CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
|
SILVERCREST METALS INC. |
| Page | |
We have audited the accompanying consolidated statements of financial position of SilverCrest Metals Inc. and its subsidiaries (together, the Company) as of December 31, 2021 and 2020, and the related consolidated statements of loss and comprehensive loss, cash flows and shareholders’ equity for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and its financial performance and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7
T: +1 604 806 7000, F: +1 604 806 7806
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Notes 2, 3 and 4 to the consolidated financial statements, the Company’s carrying values of property and equipment, construction in progress and mineral property amounted to $16.6 million, $84.3 million and $62.3 million, respectively, as of December 31, 2021. Management assesses whether any indication of impairment exists at the end of each reporting. If such an indication exists, the recoverable amount of an asset or cash generating unit (CGU) is estimated in order to determine the extent of the impairment, if any. Management applies critical judgment in assessing whether certain information would be considered an indicator of impairment. Management considers both internal and external information to determine whether there is an indicator of impairment. The factors that management considers in assessing whether there are any indicators of impairment include, but are not limited to, significant decreases in future gold and silver prices, increases in capital and operating costs, decreases in reserve and resource estimates and increases in the discount rate, if any. No impairment indicators were identified by management as of December 31, 2021.
|
SILVERCREST METALS INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) AS AT |
| December 31, 2021 | December 31, 2020 | |||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash and cash equivalents | $ | $ | ||||
| Amounts receivable (note 7) | ||||||
| Value-added taxes receivable | ||||||
| Prepaid expenses and other | ||||||
| Total current assets | ||||||
| Non-current assets | ||||||
| Value-added taxes receivable | ||||||
| Deposits | ||||||
| Mineral property, plant and equipment (note 4) | ||||||
| Total non-current assets | ||||||
| TOTAL ASSETS | $ | $ | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities (notes 7 and 8) | $ | $ | ||||
| Lease liabilities | ||||||
| Total current liabilities | ||||||
| Non-current liabilities | ||||||
| Lease liabilities | ||||||
| Debt (note 5) | ||||||
| Reclamation and closure provision (note 6) | ||||||
| Total liabilities | ||||||
| Shareholders' equity | ||||||
| Capital stock (note 8) | ||||||
| Share-based payment reserve (note 8) | ||||||
| Foreign currency translation reserve | ||||||
| Deficit | ( |
) | ( |
) | ||
| Total shareholders' equity | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | $ |
Nature of operations (note 1)
Commitments (note 4)
Subsequent events (note 13)
Approved by the Board and authorized for issue on March 23, 2022:
| "N. Eric Fier" | Director | "Graham C. Thody" | Director |
| The accompanying notes are an integral part of these consolidated financial statements. | 6 |
|
SILVERCREST METALS INC. CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, |
| 2021 | 2020 | |||||
| Operating expenses | ||||||
| Exploration and evaluation expenditures | $ | ( |
) | $ | ( |
) |
| Depreciation (note 4) | ( |
) | ( |
) | ||
| General and administrative expenses | ( |
) | ( |
) | ||
| Marketing | ( |
) | ( |
) | ||
| Professional fees (note 7) | ( |
) | ( |
) | ||
| Remuneration (note 7) | ( |
) | ( |
) | ||
| Share-based compensation (notes 7 and 8) | ( |
) | ( |
) | ||
| ( |
) | ( |
) | |||
| Other income (expense) | ||||||
| Foreign exchange loss | ( |
) | ( |
) | ||
| Interest expense | ( |
) | ( |
) | ||
| Interest income | ||||||
| Loss before income taxes | ( |
) | ( |
) | ||
| Income tax expense (note 9) | ( |
) | ||||
| Loss for the year | $ | ( |
) | $ | ( |
) |
| Other comprehensive loss | ||||||
| Foreign currency translation adjustment | ||||||
| Comprehensive loss for the year | $ | ( |
) | $ | ( |
) |
| Basic and diluted loss per common share | $ | ( |
) | $ | ( |
) |
| Weighted average number of common shares outstanding |
| The accompanying notes are an integral part of these consolidated financial statements. | 7 |
|
SILVERCREST METALS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) FOR THE YEARS ENDED DECEMBER 31, |
| 2021 | 2020 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
| Net loss for the year | $ | ( |
) | $ | ( |
) |
| Adjustments for: | ||||||
| Depreciation (note 4) | ||||||
| Foreign exchange gain (loss), unrealized | ( |
) | ||||
| Income tax expense | ||||||
| Income taxes paid | ( |
) | ( |
) | ||
| Interest expense | ||||||
| Interest income | ( |
) | ( |
) | ||
| Share-based compensation | ||||||
| Changes in non-cash working capital items: | ||||||
| Amounts receivable | ||||||
| Value-added taxes receivable | ( |
) | ( |
) | ||
| Prepaids and deposits | ( |
) | ( |
) | ||
| Accounts payable and accrued liabilities | ( |
) | ||||
| Net cash used in operating activities | ( |
) | ( |
) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
| Interest received | ||||||
| Expenditures on mineral properties, plant and equipment | ( |
) | ( |
) | ||
| Net cash used in investing activities | ( |
) | ( |
) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
| Capital stock issued | ||||||
| Capital stock issuance costs | ( |
) | ( |
) | ||
| Loan drawdown | ||||||
| Loan interest payment | ( |
) | ||||
| Payment of lease liabilities | ( |
) | ( |
) | ||
| Net cash provided by financing activities | ||||||
| Effect of foreign exchange on cash and cash equivalents | ||||||
| Change in cash and cash equivalents, during the year | ||||||
| Cash and cash equivalents, beginning of the year | ||||||
| Cash and cash equivalents, end of the year | $ | $ | ||||
| Cash and cash equivalents is represented by: | ||||||
| Cash | $ | $ | ||||
| Cash equivalents | ||||||
| Total cash and cash equivalents | $ | $ | ||||
| Non-cash investing activities | ||||||
| Capitalized to mineral property, plant, and equipment | ||||||
| Accounts payable and accrued liabilities | $ | $ | ||||
| Depreciation (note 4) | $ | $ | ||||
| Loan interest accretion (note 5) | $ | $ | ||||
| Share-based compensation | $ | $ | ||||
| Right-of-use asset recognized | $ | $ | ||||
| Interest on lease liabilities | $ | $ | ||||
| Recognition of reclamation and closure provision | $ | $ |
| The accompanying notes are an integral part of these consolidated financial statements. | 8 |
|
SILVERCREST METALS INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS; SHARES IN THOUSANDS) |
| Capital stock | Share-based | Foreign currency | ||||||||||||||||
| payment | translation | |||||||||||||||||
| Number | Amount | reserve | reserve | Deficit | Total | |||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | $ | ( |
) | $ | |||||||||||
| Capital stock issued (note 8) | - | - | - | |||||||||||||||
| Capital stock issuance costs (note 8) | - | ( |
) | - | - | - | ( |
) | ||||||||||
| Warrants exercised | - | - | - | |||||||||||||||
| Stock options exercised (note 8) | ( |
) | - | - | ||||||||||||||
| Stock options forfeited (note 8) | - | - | ( |
) | - | - | ||||||||||||
| Share-based compensation, stock options (note 8) | - | - | - | - | ||||||||||||||
| Foreign exchange translation | - | - | - | - | ||||||||||||||
| Net loss for the year | - | - | - | - | ( |
) | ( |
) | ||||||||||
| Balance at December 31, 2020 | ( |
) | ||||||||||||||||
| Capital stock issued (note 8) | - | - | - | |||||||||||||||
| Capital stock issuance costs (note 8) | - | ( |
) | - | - | - | ( |
) | ||||||||||
| Stock options exercised (note 8) | ( |
) | - | - | ||||||||||||||
| Stock options forfeited (note 8) | - | - | ( |
) | - | - | ||||||||||||
| Share-based compensation, stock options (note 8) | - | - | - | - | ||||||||||||||
| Foreign exchange translation | - | - | - | - | ||||||||||||||
| Net loss for the year | - | - | - | - | ( |
) | ( |
) | ||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( |
) | $ | |||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | 9 |
|
SILVERCREST METALS INC. |
1. NATURE OF OPERATIONS
SilverCrest Metals Inc. (the "Company" or "SilverCrest") is a Canadian precious metals exploration and development company headquartered in Vancouver, BC. The Company was incorporated under the Business Corporations Act (British Columbia). The common shares of the Company trade on the Toronto Stock Exchange ("TSX") under the symbol "SIL" and on the NYSE-American under the symbol "SILV". The head office and principal address of the Company is 501-570 Granville Street, Vancouver, BC, Canada, V6C 3P1. The address of the Company's registered and records office is 19th Floor, 885 West Georgia Street, Vancouver, BC, Canada, V6C 3H4.
