ACCRUED RECLAMATION COSTS

9 Months Ended

Sep. 30, 2012

ACCRUED RECLAMATION COSTS [Text Block]

8.          ACCRUED RECLAMATION COSTS

The Company estimates its asset retirement obligations and related accrued reclamation costs using an expected cash flow approach, in which multiple cash flow scenarios are used to reflect a range of possible outcomes. During 2010, the Company completed an updated review of its reclamation plan and the related estimated costs of reclamation. As a result, as of December 31, 2010, the Company estimated the aggregate undiscounted obligation to be approximately $13,000,000 for the Johnson Camp Mine. However, as of March 31, 2011, the Company determined that certain aspects of the reclamation plan could be revised thus decreasing the estimated costs to reclaim the Johnson Camp Mine to approximately $9,100,000 (based on 2011 dollars). This estimate was subsequently refined during the quarter ended June 30, 2011 to $10,100,000. Accordingly, these cash flow revisions were effected in the estimated fair value of the asset retirement obligation as revised in the second quarter ended June 30, 2011 which decreased the obligation by a net amount of $1,112,771 from the amount recorded at December 31, 2010.

To calculate the estimated fair value of this obligation, the projected cash flows, which were further adjusted for an estimated inflation rate of 2.5% per annum, were discounted at the Company’s estimated annual credit–adjusted risk free interest rate of 12.53% at April 1, 2011. The estimated remaining life of the Johnson Camp Mine as of September 30, 2012 is approximately twelve years. Accordingly, the cash expenditures for reclamation and closure activities are expected to occur at the conclusion of production, currently anticipated to be in 2023 – 2024. As 100% of the cash flows are projected to occur in 2023-2024, 100% of the accrued reclamation costs are classified as long-term within the condensed consolidated balance sheets. Reconciliations of the beginning and ending carrying amounts of the Company’s accrued reclamation costs for the nine months ended September 30, 2012 and year ended December 31, 2011, respectively, are as follows:

		September 30,		December 31,
		2012		2011
		(unaudited)
Accrued reclamation costs, beginning of period	$	3,195,497	$	3,932,966
Accretion expense		301,026		375,302
Revisions to cash flow estimates		-		(1,112,771	)
Accrued reclamation costs, end of period	$	3,496,523	$	3,195,497