NOTE 5 MINERAL PROPERTY INTERESTS

During the year ended December 31, 2018, the Company capitalized $19.4 million (2017 – $3.3 million) of expenditures relating to mine development. During the year ended December 31, 2017, the Company acquired additional mineral property interests in connection with acquisitions of Lexam VG Gold Inc. (“Lexam”) and the Black Fox Complex, refer to Note 19 Acquisitions.

On April 19, 2016, the Company completed the acquisition of the sliding scale net smelter return royalty (the “Royalty”) on the El Gallo 1 mine and the El Gallo Project. The total purchase price was $6.3 million and consisted of a $5.3 million payment at closing and a conditional deferred payment of $1.0 million on June 30, 2018, conditional that the El Gallo Project was in operation at that time. Since mining operations have ceased, the final payment was not made.

The total cost of the Royalty was accounted for as an addition to mineral property interests. The cost was allocated to the El Gallo 1 mine and the El Gallo Project based on the relative fair value of the estimated future royalty payments for each project. The allocation resulted in approximately $5.1 million allocated to the El Gallo 1 mine and $1.2 million allocated to the El Gallo Silver Project.

The carrying values for all of the mineral properties held by the Company as at December 31, 2018 and 2017 are noted below:


Name of Property/Complex	State/Province	Country	2018		2017
Black Fox Complex	Ontario	Canada	$	16,365	$	11,364
Lexam	Ontario	Canada		41,595		41,595
Los Azules Copper Project	San Juan	Argentina		191,490		191,490
Tonkin Properties	Nevada	United States		4,833		4,833
Gold Bar Project	Nevada	United States		44,131		31,317
Battle Mountain Complex	Nevada	United States		785		785
El Gallo Project	Sinaloa	Mexico		4,139		6,246
Fenix Project Properties	Sinaloa	Mexico		5,807		5,807
Total mineral property interests			$	309,145	$	293,437

If proven and probable reserves exist at the Company’s properties, the relevant capitalized mineral property interests and asset retirement costs are charged to expense based on the units of production method upon commencement of production. Of the Company’s mineral property interests listed above, the Black Fox and Gold Bar properties have proven and probable reserves compliant with SEC Industry Guide 7. For the year ended December 31, 2018, the Company recorded $5.1 million (2017 – $0.9 million and 2016 – $nil) of amortization expenses related to the Black Fox mine, which is included in production costs applicable to sales in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

While the El Gallo Project does not have proven and probable reserves compliant with SEC Industry Guide 7, the Company capitalized costs associated with the acquisition of the mineral property interests. These costs are being amortized using either the straight line or units-of-production method over the stated mine life. For the year ended December 31, 2018, the Company recorded $2.1 million (2017 – $2.3 million and 2016 – $2.4 million) of amortization expense related to the El Gallo Project, which is included in production costs applicable to sales in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

The Company conducts a review of potential triggering events for impairment 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 years ended December 31, 2018, 2017 and 2016, no such triggering events were identified at any of the Company’s properties.