 31, 2017 was C$0.21 (February 7, 2017– C$0.19). The quoted market value of the investment in Medgold on March 31, 2017 was $3,074 (February 7, 2017 – $2,886).

 

page 10

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

8. Accounts Receivable and Other Assets

 

     March 31      December 31  

Trade receivables from concentrate sales

    $ 29,374      $ 23,185  

Advances and other receivables

      1,304        1,095  

Value added taxes recoverable

      615        707  
  

 

 

     

 

 

  

Accounts receivable and other assets

    $ 31,293      $ 24,987  
  

 

 

     

 

 

  

The aging of trade receivables from concentrate sales is as follows:

 

     March 31,
2017		      December 31,
2016		  

0-30 days

    $ 26,330      $ 22,312  

31-60 days

      897        101  

61-90 days

      1,689        772  

over 90 days

      458        —    
  

 

 

     

 

 

  
   $ 29,374      $ 23,185  
  

 

 

     

 

 

  

 

9. Inventories

 

     March 31
2017		      December 31
2016		  

Concentrate stockpiles

    $ 1,545      $ 1,285  

Ore stockpiles

      2,556        2,659  

Materials and supplies

      10,271        9,628  
  

 

 

     

 

 

  

Inventories

    $ 14,372      $ 13,572  
  

 

 

     

 

 

  

During the three months ended March 31, 2017, the Company expensed $37,472 (three months ended March 31, 2016 – $26,549) of inventories to cost of sales.

 

page 11

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

10. Derivative Assets and Derivative Liabilities

 

     Derivative assets  
     March 31,
2017		      December 31,
2016		  

Metal swaps

    $ —        $ 973  
  

 

 

     

 

 

  

Derivative assets

    $ —        $ 973  
  

 

 

     

 

 

  

 

     Derivative liabilities  

Interest rate swap

    $ 94      $ 254  

Metal swaps

      473        —    
  

 

 

     

 

 

  

Derivative liabilities

    $ 567      $ 254  
  

 

 

     

 

 

  

In December 2016, the Company entered into two sets of zinc swaps with Scotiabank, to mitigate its commodity price risks. The zinc swaps consist of a total of 3900 tonnes of zinc at $2,650 per tonne and 3900 tonnes of zinc at $2,750 per tonne (average of 650 tonnes per month, ending December 2017).

In January 2017, the Company entered into a set of lead swaps with Scotiabank, to mitigate its commodity price risks. The lead swaps consisted of a total of 2,965 tonnes of zinc at $2,340 per tonne (average of 270 tonnes per month, ending December 2017).

These contracts are not accounted for as designated hedges under IAS 39. Such derivative financial instruments were initially recognized at fair value on the date on which the related derivative contracts were entered into and are subsequently re-measured at estimated fair value. Any gains or losses arising from changes in the fair value of derivatives are charged or credited to profit or loss.

 

11. Deposits on Non-Current Assets

 

     March 31,
2017		      December 31,
2016		  

Deposits on equipment

    $ 1,349      $ 119  

Deposits paid to contractors

      699        453  
  

 

 

     

 

 

  

Deposits on non-current assets

    $ 2,048      $ 572  
  

 

 

     

 

 

  

 

page 12

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

12. Mineral Properties

 

Three months ended    Depletable     Not depleted  
March 31, 2017    Caylloma     San Jose     Lindero      Other     Total  

COST

            

Balance, January 1, 2017

    $ 100,630     $ 151,259     $ 130,590      $ 1,844     $ 384,323  

Additions

      2,791       3,875       1,727        222       8,615  

Write-offs

      —         —         —          (2 )      (2 ) 

Reclassifications

      (9 )      (7 )      —          —         (16 ) 
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

  

Balance, March 31, 2017

    $ 103,412     $ 155,127     $ 132,317      $ 2,064     $ 392,920  
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

  

ACCUMULATED IMPAIRMENT

            

Balance, January 1, 2017

    $ 31,900     $ —       $ —        $ —       $ 31,900  
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

  

Balance, March 31, 2017

    $ 31,900     $ —       $ —        $ —       $ 31,900  
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

  

ACCUMULATED DEPLETION

            

Balance, January 1, 2017

    $ 42,059     $ 46,829     $ —        $ —       $ 88,888  

Depletion

      1,463       4,083       —          —         5,546  
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

  

Balance, March 31, 2017

    $ 43,522     $ 50,912     $ —        $ —       $ 94,434  
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

  

NET BOOK VALUE, March 31, 2017

    $ 27,990     $ 104,215     $ 132,317      $ 2,064     $ 266,586  
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

  

 

page 13

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

     Depletable     Not depleted  
Year ended December 31, 2016    Caylloma      San Jose     Lindero      Other     Total  

COST

             

Balance, January 1, 2016

    $ 92,973      $ 136,666     $ —        $ 1,533     $ 231,172  

Acquisition of subsidiary

      —          —         128,687        —         128,687  

Additions

      7,060        14,643       1,795        942       24,440  

Change in rehabilitation provision

      597        (414 )      108        —         291  

Write-offs

      —          (512 )      —          (631 )      (1,143 ) 

