10-K/A
McEwen Inc. (MUX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 2)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31 , 2021 ****
| ☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from __________ to __________
Commission file number 001-33190
MCEWEN MINING INC.
(Exact name of registrant as specified in its charter)
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|---|---|---|
| Colorado | | 84-0796160 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| 150 King Street West , Suite 2800 , Toronto , Ontario **** Canada<br>(Address of principal executive offices) | | M5H 1J9<br>(Zip Code) |
( 866 ) 441-0690
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | ||
|---|---|---|
| Common Stock, no par value | MUX | NYSE |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and emerging growth company in Rule 12b-2 of the Exchange Act.
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|---|---|
| Large accelerated filer ☐ | Accelerated filer ☒ |
| Non-accelerated filer ☐ | Smaller reporting company ☐ |
| | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262 (b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2021 (the last business day of the registrant’s second fiscal quarter), the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was $633,678,600 based on the closing price of $1.38 per share as reported on the NYSE. There were 473,687,391 shares of common stock outstanding on March 4, 2022.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the 2022 Annual Meeting of Shareholders are incorporated into Part III, Items 10 through 14 of this report.
Auditor Name: Ernst & Young LLP Auditor Location: Toronto, Canada Auditor Firm ID: 1263
EXPLANATORY NOTE
McEwen Mining Inc. (the “Company”) is filing this Amendment No. 2 on Form 10-K/A (this “Amendment”) to its Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (“SEC”) on March 7, 2022 (the “Original Filing”), as previously amended by Amendment No. 1 on Form 10-K/A filed on May 27, 2022 (the “Prior Amendment”), to amend Item 15 of Part IV of the Original Filing, as previously amended, pursuant to Rule 3-09 of Regulation S-X, to include the financial statements and related notes of Minera Santa Cruz S.A (“MSC”), a significant equity investee in which the Company holds a 49% equity ownership interest. In addition, the Company is filing the consent of the independent auditors of MSC and, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), new certifications by the Company’s Chief Executive Officer and Chief Financial Officer.
Rule 3-09 of Regulation S-X provides that if a 50%-or-less-owned person accounted for by the equity method meets the first or third condition of the significant subsidiary tests set forth in Rule 1-02(w) of Regulation S-X, substituting 20% for 10%, separate financial statements for such 50%-or-less-owned person shall be filed. These financial statements shall be prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) or International Financial Reporting Standards (“IFRS”). MSC met the significant subsidiary test described above for the Company’s fiscal years ending December 31, 2021, 2020 and 2019 and accordingly, the Company has included in this Amendment the required Statements of Financial Position as of December 31, 2021 and 2020, and the related Statements of Profit (Loss) and Other Comprehensive Profit (Loss), Statements of Changes in Equity, and Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019, and the accompanying Notes to the Financial Statements of MSC, prepared in accordance with IFRS. We caution readers that the MSC financial results included in our Annual Report on Form 10-K are presented in accordance with US GAAP and may therefore differ from the MSC results presented as separate financial statements reported under IFRS.
No attempt has been made in this Amendment to modify or update the disclosures in the Original Filing except as required to reflect the effect of the revisions discussed herein. Except as otherwise noted herein, this Amendment continues to describe conditions as of the date of the Original Filing and the disclosures contained herein have not been updated to reflect events, results or developments that occurred after the date of the Original Filing, or to modify or update those disclosures affected by subsequent events. Among other things, forward-looking statements made in the Original Filing and Prior Amendment have not been revised to reflect events, results or developments that occurred or facts that became known to us after the date of the Original Filing, and such forward-looking statements should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Filing and Prior Amendment. Accordingly, this Amendment should be read in conjunction with the Original Filing and Prior Amendment and the Company’s other filings with the SEC subsequent to March 7, 2022. Furthermore, readers are cautioned to review the reliability of information disclosure, contained in our Annual Report on Form 10-K, pertaining to the disclosure of MSC results.
2
PART IV
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
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The exhibits listed in the accompanying exhibit index are filed (except where otherwise indicated) as part of this report:
3
EXHIBIT INDEX
4
6
* Previously filed with or incorporated by reference in the original filing filed on March 7, 2022.
** Filed with this amendment.
+ Indicates management compensatory plan, contract, or arrangement.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.
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|---|---|---|
| | MCEWEN MINING INC. | |
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| | By: | /s/ Perry Y. Ing |
| Dated: June 30, 2022 | | Perry Y. Ing, Chief Financial Officer |
7
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Exhibit 23.19
Consent of Independent Auditors
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statements on Form S-3 (Nos. 333-224476 and 333-234612) of McEwen Mining Inc.,
(2) Registration Statement on Form S-4 (No. 333-226858) of McEwen Mining Inc., and
(3) Registration Statements on Forms S-8 (Nos. 333-144563, 333-144569, 333-112269, 333-179143, 333-179144, 333-204693, and 333-222609) of McEwen Mining Inc.;
of our report dated June 29, 2022, with respect to the financial statements of Minera Santa Cruz S.A. included in the Amendment to Annual Report (Form 10-K/A) of McEwen Mining Inc. for the year ended December 31, 2021.
City of Buenos Aires, Argentina June 29, 2022
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|---|---|
| /s/ PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L. | |
| Pistrelli, Henry Martin y Asociados S.R.L. | |
| Member of Ernst & Young Global | |
A member firm of Ernst & Young Global Limited
Exhibit 31.1
CERTIFICATE
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, ROBERT R. MCEWEN, certify that:
1. I have reviewed this Amendment to Annual Report on Form 10-K/A (Amendment No. 2) of McEwen Mining Inc.;
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
- Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
d. Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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| Dated: June 30, 2022 | |
| | /s/ Robert R. McEwen |
| | Robert R. McEwen, Chairman of the Board of Directors and<br>Chief Executive Officer |
Exhibit 31.2
CERTIFICATE
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, PERRY Y. ING, certify that:
1. I have reviewed this Amendment to Annual Report on Form 10-K/A (Amendment No. 2) of McEwen Mining Inc.;
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
d. Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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|---|---|
| Dated: June 30, 2022 | |
| | /s/ Perry Y.Ing |
| | Perry Y. Ing , Chief Financial Officer |
Form 10-K Control copy 2-29-08 (00342381.DOC;2)
Exhibit 32
CERTIFICATION
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the Amendment to Annual Report on Form 10-K/A of McEwen Mining Inc., a Colorado corporation (the “Company”) for the year ended December 31, 2021 as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned officers of the Company does hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to the best of our knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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|---|---|---|
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| Dated: June 30, 2022 | | |
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| | MCEWEN MINING INC. | |
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| | By: | /s*/ Robert R. McEwen* |
| | | Robert R. McEwen, Chairman of the Board of Directors<br>and Chief Executive Officer |
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| | | |
| | By: | /s/ Perry Y. Ing |
| | | Perry Y. Ing, Chief Financial Officer |
| | |
Exhibit 99.1
Report of Independent Auditors
To the Board of Directors of Minera Santa Cruz S.A.:
Opinion
We have audited the financial statements of Minera Santa Cruz S.A. (the Company) which comprise statements of financial position as of December 31, 2021 and 2020, and the related statements of profit (loss) and other comprehensive profit (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes to the financial statements (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these financial statements.
In performing an audit in accordance with GAAS, we:
| ● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
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| ● | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
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| ● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
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| ● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
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1
| ● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
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We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters identified during the audit.
/S/ PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L
Member of Ernst & Young Global
City of Buenos Aires, Argentina
June 29, 2022 2
Minera Santa Cruz S.A.
Statements of profit (loss) and other comprehensive profit (loss)
For the years ended December 31, 2021, 2020 and 2019
| <br><br> | | | | | | |
|---|---|---|---|---|---|---|
| | Notes | | 2021 US000 | 2020 US000 | 2019<br> US$000 | |
| Revenue | | 3 | | 258,971 | 206,098 | 250,715 |
| Cost of sales | | 4 | | (192,163) | (147,103) | (169,799) |
| Gross profit | | | | 66,808 | 58,995 | 80,916 |
| Administrative expenses | | 5 | | (6,400) | (5,963) | (6,603) |
| Exploration expenses | | 6 | | (10,602) | (10,445) | (10,632) |
| Selling expenses | | 7 | | (14,195) | (11,704) | (19,444) |
| Other income | | 9 | | 438 | 9,779 | 478 |
| Other expenses | | 9 | | (14,281) | (4,757) | (5,721) |
| Profit before net finance income (costs), foreign exchange loss and income tax | | | | 21,768 | 35,905 | 38,994 |
| Finance income | | 10 | | 1,997 | 1,272 | 1,186 |
| Finance costs | | 10 | | (19,581) | (16,746) | (5,042) |
| Foreign exchange | | | | (2,506) | (2,964) | 178 |
| Profit (Loss) before income tax | | | | 1,678 | 17,467 | 35,316 |
| Current and deferred income tax (expense) recovery | | 21 | | (10,323) | (6,542) | (9,297) |
| (Loss) Profit for the year | | | | (8,645) | 10,925 | 26,019 |
| Other comprehensive income | | | | - | - | - |
| (Loss) Profit and Comprehensive (Loss) Profit for the year | | | | (8,645) | 10,925 | 26,019 |
All values are in US Dollars.
The accompanying notes are an integral part of these financial statements.
3
Minera Santa Cruz S.A.