The Company's primary development asset is the Las Chispas Project, located in Sonora, Mexico.
The Company's business could be adversely affected by the effects of the ongoing outbreak of respiratory illness caused by the novel coronavirus ("COVID-19"). Since early March 2020, significant measures have been implemented in Canada, Mexico, and the rest of the world by governmental authorities in response to COVID-19. The Company cannot accurately predict the impact COVID-19 will have on the ability of third parties to meet their obligations with the Company, including due to uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In particular, the continued spread of the COVID-19 globally could materially and adversely impact the Company's business including without limitation, employee health, limitations on travel, the availability of industry experts and personnel, restrictions on planned drill and exploration programs, restrictions on the construction and commissioning of the Company's process plant, and other factors that depend on future developments beyond the Company's control. The current circumstances are dynamic and the impacts of COVID-19 on the Company's development and exploration activities, including the impact on the construction and commissioning schedule of its process plant, cannot be reasonably estimated at this time. The recent increase in COVID-19 cases and variants globally may impact the Company's operations due to additional government mandated shutdowns or closures.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation and measurement
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS").
These consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments which are measured at fair value. Additionally, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.
These consolidated financial statements were approved for issuance by the Board of Directors on March 23, 2022.
Basis of consolidation
These consolidated financial statements incorporate the financial statements of the Company and its subsidiaries, all of which are wholly owned. The Company consolidates subsidiaries where the Company can exercise control. Control is achieved when the Company is exposed to variable returns from involvement with an investee and can affect the returns through power over the investee. Control is normally achieved through ownership, directly or indirectly, of more than 50 percent of the voting power. Control can also be achieved through power over more than half of the voting rights by virtue of an agreement with other investors or through the exercise of de facto control. Subsidiaries are included in the consolidated financial results of the Company from the effective date of acquisition of control up to the effective date of loss of control.
The Company's principal subsidiaries at December 31, 2021 are as follows:
| Subsidiary | Location | Ownership | Principal project or purpose |
| NorCrest Metals Inc. | Canada | Holding company, borrower | |
| Compañía Minera La Llamarada, S.A. de C.V. | Mexico | Las Chispas Project | |
| Babicanora Agrícola del Noroeste, S.A. de C.V. | Mexico | Maintenance of surface rights |
Intercompany assets, liabilities, equity, income, expenses, and cash flows between the Company and its subsidiaries are eliminated on consolidation.
| 10 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currencies
The Company’s presentation currency is the United States dollar (“US$”). The functional currency is the currency of the primary economic environment in which the entity operates and has been determined for each entity within the Company. The Company considers the functional currency for its Canadian operations to be the Canadian dollar (“C$”) and its Mexican operations to be US$.
Foreign currency transactions
Foreign currency balances and transactions are translated into the respective functional currencies of each entity as follows:
● Monetary assets and liabilities are translated at period end exchange rates;
● Non-monetary assets and liabilities are translated at historical exchange rates in effect on the date transactions occurred;
● Revenue and expenses are translated using exchange rates approximating those in effect on the date transactions occurred; and
● Exchange gains and losses are included in profit or loss.
Translation to presentation currency
For entities with a functional currency other than US$, balances and transactions are translated as follows:
● Assets and liabilities were translated at period end exchange rates;
● Revenue and expenses are translated using exchange rates approximating those in effect on the date transactions occurred; and
● Exchange gains and losses arising on translation are recorded to foreign currency translation reserve.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments that are readily convertible to known amounts of cash with a term to maturity at the date of purchase of 90 days or less which are subject to an insignificant risk of change in value.
Value-added taxes receivable
Current taxes receivable includes Goods and Services Tax receivables generated on the purchase of supplies and services and are refundable from the Canadian government. Current and non-current taxes receivable includes value-added taxes ("VAT") receivables generated on the purchase of supplies and services and are receivable from the Mexican government. The Company classifies VAT receivables as non-current if it does not expect collection of certain amounts to occur within the next year. The recovery of VAT involves a complex application process and the timing of collection of VAT receivables is uncertain. The Company has not recognized a loss allowance for expected credit losses as VAT receivables are not contract assets and therefore outside the scope of IFRS 9.
Mineral property, plant, and equipment
Exploration and evaluation assets - acquisition costs
The costs of acquiring exploration properties, including transaction costs, are capitalized as exploration and evaluation assets. All other exploration and evaluation expenditures are expensed in the period in which they are incurred.