Reclassifications

      —          876       —          —         876  
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Balance, December 31, 2016

    $ 100,630      $ 151,259     $ 130,590      $ 1,844     $ 384,323  
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

ACCUMULATED IMPAIRMENT

             

Balance, January 1, 2016

    $ 31,900      $ —       $ —        $ —       $ 31,900  
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Balance, December 31, 2016

    $ 31,900      $ —       $ —        $ —       $ 31,900  
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

ACCUMULATED DEPLETION

             

Balance, January 1, 2016

    $ 37,552      $ 33,000     $ —        $ —       $ 70,552  

Depletion

      4,507        13,829       —          —         18,336  
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

Balance, December 31, 2016

    $ 42,059      $ 46,829     $ —        $ —       $ 88,888  
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

NET BOOK VALUE, December 31, 2016

    $ 26,671      $ 104,430     $ 130,590      $ 1,844     $ 263,535  
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

 

  (a) Exploration and Evaluation Assets

There are several properties at which the Company is conducting exploration and evaluation activities. These are included as “non-depleted – other” within “mineral properties”. Details of these properties are described below.

 

  i. Tlacolula Property

Pursuant to an agreement dated September 14, 2009, as amended December 18, 2012 and November 10, 2014, the Company, through its wholly owned subsidiary, Cuzcatlan, holds an option (the “Option”) to acquire a 60% interest (the “Interest”) in the Tlacolula silver project (“property”) located in the State of Oaxaca, Mexico, from Radius Gold Inc.’s wholly owned subsidiary, Radius (Cayman) Inc. (“Radius”) (a company with certain directors in common with the Company).

The Company can earn the Interest by spending $2,000 on exploration of the property (which includes a commitment to drill 1,500 meters within 12 months after Cuzcatlan has received a permit to drill the property), making staged payments totaling $300 in cash, and providing $250 in common shares of the Company to Radius according to an agreed schedule.

 

  •   $20 in cash and $20 cash equivalent in shares upon stock exchange approval (completed),

 

  •   $30 in cash and $30 cash equivalent in shares by January 15, 2011 (completed),

 

  •   $50 in cash and $50 cash equivalent in shares by January 15, 2012 (completed),

 

page 14

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

  •   $50 in cash and $50 cash equivalent in shares by January 15, 2013 (completed),

 

  •   $50 in cash by January 19, 2015 (completed), and,

 

  •   $100 in cash and $100 cash equivalent in shares within 90 days after Cuzcatlan has completed the first 1,500 meters of drilling on the property.

Upon completion of the cash payments and share issuances and incurring the exploration expenditures as set forth above, the Company will be deemed to have exercised the Option and to have acquired a 60% interest in the property. Radius has the right to terminate the agreement if the Option is not exercised by January 31, 2017. As of the issuance date of these financial statements, the Company is in negotiations with Radius to purchase the Tlacolula Property, and accordingly, Radius has agreed not to terminate the option agreement.

To March 31, 2017, the Company had issued an aggregate of 34,589 (December 31, 2016 – 34,589) common shares of the Company to Radius, with a fair market value of $150 (December 31, 2016 – $150), and paid $200 (to December 31, 2016– $200) in cash according to the terms of the option agreement.

 

  ii. Northwest Nevada Initiative

In December 2016, the Company entered into an option agreement with an unrelated party to acquire 6,756 mineral claims in north west Nevada, USA, totaling 239,128 acres (96,773 hectares).

To maintain this agreement, the Company is required to make the following payments and expenditures:

 

    

Timing

    Cash      Cash or
shares		      Exploration
expenditures		      Status  

(a)

    Upon signing of the agreement    $ 200        —          —          paid  

(b)

    The later of receipt of drill permit, or June 6, 2017    $ 250        —          —          —    

(c)

    The later of six months after receipt of drill permit, or December 6, 2017    $ 165      $ 335        —          —    

(d)

    December 6, 2018    $ 330      $ 670        —          —    

(e)

    Within 24 months after receipt of drill permit      —          —        $ 1,000        —    

(f)

    December 6, 2019    $ 495      $ 1,005        —          —    

(g)

    December 6, 2020    $ 900      $ 2,100        —          —    

(h)

    Before December 6, 2020      —          —        $ 1,000     
  

 

   

 

 

     

 

 

     

 

 

     

 

 

  
   TOTALS    $ 2,340      $ 4,110      $ 2,000     
  

 

   

 

 

     

 

 

     

 

 

     

 

 

  

A further success payment is required if the Company completes an economic study on a potential mine if certain minimum technical parameters based on resource size and rate of return are met.