Statements of financial position
As at December 31, 2021 and 2020
| | | | | | |
|---|---|---|---|---|---|
| | Notes | As at December 31,2021US000 | As at<br>December 31,<br><br>2020<br> US$000 | ||
| ASSETS | | | | | |
| Non-current assets | | | | 157,512 | 166,671 |
| Property, plant and equipment | | 11 | | 147,886 | 154,408 |
| Evaluation and exploration assets | | 12 | | 4,703 | 6,090 |
| Intangible assets | | 13 | | 4,470 | 5,296 |
| Trade and other receivables | | 14 | | 453 | 877 |
| | | | | | |
| Current assets | | | | 89,927 | 94,923 |
| Inventories | | 15 | | 23,822 | 21,184 |
| Trade and other receivables | | 14 | | 40,163 | 35,843 |
| Short-term investments | | | | - | 2,382 |
| Cash and cash equivalents | | 16 | | 25,942 | 35,514 |
| <br><br><br><br> | | | | | |
| Total assets | | | | 247,439 | 261,594 |
| EQUITY AND LIABILITIES | | | | | |
| Capital and reserves | | | | 130,649 | 159,359 |
| Equity share capital | | 20 | | 110,132 | 110,132 |
| Other reserves | | | | 158,603 | 170,506 |
| Retained earnings | | | | (138,086) | (121,279) |
| | | | | | |
| Non-current liabilities | | | | 68,260 | 62,721 |
| Trade and other payables | | 17 | | 944 | 747 |
| Provisions | | 19 | | 28,942 | 28,665 |
| Deferred income tax liabilities | | 21 | | 38,374 | 33,309<br><br> |
| | | | | | |
| Current liabilities | | | | 48,530 | 39,514 |
| Trade and other payables | | 17 | | 48,530 | 28,886 |
| Borrowings | | 18 | | - | 10,628 |
| Total liabilities | | | | 116,790 | 102,235 |
| Total equity and liabilities | | | | 247,439 | 261,594 |
All values are in US Dollars.
The accompanying notes are an integral part of these financial statements.
4
Minera Santa Cruz S.A.
Statements of cash flows
For the years ended December 31, 2021, 2020 and 2019
| <br><br><br><br><br><br><br><br><br><br><br><br> | | | | | | ||
|---|---|---|---|---|---|---|---|
| | | | | Year ended December 31 | |||
| | | Notes | 2021 US000 | 2020US000 | 2019 US000 | ||
| Cash flows from operating activities | | | | | | | |
| Profit before tax | | | | 1,678 | 17,467 | 35,316 | |
| Non-cash adjustment to reconcile profit for the year to net cash flows | | | | | | | |
| Depreciation of property, plant and equipment | | 11 | | 50,841 | 31,262 | 51,598 | |
| Amortization and depreciation of intangible assets | | 13 | | 826 | 562 | 1,313 | |
| Impairment reversal | | 11,12,13 | | - | (8,304) | - | |
| Disposal of property, plant and equipment | | 11 | | 354 | 552 | 496 | |
| Other non cash | | 9, 10 | | 185 | (882) | 885 | |
| Impact of change of estimated discount rate for Value Added Tax (VAT) and other receivables | | 10 | | 632 | (214) | 1,119 | |
| Other interest | | 10 | | - | - | (965) | |
| Working capital adjustments | | | | | | | |
| (Increase)/Decrease in trade and other receivables | | | | (4,528) | 2,145 | (74) | |
| (Increase)/Decrease in inventories | | | | (2,638) | 5,921 | (7,252) | |
| Increase/Decrease in trade payables | | | | 16,551 | (13,576) | (484) | |
| Increase/(Decrease) in other payables | | | | 658 | 2,427 | (853) | |
| Income tax paid | | | | (2,153) | (1,817) | (6,223) | |
| Net cash flows generated from operating activities | | | | 62,406 | 35,543 | 74,876 | |
| Investing activities | | | | | | | |
| Purchase of property, plant and equipment, evaluation and exploration and intangible assets | | 11,12,13 | | (43,667) | (24,973) | (43,591) | |
| Short term investments | | | | 2,382 | (2,382) | - | |
| Net cash flows used in investing activities | | | | (41,285) | (27,355) | (43,591) | |
| Financing activities | | | | | | | |
| (Decrease)/Increase of borrowings, net | | 18 | | (8,154) | 12,732 | (5,814) | |
| Cash interest paid | | 18 | | (2,474) | (2,139) | (233) | |
| Dividends paid | | 22 | | (20,065) | (701) | (18,117) | |
| Net cash flows (used in) generated from financing activities | | | | (30,693) | 9,892 | (24,164) | |
| Net (decrease) increase in cash and cash equivalents during the year | | | | (9,572) | 18,080 | 7,121 | |
| Cash and cash equivalents at beginning of year | | | | 35,514 | 17,434 | 10,313 | |
| Cash and cash equivalents at end of year | | 16 | | 25,942 | 35,514 | 17,434 |
All values are in US Dollars.
The accompanying notes are an integral part of these financial statements.
5
Minera Santa Cruz S.A.
Statement of changes in equity
For the years ended December 31, 2021, 2020 and 2019
| | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | Notes | Equity share capital US000 | Legal reserve US000 | Other reserves US000 | Currency translation adjustment US000 | Totalother reserves US000 | Retained earnings US000 | Total<br>equity<br>US$000 | ||
| Balance at January 1, 2019 | | | | 110,132 | 12,513 | 148,498 | 2,685 | 163,696 | (132,631) | 141,197 |
| Dividends | | 22 | | - | - | (18,080) | | (18,080) | | (18,080) |
| Legal reserve | | | | - | - | - | | | | |
| Other reserves ^(*)^ | | | | - | - | (9,381) | | (9,381) | 9,381 | |
| Profit for the year | | | | - | - | - | | | 26,019 | 26,019 |
| Balance at December 31, 2019 | | | | 110,132 | 12,513 | 121,037 | 2,685 | 136,235 | (97,231) | 149,136 |
| Dividends | | 22 | | - | - | (702) | | (702) | | (702) |
| Legal reserve | | | | - | 1,749 | - | | 1,749 | (1,749) | |
| Other reserves ^(*)^ | | | | - | - | 33,224 | | 33,224 | (33,224) | |
| Profit for the year | | | | - | - | - | | | 10,925 | 10,925 |
| Balance at December 31, 2020 | | | | 110,132 | 14,262 | 153,559 | 2,685 | 170,506 | (121,279) | 159,359 |
| Dividends | | 22 | | - | - | (20,065) | - | (20,065) | - | (20,065) |
| Legal reserve | | | | - | 408 | - | - | 408 | (408) | - |
| Other reserves ^(*)^ | | | | - | - | 7,754 | - | 7,754 | (7,754) | - |
| Loss for the year | | | | - | - | - | - | - | (8,645) | (8,645) |
| Balance at December 31, 2021 | | | | 110,132 | 14,670 | 141,248 | 2,685 | 158,603 | (138,086) | 130,649 |
All values are in US Dollars.
| (*) | In accordance with Shareholders meeting as of June 5, 2019, May 21, 2020 and May 21, 2021 based on statutory purposes financial statements. |
|---|
The accompanying notes are an integral part of these financial statements.
6
- Company information
Minera Santa Cruz S.A. (the “Company” or “MSC”) was incorporated in 2001. The Company is a limited company incorporated and domiciled in Sargento Cabral 124, Comodoro Rivadavia, Chubut, Argentina.
The Company’s principal business is the mining, processing and sale of silver and gold. Information on the parent is presented in Note 23.
For management purposes, the Company is organized into one business unit; therefore, there is only one reporting segment according to IFRS 8, ‘Operating Segments’.
The financial statements of Minera Santa Cruz S.A. for the years ended December 31, 2021, 2020 and 2019 were authorized for issue in accordance with a resolution of the directors on June 29, 2022.
- Basis of preparation and significant accounting policies
2.A Basis of preparation
2.A.1 Overview
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
The basis of preparation and accounting policies used in preparing the financial statements for the years ended December 31, 2021, 2020 and 2019 are set out below. The financial statements have been prepared on a historical cost basis, except for derivative financial instruments which have been measured at fair value.
The financial statements are presented in US dollars and all values are rounded to the nearest thousand (US$ thousand), except where otherwise indicated.
2.A.2 Foreign currencies
The Company’s financial information is presented in US dollars, which is the Company’s functional currency. The functional currency for the Company is determined by the currency of the primary economic environment in which it operates.
Transactions denominated in currencies other than the functional currency of the entity are recorded in the functional currency using the exchange rate prevailing at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are remeasured at the exchange rate prevailing at the statement of financial position date. Exchange gains and losses on settlement of foreign currency transactions which are translated at the rate prevailing at the date of the transactions, or on the translation of monetary assets and liabilities which are translated at period-end exchange rates, are recorded in the income statement.
Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to the functional currency at the foreign exchange rate prevailing at the date of the transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
2.B Significant accounting judgments, estimates and assumptions
The preparation of the Company´s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Estimates and assumptions are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on information available at the time of financial statements preparations. These assumptions may change in the future due to market changes or circumstances arising beyond the control of the Company and the impact on the financial statements could be material.
Significant areas of estimation uncertainty and critical judgments made by management in preparing the financial statements include:
7
Minera Santa Cruz S.A.