Acquisition costs for each exploration property are carried forward as an asset provided that one of the following conditions is met:
● Such costs are expected to be recouped in full through the successful exploration and development of the exploration property or alternatively, by sale; or
● Exploration and evaluation activities in the property have not reached a stage which permits a reasonable assessment of the existence of economically recoverable reserves, but active and significant operations in relation to the exploration property are continuing or planned.
| 11 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Mineral property, plant, and equipment (continued)
Exploration and evaluation assets - acquisition costs (continued)
The Company performs an assessment for impairment of capitalized amounts whenever the facts and circumstances indicate that the asset may exceed its recoverable amount. In the case of undeveloped properties, there may be only inferred resources to allow management to form a basis for the impairment review. The review is based on the Company's intentions for the development of such an exploration property and management's determination that the exploration property is not viable. If an exploration property is considered to be impaired, all unrecoverable costs associated with the property are charged to the consolidated statement of loss and comprehensive loss at the time the determination is made. For the purposes of impairment testing, exploration and evaluation assets are allocated to cash-generating units (CGUs) to which the exploration activity relates. If the recoverable amount of an individual asset cannot be determined, the recoverable amount is determined for the cash generating unit to which the asset belongs. Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or CGU) in prior years. A reversal of an impairment loss is recognized immediately in the consolidated statement of loss and comprehensive loss.
Exploration and evaluation expenditures
Exploration and evaluation costs, net of incidental revenues, are charged to the consolidated statement of loss and comprehensive loss in the year incurred until the technical feasibility and commercial viability of the extraction of mineral reserves or resources from a particular mineral property has been determined, in which case subsequent exploration costs and the costs incurred to develop a property are capitalized into mineral property, plant, and equipment. The establishment of technical feasibility and commercial viability of a mineral property is assessed based on a combination of factors, such as but not limited to: the extent to which mineral reserves or mineral resources have been identified through a feasibility study or similar level document; the results of optimization studies and further technical evaluation carried out to mitigate project risks identified in the feasibility study; the status of environmental permits, and the status of mining leases or permits.
Mineral property - development phase
Once the technical feasibility and commercial viability of an exploration property has been determined, it is then considered to be a mine under development and is reclassified to mineral property. The carrying value of capitalized exploration and evaluation acquisition costs are tested for impairment before they are transferred to mineral property.
All costs relating to the construction, installation, or completion of a mine that are incurred subsequent to the exploration and evaluation stage are capitalized to mineral property.
The Company assesses the stage of each mine under development to determine when an asset reaches the stage when it is in the condition for it to be capable of operating in a manner intended by management ("commercial production"). Determining when an asset has achieved commercial production is a matter of judgement. Depending on the specific facts and circumstances, the following factors may indicate that commercial production has commenced:
● all major capital expenditures to bring the mine to the condition necessary for it to be capable of operating in the manner intended by management have been completed;
● the completion of a reasonable period of testing of the mine plant and equipment;
● the ability to produce saleable product (e.g., the ability to produce ore within specifications);
● the mine has been transferred to operating personnel from internal development groups or external contractors;
● the mine or mill has reached a predetermined percentage of design capacity;
● mineral recoveries are at or near the expected production level; and
● the ability to sustain ongoing production of ore (i.e., the ability to continue to produce ore at a steady or increasing level).
Proceeds before intended use
Revenue from the sale of gold and silver ounces recovered before items of mineral property, plant, and equipment, such as the mine or process plant, are operating in the manner intended by management are recognized, along with related costs, in the consolidated statement of loss and comprehensive loss.
| 12 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Mineral property, plant, and equipment (continued)
Mineral property - production phase
When management determines that a property is capable of commercial production, amortization of costs capitalized during development begins.
Once a mineral property has been brought into commercial production, the costs of any additional work on that property are expensed as incurred, except for exploration and development programs which constitute a betterment, which will be deferred and amortized over the remaining useful life of the related assets. Mineral properties include decommissioning and restoration costs related to the reclamation of mineral properties. Mineral properties are derecognized upon disposal, or impaired when no future economic benefits are expected to arise from continued use of the asset or the carrying value of the CGU exceeds its recoverable amount. Any gain or loss on disposal of the asset, determined as the difference between the proceeds received and the carrying amount of the asset is recognized in the consolidated statement of loss and comprehensive loss.
Mineral properties are amortized on the unit-of-production basis using the mineable ounces extracted from the mine in the period as a percentage of the total mineable ounces to be extracted in current and future periods based on mineral resources. Mineral properties are recorded at cost, net of accumulated depreciation and depletion and accumulated impairment losses and are not intended to represent future values. Recovery of capitalized costs is dependent on successful development of economic mining operations or the disposition of the related mineral property.
Property, plant, and equipment
Property, plant, and equipment is recorded at historical cost less accumulated depreciation and impairment charges.
The cost of an item of property, plant, and equipment includes the purchase price or construction cost, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use, an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, and for qualifying assets, the associated borrowing costs.
Where an item of plant and equipment is comprised of major components with different useful lives, the components are accounted for as separate items of plant and equipment.
Plant and equipment is depreciated to its estimated residual value using the straight-line method over the estimated useful lives of the individual assets. The major categories of plant and equipment and their useful lives are as follows:
| Category | Estimated life |
| Computer equipment | |
| Mining equipment | |
| Vehicles | |
| Buildings | |
| Mine plant and equipment | |
| Underground infrastructure |
Assets under construction are not depreciated until available for their intended use. Non-depreciable property, such as land, is recorded at historical cost, less any impairment charges.
The Company conducts a review of residual values, useful lives, and depreciation methods annually and when events and circumstances indicate such a review should be made. Any changes in estimates that arise from this review are accounted for prospectively.
An item of property, plant, and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in the statement of consolidated loss and comprehensive loss.
| 13 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclamation and closure provision
The Company recognizes liabilities for statutory, contractual, constructive, or legal obligations, including those associated with the reclamation and closure of exploration and evaluation assets, mineral properties, plant, and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an environmental rehabilitation obligation is recognized at its present value if a reasonable estimate of cost can be made. The Company records the present value of estimated future cash flows, adjusted for inflation, associated with reclamation as a liability, at a risk-free rate, when the liability is incurred and increases the carrying value of the related assets for that amount. Subsequently, these capitalized reclamation and closure costs are amortized over the life of the related assets. At the end of each period, the liability is increased to reflect the passage of time (accretion expense) and changes in the estimated future cash flows underlying any initial estimates (additional reclamation and closure costs). The Company recognizes its environmental liability on a site-by-site basis when it can be reliably estimated. Environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible are charged to the consolidated statement of loss and comprehensive loss.
Leases
The Company assesses whether a contract is or contains a lease, at the inception of a contract. The Company recognizes a right-of-use ("ROU") asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, at the commencement of the lease, with the following exceptions: (i) the Company has elected not to recognize ROU assets and liabilities for leases where the total lease term is less than or equal to 12 months, or (ii) for leases of low value. The payments for such leases are recognized in the consolidated statement of loss and comprehensive loss on a straight-line basis over the lease term.
The ROU asset is initially measured based on the present value of lease payments, lease payments made at or before the commencement day, and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. The ROU asset is depreciated over the shorter of the lease term or the useful life of the underlying asset. The ROU asset is subject to testing for impairment if there is an indicator of impairment.