 

page 15

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

13. Plant and Equipment

 

Three months ended March 31, 2017    Machinery
and
equipment		     Land,
buildings and
leasehold
improvements		      Furniture
and other
equipment		      Transport
units		     Equipment
under
finance
lease		     Capital
work in
progress		     Total  

COST

                 

Balance, January 1, 2017

    $ 57,685     $ 132,067      $ 15,848      $ 1,095     $ 7,810     $ 941     $ 215,446  

Additions

      686       5        131        34       —         697       1,553  

Disposals

      (4 )      —          —          (87 )      (515 )      —         (606 ) 

Reclassifications

      429       32        18        19       —         (482 )      16  
  

 

 

    

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

Balance, March 31, 2017

    $ 58,796     $ 132,104      $ 15,997      $ 1,061     $ 7,295     $ 1,156     $ 216,409  
  

 

 

    

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

ACCUM. IMPAIRMENT

                 

Balance, January 1, 2017

    $ 3,776     $ 16,154      $ 2,365      $ —       $ 475     $ —       $ 22,770  

Disposals

      (1 )      —          —          —         (75 )      —         (76 ) 
  

 

 

    

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

Balance, March 31, 2017

    $ 3,775     $ 16,154      $ 2,365      $ —       $ 400     $ —       $ 22,694  
  

 

 

    

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

ACCUM. DEPRECIATION

                 

Balance, January 1, 2017

    $ 17,864     $ 33,479      $ 6,748      $ 576     $ 3,146     $ —       $ 61,813  

Disposals

      (3 )      —          —          (78 )      (440 )      —         (521 ) 

Reclassifications

      (18 )      —          5        13       —         —         —    

Depreciation

      1,084       3,347        636        45       143       —         5,255  
  

 

 

    

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

Balance, March 31, 2017

    $ 18,927     $ 36,826      $ 7,389      $ 556     $ 2,849     $ —       $ 66,547  
  

 

 

    

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

NET BOOK VALUE, March 31, 2017

    $ 36,094     $ 79,124      $ 6,243      $ 505     $ 4,046     $ 1,156     $ 127,168  
  

 

 

    

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

 

page 16

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

Year ended December 31, 2016    Machinery
and
equipment		     Buildings and
leasehold
improvements		      Furniture
and other
equipment		     Transport
units		     Equipment
under
finance
lease		     Capital
work in
progress		     Total  

COST

                

Balance, January 1, 2016

    $ 28,462     $ 94,872      $ 15,476     $ 711     $ 5,215     $ 38,792     $ 183,528  

Acquisition of subsidiary

      6,954       —          —         —         —         —         6,954  

Additions

      1,627       258        368       181       2,013       21,849       26,296  

Disposals

      (211 )      —          (106 )      (64 )      (75 )      —         (456 ) 

Reclassifications

      20,853       36,937        110       267       657       (59,700 )      (876 ) 
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance, December 31, 2016

    $ 57,685     $ 132,067      $ 15,848     $ 1,095     $ 7,810     $ 941     $ 215,446  
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

ACCUM. IMPAIRMENT

                

Balance, January 1, 2016

    $ 3,784     $ 16,154      $ 2,405     $ —       $ 483     $ —       $ 22,826  

Disposals

      (8 )      —          (40 )      —         (8 )      —         (56 ) 
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance, December 31, 2016

    $ 3,776     $ 16,154      $ 2,365     $ —       $ 475     $ —       $ 22,770  
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

ACCUM. DEPRECIATION

                

Balance, January 1, 2016

    $ 14,816     $ 24,466      $ 4,387     $ 505     $ 2,845     $ —       $ 47,019  

Disposals

      (199 )      —          (64 )      (60 )      (67 )      —         (390 ) 

Reclassifications

      12       2        (14 )      —         —         —         —    

Depreciation

      3,235       9,011        2,439       131       368       —         15,184  
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance, December 31, 2016

    $ 17,864     $ 33,479      $ 6,748     $ 576     $ 3,146     $ —       $ 61,813  
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

NET BOOK VALUE, December 31, 2016

    $ 36,045     $ 82,434      $ 6,735     $ 519     $ 4,189     $ 941     $ 130,863  
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

page 17

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

14. Trade and Other Payables

 

     March 31
2017		      December 31
2016		  

Trade accounts payable

    $ 12,606      $ 15,251  

Refundable deposits to contractors

      679        1,514  

Payroll payable

      13,750        10,755  

Mining royalty

      337        755  

Value added taxes payable

      2,677        1,866  

Interest payable

      120        114  

Due to related parties (note 15(d))

      —          10  

Other payables

      195        354  
  

 

 

     

 

 

  
     30,364        30,619  
  

 

 

     

 

 

  

Deferred share units payable

      4,591        4,992  

Restricted share units payable

      1,996        2,870  

Performance share units payable

      1,952        1,679  
  

 

 

     

 

 

  
     8,539        9,541  

Total trade and other payables

    $ 38,903      $ 40,160  
  

 

 

     

 

 

  

 

15. Related Party Transactions

 

  (a) Purchase of Goods and Services

During the three months ended March 31, 2017 and 2016, the Company entered into the following related party transactions with Gold Group Management Inc. There were no purchases of goods or services from any of the other related parties.

