NOTE 5 MINERAL PROPERTY INTERESTS AND ASSET RETIREMENT OBLIGATIONS

Mineral Property Interests

The Company conducts a review of potential triggering events for all its mineral projects on a quarterly basis. When events or changes in circumstances indicate that the related carrying amounts may not be recoverable, the Company carries out a review and evaluation of its long-lived assets. In the year ended December 31, 2015, such triggering events were identified with respect to the Company’s Nevada, Argentinean and Mexico properties.

During the fourth quarter of 2015, the Company noted that the estimated market value per pound of copper equivalent mineralized material from comparable transactions was below the carrying value per pound of copper equivalent mineralized material of the Los Azules project, indicating a potential decrease in its market value, and therefore a requirement to test the Los Azules Project for recoverability. To assist in performing a recoverability test, the Company engaged a third-party valuation firm which determined that the carrying value of the property exceeded its estimated fair value, resulting in an impairment charge of $11.4 million, along with a resulting deferred income tax recovery of $1.3 million, recorded in the Statement of Operations and Comprehensive Loss for the year ended December 31, 2015.

In addition, during the fourth quarter of 2015, the Company noted a decline in the observed market value of comparable transactions in Nevada, which indicated a potential significant decrease in the recoverable amount of the Tonkin project and North Battle Mountain Complex. In performing the recoverability test for these properties, the Company used the observed market value per acre and per ounce of gold mineralized material of comparable transactions to estimate the fair value of each property. The carrying value of each of the properties exceeded their estimated fair value, resulting in a pre-tax impairment charge of $6.1 million for Tonkin and $1.4 million for the North Battle Mountain Complex, along with a resulting deferred income tax recovery of $1.7 million and $0.5 million respectively, being recorded in the Statement of Operations and Comprehensive Loss for the year ended December 31, 2015.

For Nevada, during the second and third quarters of 2015 the Company performed a strategic review of its mineral property interests from which a decision was made to allow certain non-essential claims and portions of claims, included within the Gold Bar Complex (“Gold Bar” project) and Tonkin Complex (“Tonkin” project), to lapse on the September 1, 2015 renewal date and therefore reduce property holding costs that otherwise would have been incurred in 2015. This resulted in a pre-tax impairment charge of $29.7 million, from which $20.8 million was attributed to the Gold Bar project and $8.9 million to the Tonkin Project. An income tax recovery of $10.4 million related to the impairment loss was also recognized in the Statement of Operations and Comprehensive Loss for the year ended December 31, 2015.

Since the plan to develop the El Gallo 2 project has been deferred, during the fourth quarter of 2015 the Company performed a fair value analysis on the El Gallo 2 assets, including mineral property interest, land, surface ownership and construction-in-progress. As a result of this analysis, the carrying value of the asset was found to exceed its fair value in the amount of $2.0 million. Therefore, an impairment charge of $2.0 million was recorded in the Statement of Operations and Comprehensive Loss, and allocated to construction-in-progress, based on the impairment results for the year ended December 31, 2015.

For the year ended December 31, 2014, the Company recognized impairments on its Argentina and Nevada properties, for an aggregate of $353.7 million. For the Argentina properties, an initial $120.4 million impairment was recorded in the second quarter of 2014 when the Los Azules project was deemed to have a lower carrying value than the market price determined from a contemporaneous and comparable transaction completed at the time. Subsequently, during the fourth quarter of 2014 an additional $107.9 million was recorded given the continuous decline in the observed market value of the Los Azules project.

The deferred income tax recoveries resulting from these impairments were $22.5 million and $19.3 million, respectively. Further, when performing the recoverability test for the Gold Bar, Tonkin and North Battle Mountain properties, the Company noted that the carrying value of each of the properties exceeded their estimated fair value, resulting in a total impairment charge for Nevada and Argentina properties amounted to $98.4 million and $27.0 million, respectively, along with a resulting deferred income tax recovery of $31.6 million and $3.2 million, respectively, being recorded in the Statement of Operations and Comprehensive Loss for the year ended December 31, 2014. Refer to Note 17, Fair Value Accounting, for further details.