The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. Lease payments include fixed payments less any lease incentives, and any variable lease payments where variability depends on an index or rate. When the lease contains an extension or purchase option that the Company considers reasonably certain to be exercised, the cost of the option is included in the lease payments.
ROU assets are included in mineral property, plant, and equipment, and the lease liability is presented as a separate line in the consolidated statement of financial position. Variable lease payments that do not depend on an index or rate are not included in the measurement of the ROU asset and lease liability. The related payments are recognized as an expense in the period in which the triggering event occurs and are included in the consolidated statement of loss and comprehensive loss.
Debt and borrowing costs
Debt is initially recognized at fair value, net of any transaction costs, and subsequently carried at amortized cost.
Borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset are capitalized as part of the cost of that asset until the asset is substantially complete and ready for its intended use. All other borrowing costs are expensed as incurred.
| 14 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Share-based compensation and payments
The Company grants stock options to buy common shares of the Company to directors, officers, employees, and consultants. The cost of stock options granted is recorded based on the estimated fair-value at the grant date and charged to the consolidated statement of loss and comprehensive loss over the vesting period. Where stock options are subject to vesting, each vesting tranche is considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is measured at the date of grant using the Black-Scholes Option Pricing Model. Compensation expense is recognized over the tranche's vesting period by a charge to the consolidated statement of loss and comprehensive loss, with a corresponding increase to reserves based on the number of options expected to vest. Consideration paid for the shares on the exercise of stock options is credited to capital stock. When vested options are forfeited or are not exercised at the expiry date the amount previously recognized in share-based compensation is transferred to deficit. The number of options expected to vest is reviewed at least annually, with any impact being recognized immediately.
In situations where equity instruments are issued to non-employees and some or all the goods or services received by the entity as consideration cannot be specifically identified, they are measured at fair value of the share-based payment. Otherwise, share-based payments to non-employees are measured at the fair value of goods or services received.
Related party transactions
Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control, and related parties may be individuals, such as key management personnel, including immediate family members of the individual, or corporate entities, including the Company's wholly owned subsidiaries. A transaction is a related party transaction when there is a transfer of resources or obligations between related parties.
Loss per share
Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of shares outstanding during the reporting period. Diluted loss per share is computed similarly to basic loss per share except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and share units, if dilutive.
The number of additional shares is calculated by assuming that outstanding stock options and share unit were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price during the reporting periods.
Taxation
Income tax expense comprises current and deferred income taxes. Current and deferred income taxes are recognized in profit or loss except to the extent that they relate to items recognized directly in equity. Current income tax expense is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at year end, adjusted for amendments to tax payable with regards to previous years.
The Company follows the asset and liability method of accounting for income taxes whereby deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted or substantively enacted tax rates and laws expected to apply in the years in which temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in operations in the period of substantive enactment.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred tax asset is not recorded. Deferred income tax assets and liabilities are presented as non-current in the financial statements.
| 15 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments
The Company classifies its financial instruments in the following categories: at fair value through profit and loss ("FVTPL"), at fair value through other comprehensive income (loss) ("FVTOCI"), or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company's business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or the Company has opted to measure them at FVTPL.
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in profit or loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are recognized in profit or loss for the period.
An 'expected credit loss' impairment model applies which requires a loss allowance to be recognized based on expected credit losses. The estimated present value of future cash flows associated with the asset is determined and an impairment loss is recognized for the difference between this amount and the carrying amount as follows: the carrying amount of the asset is reduced to the present value of estimated future cash flows associated with the asset, discounted at the financial asset's original effective interest rate, either directly or through the use of an allowance account and the resulting loss is recognized in profit or loss for the period.
The Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and substantially all the associated risks and rewards of ownership to another entity. Gains and losses on derecognition are generally recognized in the consolidated statement of loss and comprehensive loss.
Adoption of new accounting standards and amendments
The Company adopted Interest Rate Benchmark Reform - Phase 2: Amendments to IFRS 9, IAS 39, IFRS 4 and IFRS 16 (the "Phase 2 Amendments") effective on January 1, 2021. Interest rate benchmark reform ("Reform") refers to a global reform of interest rate benchmarks, which includes the replacement of some interbank offered rates with alternative benchmark rates.
The Phase 2 Amendments provide a practical expedient requiring the effective interest rate to be adjusted when accounting for changes in the basis for determining the contractual cash flows of financial assets and liabilities that relate directly to the Reform rather than applying modification accounting which might have resulted in a gain or loss. In addition, the Phase 2 Amendments require disclosures to assist users in understanding the effect of the Reform on the Company's financial instruments and risk management strategy. The debt as defined in note 5 is indexed to London interbank offered rates ("LIBOR") that have not yet transitioned to alternative benchmark rates at the end of the current reporting period.
3. CRITICAL JUDGMENTS AND ESTIMATES
The preparation of these consolidated financial statements in accordance with IFRS requires management to make judgments, estimates, and assumptions that affect the reported amounts and the valuation of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenditures during the year.
These judgments and estimates are continuously evaluated and are based on management's experience and knowledge of the relevant facts and circumstances. Actual results may differ from the estimates. Revisions to estimates and the resulting effects on the carrying amounts of the Company's assets and liabilities are accounted for prospectively. Information about such judgments and estimates is contained in the description of accounting policies (note 2) and/or other notes to the financial statements. Management has made the following critical judgments and estimates:
| 16 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
3. CRITICAL JUDGMENTS AND ESTIMATES (continued)
Critical judgments in applying accounting policies
The critical judgments that the Company's management has made in the process of applying the Company's accounting policies, apart from those involving estimations, that have the most significant effect on the amounts recognized in the Company's consolidated financial statements are as follows:
Assessment of impairment indicators of non-current assets
Management assesses whether any indication of impairment exists at the end of each reporting period. Judgment is required in assessing whether certain factors would be considered an indicator of impairment. We consider both internal and external information to determine whether there is an indicator of impairment and, accordingly, whether impairment testing is required. The information we consider in assessing whether there is an indicator of impairment includes, but is not limited to, significant decreases in future gold and silver prices, increases in future capital and operating cost estimates, decreases in estimated mineral reserves and resources, and increases in the discount rate. No impairment indicators were identified by management as of December 31, 2021.
Functional currency
The functional currency of an entity is the currency of the primary economic environment in which the entity operates. The Company had determined that the functional currency of the parent entity to be C$ and its subsidiaries to be US$. Determination of functional currency may involve certain judgments to determine the primary economic environment, and the Company reconsiders the functional currency of its entities if there is a change in events and conditions which determine the primary economic environment.