Notes to the financial statements
For the years ended December 31, 2021, 2020 and 2019
Significant estimates:
| ● | Useful lives of assets for depreciation and amortization purposes – Note 2.E (e), (f) and (h) |
|---|
Estimates are required to be made by management as to the useful lives of assets. For depreciation calculated under the units-of-production (“UOP”) method, estimated recoverable reserves and resources are used in determining the depreciation and/or amortization of mine-specific assets. This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life of-mine production. Each item’s life, which is assessed annually, has regard to both its physical life limitations and to present assessments of economically recoverable reserves and resources of the mine property at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves and resources. Changes are accounted for prospectively.
| ● | Ore reserves and resources – Note 2.E (g) |
|---|
There are numerous uncertainties inherent in estimating ore reserves and resources. Assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and resources and may, ultimately, result in changes to reserves and resources.
| ● | Recoverable values of mining assets – Notes 2.E (e), (f), (h) and Notes 11, 12 and 13 |
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The company assesses, at each reporting date, whether there is an indication that an asset or cash-generating unit (‘CGU’) may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s or CGU’s recoverable amount. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal (‘FVLCD’) and its value in use.
The assessment of asset carrying values requires the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, exploration potential and operating performance. Changes in these assumptions will affect the recoverable amount of the property, plant and equipment and evaluation and exploration assets and intangibles assets. See Note 30.
| ● | Mine closure costs – Note 2.E (m) |
|---|
The Company assesses its mine closure costs provision annually. Significant estimates and assumptions are made in determining the provision for mine closure cost as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases, mine life and changes in discount rates. Those uncertainties may result in future actual expenditures differing from the amounts currently provided. The provision at the balance sheet date represents management’s best estimate of the present value of the future closure costs required. Changes to estimated future costs are recognized in the balance sheet by adjusting the mine closure cost liability and the related asset originally recognized.
Critical Judgements:
| ● | Determination of functional currency. |
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The determination of functional currency requires management judgement, particularly where there may be several currencies in which transactions are undertaken and which impact the economic environment in which the entity operates.
| ● | Income tax – Notes 2.E (b), 21 and 25. |
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Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
Judgement is required in determining whether deferred tax assets are recognized on the balance sheet. Deferred tax is provided using the balance sheet method on temporary differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax assets, including those arising from unutilized tax losses require management to assess the likelihood that the Company will generate taxable earnings in future periods, in order to utilize recognized deferred tax assets. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the balance sheet date could be impacted.
| ● | Recognition of evaluation and exploration assets and transfer to development costs – Note 2.E (f) |
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The application of the Company´s accounting policy for Exploration and Evaluation (“E&E”) expenditure requires judgement to determine whether future economic benefits are likely from either future exploitation or sale, or whether activities have not reached a stage that permits a reasonable assessment of the existence of reserves and resources.
In addition to applying judgement to determine whether future economic benefits are likely to arise from the Company E&E assets (reserves and resources), the Company has to apply numerous other estimates and assumptions. The determination of a resource is itself an estimation process that involves varying degrees of uncertainty depending on how the resources are classified (i.e., measured, indicated or inferred). These estimates directly impact the deferral (capitalization or not) of E&E expenditures.
2.C Changes in accounting policies and disclosures
The accounting policies adopted in the preparation of the financial statements are consistent with those applied in the preparation of the financial statement for the year ended December 31, 2020. Amendments to standards and interpretations which came into force during the year did not have a significant impact on the financial statements and are as follows:
| ● | Amendments to IFRS 4, IFRS 7, IFRS 9, IFRS 16 and IAS 39 Interest Rate Benchmark Reform |
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On August 27, 2020, the IASB published Interest Rate Benchmark Reform – Phase 2, Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16.
The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate ("IBOR") is replaced with an alternative nearly risk-free interest rate ("RFR").
Introduce a practical expedient for the amendments required by the reform, clarify that hedge accounting is not discontinued solely because of the IBOR reform and introduces disclosures to enable a user to understand the nature and extent of risks arising from IBOR reform.
While application is retrospective, an entity is not required to restate prior periods.
This amendment had no impact on the financial statements of the Company.
Other amendments and interpretations apply for the first time in 2021, but do not have an impact on the financial statements. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
2.D Standards, interpretations and amendments to existing standards that are not yet effective
Certain new standards, amendments and interpretations to existing standards have been published and are mandatory for the accounting periods beginning on or after January 1, 2022 or later periods but which the Company has not previously adopted. These have not been listed as they are not expected to impact the Company.
2.E Summary of significant accounting policies
(a) Revenue recognition
The Company is involved in the production and sale of gold and silver from doré and concentrate containing both gold and silver. Concentrate and doré bars are sold directly to customers. 9
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
Revenue value is determined net of refining and treatment charges but exclude selling expenses and any applicable sales taxes.
The revenue is subject to adjustments based on inspection of the product by the customer. Revenue is initially recognised on a provisional basis using the Company’s best estimate of contained gold and silver. Any subsequent adjustments to the initial estimate of metal content are recorded in revenue once they have been determined.
In addition, certain sales are ‘provisionally priced’ where the selling price is subject to final adjustment at the end of a period, normally ranging from 15 to 120 days after the start of the delivery process to the customer, based on the market price at the relevant quotation point stipulated in the contract. Revenue is initially recognised when the conditions set out above have been met, using market prices at that date. The provisionally priced metal is revalued based on the forward selling price for the quotational period stipulated in the contract until the quotational period ends. The selling price of gold and silver can be measured reliably as these metals are actively traded on international exchanges. The revaluation of provisionally priced contracts is recorded as revenue.
| ● | Doré Sale |
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The terms that apply for doré sales is Carriage and Insurance Paid To (‘CIP’), which indicate the moment in which the property and the risk of the MSC good is transferred to the client.
| ● | Concentrate Sale |
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For gold and silver concentrate, there are sales under Cost, Insurance and Freight (‘CIF’) or CIP terms. Revenue is recognized at a point in time when the control passes to the customer.
The Sales under CIP or CIF terms requires the Company to be responsible for providing freight/shipping services (as principal) after the date that the Company transfers control of the metal in concentrate to its customers. The Company, therefore, has separate performance obligations for freight/shipping services which are provided solely to facilitate sale of the commodities it produces.
For CIF arrangements, the transaction price (as determined above) is allocated to the metal in concentrate and freight/shipping services using the relative stand-alone selling price method. Under these arrangements, a portion of consideration may be received from the customer in cash at, or around, the date of shipment under a provisional invoice. Therefore, some of the upfront consideration that relates to the freight/shipping services yet to be provided, is deferred.
(b) Income tax
Income tax for the year comprises of current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items charged or credited directly to equity, in which case it is recognized in equity.
Current income tax expense includes the expected tax payable for the year, using tax rates enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years.
Deferred income tax is estimated using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax assets and liabilities are measured using tax rates that are expected to apply to the period when the asset is realized or the liability is settled based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date.
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Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
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. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
(c) Tax contingencies
An estimate tax liability is recognized when the Company has a present obligation because of a past event, it is probable that the Company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. The liability is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account risks and uncertainties surrounding the obligation. Separate liabilities for interest and penalties are also recorded if appropriate.
Tax liabilities are based on management´s interpretation of tax law and the likelihood of settlement. This involves a significant amount of judgment as tax legislation can be complex and open to different interpretation. Management uses in-house tax experts, external professional service firms and previous experience when assessing tax risks.
(d) Leases
Right-of-use assets
The Company recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Right-of-use assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate. The variable lease payments are recognised as expense in the period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of twelve months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e., below US$5,000). Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
(e) Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost comprises its purchase price and directly attributable costs of acquisition or construction required to bring the asset to the condition necessary for the asset to be capable of operating in the manner intended by management. Economical and physical conditions of assets have not changed substantially over this period. 11
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
The cost less residual value of each item of property, plant and equipment is depreciated over its useful life. Each item’s estimated useful life has been assessed with regard to both its own physical life limitations and the present assessment of economically recoverable reserves and resources of the mine property at which the item is located. Estimates of remaining useful lives are made on a regular basis for all mine buildings, machinery and equipment, with annual reassessments for major items. Depreciation is charged to cost of production on a units of production basis for mine buildings and installations and plant and equipment used in the mining production process or charged directly to the income statement over the estimated useful life of the individual asset on a straight-line basis when not related to the mining production process. Changes in estimates, which mainly affect units of production calculations, are accounted for prospectively. Depreciation commences when assets are available for use. Land is not depreciated.
An asset’s carrying amount is written-down to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within other income/expenses, in the income statement.
The expected useful lives under the straight-line method are as follows:
| | | |
|---|---|---|
| | Years | |
| Buildings | | 3 to end of mine life |
| Plant and equipment | | 4 to end of mine life |
| Vehicles | | 5 |
Borrowing costs directly attributable to the acquisition or construction of an asset that takes a substantial time to be ready for its intended use are capitalized as part of the cost of the asset. All other borrowing costs are expensed when incurred.
Mining properties and development costs
Purchased mining properties are recognized as assets at their cost of acquisition. Costs associated with developing of mining properties are capitalized and are depreciated upon commencement of commercial production, using the UOP method based.
When a mine construction project moves into the production stage, the capitalization of mine construction costs ceases and costs are either included in the cost of inventory or expensed, except for costs which qualify for capitalization.
Construction in progress
Assets in the course of construction are capitalized as a separate component of property, plant and equipment. On completion, the cost of construction is transferred to the appropriate category. Construction in progress is not depreciated.
Subsequent expenditures
Expenditures incurred to replace a component of an item of property, plant and equipment are capitalized to replace the carrying amount of the component being written-off. Other subsequent expenditures are capitalized if future economic benefits will arise from the expenditure, otherwise are expensed in the income statement as incurred.
(f) Evaluation and exploration assets
Evaluation and exploration expenses are capitalized when the future economic benefit of the project can reasonably be regarded as assured, and / or from the date that the Board of Directors authorizes management to conduct a feasibility study.