Impairments recorded in the year ended December 31, 2013 related to the Company’s exploration properties in Santa Cruz, Argentina, and Nevada, respectively. The impairment charge of $27.7 million, along with a deferred income tax recovery of $2.3 million, recorded in the second quarter of 2013 related to the Santa Cruz properties and were primarily due to an unexpected significant decline in gold and silver market prices, continued inflationary pressures and a new tax on mining reserves in the Province, resulting in a depressed market for exploration properties in Argentina.

Relating to the Company’s Nevada properties, an impairment charge of $6.3 million, along with a deferred income tax recovery of $2.2 million, was recorded in the third quarter of 2013 as a result of the Company selling or allowing certain claims to lapse. Finally, in the fourth quarter of 2013, an additional impairment charge of $28.9 million, along with a deferred tax recovery of $10.1 million, was recorded in relation to certain mineral property interests in Nevada, as part of the Company’s annual impairment test for the year ended December 31, 2013. The Company used the market approach to estimate the fair value of the impaired properties by using the observed market value per square mile based on comparable transactions in North America.

Based on the above, impairment charges were recorded on the following mineral property interests for the years ended December 31, 2015, 2014, and 2013:


Name of Property/Complex	Segment	2015		2014		2013
Los Azules Project	Argentina	$	11,399	$	228,301	$	—
Other San Juan Properties	Argentina		—		7,817		—
Telken Tenements(1)	Argentina		—		—		13,792
Este Tenements(1)	Argentina		—		—		2,784
Piramides Tenements(1)	Argentina		—		—		5,079
Tobias Tenements(1)	Argentina		—		—		6,074
Cerro Mojon Tenements	Argentina		—		1,971		—
La Merced Tenements	Argentina		—		1,891		—
Cabeza de Vaca Tenements	Argentina		—		877		—
El Trumai Tenements	Argentina		—		1,534		—
Martes 13 Tenements	Argentina		—		3,568		—
Celestina Tenements	Argentina		—		1,753		—
Other Santa Cruz Exploration Properties	Argentina		—		7,601		—
Gold Bar Complex	Nevada		20,847		25,435		—
Tonkin Complex	Nevada		14,939		31,391		—
Limo Complex	Nevada		—		23,438		19,450
North Battle Mountain Complex	Nevada		1,443		1,921		—
East Battle Mountain Complex	Nevada		—		4,060		—
West Battle Mountain Complex	Nevada		—		2,567		6,287
Other United States Properties	Nevada		—		9,611		9,497
Property, plant and equipment	Mexico		1,972		—		—
Total impairment		$	50,600	$	353,736	$	62,963

In the fourth quarter of 2013, these tenements were transferred to MSC as part of the vend-in agreement described in Note 6, Investment in Minera Santa Cruz S.A. (“MSC”) – San José Mine, and were therefore not included in the Company’s mineral property interests as at December 31, 2015 and 2014.

The carrying values for all of the mineral properties held by the Company as at December 31, 2015 and 2014 are noted below:


Name of Property/Complex	State/Province	Country	2015		2014
Los Azules Copper Project	San Juan	Argentina	$	191,490	$	202,889
Tonkin Complex	Nevada	United States		4,833		20,423
Gold Bar Complex	Nevada	United States		30,730		51,577
North Battle Mountain Complex	Nevada	United States		785		2,227
El Gallo 1 Mine	Sinaloa	Mexico		5,925		7,214
El Gallo 2 Properties	Sinaloa	Mexico		3,482		3,482
Total Mineral Property Interests			$	237,245	$	287,812

During the years ended December 31, 2015, 2014 and 2013, the Company incurred $8.8 million, $11.3 million, and $24.8 million, respectively, in exploration expenses and related expenditure costs which are included in the Statement of Operations and Comprehensive Loss in each of the years presented.