Key sources of estimation uncertainty
The significant assumptions about the future and other major sources of estimation uncertainty as at the end of the reporting period that have a significant risk of resulting in a material adjustment to the carrying amounts of the Company's assets and liabilities in the next 12 months are as follows:
Collectability and classification of VAT receivable
VAT receivable is collectible from the government of Mexico. The collection of VAT is subject to risk due to the complex application and collection process and therefore, risk related to the collectability and timing of payment from the Mexican government. The Company uses its best estimates based on the facts known at the time and its experience to determine its best estimate of the collectability and timing of these recoveries. Changes in the assumptions regarding collectability and the timing of collection could impact the valuation and classification of VAT receivable. At December 31, 2021, the current portion of VAT receivable was estimated to be $
Impairment of non-current assets
Non-current assets are tested for impairment when indicators of impairment are present. Calculating the estimated fair values of cash generating units for non-current asset impairment tests requires management to make estimates and assumptions with respect to future silver and gold prices; future capital cost estimates; operating cost estimates; reductions in the estimated mineral reserves and resources; and, the discount rate. Reductions in metal price forecasts; increases in estimated future costs of production; increases in estimated future non-expansionary capital expenditures; reductions in the amount of recoverable resources, and exploration potential; and/or adverse current economics can result in a write-down of the carrying amounts of the Company's non-current assets.
Estimate of reclamation and closure cost provision
The Company's provision for reclamation and closure costs represents management's best estimate of the present value of the future cash outflows required to settle the liability which reflects estimates of future costs, the timing of the cash flows associated with the future costs, inflation, and movements in foreign exchange rates when liabilities are anticipated to be settled in a currency other than US$. Cost estimates can vary in response to many factors including changes to the relevant legal requirements, whether closure plans achieve intended reclamation goals, the emergence of new restoration techniques, or experience at other mine sites, local inflation rates, and foreign exchange rates. The expected timing of expenditures can also change, for example, in response to changes in mineral reserves, production rates, or economic conditions. The Company's assumptions are reviewed at the end of each reporting period and adjusted to reflect management's current best estimate and changes in any of the aforementioned factors can result in a material change to the provision recognized by the Company.
| 17 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
4. MINERAL PROPERTY, PLANT, AND EQUIPMENT
| Property and equipment |
Construction in progress(1) |
Mineral property |
Exploration and evaluation assets |
Total | |||||||||||
| Cost | |||||||||||||||
| At December 31, 2019 | $ | $ | $ | $ | $ | ||||||||||
| Additions | |||||||||||||||
| Transfers | ( |
) | ( |
) | |||||||||||
| Effect of foreign currency translation | ( |
) | |||||||||||||
| At December 31, 2020 | |||||||||||||||
| Additions | |||||||||||||||
| Transfers | ( |
) | |||||||||||||
| At December 31, 2021 | $ | $ | $ | $ | $ | ||||||||||
| Accumulated depreciation | |||||||||||||||
| At December 31, 2019 | $ | ( |
) | $ | $ | $ | $ | ( |
) | ||||||
| Depreciation for the year | ( |
) | ( |
) | |||||||||||
| Effect of foreign currency translation | ( |
) | ( |
) | |||||||||||
| At December 31, 2020 | ( |
) | ( |
) | |||||||||||
| Depreciation for the year | ( |
) | ( |
) | |||||||||||
| At December 31, 2021 | $ | ( |
) | $ | $ | $ | $ | ( |
) | ||||||
| Carrying amounts | |||||||||||||||
| At December 31, 2020 | $ | $ | $ | $ | $ | ||||||||||
| At December 31, 2021 | $ | $ | $ | $ | $ |
Effective December 29, 2020, the Company determined that the technical feasibility and commercial viability of the Las Chispas Project had been demonstrated based on the substantial amount of work that had been completed on the Las Chispas Feasibility Study, at that time. The Company received the approval of the Board of Directors to enter into an engineering, procurement, and construction ("EPC") agreement to commence the construction of the process plant. Accordingly, the Company transferred the capitalized costs of the Las Chispas Project from exploration and evaluation assets to mineral property and began to capitalize development costs.
On December 31, 2020, the Company's subsidiary entered into the EPC agreement with Ausenco Engineering Canada Inc. and its affiliate ("Ausenco") to construct a
At December 31, 2021, the Company had committed to incur an additional $
5. DEBT
On December 31, 2020, the Company's subsidiary entered into a credit agreement for a secured project financing facility (the "facility") for the Las Chispas Project of up to $
All amounts borrowed under the facility are due on December 31, 2024. The Company may voluntarily prepay amounts borrowed under the facility but would incur fees of
| 18 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
5. DEBT (continued)
In August 2020, the IASB issued Interest Rate Benchmark Reform - Phase 2, which amends IFRS 9 - Financial Instruments, and addresses how to account for changes in contractual cash flows that may result due to the transition from LIBOR to alternative interest rate benchmarks. At December 31, 2021, the Company and the lender had not agreed upon an equivalent benchmark to 3-month LIBOR. The Company anticipates a replacement benchmark will be determined in 2022. However, once a new benchmark is agreed upon, the Company may be required to re-estimate the contractual cash flows based on a new effective interest rate which could result in an adjustment to the carrying value of the debt.
All debts under the facility are guaranteed by the Company and its subsidiaries and secured by the assets of the Company and pledges of the securities of the Company's subsidiaries. In connection with the facility, the Company must also maintain a certain working capital ratio and adhere to other non-financial covenants. As at December 31, 2021, the Company was in compliance with these covenants.
The debt has been recorded at amortized cost, net of transaction costs, and will be accreted to face value over the life of the debt using the effective interest rate method. During 2021, interest cost recorded on the facility of $
The Company paid a
A summary of debt transactions is as follows:
| 2021 | 2020 | |||||
| Balance, beginning of year | $ | $ | ||||
| Drawdown | ||||||
| Interest expense (capitalized to mineral property, plant and equipment) | ||||||
| Interest payment | ( |
) | ||||
| Transaction costs | ( |
) | ( |
) | ||
| Balance, end of year | $ | $ |
6. RECLAMATION AND CLOSURE PROVISION
Changes to the reclamation and closure provision during the year were as follows:
| 2021 | |||
| Balance, beginning of year | $ | ||
| Reclamation and closure provision capitalized to mineral property, plant, and equipment | |||
| Balance, end of year | $ |
The reclamation and closure cost provision is calculated as the present value of estimated future net cash outflows based on the following key assumptions:
● The discount rate used in discounting the estimated reclamation and closure cost provision was
● The majority of the expenditures are expected to occur in 2031.