 

     March 31
2017		      March 31
2016		  

Salaries and wages

    $ 71      $ 50  

General and administrative expenses

      92        79  
  

 

 

     

 

 

  
   $ 163      $ 129  
  

 

 

     

 

 

  

 

page 18

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

  (b) Private Placement

In June 2016, the Company acquired 10 million units of Medgold Resources Corp. (the “Medgold Units”) for $1,165. Each unit consisted of one common share of Medgold and one warrant entitling Fortuna to purchase one additional common share of Medgold at C$0.15 until June 17, 2017. Upon acquisition, the Medgold common shares and the Medgold warrants were accounted for as separate financial assets, and were presented on the statement of financial position within marketable securities (note 6). Fair value changes on the Medgold common shares were charged to other comprehensive income, and fair value changes on the Medgold warrants were charged to profit or loss.

In February 2017, the Company exercised the Medgold warrants and commenced accounting for its investment in Medgold using the equity method (note 7).

 

  (c) Outstanding Balances at the Reporting Date

 

Balances payable to:    March 31
2017		      December 31
2016		  

Gold Group Management Inc.

    $ —        $ 10  
  

 

 

     

 

 

  
   $ —        $ 10  
  

 

 

     

 

 

  

Amounts due to related parties are due on demand, and are unsecured.

 

16. Other Liabilities

 

     March 31
2017		      December 31
2016		  
  

 

 

     

 

 

  

Restricted share units

    $ 697      $ 1,619  

Performance share units

      —          1,866  

Non-current liabilities

      64        59  
  

 

 

     

 

 

  
   $ 761      $ 3,544  
  

 

 

     

 

 

  

 

page 19

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

17. Closure and Rehabilitation Provisions

 

     March 31, 2017      December 31, 2016  
     Total      Current      Non-current      Total      Current      Non-current  

Caylloma Mine

    $ 8,267      $ 972      $ 7,295      $ 8,182      $ 822      $ 7,360  

San Jose Mine

      5,182        176        5,006        4,822        299        4,523  

Lindero Project

      207        —          207        208        —          208  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   $ 13,656      $ 1,148      $ 12,508      $ 13,212      $ 1,121      $ 12,091  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Closure and reclamation provisions represent the present value of rehabilitation costs relating to mine sites. There have been no significant changes in requirements, laws, regulations, operating assumptions, estimated timing and amount of closure and rehabilitation obligations during the three month period ended March 31, 2017.

 

18. Share Based Payments

 

  (a) Deferred Share Units (“DSUs”)

Deferred share units are typically granted to non-executive directors of the Company. They are payable in cash, upon resignation, retirement, removal, failure to achieve re-election, or upon a change of control of the Company.

During the three months ended March 31, 2017, no DSUs were granted (three months ended March 31, 2016 – 187,500 with an aggregate market value of C$900 at the dates of grant).

As at March 31, 2017, there were 883,071 (March 31, 2016 – 1,203,919) DSUs outstanding with an estimated fair value of $4,591(March 31, 2016 – $4,697).

 

  (b) Restricted Share Units (“RSUs”)

Restricted share units are from time to time be granted to officers and employees of the Company. They are payable in cash and typically vest over three years, in tranches of 20%, 30%, and 50%. RSUs are payable in cash at each vesting date, or upon a change of control or termination without cause. The amount payable is calculated based on a five-day trailing average price.

During the three months ended March 31, 2017, the Company granted no units (three months ended March 31, 2016 – 769,946) RSUs with a market value of C$nil (three months ended March 31, 2016 – C$3,696), at the date of grant, to directors, officers, and employees, vesting and payable 20% after one year, 30% after two years, and the remaining 50% after three years from the date of grant.

During the three months ended March 31, 2017, the Company paid $2,100 (three months ended March 31, 2016 – $684) upon the vesting of 403,023 (three months ended March 31, 2016 – 175,871) RSUs to directors, officers, and employees.

 

page 20

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

As at March 31, 2017, there were 934,697 (March 31, 2016 – 1,609,921) RSUs outstanding with a fair value of $2,693 (March 31, 2016 – $2,500).

 

  (c) Performance Share Units (“PSUs”)

Performance Share Units (“PSUs”) are performance-based awards for the achievement of specified performance metrics by specified deadlines, which vest over a three year period. PSUs for which the performance metrics have not been achieved are forfeited and cancelled. The PSUs for which the performance metrics have been achieved vest and are paid in cash based on a five-day trailing average price.

During the three months ended March 31, 2017, the Company paid $1,770 (three months ended March 31, 2016 – $961) upon the vesting of 332,076 (three months ended March 31, 2016 – 247,324) PSUs to directors and officers. For PSUs that vest under this grant, the payout will be paid up to a maximum of two times the grant price of C$4.79 per unit if certain performance metrics are achieved.