Expenditures are transferred to mining properties and development costs once the work is completed.
Costs incurred in converting inferred resources to indicated and measured resources (of which reserves are a component) are capitalized as incurred. Costs incurred in identifying inferred resources are expensed as incurred. 12
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
(g) Determination of ore reserves and resources
The Company estimates its ore reserves and mineral resources based on information compiled by internal competent persons. Reports to support these estimates are prepared each year. It is the Company’s policy to have the report audited by a Qualified Person on an annually basis.
Reserves and resources are used in the UOP calculation for depreciation as well as the determination of the timing of mine closure cost and impairment analysis.
(h) Intangible assets
Right to use energy of transmission line
Transmission line costs represent the investment made by the Company during the period of its use. This is an asset with a finite useful life equal to that of the mine life and amortized applying the UOP method for the mine.
Other intangible assets
Other intangible assets are primarily computer software, which are capitalized at cost and amortized on a straight-line basis over their useful life of three years.
(i) Impairment of non-financial assets
The carrying amounts of property, plant and equipment, intangible assets and evaluation and exploration assets are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. If there are indicators of impairment, an exercise is undertaken to determine whether the carrying values are in excess of their recoverable amount. Such review is undertaken on an asset by asset basis, except where such assets do not generate cash flow independent of other assets, and then the review is undertaken at the cash-generating unit level.
The assessment requires the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, exploration potential and operating performance. Changes in these assumptions will affect the recoverable amount of this group of assets.
If the carrying amount of an asset or its cash-generating unit exceeds the recoverable amount, a provision is recorded to reflect the asset at the lower amount. Impairment losses are recognized in the income statement.
Calculation of recoverable amount
The recoverable amount of assets is the greater of their value in use (‘VIU’) and fair value less costs of disposal (‘FVLCD’) to sell. FVLCD is based on an estimate of the amount that the Company may obtain in a sale transaction on an arm’s length basis. VIU is based on estimated future cash flows discounted to present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. The Company’s CGU is the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Company considers the mine site as a CGU.
Reversal of impairment
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(j) Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined using the weighted average method. The cost of work in progress and finished goods (ore inventories) is based on the cost of production.
For this purpose, the cost of production includes:
| ● | costs, materials and contractor expenses which are directly attributable to the extraction and processing of doré; |
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| ● | depreciation of property, plant and equipment used in the extraction and processing of ore; |
| --- | --- |
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Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
Net realizable value is the estimated selling price in the ordinary course of business, less applicable selling expenses.
(k) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
- Initial recognition and measurement
Financial assets are classified initially as assets at amortized cost and /or fair value through other comprehensive income or loss (OCI), and fair value through profit or loss. The classification of financial assets at initial recognition depends on the financial asset´s contractual cash flow characteristics and the Company´s business model for managing them.
Financial assets are measured on initial recognition at fair value, plus, in the case of financial instruments other than those classified as fair value through profit or loss ("FVPL"), the inclusion of directly attributable transaction costs. Trade receivable that do not contain a significant financing component are measured at the transaction price.
Financial liabilities are classified, at initial recognition as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings payables, net of directly attributable transaction costs.
Financial assets
- Subsequent measurement
- Financial assets at fair value through profit or loss
For the year ended December 31, 2021 and 2020, all the Company’s financial assets are classified as assets at FVPL. The Company considers whether a contract contains an embedded derivative when the entity first becomes a party to it. The embedded derivatives are no longer separated from the host and therefore the revaluation of provisionally priced contracts is disclosed within the receivable of the host contract in “trade and other receivables. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.
- Derecognition
A financial asset (or, where applicable, a part of a financial asset) is primarily derecognised (i.e., removed from the Company’s statement of financial position) when:
• The rights to receive cash flows from the asset have expired, or
• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
- Impairment of financial assets 14
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
The Company assesses at each statement of financial position date whether a financial asset or group of financial assets is impaired.
Financial liabilities
- Subsequent measurement – Loans and borrowings
Loans and borrowings are recognized initially at fair value. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate (EIR) method.
Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.
-Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.
(l) Trade and other receivables
Current trade receivables are carried at the original invoice amount less provision made for impairment of these receivables. Non current receivables are stated at amortised cost. A provision for impairment of trade receivables is established using the expected credit loss impairment model according to IFRS 9. The amount of the provision is the difference between the carrying amount and the recoverable amount and this difference is recognised in the income statement.
(m) Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
Mine closure costs
Provisions for mine closure costs are made in respect of the estimated future costs of closure and restoration and for environmental rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas) in the accounting period when the related environmental disturbance occurs.
The rehabilitation provision represents the present value of rehabilitation costs relating to the mine site, and expected to be incurred at the expected end of the mine life. Rehabilitation costs are based on the management estimates using assumptions based on the current economic environment.
The provision is reviewed on an annual basis for changes in cost estimates, discount rates and the expected life of mine.
15
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
Changes to estimated future costs are recognized in the statement of financial position by adjusting the mine closure cost liability and the related asset originally recognised. If, for mature mines, the related mine assets net of mine closure cost provisions exceeds the recoverable value, the portion of the increase is charged directly to the income statement. Similarly, for reductions to the estimated costs exceeding the carrying value of the mine asset, such portion of the decrease is credited directly to the income statement. For closed sites, changes to estimated costs are recognized immediately in the income statement.
Actual rehabilitation costs will ultimately depend upon future market prices for the necessary rehabilitation works required that will reflect market conditions at the relevant time. Furthermore, the timing of rehabilitation is likely to depend on when the mine ceases to produce at economically viable rates. This, in turn, will depend upon future gold and silver prices, which are inherently uncertain.
The discount rate used in the calculation of the provision as at December 31, 2021 equaled -0.88% (2020: -1.45%).
Other
Other provisions are accounted for when the Company has a legal or constructive obligation for which it is probable there will be an outflow of resources for which the amount can be reliably estimated.
(n) Cash-settled share-based payments
The fair value of cash-settled share plans is recognized as a liability over the vesting period of the awards. Movements in that liability between accounting dates are recognized as an expense. The fair value of the awards is taken to be the market value of the shares at the date of award adjusted by a factor for anticipated relative Total Shareholder Return (“TSR”) performance. Fair values are subsequently remeasured at each accounting date to reflect the number of awards expected to vest based on the current and anticipated TSR performance.
Uncertainties in estimating the award include potential changes in the TSR, the number of participants in the plan, and levels of interest rates.
(o) Finance income and costs
Finance income and costs mainly include, among others, interest expense on borrowings, the accumulation of interest on provisions, interest income on funds invested and financial charges for the acquisition of dollars through the sales of bonds.
Interest income is recognized as it is incurred, taking into account the effective yield on the asset.
(p) Dividend distributions
Dividend distributions to the Company’s shareholders are recognized as a liability in the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders.
(q) Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position at cost. For the purposes of the statement of financial position, cash and cash equivalents include cash on hand and deposits held with banks for varying periods of between one day and three months and which are subject to insignificant risk of changes in value.
Liquid investments are classified as cash equivalents if the amount of cash that will be received is known at the time of the initial investment and the risk of changes in value is considered insignificant.
(r) Short-term investments
Include deposits held with banks for periods higher than three months.
16
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
- Revenue
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | | | | |||
| | | Year ended December 31 | |||||
| | | 2021 US$000 | | 2020 <br>US$000 | | 2019 <br>US$000 | |
| Doré bars | | | | | | | |
| Gold | | 57,334 | | 25,110 | | 59,044 | |
| Silver | | 50,454 | | 16,826 | | 45,113 | |
| Freight/shipping services (note 2.E(a)) | | 1,363 | | 662 | | 1,346 | |
| Concentrate | | | | | | | |
| Gold | | 81,882 | | 91,668 | | 83,472 | |
| Silver | | 64,704 | | 69,051 | | 58,937 | |
| Freight/shipping services (note 2.E(a)) | | 3,234 | | 2,781 | | 2,803 | |
| Total | | 258,971 | | 206,098 | | 250,715 |
All revenue from the sale of doré and concentrate is recognized at a point in time when control transfers and revenue from freight is recognized over time as services are provided. Included within revenue is a loss of US$115 relating to provisional pricing adjustments (2020: gain of US$1,947, 2019: gain of US$1,955) arising on sales of concentrates and doré.