● A
The undiscounted value of the reclamation and closure provision is estimated to be $
| 19 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
7. RELATED PARTY TRANSACTIONS
Professional fees
During 2021 and 2020, the Company had the following transactions with Koffman Kalef LLP, a law firm of which the Company's Corporate Secretary is a partner.
| 2021 | 2020 | |||||
| Professional fees - expense | ||||||
| Professional fees - capital stock issuance costs | ||||||
| December 31, 2021 | December 31, 2020 | |||||
| Payable to Koffman Kalef LLP |
Key management compensation
The Company's key management personnel have authority and responsibility for planning, directing, and controlling the activities of the Company and include the Company's Chief Executive Officer ("CEO"), President, Chief Financial Officer ("CFO"), Chief Operating Officer ("COO"), and directors. Key management personnel compensation is summarized as follows:
| Expensed | ||||||||||||
| Mineral property, plant, and equipment |
Remuneration | Exploration and evaluation expenditures |
Total | |||||||||
| 2021 | ||||||||||||
| Management fees(1) | $ | $ | $ | $ | ||||||||
| Management remuneration(2) | ||||||||||||
| Director fees | ||||||||||||
| Share-based compensation - stock options | ||||||||||||
| Share-based compensation - restricted share units | ||||||||||||
| $ | $ | $ | $ | |||||||||
| 2020 | ||||||||||||
| Management fees(1) | $ | $ | $ | $ | ||||||||
| Management remuneration(2) | ||||||||||||
| Director fees | ||||||||||||
| Share-based compensation | ||||||||||||
| $ | $ | $ | $ | |||||||||
(1) Total management fees and short-term benefits were paid to a company controlled by the CEO.
(2) Remuneration and short-term benefits were paid to the President, CFO, and COO.
| 20 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
7. RELATED PARTY TRANSACTIONS (continued)
Other transactions
● The Company has an employee providing technical services who is an immediate family member of the CEO. During 2021 and 2020, the Company recorded the following for this employee:
| Expensed | ||||||||||||
| Mineral property, plant, and equipment |
Remuneration | Exploration and evaluation expenditures |
Total | |||||||||
| 2021 | ||||||||||||
| Remuneration | $ | $ | $ | $ | ||||||||
| Share-based compensation | ||||||||||||
| $ | $ | $ | $ | |||||||||
| 2020 | ||||||||||||
| Remuneration | $ | $ | $ | $ | ||||||||
| Share-based compensation | $ | |||||||||||
| $ | $ | $ | $ | |||||||||
● The Company recorded a loan receivable due from an officer of the Company. The loan accrues interest at a rate of
| December 31, 2021 | December 31, 2020 | |||||
| Loan receivable |
● The Company has an allocation of costs agreement with Goldsource Mines Inc. ("Goldsource"), a company related by common directors and officers, whereby the Company shares salaries, administrative services, and other expenses. Amounts allocated to Goldsource are due at the end of each fiscal quarter and accrue interest at a rate of
| 2021 | 2020 | |||||
| Costs allocated to Goldsource | ||||||
| December 31, 2021 | December 31, 2020 | |||||
| Receivable from Goldsource |
8. CAPITAL STOCK
Authorized shares
The Company's authorized capital stock consists of an unlimited number of common shares and an unlimited number of preferred shares without nominal or par value.
Issued and outstanding
As of December 31, 2021, the Company had
2021
In February 2021, the Company completed a prospectus offering of
| 21 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
8. CAPITAL STOCK (continued)
The Company also issued
2020
The Company completed private placements for a total of
The Company also issued
Stock options
During 2021, the Company amended its Stock Option Plan to a "rolling 5.5%" plan which authorizes the grant of stock options to directors, officers, employees, and consultants, enabling them to acquire common shares of the Company to a collective maximum of
A summary of the Company's stock option transactions during the year is as follows:
| 2021 | 2020 | |||||||||||
| Number of | Weighted average | Number of | Weighted average | |||||||||
| options | exercised price (C$) | options | exercised price (C$) | |||||||||
| Outstanding, beginning of year | $ | $ | ||||||||||
| Granted | ||||||||||||
| Exercised* | ( |
) | ( |
) | ||||||||
| Forfeited | ( |
) | ( |
) | ||||||||
| Outstanding, end of year | $ | $ | ||||||||||
*During 2021, the weighted average market value of the Company's shares at the dates of exercise was C$
During 2021, the Company granted
During 2020, the Company granted
| 22 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
8. CAPITAL STOCK (continued)
| Options outstanding | Options exercisable | |||||||||||
| Exercise | Number of shares | Remaining life | Number of shares | |||||||||
| Expiry date | price (C$) | issuable on exercise | (years) | issuable on exercise | ||||||||
| August 4, 2022 | $ | |||||||||||
| January 2, 2023 | $ | |||||||||||
| January 4, 2023 | $ | |||||||||||
| November 13, 2023 | $ | |||||||||||
| December 14, 2023 | $ | |||||||||||
| May 30, 2024 | $ | |||||||||||
| September 4, 2024 | $ | |||||||||||
| December 19, 2024 | $ | |||||||||||
| September 14, 2025 | $ | |||||||||||
| November 11, 2025 | $ | |||||||||||
| December 7, 2025 | $ | |||||||||||
| February 25, 2026 | $ | |||||||||||
| July 26, 2026 | $ | |||||||||||
| August 3, 2026 | $ | |||||||||||
| December 21, 2026 | $ | |||||||||||
The weighted average remaining life of options outstanding is
Share-based compensation
The fair value of options granted during 2021 and 2020 was estimated using the Black-Scholes Option Pricing Model using the following weighted average assumptions:
| 2021 | 2020 | |||||
| Expected option life (years) | ||||||
| Expected volatility | ||||||
| Expected dividend yield | ||||||
| Risk-free interest rate | ||||||
| Expected forfeiture rate | ||||||
| Fair value per option (C$) | $ | $ | ||||
| Total fair value | $ | $ |
| 23 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
8. CAPITAL STOCK (continued)
A summary of the Company's share-based compensation for options vested during the year is as follows:
| 2021 | 2020 | |||||
| Portion of options granted during 2019 which vested in the year | ||||||
| Share-based compensation expense | $ | $ | ||||
| Exploration and evaluation expenditures | ||||||
| Mineral property, plant, and equipment | ||||||
| Subtotal, options granted during 2019 | ||||||
| Vested portion of options granted during 2020 | ||||||
| Share-based compensation expense | ||||||
| Exploration and evaluation expenditures | ||||||
| Mineral property, plant, and equipment | ||||||
| Subtotal, options granted during 2020 | ||||||
| Vested portion of options granted during 2021 | ||||||
| Share-based compensation expense | ||||||
| Exploration and evaluation expenditures | ||||||
| Mineral property, plant, and equipment | ||||||
| Subtotal, options granted during 2021 | ||||||
| Subtotal, share-based compensation expense | ||||||
| Subtotal, exploration and evaluation expenditures | ||||||
| Subtotal, mineral property, plant, and equipment | ||||||
| Total share-based compensation on vested options | $ | $ | ||||
| Share-based compensation expense | ||||||
| Share-based compensation expense - stock options | $ | $ | ||||
| Share-based compensation expense - deferred share units | ||||||
| Share-based compensation expense - restricted share units | ||||||
| Total, share-based compensation expense | $ | $ |
Share-based payment reserve
The share-based payment reserve records items recognized as share-based compensation. At the time that stock options are exercised, the corresponding amount is reallocated to share capital or, if cancelled or expired, the corresponding amount is reallocated to deficit.