As at March 31, 2017, a total of 553,459 (March 31, 2016 – 989,296) PSUs were outstanding with a fair value of $1,952 (March 31, 2016– $1,655).

 

19. Share Capital

 

  (a) Authorized share capital

The Company has an unlimited number of common shares without par value authorized for issue.

 

  (b) Stock Options

The Company’s Stock Option Plan, as amended and approved from time to time, permits the Company to issue up to 12,200,000 stock options. As at March 31, 2017, a total of 2,840,599 common shares were available for issuance under the plan.

 

page 21

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

     Number of stock
options		      Weighted average
exercise price		  
            Canadian dollars  

Outstanding, December 31, 2015

      3,105,355      $ 3.66  

Exercised

      (2,236,861 )     $ 3.45  

Forfeited

      (23,501 )     $ 4.79  
  

 

 

     

 

 

  

Outstanding, December 31, 2016

      844,993      $ 4.19  

Exercised

      (133,060 )     $ 5.17  
  

 

 

     

 

 

  

Outstanding, March 31, 2017

      711,933      $ 4.00  
  

 

 

     

 

 

  

Vested and exercisable, December 31, 2016

      459,578      $ 3.68  
  

 

 

     

 

 

  

Vested and exercisable, March 31, 2017

      711,933      $ 4.00  
  

 

 

     

 

 

  

During the three months ended March 31, 2017, a total of $46 (2016 – $761) in share-based payments related to stock options was expensed.

No options were granted during 2016 or 2017.

 

20. Earnings per Share

 

     Three months ended
March 31,		  
     2017        2016  

Net income for the period

    $ 12,999      $ 2,578  

Weighted average number of shares (000’s)

      153,835        129,333  
  

 

 

     

 

 

  

Earnings per share—basic

    $ 0.08      $ 0.02  
  

 

 

     

 

 

  

 

page 22

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

     Three months ended
March 31,		  
     2017      2016  

Net income for the period

    $ 12,999      $ 2,578  
  

 

 

     

 

 

  

Weighted average number of shares (‘000’s)

      153,835        129,333  

Incremental shares from options

      353        —    

Incremental shares from warrants

      101        571  
  

 

 

     

 

 

  

Weighted average diluted number of shares (000’s)

      154,289        129,904  
  

 

 

     

 

 

  

Diluted earnings per share

    $ 0.08      $ 0.02  
  

 

 

     

 

 

  

There were no anti-dilutive options or warrants excluded from the above calculation in respect of the three months ended March 31, 2017. For the three months ended March 31, 2016, excluded from the calculation were 951,053 anti-dilutive options with exercise prices ranging from C$4.79 to C$6.67.

 

21. Sales

 

  (a) By product and geographical area

 

     Three months ended March 31, 2017  
     Canada      Peru      Mexico      Argentina      Total  

Silver-gold concentrates

    $ —        $ —        $ 44,033      $ —        $ 44,033  

Silver-lead concentrates

      —          10,897        —          —          10,897  

Zinc concentrates

      —          9,904        —          —          9,904  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Sales to external customers

    $ —        $ 20,801      $ 44,033      $ —        $ 64,834  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

     Three months ended March 31, 2016  
     Canada      Peru      Mexico      Argentina      Total  

Silver-gold concentrates

    $ —        $ —        $ 27,863      $ —        $ 27,863  

Silver-lead concentrates

      —          10,161        —          —          10,161  

Zinc concentrates

      —          4,668        —          —          4,668  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Sales to external customers

    $ —        $ 14,829      $ 27,863      $ —        $ 42,692  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

page 23

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

  (b) By major customer

 

     Three months ended March 31  
     2017        2016  
  

 

 

     

 

 

  

Customer 1

    $ 23,180      $ 14,804  

Customer 2

      20,853        13,059  

Customer 3

      15,724        4,463  

Customer 4

      4,992        10,366  

Other Customers

      85        —    
  

 

 

     

 

 

  
   $ 64,834      $ 42,692  
  

 

 

     

 

 

  

For the three months ended March 31, 2017, five (2016: five) customers represented 100% of total sales to external customers. In 2017 and 2016, revenues from Customers 1 and 2 were realized by Cuzcatlan, and revenues from Customers 3 and 4 were realized from Bateas.