- Cost of sales
| | | | | | | |
|---|---|---|---|---|---|---|
| | | Year ended December 31 | ||||
| | | 2021 US$000 | | 2020 <br>US$000 | | 2019<br>US$000 |
| Depreciation and amortization | | 48,654 | | 30,976 | | 50,892 |
| Personnel expenses | | 48,521 | | 30,771 | | 46,547 |
| Mining royalty (note 26) | | 7,171 | | 5,208 | | 6,412 |
| Supplies | | 35,414 | | 23,539 | | 35,413 |
| Third-party services | | 28,735 | | 18,387 | | 29,676 |
| Others | | 2,606 | | 1,902 | | 2,831 |
| Change in products in process and finished goods | | 728 | | 2,309 | | (1,972) |
| Covid-19 expenses | | 20,334 | | 34,011 | | - |
| Total | | 192,163 | | 147,103 | | 169,799 |
- Administrative expenses
| | | | | | | |
|---|---|---|---|---|---|---|
| | | | | | ||
| | | Year ended December 31 | ||||
| | | 2021 US$000 | | 2020 <br>US$000 | | 2019<br>US$000 |
| Personnel expenses | | 3,125 | | 2,794 | | 2,731 |
| Professional fees | | 520 | | 609 | | 619 |
| Travel expenses | | 70 | | 73 | | 231 |
| Communications | | 81 | | 84 | | 81 |
| Indirect taxes | | 1,273 | | 1,089 | | 1,144 |
| Depreciation and amortization | | 57 | | 72 | | 88 |
| Supplies | | 47 | | 27 | | 150 |
| Other | | 1,227 | | 1,215 | | 1,559 |
| Total | | 6,400 | | 5,963 | | 6,603 |
17
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
- Exploration expenses
| | | | | | | |
|---|---|---|---|---|---|---|
| | | | | | ||
| | | Year ended December 31 | ||||
| | | 2021 US$000 | | 2020 <br>US$000 | | 2019<br>US$000 |
| Mine site exploration^(1^^)^ | | | | | | |
| Third-party services | | 9,425 | | 9,024 | | 9,077 |
| Personnel expenses | | 914 | | 681 | | 794 |
| Others | | 263 | | 740 | | 761 |
| Total | | 10,602 | | 10,445 | | 10,632 |
| (1) | Mine-site exploration is performed with the purpose of identifying potential minerals within the existing mine-site as well as properties surrounding the mine site, to maintain and extend the mine’s life.. |
|---|
- Selling expenses
| | | | | | | |
|---|---|---|---|---|---|---|
| | | | | | ||
| | | Year ended December 31 | ||||
| | | 2021 US$000 | | 2020 <br>US$000 | | 2019<br>US$000 |
| Sales commissions | | 210 | | 304 | | 246 |
| Warehouse services | | 1,136 | | 1,082 | | 1,219 |
| Taxes | | 11,765 | | 9,202 | | 16,259 |
| Other | | 1,084 | | 1,116 | | 1,720 |
| Total | | 14,195 | | 11,704 | | 19,444 |
- Personnel expenses
| | | | | | | |
|---|---|---|---|---|---|---|
| | | | | | ||
| | | Year ended December 31 | ||||
| | | 2021 US$000 | | 2020 <br>US$000 | | 2019<br>US$000 |
| Salaries and wages | | 53,006 | | 46,467 | | 43,428 |
| Other legal contributions | | 14,199 | | 12,559 | | 12,077 |
| Statutory holiday payments | | 3,740 | | 2,976 | | 3,109 |
| Long Term Incentive Plan | | 149 | | 139 | | 148 |
| Termination benefits | | 4,540 | | 1,312 | | 586 |
| Other | | 295 | | 164 | | 528 |
| Total | | 75,929 | | 63,617 | | 59,876 |
Personnel expenses are included in costs of sales, administrative, exploration and other expenses (notes 4, 5, 6 and 9) or capitalised to plant and equipment, E&E assets and inventory as follows: year ended December 31, 2021 – US$7,468 (2020: US$5,004, 2019: US$9,804). For year ended December 2021 US$7,606 were classified as COVID-19 expenses in costs of sales (2020: US$ 23,218).
Average number of employees for 2021, 2020 and 2019 were as follows:
| | | Year ended December 31 | ||||
|---|---|---|---|---|---|---|
| | | 2021 | | 2020 | 2019 | |
| Average number of employees (*) | | 1,466 | | 1,434 | | 1,384 |
| Total | | 1,466 | | 1,434 | | 1,384 |
| (*) | Unaudited |
|---|
18
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
- Other income and expenses
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | Year ended December 31 | |||||
| | | 2021 US$000 | | 2020 <br>US$000 | | 2019<br>US$000 | |
| Other income | | | | | | | |
| Export refunds | | - | | - | | 262 | |
| Reversal of impairment | | - | | 8,304 | | - | |
| Reversal of supplies obsolescence | | - | | 1,271 | | - | |
| Other | | 438 | | 204 | | 216 | |
| Total | | 438 | | 9,779 | | 478 | |
| Other expenses | | | | | | | |
| VAT write-off | | 185 | | 98 | | 139 | |
| Customers write-off | | - | | - | | 66 | |
| Supplies obsolescence | | 17 | | - | | 316 | |
| Corporate Social Responsibility | | 3,911 | | 2,689 | | 3,636 | |
| Voluntary retirement program and related salaries | | 8,295 | | 1,149 | | 1,564 | |
| Other | | 1,873 | | 821 | | - | |
| Total | | 14,281 | | 4,757 | | 5,721 |
Other income and expenses for the year ended December 31, 2021, include mainly non-cash expense of US$354 (2020 and 2019 non cash income and charges of US$9,055 and US$817 respectively) which mainly relate to reversal of impairment of PPE, Intangible assets and E&E assets and reversal of supplies obsolescence.
- Finance income and costs
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | Year ended December 31 | |||||
| | | 2021 US$000 | | 2020 <br>US$000 | | 2019<br>US$000 | |
| Finance income | | | | | | | |
| Interest on deposits and liquidity funds | | 1,330 | | 389 | | 35 | |
| Non- cash gain on discount of VAT and other receivables | | - | | 214 | | - | |
| Unwinding mine closure | | 367 | | 160 | | - | |
| Other finance income | | 300 | | 509 | | 1,151 | |
| Total | | 1,997 | | 1,272 | | 1,186 | |
| Finance costs | | | | | | | |
| Interest on bank loans (note 18) | | 1,982 | | 2,705 | | 186 | |
| Interest expense | | 245 | | 189 | | 212 | |
| Unwinding mine closure | | - | | - | | 68 | |
| Financial costs | | 15,345 | | 12,770 | | 3,235 | |
| Non- cash loss on discount of VAT assets and other receivables | | 632 | | - | | 1,119 | |
| Other | | 1,377 | | 1,082 | | 222 | |
| Total | | 19,581 | | 16,746 | | 5,042 |
Other finance income for 2019 includes a non-cash gain of $965 as a result of implementing IFRIC 23 effective January 1, 2019.
Financial costs for the year ended December 31, 2021, 2020 and 2019 mainly represent charges for the acquisition of dollars through the sales of bonds.
19
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
- Property, plant and equipment
| | | Mining properties and development<br>costs<br> US$000 | | Land and buildings US$000 | | Plant and equipment<br>US$000 | | Vehicles US$000 | | Mine<br> closure<br> asset <br>US$000 | | Construction in progress and capital advances US$000 | | Total <br>US$000 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, 2021 | | | | | | | | | | | | | | |
| Cost | | | | | | | | | | | | | | |
| Balance at January 1, 2021 | | 412,208 | | 165,848 | | 122,729 | | 4,107 | | 26,105 | | 2,821 | | 733,818 |
| Additions | | 27,917 | | - | | 11,080 | | 1,111 | | 640 | | 3,559 | | 44,307 |
| Change in closure provision discount rate | | - | | - | | - | | - | | (1,021) | | - | | (1,021) |
| Disposals | | - | | - | | (2,554) | | (257) | | - | | - | | (2,811) |
| Transfers and other movements | | - | | 3,696 | | (250) | | - | | - | | (3,446) | | - |
| Transfers from evaluation and exploration assets | | 1,485 | | - | | - | | - | | - | | - | | 1,485 |
| Balance at December 31, 2021 | | 441,610 | | 169,544 | | 131,005 | | 4,961 | | 25,724 | | 2,934 | | 775,778 |
| Accumulated depreciation and impairment^(2)^ **** | | | | | | | | | | | | | | |
| Balance at January 1, 2021 | | 375,907 | | 109,850 | | 76,985 | | 3,308 | | 13,360 | | - | | 579,410 |
| Depreciation for the year^(1)^ | | 31,193 | | 9,032 | | 8,147 | | 481 | | 1,988 | | - | | 50,841 |
| Disposals | | - | | - | | (2,200) | | (257) | | - | | - | | (2,457) |
| Transfers from evaluation and exploration assets | | 98 | | - | | - | | - | | - | | - | | 98 |
| Balance at December 31, 2021 | | 407,198 | | 118,882 | | 82,932 | | 3,532 | | 15,348 | | - | | 627,892 |
| Net book amount at December 31, 2021 | | 34,412 | | 50,662 | | 48,073 | | 1,429 | | 10,376 | | 2,934 | | 147,886 |
| (1) | The depreciation for the year is included in cost of sales and administrative expenses in the income statement, the remaining amount is capitalized. | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (2) | Includes an impairment change accrued in previous years, as determined using the FVLCD methodology of which a net amount of $6,002 is recorded as of December 31, 2021. | |||||||||||||
| --- | --- | |||||||||||||
| | | | | | | | | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | Mining properties and development<br>costs<br> US$000 | | Land and buildings US$000 | | Plant and equipment<br>US$000 | | Vehicles US$000 | | Mine<br> closure<br> asset <br>US$000 | | Construction in progress and capital advances US$000 | | Total <br>US$000 |
| Year ended December 31, 2020 | | | | | | | | | | | | | | |
| Cost | | | | | | | | | | | | | | |
| Balance at January 1, 2020 | | 394,361 | | 164,036 | | 123,000 | | 5,050 | | 21,954 | | 2,789 | | 711,190 |
| Additions | | 16,947 | | - | | 2,828 | | - | | 1,908 | | 3,289 | | 24,972 |
| Change in closure provision discount rate | | - | | - | | - | | - | | 2,243 | | - | | 2,243 |
| Disposals | | - | | (228) | | (4,218) | | (1,033) | | - | | - | | (5,479) |
| Transfers and other movements | | - | | 2,040 | | 1,119 | | 90 | | - | | (3,257) | | (8) |
| Transfers from evaluation and exploration assets | | 900 | | - | | - | | - | | - | | - | | 900 |
| Balance at December 31, 2020 | | 412,208 | | 165,848 | | 122,729 | | 4,107 | | 26,105 | | 2,821 | | 733,818 |
| Accumulated depreciation and impairment | | | | | | | | | | | | | | |
| Balance at January 1, 2020 | | 360,722 | | 106,292 | | 76,015 | | 3,940 | | 13,937 | | - | | 560,906 |
| Depreciation for the year ^(3)^ | | 18,957 | | 5,447 | | 5,669 | | 397 | | 792 | | - | | 31,262 |
| Disposals | | - | | (186) | | (3,712) | | (1,029) | | - | | - | | (4,927) |
| Transfers from evaluation and exploration assets | | 59 | | - | | - | | - | | - | | - | | 59 |
| Impairment reversal ^(4)^ | | (3,831) | | (1,703) | | (987) | | - | | (1,369) | | - | | (7,890) |
| Balance at December 31, 2020 | | 375,907 | | 109,850 | | 76,985 | | 3,308 | | 13,360 | | - | | 579,410 |
| Net book amount at December 31, 2020 | | 36,301 | | 55,998 | | 45,744 | | 799 | | 12,745 | | 2,821 | | 154,408 |
| (3) | The depreciation for the year is included in cost of sales and administrative expenses in the income statement, the remaining amount is capitalized. |
|---|---|
| (4) | Includes an impairment charge accrued in previous years, as determined using the fair value less cost to dispose (“FVLCD”) methodology of which a net impairment amount of $9,158 is recorded as of December 31, 2020. In this sense, an impairment reversal amounting to $7,890 was recorded in 2020 with a contra in the account other income and expenses. |
| --- | --- |
20
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
- Evaluation and exploration assets
| | | Total<br>US$000 |
|---|---|---|
| Cost | | |
| Balance at January 1, 2020 | | 7,417 |
| Additions | | 1 |
| Transfers to property, plant and equipment | | (900) |
| Balance at December 31, 2020 | | 6,518 |
| Additions | | - |
| Transfers to property plant and equipment | | (1,485) |
| Balance at December 31, 2021 | | 5,033 |
| Accumulated impairment | | |
| Balance at January 1, 2020 | | 587 |
| Transfers to property, plant and equipment | | (59) |
| Impairment | | (100) |
| Balance at December 31, 2020 | | 428 |
| Transfers to property, plant and equipment | | (98) |
| Impairment reversal | | - |
| Balance at December 31, 2021 | | 330 |
| Net book value as at December 31, 2020 | | 6,090 |
| Net book value as at December 31, 2021 | | 4,703 |
- Intangible assets
| | | | | | | | | |
|---|---|---|---|---|---|---|---|---|
| | | Transmission line^(1)^US$000 | | | Software licenses US$000 | | | Total US$000 |
| Cost | | | | | | | | |
| Balance at January 1, 2020 | | 22,157 | | | 1,316 | | | 23,473 |
| Additions | | - | | | - | | | - |
| Transfer | | - | | | 5 | | | 5 |
| Balance at December 31, 2020 | | 22,157 | | | 1,321 | | | 23,478 |
| Additions | | - | | | - | | | - |
| Transfer | | - | | | - | | | - |
| Balance at December 31, 2021 | | 22,157 | | | 1,321 | | | 23,478 |
| Accumulated amortization | | | | | | | | |
| Balance at January 1, 2020 | | 16,653 | | | 1,281 | | | 17,934 |
| Amortization for the year^(2)^ | | 535 | | | 27 | | | 562 |
| Impairment reversal | | (314) | | | - | | | (314) |
| Balance at December 31, 2020 | | 16,874 | | | 1,308 | | | 18,182 |
| Amortization for the year^(2)^ | | 819 | | | 7 | | | 826 |
| Impairment reversal | | | - | | - | | | - |
| Balance at December 31, 2021 | | 17,693 | | | 1,315 | | | 19,008 |
| Net book value as at December 31, 2020 | | 5,283 | | | 13 | | | 5,296 |
| Net book value as at December 31, 2021 | | 4,464 | | | 6 | | | 4,470 |
| (1) | The transmission line is amortized using the units of production method. |
|---|---|
| (2) | Amortization for the period is included in cost of sales and administrative expenses in the income statement. |
| --- | --- |
21
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
- Trade and other receivables
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | As at December 31 | |||||||
| | | 2021 | | 2020 | |||||
| | | Non-current US$000 | | Current US$000 | | Non-current<br>US$000 | | Current<br>US$000 | |
| Trade receivables (note 29.c) | | - | | 19,652 | | - | | 22,553 | |
| Advances to suppliers | | - | | 2,080 | | - | | 473 | |
| Credit due from exports | | 184 | | - | | 562 | | - | |
| Receivables from related parties (note 23a) | | - | | 32 | | - | | 32 | |
| Loans to employees | | - | | 51 | | - | | 20 | |
| Export duties paid in excess | | 47 | | - | | 42 | | - | |
| Tax asset – IFRIC 23 | | 172 | | - | | 212 | | - | |
| Other | | 10 | | 646 | | 12 | | 1,482 | |
| Prepaid expenses | | - | | 690 | | - | | 1,585 | |
| VAT^(1)^ | | 40 | | 17,012 | | 49 | | 9,698 | |
| Total **** | | 453 | | 40,163 | | 877 | | 35,843 |
| (1) | VAT is valued at its recoverable amount. |
|---|
The fair values of trade and other receivables approximate their book value.
- Inventories
| | | US$000<br><br> | | | |
|---|---|---|---|---|---|
| | | As at December 31 | |||
| | | 2021 US$000 | | 2020<br>US$000 | |
| Finished goods | | 219 | | - | |
| Products in process | | 3,790 | | 1,798 | |
| Supplies and spare parts | | 21,808 | | 23,718 | |
| Provision for obsolescence of supplies | | (1,995) | | (4,332) | |
| Total | | 23,822 | | 21,184 |
Finished goods include doré and concentrate. Doré is an alloy containing a variable mixture of silver, gold and minor impurities delivered in bar form to refiners. Concentrate is a product containing sulphides with a variable content of base and precious metals and is sold to smelters.
The amount of expense recognized in profit and loss related to the consumption of inventory of supplies, spare parts and raw materials is US$35,461 (2020: US$23,566, 2019: US$35,563).
Movements in the provision for obsolescence comprise an increase in the provision of US$38 (decrease 2020: US$1,271, increase 2019: US$316) a compsumtion of US$2,357 and a decrease of US$21.
- Cash and cash equivalents
| | | | | | | |
|---|---|---|---|---|---|---|
| | | As at December 31 | ||||
| | | 2021 US$000 | | | 2020<br>US$000 | |
| Cash at bank | | 23,984 | | | 27,431 | |
| Current demand deposit accounts^(1)^ | | 1,958 | | | 8,083 | |
| Cash and cash equivalents considered for the statement of cash flows | | 25,942 | | | 35,514 |
| (1) | Relates to bank deposits for varying periods of between one day and three months. |
|---|
The fair value of cash and cash equivalents approximates their book value.
22
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
- Trade and other payables
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | As at December 31 | |||||
| | | 2021 | 2020 | ||||
| | | Non-current US$000 | | CurrentUS000 | Non-currentUS000 | Current<br>US$000 | |
| Trade payables^(1)^ | | - | | 20,417 | - | 8,716 | |
| Salaries and wages payable | | - | | 17,705 | - | 11,566 | |
| Taxes and contributions | | 2 | | 6,668 | 4 | 6,888 | |
| Guarantee deposits | | - | | 27 | - | 27 | |
| Mining royalty (note 26) | | - | | 648 | - | 315 | |
| Accounts payable to related parties (note 23.a) | | 942 | | 480 | 743 | 489 | |
| Other | | - | | 2,585 | - | 885 | |
| Total | | 944 | | 48,530 | 747 | 28,886 | |
All values are in US Dollars.
(1) Trade payables relate mainly to the acquisition of materials, supplies and contractors’ services. These payables do not accrue interest and no guarantees have been granted.
Salaries and wages payable include the following:
| | | | | | |
|---|---|---|---|---|---|
| | | As at December 31 | | ||
| | | 2021 US$000 | | 2020<br>US$000 | |
| Remuneration payable | | 17,705 | | 11,566 | |
| Total | | 17,705 | | 11,566 | |
The fair value of trade and other payables approximate their book values.