For the year ended December 31, 2015, the Company recorded $1.3 million (2014 - $1.3 million) of amortization expense related to El Gallo 1, which is included in Production Costs Applicable to Sales in the Statement of Operations and Comprehensive Loss for the year ended December 31, 2015. This included $0.8 million for the year ended December 31, 2015 (2014 - $0.8 million) in amortization expense related to its mineral properties in Mexico.

Asset Retirement Obligations

The Company is responsible for reclamation of certain past and future disturbances at its properties. The two most significant properties subject to these obligations are the depleted Tonkin property in Nevada and the El Gallo 1 mine in Mexico.

The current undiscounted estimate of the reclamation costs for existing disturbances on the Tonkin property to the degree required by the U.S. Bureau of Land Management (“BLM”) and the Nevada Department of Environmental Protection (“NDEP”) is $2.7 million. Assumptions used to compute the asset retirement obligations for the year ended December 31, 2015 for the Tonkin property included a credit adjusted risk free rate and inflation rate of 6.8% (2014, 2013 – 8.7%) and 1.69% (2014, 2013 – 3.0%), respectively. Expenses are expected to be incurred between the years 2016 and 2021. The Company submitted a mine closure plan to the NDEP and BLM for the Tonkin property during the fourth quarter of 2010. The closure plan was approved by the NDEP in March 2012 and by the BLM pursuant to the National Environmental Policy Act on September 21, 2015. Subsequently, on October 3, 2015 the BLM requested an updated bonding requirement in the amount of $3.6 million, which is covered within the surety bonds that the Company has as of December 31, 2015.

For mineral properties in the United States, the Company maintains required reclamation bonding with various governmental agencies. During the third quarter of 2014, the Company replaced its cash bonding of $4.8 million with surety bonds of the same amounts, as discussed in Note 13, Contingencies.

The current undiscounted estimate of the reclamation costs for existing disturbances at the El Gallo 1 mine is $6.8 million. Assumptions used to compute the asset retirement obligations for the year ended December 31, 2015 for the El Gallo 1 mine included a credit adjusted risk free rate and inflation rate of 6.8% (2014 – 6.4%) and 1.4% (2014 – 4.1%), respectively. Expenses are expected to be incurred between the years 2020 and 2022. Under current Mexican regulations, surety bonding of projected reclamation costs is not required.

The Company’s asset retirement obligations for years ended December 31, 2015 and 2014 are as follows:


	Year ended December 31, 2015		Year ended December 31, 2014
Asset retirement obligation liability, beginning balance	$	7,471	$	7,247
Settlements		—		(52)
Accretion of liability		429		407
Adjustment reflecting updated estimates		(116)		(131)
Asset retirement obligation liability, ending balance	$	7,784	$	7,471

As at December 31, 2015, the current portion of the asset retirement obligation was $0.2 million (December 31, 2014 - $2.4 million).

The definition of proven and probable reserves is set forth in SEC Industry Guide 7. If and when proven and probable reserves, as defined under SEC Industry Guide 7, exist at the Company’s properties, the relevant capitalized mineral property interests and asset retirement costs are to be amortized to expense based on the units of production method and upon commencement of production. Since the Company has not completed feasibility or other studies sufficient to characterize the mineralized material at El Gallo 1 as proven or probable reserves under the SEC definition, the amortization of the capitalized mineral property interests and asset retirement costs are amortized to expense based on the straight-line method over the estimated useful life of the mine. For the year ended December 31, 2015, the Company recorded $1.3 million (2014 – $1.3 million) of straight-line amortization expense related to El Gallo 1, which is included in Production Costs Applicable to Sales in the Statement of Operations and Comprehensive Loss for the year ended December 31, 2015, of which $0.5 million (2014 – $0.5 million) related to the amortization of capitalized asset retirement costs.