 

22. Cost of Sales

 

     Three months ended March 31, 2017  
     Caylloma      San Jose      Total  

Direct mining costs

    $ 7,877      $ 14,043      $ 21,920  

Salaries and benefits

      1,389        1,211        2,600  

Workers’ participation

      322        1,145        1,467  

Depletion and depreciation

      2,244        8,374        10,618  

Royalties

      248        798        1,046  
  

 

 

     

 

 

     

 

 

  
   $ 12,080      $ 25,571      $ 37,651  
  

 

 

     

 

 

     

 

 

  

 

     Three months ended March 31, 2016  
     Caylloma      San Jose      Total  

Direct mining costs

    $ 7,993      $ 9,455      $ 17,448  

Salaries and benefits

      1,152        1,072        2,224  

Workers’ participation

      173        717        890  

Depletion and depreciation

      1,811        4,304        6,115  

Royalties

      184        277        461  
  

 

 

     

 

 

     

 

 

  
   $ 11,313      $ 15,825      $ 27,138  
  

 

 

     

 

 

     

 

 

  

 

page 24

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

23. Selling, General, and Administrative

 

     Three months
ended March 31,		  
     2017      2016  

General and administrative

    $ 4,870      $ 3,811  

Workers’ participation

      348        224  
  

 

 

     

 

 

  
     5,218        4,035  

Share-based payments

      127        5,668  
  

 

 

     

 

 

  
   $ 5,345      $ 9,703  
  

 

 

     

 

 

  

 

24. Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.

The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. «Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (interest rate, yield curves), or inputs that are derived principally from or corroborated observable market data or other means. Level 3 inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.

The following sets up the methods and assumptions used to estimate the fair value of Level 2 and Level 3 financial instruments.

 

Financial asset or liability    Methods and assumptions used to estimate fair value
Trade receivables   

Trade receivables arising from the sales of metal concentrates are subject to provisional pricing, and the final selling price is adjusted at the end of quotational period. We mark these to market at each reporting date based on a quoted spot price.

 

The Company’s trade receivables are valued using quoted market prices based on the spot price on the London Metal Exchange (“LME”).

 

page 25

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

Interest rate swaps, and metal swaps    Fair value is calculated as the present value of the estimated contractual cash flows. Estimates of future cash flows are based on quoted swap rates, futures prices and interbank borrowing rates. These are discounted using a yield curve, and adjusted for credit risk of the Company and the counterparty.

During the three months ended March 31, 2017, and 2016, there were no transfers of amounts between Level 1, Level 2, and Level 3 of the fair value hierarchy. The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial assets and financial liabilities not measured at fair value is not presented if the carrying amount is a reasonable approximation of fair value.

 

page 26

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

    Carrying value     Fair value        
March 31, 2017   Available
for sale		     Fair value
through
profit or
loss		     FV
(hedging)		     Loans and
receivables		     Other
liabilities		     Total     Level 1     Level 2     Level 3     Carrying
value
approximates
FV		  

Financial assets measured at FV

                    

Cash and cash equivalents

   $ —       $ —       $ —       $ 82,211     $ —       $ 82,211     $ —       $ —       $ —       $ 82,211  

Term deposits

     —         —         —         108,990       —         108,990       —         —         —         108,990  

Trade receivables concentrate sales

     —         29,374       —         —         —         29,374       —         29,374       —         —    

Zinc swaps

     —         —         —         —         —         —         —         —         —         —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ —       $ 29,374     $ —       $ 191,201     $ —       $ 220,575     $ —       $ 29,374     $ —       $ 191,201  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Financial assets not measured at FV

                    

Other receivables

   $ —       $ —       $ —       $ 1,304     $ —       $ 1,304     $ —       $ —       $ —       $ 1,304  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ —       $ —       $ —       $ 1,304     $ —       $ 1,304     $ —       $ —       $ —       $ 1,304  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Financial liabilities measured at FV

                    

Interest rate swap liability

   $ —       $ —       $ (94 )    $ —       $ —       $ (94 )    $ —       $ (94 )    $ —       $ —    

Metal swaps liability

     —         (473 )      —         —         —         (473 )      —         (473 )      —         —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ —       $ (473 )    $ (94 )    $ —       $ —       $ (567 )    $ —       $ (567 )    $ —       $ —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Financial liabilities not measured at FV

                    

Trade payables

   $ —       $ —       $ —       $ —       $ (12,606 )    $ (12,606 )    $ —       $ —       $ —       $ (12,606 ) 

Payroll payable

     —         —         —         —         (13,750 )      (13,750 )      —         —         —         (13,750 ) 

Share units payable

     —         —         —         —         (9,236 )      (9,236 )      —         (9,236 )      —         —    

Finance lease obligations

     —         —         —         —         (2,507 )      (2,507 )      —         —         —         (2,507 ) 

Bank loan payable

     —         —         —         —         (39,794 )      (39,794 )      —         —         —         (39,794 ) 

Other payables

     —         —         —         —         (716 )      (716 )      —         —         —         (716 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ —       $ —       $ —       $ —       $ (78,609 )    $ (78,609 )    $ —       $ (9,236 )    $ —       $ (69,373 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

page 27

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

    Carrying value     Fair value  
December 31, 2016   Available
for sale		     Fair value
through
profit or
loss		     FV
(hedging)		     Loans and
receivables		     Other
liabilities		     Total     Level 1     Level 2     Level 3     Carrying
value
approximates
FV		  

Financial assets measured at FV

                    

Cash and cash equivalents

   $ —       $ —       $ —       $ 82,484     $ —       $ 82,484     $ —       $ —       $ —       $ —    