- Borrowings
| | | As at December 31 | | ||||||
|---|---|---|---|---|---|---|---|---|---|
| | | 2021 | 2020 | | |||||
| | | Effective interest rate | | Current US$000 | | Effective <br>interest rate | | Current<br>US$000 | |
| Pre-shipment loans | | - | | - | | 32,33% | | 10,628 | |
For short-financing purposes, the Company enters into pre-shipment loans which are guaranteed by the respective sales contracts; movements in pre-shipment loans for the year ended December 31, 2021 are as follows:
| <br><br> | | | | | <br>US$000<br><br> | | | | | | | | | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| <br><br><br><br> | | January 1,<br><br>2021 | <br>In flows | | Accrued | | Exchange difference | | | Out flows | | | December 31, 2021 | ||
| Current interest-bearing loans and borrowings | | 526 | - | | 1,982 | | (34) | | | (2,474) | | | - | ||
| Current obligations under pre-shipment loans | | 10,102 | 2,804 | | - | | (1,263) | | | (11,643) | | | - | ||
| Total liabilities from financial activities | | 10,628 | 2,804 | | 1,982 | | (1,297) | | | (14,117) | | | - |
23
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
- Provisions
| | | <br><br> | | | ^(2)^<br><br><br><br> | | <br><br> | | | <br><br> |
|---|---|---|---|---|---|---|---|---|---|---|
| | | Provision for mine closure^(1)^<br><br>US$000 | | | Long Term<br><br>Incentive Plan^(2)^<br><br>US$000 | | Other<br><br>US$000 | | | Total<br><br>US$000 |
| Balance at January 1, 2020 | | 23,654 | | | 69 | | 1,191 | | | 24,914 |
| Additions/Decreases | | 1,908 | | | 50 | | (290) | | | 1,668 |
| Accretion | | (160) | | | - | | - | | | (160) |
| Change in discount rate | | 2,243 | | | - | | - | | | 2,243 |
| Balance at December 31, 2020 (Non-Current) | | 27,645 | | | 119 | | 901 | | | 28,665 |
| Additions/decreases | | 640 | | | (76) | | 1,102 | | | 1,666 |
| Accretion | | (368) | | | - | | - | | | (368) |
| Change in discount rate | | (1,021) | | | - | | - | | | (1,021) |
| Balance at December 31, 2021 (Non-Current) | | 26,896 | | | 43 | | 2,003 | | | 28,942 |
| (1) | The provision represents the present value of the estimated cost to decommission and rehabilitate the mine at the expected date of closure for the mine, of December 31, 2026. The present value of the provision has been calculated using a real pre-tax annual discount rate, based on a US Treasury bond of an appropriate tenure as at December 31, 2021 and 2020 respectively, and the cash flows have been adjusted to reflect the risk attached to these cash flows. Uncertainties on the timing for use of this provision include changes in the future that could impact the time of closing the mine, as new resources and reserves are discovered. The discount rate used is -0.88% and -1.45% respectively. |
|---|---|
| (2) | Corresponds to the provision related to awards granted under the Long-Term Incentive Plan to designated personnel of the Company. |
| --- | --- |
- Equity
Share capital issued
Share capital of the Company as at December 31, 2021 is as follows
| | | | | |
|---|---|---|---|---|
| | | Issued | ||
| Class of shares | | Number | | US$000 |
| Ordinary shares | | 344,756,530 | | 110,132 |
Cumulative translation adjustment:
The cumulative translation adjustment includes exchange differences arising from the translation of the financial statements for the period in which the Company had a functional currency different than the reporting currency.
- Income tax
The major components of income tax expense for the years ended December 31, 2021 and 2020 are:
| | Year ended December 31 | ||||
|---|---|---|---|---|---|
| | 2021 US$000 | <br><br> | 2020<br>US$000 | | 2019<br>US$000 |
| Current income tax: | | | | | |
| Current income tax charge | (5,258) | | (5,442) | | (11,070) |
| Adjustments in respect of current income tax of previous year | - | | (15) | | - |
| Deferred income tax: | | | | | |
| Relating to origination and reversal of temporary differences | (5,065) | | (1,085) | | 1,773 |
| Income tax expense | (10,323) | | (6,542) | | (9,297) |
24
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
A reconciliation between tax expense and the product of accounting profit multiplied by Company’s domestic tax rate for the years ended December 31, 2021, 2020 and 2019 is as follows:
| | | <br><br> | | | |
|---|---|---|---|---|---|
| | Year ended December 31 | ||||
| | 2021 US$000 | <br><br> | 2020<br>US$000 | | 2019<br>US$000 |
| Profit (loss) before income tax | 1,678 | | 17,467 | | 35,316 |
| At Company´s statutory income tax rate of 35% (2020: 30% and 2019: 30%) | (587) | | (5,240) | | (10,595) |
| Expenses not deductible for tax purposes | - | | 17 | | (44) |
| Exploration expenses (double deduction) | 3,561 | | 2,726 | | 2,590 |
| Foreign exchange differences | (4,077) | | (5,807) | | (3,268) |
| Comprehensive fiscal inflation adjustment | 7,595 | | 2,891 | | 1,858 |
| Change in tax rate | (12,501) | | 1,529 | | (1,229) |
| Impairment reversal effect | - | | 2,491 | | - |
| Nondeductible financial cost | (5,009) | | (3,831) | | (971) |
| Other | 695 | | (1,318) | | 2,362 |
| Income tax expense | (10,323) | | (6,542) | | (9,297) |
Deferred tax expense
Deferred income tax relates to the following:
| | <br><br><br><br> | | | | | <br><br> | <br><br> | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Statement of financial position | Income statement | ||||||||||||
| | As at December 31, 2021 US$000 | | As at December 31, 2020US000 | | 2021US000 | | 2020 US000 | <br><br> | 2019 US000 | |||||
| PP&E, explorations and evaluation assets, and intangible assets | (44,171) | | (36,212) | | (7,959) | | (2,219) | | 4,105 | |||||
| Inventories | (2,597) | | (2,548) | | (49) | | (107) | | (835) | |||||
| Fiscal inflation adjustment | (447) | | (584) | | 137 | | 1,188 | | (1,772) | |||||
| Abandonment and mine rehabilitation provision | 6,747 | | 5,464 | | 1,283 | | 1,119 | | 100 | |||||
| Other liabilities | 1,367 | | 43 | | 1,324 | | (49) | | (605) | |||||
| Other assets | 727 | | 528 | | 199 | | (1,107) | | 780 | |||||
| Deferred income tax expense | | | | | (5,065) | | (1,085) | | 1,773 | |||||
| Deferred income tax liabilities, net | (38,374) | | (33,309) | | | | | |||||||
| | | | | | | | | |||||||
| Reflected in the statement of financial position | | | | | | | | |||||||
| Deferred income tax assets | 8,841 | | 6,035 | | | | | |||||||
| Deferred income tax liabilities | (47,215) | | (39,344) | | | | | |||||||
| Deferred income tax liabilities net | (38,374) | | (33,309) | | | | |
All values are in US Dollars.
25
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
Tax Reform:
In 2017 the law No. 27,430 had established that the corporate income tax rate would be reduced from 35% to 30% for fiscal years beginning as of January 1, 2018 through December 31, 2019 and to 25% for fiscal years beginning as of January 1, 2020.
Tax on dividends or profit distributed by, among others, Argentine companies or permanent establishments to individuals, undivided properties or beneficiaries residing abroad would be distributed based on the following considerations: (i) dividends resulting from the profit accrued during the fiscal years beginning January 1, 2018 through December 31, 2019, would be subject to a 7% withholding tax; and (ii) dividends resulting from profit accrued during the fiscal years beginning on January 1, 2020 would be subject to a withholding tax of 13%.
The reform introduced by the Law No. 27,541, suspended these tax reductions and maintained the originals 30% for income tax and 7% for tax on dividends until fiscal years beginning as of January 1, 2021, inclusive.
Law No. 27,468 had established that for the first three fiscal years beginning as of January 1, 2019, the positive or negative effect of the inflation adjustment provided by the Income Tax Law should be distributed in one third of the in the tax return of the fiscal year in which the adjustment was assessed, and the remaining two thirds, in equal parts, in the two immediately subsequent fiscal years. The abovementioned reform amended such distribution and established that one sixth of the positive or negative adjustment for the first and second fiscal years beginning as from January 1, 2019, should be allocated to the tax return of the year in which the adjustments are assessed, and the remaining balance, to the immediately following five fiscal years. However, for fiscal years beginning as of January 1, 2021, 100% of the adjustment may be deducted/taxed in the fiscal year in which the effect is determined.
On June 16, 2021, Law No. 27,630 amended the income tax rates for years beginning on or after January 1, 2021. Companies shall pay the tax using the scale set out below: (Expressed in Argentinian pesos).
| | | | <br><br> | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Accumulated Net Income Tax | | ||||||||
| More than ARG$ | | To ARG | | Must pay ARG$ | | More than % | <br><br> | Above superavit ARG$ | |
| $ 0 | | 5.000.000 | | $ 0 | | 25% | | $ 0 | |
| $ 5.000.000 | | 50.000.000 | | $ 1.250.000 | | 30% | | $ 5.000.000 | |
| $ 50.000.000 | | Onwards | | $ 14.750.000 | | 35% | | $ 50.000.000 |
All values are in US Dollars.
- Dividends paid and proposed
| | | | | |
|---|---|---|---|---|
| | | Year ended December 31 | ||
| | 2021US000 | 2020US000 | 2019<br>US$000 | |
| Declared | | | | |
| Equity dividends: | | | | |
| Dividends for 2019 | | - | - | 18,080 |
| Dividends for 2020 | | - | 702 | - |
| Dividends for 2021 | | 20,065 | - | - |
| Dividends declared | | 20,065 | 702 | 18,080 |
| Dividends paid | | 20,065 | 701 | 18,117 |
All values are in US Dollars.
- Related-party balances and transactions
MSC is a private company, owned by Hochschild Mining Argentina Corporation S.A. (“HMAC S.A.”) with a 51% interest and Minera Andes S.A. (“MASA”) with a 49% interest. HMAC S.A. is an indirect wholly-owned subsidiary of Hochschild Mining Plc. and MASA is an indirect wholly-owned subsidiary of McEwen Mining Inc. 26
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
(a) Related-party accounts receivable and payable
The Company had the following related-party balances and transactions during the years ended December 31, 2021 and 2020. The related parties are companies owned or controlled by the main shareholder of the parent company or shareholders.
| | | US$000<br><br> | | | | | US$000<br><br> | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Trade and other receivables | | | Trade and other payables | ||||
| | | As at December 31, 2021 US$000 | | As at December 31,<br>2020<br>US$000 | | | As at December 31, 2021 US$000 | | As at December 31,<br>2020<br>US$000 |
| Current related party balances | | | | | | | | | |
| Compañía Minera Ares | | 32 | | 32 | | | 404 | | 413 |
| Hochschild Mining Plc. | | - | | - | | | 1,018 | | 819 |
| Total | | 32 | | 32 | | | 1,422 | | 1,232 |
| | | | | | | | | | |
As at December 31, 2021 and 2020, all related parties accounts are, or were, non-interest bearing.