A summary of share-based payment reserve transactions is as follows:
| 2021 | 2020 | |||||
| Balance, beginning of year | $ | $ | ||||
| Share-based compensation, stock options | ||||||
| Stock options exercised, reallocated to capital stock | ( |
) | ( |
) | ||
| Stock options forfeited, reallocated to deficit | ( |
) | ( |
) | ||
| Balance, end of year | $ | $ |
| 24 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
8. CAPITAL STOCK (continued)
Share unit plan
On June 15, 2021, the shareholders of the Company approved the adoption of a new Equity Share Unit Plan for the Company (the "SU Plan") pursuant to which the Company may grant share units ("SUs"), including restricted share units ("RSUs"), performance share units and deferred share units ("new DSUs"). The SU Plan provides for up to 1.5% of the outstanding common shares of the Company from time to time to be issuable to settle share units granted under the SU Plan. With the implementation of the SU Plan, the Company's former cash-settled DSU plan ("old DSU plan") was phased out and no new awards of DSUs will be granted under that plan ("old DSUs").
The SUs will be subject to any combination of time-based vesting and performance-based vesting conditions as the Board of Directors shall determine from time to time. Unless set forth in the particular award agreement, the Board of Directors may elect one or any combination of the following settlement methods for the settlement of SUs: issuing shares from treasury, causing a broker to purchase shares on the TSX; and/or paying cash. While the SUs issued during 2021 did not specify a method of settlement, the Company determined that at least a portion would be settled by a brokered purchase or cash. Accordingly, the Company recorded the value of SUs issued during the year as an accrued liability.
DSUs
Old DSU plan
During 2019, the Board of Directors approved the old DSU plan. Each old DSU entitles the holder to receive cash equal to the current market value of the equivalent number of common shares of the Company. Old DSUs vest immediately and become payable upon the retirement of the holder. The share-based compensation expense related to old DSUs is calculated using the fair value method based on the market price of the Company's shares at the end of each reporting period. As old DSUs are cash settled, the Company records a corresponding liability in accounts payable and accrued liabilities. Old DSUs will remain in effect but no further old DSUs may be awarded under the old DSU plan as the Company adopted the SU Plan (see above).
During 2021, the Company issued
New DSUs
During 2021, the Company issued a total of
Share-based compensation expense and accrued DSU liability
As of December 31, 2021, the market value of the Company's common shares was C$
The following table summarizes the change in the accrued DSU liability:
| 2021 | 2020 | |||||
| Outstanding, beginning of year | $ | $ | ||||
| Change in accrued DSU liability | ||||||
| Effect of foreign currency translation | ( |
) | ||||
| Outstanding, end of year | $ | $ |
| 25 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
8. CAPITAL STOCK (continued)
RSUs
During 2021, the Company issued a total of
As of December 31, 2021, the market value of the Company's common shares was C$
The following table summarizes the change in the accrued RSU liability:
| 2021 | 2020 | |||||
| Outstanding, beginning of year | $ | $ | ||||
| Change in accrued RSU liability | ||||||
| Outstanding, end of year | $ | $ |
9. INCOME TAXES
The income taxes recognized in loss and comprehensive loss are as follows:
| 2021 | 2020 | |||||
| Current tax expense | $ | $ |
The provision for income taxes reported differs from the amounts computed by applying statutory tax rates to the loss before tax due to the following:
| 2021 | 2020 | |||||
| Loss for the year before income taxes | $ | ( |
) | $ | ( |
) |
| Statutory tax rate | ||||||
| Recovery of income taxes computed at statutory rates | ( |
) | ( |
) | ||
| Share based payments | ||||||
| Mexican inflationary adjustments | ||||||
| Differing effective tax rate on loss in foreign jurisdiction | ( |
) | ( |
) | ||
| Impact of share issuance costs | ( |
) | ( |
) | ||
| Unrecognized deferred tax assets | ||||||
| Impact of foreign exchange and other | ||||||
| Total income tax expense (recovery) | $ | $ |
| 26 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
The approximate tax effect of each item that gives rise to the Company's recognized deferred tax assets and liabilities as at December 31, 2021 and 2020 is as follows:
| 2021 | 2020 | |||||
| Deferred income tax assets | ||||||
| Exploration and evaluation assets | $ | $ | ||||
| Non-capital losses | ||||||
| Financing fees | ||||||
| Deferred income tax liabilities | ||||||
| Mineral property, plant, and equipment | ( |
) | ( |
) | ||
| Debt | ( |
) | ( |
) | ||
| ( |
) | ( |
) | |||
| Net deferred income tax liability | $ | $ |
| 2021 | 2020 | |||||
| Non-capital losses | $ | $ | ||||
| Mineral property, plant and equipment | ||||||
| Financing fees | ||||||
| Other | ||||||
| Unrecognized deferred tax assets | ( |
) | ( |
) | ||
| Total | $ | $ |
At December 31, 2021, the Company had non-capital loss carry forwards of approximately $
10. SEGMENTED INFORMATION
During 2021, the Company had two operating segments: the Las Chispas Project and the El Picacho Property ("Picacho"), which is in the exploration phase. Corporate includes the corporate team that provides administrative, technical, financial, and other support to the Company's business units.
Significant information relating to the Company's reportable operating segments during 2021 is summarized below:
| Las Chispas | Picacho | Corporate | Total | |||||||||
| Loss for the year | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||
| Additions to: | ||||||||||||
| Development | $ | $ | $ | $ | ||||||||
| PPE | ||||||||||||
| Total capital additions | $ | $ | $ | $ | ||||||||
| Total assets | $ | $ | $ | $ | ||||||||
| Total liabilities | $ | $ | $ | $ |
| 27 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
10. SEGMENTED INFORMATION (continued)
Prior to 2021, the Company operated in one reportable segment, being the acquisition, exploration, and development of mineral property interests in Mexico. Geographical segmented information is presented as follows:
| Canada | Mexico | Total | |||||||
| Loss | |||||||||
| 2021 | |||||||||
| Loss for the year | $ | $ | $ | ||||||
| 2020 | |||||||||
| Loss for the year | $ | $ | $ | ||||||
| Non-current assets | |||||||||
| 2021 | |||||||||
| Value-added taxes receivable | $ | $ | $ | ||||||
| Deposits | $ | $ | $ | ||||||
| Mineral property, plant and equipment | $ | $ | $ | ||||||
| 2020 | |||||||||
| Value-added taxes receivable | $ | $ | $ | ||||||
| Deposits | $ | $ | $ | ||||||
| Mineral property, plant and equipment | $ | $ | $ |
11. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The Company is exposed to various financial instrument risks and assesses the impact and likelihood of this exposure. These risks include liquidity, foreign currency, and credit and interest rate risks. Where material, these risks are reviewed and monitored by the Board of Directors.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. The Company's cash and cash equivalents are invested in business accounts with quality financial institutions and are available on demand to fund the Company's operations.