Term deposits

     —         —         —         41,100       —         41,100       —         —         —         —    

Marketable securities—shares

     1,266       —         —         —         —         1,266       1,266       —         —         1,266  

Marketable securities—warrants

     —         313       —         —         —         313       —         313       —         313  

Trade receivables concentrate sales

     —         23,185       —         —         —         23,185       —         23,185       —         23,185  

Zinc swaps

     —         973       —         —         —         973       —         973       —         973  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ 1,266     $ 24,471     $ —       $ 123,584     $ —       $ 149,321     $ 1,266     $ 24,471     $ —       $ 25,737  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Financial assets not measured at FV

                    

Other receivables

   $ —       $ —       $ —       $ 72     $ —       $ 72     $ —       $ —       $ —       $ —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ —       $ —       $ —       $ 72     $ —       $ 72     $ —       $ —       $ —       $ —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Financial liabilities measured at FV

                    

Interest rate swap liability

   $ —       $ —       $ (254 )    $ —       $ —       $ (254 )    $ —       $ (254 )    $ —       $ (254 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ —       $ —       $ (254 )    $ —       $ —       $ (254 )    $ —       $ (254 )    $ —       $ (254 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Financial liabilities not measured at FV

                    

Trade payables

   $ —       $ —       $ —       $ —       $ (15,251 )    $ (15,251 )    $ —       $ —       $ —       $ —    

Payroll payable

     —         —         —         —         (10,755 )      (10,755 )      —         —         —         —    

Share units payable

     —         —         —         —         (13,026 )      (13,026 )      —         (13,026 )      —         (13,026 ) 

Finance lease obligations

     —         —         —         —         (3,034 )      (3,034 )      —         —         —         —    

Bank loan payable

     —         —         —         —         (39,768 )      (39,768 )      —         —         —         —    

Other payables

     —         —         —         —         (17,605 )      (17,605 )      —         —         —         —    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
  $ —       $ —       $ —       $ —       $ (99,439 )    $ (99,439 )    $ —       $ (13,026 )    $ —       $ (13,026 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

page 28

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

25. Segmented Information

The following summary describes the operations of each reportable segment.

 

  •   Bateas – operates the Caylloma silver-zinc mine

 

  •   Cuzcatlan – operates the San Jose silver-gold mine

 

  •   Lindero – development of the Lindero Gold Project

 

  •   Corporate – corporate stewardship

 

     Three months ended March 31, 2017  
     Corporate     Bateas     Cuzcatlan     Lindero     Total  

Revenues from external customers

    $ —       $ 20,801     $ 44,033     $ —       $ 64,834  

Cost of sales

      —         (12,080 )      (25,571 )      —         (37,651 ) 

Selling, general, and administration

      (3,314 )      (657 )      (1,374 )      —         (5,345 ) 

Other expenses (income)

      (33 )      (33 )      (2,216 )      —         (2,282 ) 

Finance items

      (348 )      (1,568 )      (64 )      —         (1,980 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Segment profit (loss) before taxes

      (3,693 )      6,462       14,807       —         17,576  

Income taxes

      (35 )      (1,551 )      (2,991 )      —         (4,577 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Segment profit (loss) after taxes

      (3,728 )      4,911       11,816       —         12,999  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Intersegment revenues

      2,550       —         (1,405 )      (50 )      1,095  

Intersegment interest

      (5,186 )      —         5,049       137       —    

Interest revenue

      190       72       22       —         284  

Interest expense

      458       21       —         —         479  

Depletion, depreciation, and amortization

      35       2,249       8,453       —         10,737  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

     Three months ended March 31, 2016  
     Corporate     Bateas     Cuzcatlan     Lindero      Total  

Revenues from external customers

    $ —       $ 14,829     $ 27,863     $ —        $ 42,692  

Cost of sales

      —         (11,313 )      (15,825 )      —          (27,138 ) 

Selling, general, and administration

      (8,028 )      (590 )      (1,255 )      —          (9,873 ) 

Other expenses (income)

      483       3       (203 )      —          283  

Finance items

      (418 )      (65 )      (62 )      —          (545 ) 
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

Segment profit (loss) before taxes

      (7,794 )      2,864       10,519       —          5,589  

Income taxes

      3       (278 )      (2,736 )      —          (3,011 ) 
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

Segment profit (loss) after taxes

      (7,791 )      2,586       7,783       —          2,578  
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

Intersegment revenues

      2,453       —         (1,255 )      —          1,198  

Intersegment interest

      (5,049 )      —         5,049       —          —    

Interest revenue

      131       (32 )      (7 )      —          92  

Interest expense

      597       21       —         —          618  

Depletion, depreciation, and amortization

      58       1,817       4,355       —          6,230  
  

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

 

page 29

Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

     March 31, 2017  
     Corporate      Bateas      Cuzcatlan      Lindero      Total  

Total assets

    $ 105,216      $ 105,606      $ 287,942      $ 139,495      $ 638,259  

Total liabilities

      54,863        19,446        54,884        1,038        130,231  

 