The Company enters into contracts that give rise to commitments in the normal course of business. The following table summarizes the remaining contractual maturities of the Company's financial liabilities, operating and capital commitments, shown in contractual undiscounted cash flows, at December 31, 2021:
| Less than 1 year |
Between 1 - 3 years |
Between 4 - 5 years |
After 5 years | Total | |||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | $ | ||||||||||
| Lease liabilities | |||||||||||||||
| Credit facility(1) | |||||||||||||||
| Reclamation and closure provision(2) | |||||||||||||||
| TOTAL | $ | $ | $ | $ | $ |
(1) Debt interest payments calculated based on interest rate in effect on December 31, 2021. Interest rate may vary (note 5).
(2) Estimated undiscounted cash flows.
The Company believes its cash and cash equivalents at December 31, 2021 of $
| 28 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
11. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (continued)
Foreign currency risk
The Company operates in Canada and Mexico and is therefore exposed to foreign exchange risk arising from transactions denominated in foreign currencies. The operating results and the financial position of the Company are reported in US$. The functional currency of the parent entity is C$ and therefore the Company is exposed to foreign currency risk from financial instruments denominated in currencies other than C$. The functional currency of the Company's subsidiaries is US$ and therefore the Company's subsidiaries are exposed to foreign currency risk from financial instruments denominated in currencies other than US$.
The Company is exposed to foreign currency risk through the following financial assets and liabilities, expressed in US$:
| US Dollar | Mexican Peso | Total | |||||||
| December 31, 2021 | |||||||||
| Cash and cash equivalents | $ | $ | $ | ||||||
| Amounts receivable | |||||||||
| Value-added taxes receivable | |||||||||
| Total financial assets | |||||||||
| Less: accounts payable and accrued liabilities | ( |
) | |||||||
| Net financial assets | $ | $ | $ |
The Company is primarily exposed to fluctuations in the value of C$ against US$ and US$ against Mexican pesos ("MX$"). With all other variables held constant, a 1% change in C$ against US$ or US$ against MX$ would result in the following impact on the Company's net loss for the year:
| December 31, 2021 | ||||
| C$/US$exchange rate - increase/decrease |
$ | |||
| US$/MX$exchange rate - increase/decrease |
$ | |||
Credit risk
Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The Company's credit risk is primarily attributable to its liquid financial assets including cash and cash equivalents and amounts receivable. The Company limits exposure to credit risk on liquid financial assets through maintaining its cash and cash equivalents with high-credit quality financial institutions. At December 31, 2021, the amounts receivable balance of $
Interest rate risk
Interest rate risk is the risk that the fair values or future cash flows of the Company's financial instruments will fluctuate because of changes in market interest rates. The Company's exposure to interest rate risk arises primarily from the interest rate impact on its cash and cash equivalents and debt. The Company's cash and cash equivalents are held or invested in highly liquid accounts with both floating and fixed rates of interest, in order to achieve a satisfactory return for shareholders.
At December 31, 2021, the weighted average interest rate earned on the Company's cash and cash equivalents was
The Company's debt has an interest rate of
| 29 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
Financial instruments carrying value and fair value
The Company's financial instruments consist of cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities, lease liabilities, and debt.
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 (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by 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 level of measurement for each financial instrument is determined by the lowest level of significant inputs.
The carrying value of amounts receivable and accounts payable and accrued liabilities (except as noted) approximate their fair values due to the short-term nature of these instruments. In relation to the Company's SU plan (note 8), the Company recorded the fair value of SUs in accounts payable and accrued liabilities. The Company's accounts payable and accrued liabilities related to SUs are measured using level 2 inputs. The carrying values of lease liabilities and debt approximate their fair values as a result of relatively unchanged interest rates since inception of the lease liabilities and debt.
The following table summarizes the carrying value and fair value, by level, of the Company's financial instruments. It does not include fair value information for financial instruments not measured at fair value if the carrying amount reasonably approximates the fair value because of their short-term nature.
| Carrying value | Fair value | ||||||||||||||
| Fair value through | |||||||||||||||
| profit and loss | Amortized cost | Level 1 | Level 2 | Level 3 | |||||||||||
| December 31, 2021 | |||||||||||||||
| Financial assets | |||||||||||||||
| Amounts receivable | $ | $ | $ | $ | $ | ||||||||||
| Financial liabilities | |||||||||||||||
| Accounts payable and accrued liabilities | ( |
) | ( |
) | ( |
) | |||||||||
| Lease liabilities | ( |
) | ( |
) | |||||||||||
| Debt | ( |
) | ( |
) | |||||||||||
| Net financial instruments | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||
| December 31, 2020 | |||||||||||||||
| Financial assets | |||||||||||||||
| Amounts receivable | $ | $ | $ | $ | $ | ||||||||||
| Financial liabilities | |||||||||||||||
| Accounts payable and accrued liabilities | ( |
) | ( |
) | ( |
) | |||||||||
| Lease liabilities | ( |
) | ( |
) | |||||||||||
| Debt | ( |
) | ( |
) | |||||||||||
| Net financial instruments | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||
12. MANAGEMENT OF CAPITAL
The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concern in order to support the exploration and evaluation and development of its mineral properties. The capital of the Company consists of items included in shareholders' equity. The Company manages and adjusts its capital structure when changes to the risk characteristics of the underlying assets or changes in economic conditions occur. To maintain or adjust the capital structure, the Company may attempt to raise new funds.
| 30 |
SILVERCREST METALS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED) YEAR ENDED DECEMBER 31, 2021 |
12. MANAGEMENT OF CAPITAL (continued)
In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets which are revised periodically based on the results of its exploration programs, the progress of its mine development and plant construction, the availability of financing, and industry conditions. There are no external restrictions on the Company's expenditures other than the Company may not spend more than $
The Company's investment policy is to invest any excess cash in liquid short-term interest-bearing instruments. When utilized, these instruments are selected with regard to the expected timing of expenditures from continuing operations. The Company expects to have sufficient funds to meet its planned administrative overhead expenses and exploration and development plans for 2022. Actual funding requirements may vary from those planned due to several factors, including the progress and results of exploration and drilling activities, mine development activities, and process plant construction and commissioning. The exploration and development of the Company's properties may be dependent upon the Company's ability to obtain financing through equity or debt, and there can be no assurance that it will be able to obtain adequate financing in the future or that the terms of such financing will be favourable to the Company.
13. SUBSEQUENT EVENTS
Subsequent to December 31, 2021, the following occurred:
● The Company issued
● The Company cancelled
| 31 |