     December 31, 2016  
     Corporate      Bateas      Cuzcatlan      Lindero      Total  

Total assets

    $ 40,351      $ 105,001      $ 279,316      $ 138,247      $ 562,915  

Total liabilities

      57,132        23,622        55,202        3,808        139,764  

 

26. Contingencies and Capital Commitments

 

  (a) Bank Letter of Guarantee

The Caylloma Mine closure plan was updated in March 2017, with total closure costs of $9,230 consisting of progressive closure activities of $3,646, final closure activities of $4,971, and post-closure activities of $613. Pursuant to the closure regulations, the Company is required to lodge the following guarantees with the government:

 

  •   2017 – $3,179

 

  •   2018 – $4,990

 

  •   2019 – $6,928

Scotiabank Peru, a third party, has established a bank letter of guarantee in the amount of $3,179 (2016 – $3,179), on behalf of Bateas in favor of the Peruvian mining regulatory agency, in compliance with local regulation and to collateralize Bateas’ mine closure plan. This bank letter of guarantee expires on December 31, 2017.

 

  (b) Other Commitments

As at March 31, 2017, the Company had the following capital commitments, expected to be expended within one year:

 

  •   $2,172 for the dry stack tailing dam at the San Jose property,

 

  •   $175 for the plant at the Caylloma property,

 

  •   $169 for drilling at the Lindero property,

 

  •   $434 for testing, and consulting at the Lindero property.

Operating leases includes leases for office premises, computer and other equipment used in the normal course of business.

 

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Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

The expected payments due by period, as at March 31, 2017 are as follows:

 

     Expected payments due by period as at March 31, 2017  
     Less than
1 year		      1 -3 years      4 -5 years      Total  

Office premises - Canada

    $ 71      $ 142      $ —        $ 213  

Office premises - Peru

      56        —          —          56  

Office premises - Argentina

      84        129        82        295  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total office premises

    $ 211      $ 271      $ 82      $ 564  
  

 

 

     

 

 

     

 

 

     

 

 

  

Computer equipment - Peru

      81        59        —          140  

Computer equipment - Mexico

      66        31        —          97  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total computer equipment

    $ 147      $ 90      $ —        $ 237  
  

 

 

     

 

 

     

 

 

     

 

 

  

Machinery - Mexico

      15        —          —          15  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total machinery

    $ 15      $ —        $ —        $ 15  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total operating leases

    $ 373      $ 361      $ 82      $ 816  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

  (c) Tax Contingencies

 

  Peru

The Company has been assessed taxes by the Peruvian tax authority, SUNAT, for tax years 2010 and 2011. Including related interest and penalties, these amount to $1,033 and $657, respectively, for a total of $1,690.

 

  •   The Company is appealing these assessments.

 

  •   The Company has provided a guarantee by way of a letter bond in the amount of $793.

 

  Mexico

During 2015, the Company’s foreign trade operations for tax years 2011 to 2014 were reviewed by the Mexican Tax Administration Service (“SAT”) and faced an administrative customs procedure (“PAMA”) for specific temporary import documents (pediments). On October 27, 2015, the SAT issued an assessment regarding the Company’s foreign trade operations for tax years 2011 to 2014, and denied certain claims, which resulted in the following assessments totaling $198 (the “tax credit”):

 

  •   $30 in general import tax, $90 in VAT, and $5 custom management tax, and

 

  •   associated fines of $94

On December 11, 2015, the Company established a security bond in the amount of $211 in favor of PAMA to collateralize this tax credit of $198. This security bond was renewable annually, and has been renewed until February 2018. On January 21, 2016, the Company presented its arguments before the Mexican Federal Court for the nullification and voidance of the tax credit (the “Company claim”). On August 18, 2016, the Mexican Federal Court issued a first instance resolution declaring the nullity and voidance of the tax assessment. The tax authority has the right to appeal the first instance resolution, which appeal is still pending.

 

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Fortuna Silver Mines Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2017 and 2016

(Presented in thousands of US dollars)

 

  (d) Other Contingencies

The Company is subject to various investigations, claims, legal, labor, and tax proceedings covering matters that arise in the ordinary course of business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably for the Company. Certain conditions may exist as of the date the financial statements are issued that may result in a loss to the Company. In our opinion, none of these matters is expected to have a material effect on the results of operations or financial conditions of the Company.

 

27. Events after the Reporting Period

 

  (a) Prospero shares

Subsequent to March 31, 2017, the Company acquired by way of a private placement 5,357,142 units of Prospero Silver Corp. (“Prospero”) at a price of C$0.28 per unit for cash consideration of C$1.5 million. Each unit is comprised of one common share and one common share purchase warrant exercisable at C$0.35 per share for three years. Immediately following the transaction, the Company will own 14.91% of the issued and outstanding common shares of Prospero and 25.95%, if all of the warrants were exercised.

 

page 32