No security has been granted or guarantees given by the Company in respect of these related party balances.
| | | | | <br><br> | |
|---|---|---|---|---|---|
| | | 2021 US$000 | | 2020<br><br>US$000 | 2019<br><br>US$000 |
| Related party transactions | | | | | |
| Intercompany services | | | | | |
| Compañía Minera Ares | | 914 | | 849 | 1,150 |
| Other intercompany transactions | | | | | |
| Hochschild Mining Plc | | 198 | | - | 44 |
| Dividends Declared – See note 22 | | | | | |
| Hochschild Mining Argentina Corp. | | 10,233 | | 358 | 9,221 |
| Minera Andes S.A. | | 9,832 | | 344 | 8,859 |
(b) Compensation of key management personnel of the Company
| Compensation of key management personnel (including Directors) | | 2021 US$000 | | 2020<br>US$000 |
|---|---|---|---|---|
| Salaries and benefits | | 519 | | 519 |
| Long Term Incentive Plan | | 87 | | 83 |
| Total compensation paid to key management personnel | | 606 | | 602 |
- Commitments
Capital commitments
As at December 31, 2021 and 2020, the future capital commitments are as follows:
| | | | | |
|---|---|---|---|---|
| | | Year ended December 31 | ||
| | | 2021 US$000 | | 2020<br>US$000 |
| Capital commitments | | 13,812 | | 2,111 |
| Total | | 13,812 | | 2,111 |
As at December 31, 2021 and 2020, capital commitments are related to projects, infrastructure and sustaining and exploration activities started during the year which will be completed during subsequent months. 27
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
- Contingencies
As at December 31, 2021, the Company had the following contingencies:
(a) Taxation
Fiscal periods remain open to review by the tax authorities for five years in Argentina, preceding the year of review. During this time the authorities have the right to raise additional tax assessments including penalties and interest. Under certain circumstances, reviews may cover longer periods.
Because a number of fiscal periods remain open to review by the tax authorities, coupled with the complexity of the Company and the transactions undertaken by it, there remains a risk that additional tax liabilities may arise.
(b) Other
The Company has conducted its operations in the ordinary course of business in accordance with its understanding and interpretation, and based on advice of legal counsel, of applicable legislation in the country in which the Company has operations. In certain specific transactions, however, the relevant authorities could have a different interpretation of those laws and regulations that could lead to contingencies or additional liabilities for the Company. Having consulted legal counsel, management believes that it has reasonable grounds to support its position.
The assessment of contingencies inherently involves exercise of significant judgment and estimates of the outcome of future events. Uncertainties in estimating the liability includes changes in the legal interpretation that the authorities could make in respect of the Company’s transactions.
- Mining royalties and taxes
Royalties
In accordance with Argentinian legislation, Provinces (being the legal owners of the mineral resources) are entitled to request royalties from mine operators. For San Jose, the mining royalty was originally fixed at 1.85% of the pit-head value of the production where the final product is doré and 2.55% where the final product is mineral concentrate or precipitates. In October 2012, a new provincial law was passed, which increased the mining royalty applicable to doré and concentrate to 3% of the pit-head value. Since November 2012 the Company has been paying and expensing the increased 3%. As at December 31, 2021, the amount payable as mining royalties amounted to US$648 (2020: US$315). The amount recorded in the income statement was US$7,171 (2020: US$5,208, 2019: US$6,412).
- Export
Export Duties
The Executive branch is empowered to increase export duties: (i) up to 33% of the tax base or of the official soybean price, (ii) 15% in the case of goods exports not subject to export duties or which were subject to a 0% rate as of September 2, 2018, (iii) 5% in the case of agricultural and industrial products from regional economies, and (iv) 5% of the tax base or of the official FOB price for industrial products and services. In case of MSC, export duties were settled in ARS 4 per dollar for Doré bars and for Concentrate and silver bars ARS 3 per dollar.
Before approving Law No. 27,541, the federal government published Presidential Decree No. 37/2019 (Official Bulletin dated December 14, 2019), which amended the withholdings system, rendered ineffective the ARS 4 per 1 USD dollar cap established by the previous administration in 2018, and increased export duties for doré bars up to 12%.
Finally, accordingly to Law No. 27,541 the export duties rates for mining activity could not be higher than 8% over Freight on Board (FOB) price.
Presidential Decrees 785/2020, 789/2020 and 790/2020 basically refer to:
A reduction from 12% to 8% in the rate of exports duties for a series of tariff positions related to the mining sector (gold, doré bar, granite and marble, among others), effective through December 31, 2021.
28
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
Presidential Decree No. 1060/2020 (published in the Official Bulletin on December 31, 2020) establishes new rates as of January 1, 2021, for raw and concentrate silver bars. The rate will stand at 4.5%. The rate on bullion remains at 8% under Presidential Decree No. 785/20, effective through December 31, 2021.
On December 31, 2021, Decree No. 908/2021 was published in the Official Gazette, by means of which the 8% Export Duty rate is extended until December 31, 2023 for certain goods whose tariff positions were duly reached by Presidential Decrees No. 785/2020.
- Investment regime for mining activity
Law No. 24,196, as amended by Law No. 25,429 establishes a regime for mining investments applicable in all provinces in Argentina. In this regard, on October 21, 1993, the Province of Santa Cruz emulated this mining investment regime through Provincial Law No. 2,332.
Those interested in benefiting from this regime must register with the National Mining Secretary.
The main benefits for the mining companies that carry out activities within the framework of this regime are detailed below:
| o | Fiscal stability for a period of thirty years from the date of submission of the Feasibility Study. Fiscal stability for all taxes, to be understood as such all direct taxes and tax contributions that have as taxpayers the companies registered in the register mentioned previously, as well as rights, duties or other import or export charges. |
|---|---|
| o | Fiscal stability shall also apply to foreign exchange regimes and tariffs, excluding exchange rate and repayments, refunds and/or repayment of charges in connection with exports. |
| --- | --- |
| o | Tax deduction from income tax balance, from the time of submission of the application for registration authorized by Law No. 24,196, of one hundred percent of the amounts invested in exploration expenditures, mineralogical and metallurgical testing, pilot plant and other work to determine the technical and economic feasibility of the projects, subject to treatment as expenses or amortizable investment, appropriate to these in accordance with income tax law. |
| --- | --- |
| o | Optional accelerated depreciation regime for income tax on capital investments made towards the execution of new mining projects and expansion of existing ones. |
| --- | --- |
| o | In this regard, annual tax depreciation shall not exceed, in each fiscal year, the amount of taxable income generated by mining activities, prior to the transfer of the relevant amortization and, if applicable, once tax losses from prior years are computed. The non-computable surplus in a given fiscal year can be attributed to the following years, considering for each the maximum limit mentioned above. The period during which tax depreciation of assets is computed may not exceed the term of their respective useful lives. The existing residual value at the end of the year, in which the expiration of the useful life of assets occurs, may be attributed entirely to the tax balance of that fiscal year, and the above limitation is not applicable in these cases. |
|---|
| o | Exemption from payment of import duties and any other duty, correlative levy or statistics duty, except other remuneration duties on services, corresponding to the introduction of capital goods, special equipment or component parts of such property and inputs determined by the enforcement authority that are necessary for the execution of the activities covered by this scheme. |
|---|
| o | Recovery of tax credits arising from acquisitions and imports of goods and services for the purposes of carrying out mining activities such as prospection, exploration, mineralogical studies and applied research that after twelve (12) fiscal periods counted from the year in which they were computed, make up the balance of the value added tax. |
|---|
| o | Deduction of the provision for mine closure and abandonment in the determination of income tax, up to an amount equal to five percent of the operating costs of extraction and processing. |
|---|
29
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
Companies registered in the regime will not see an increase in their total tax burden, considered separately in each relevant jurisdiction upon the filing of said Feasibility Study at the national, provincial and municipal levels, which adhere to Law 24,196.
For increases in the total tax burden, the following actions, among others, are mentioned in Law No. 25,429: the creation of new taxes, an increase in the rates, fees or amounts of existing taxes, the modification of the mechanisms or procedures determining the fiscal base for taxes, the repeal of exemptions granted, and the elimination of deductions allowed.
Additionally, with regards to interest payments to foreign financial institutions and entities, included in Title V of the Income Tax Law, fiscal stability also applies to the increase in the rates, fees or amounts in effect on the date of the Feasibility Study to the alteration of rates or mechanisms for determining the estimated net gain of Argentine origin, when companies operating under the regime have agreed by contract to take charge of the respective tax.
Fiscal stability does not include: changes in the value of property, when such valuation is the basis for the determination of a tax, the extension of the validity of rules passed for a certain time, which are in effect at the time fiscal stability is obtained; expiration of exemptions, exceptions or other measures adopted for a certain time, and due to the expiry of that period; contributions towards the
Single Social Security System and indirect taxes, including Value Added Tax.
These benefits (except fiscal stability), apply to mining projects of the Company as from April 18, 2002, the date on which the Secretariat of Energy and Mining of the Nation, decided to register the Company in the Register of Mining Investments (Law No. 24,196). Said registration was requested by the Company in October 2001.
On November 21, 2005 the Company submitted the Feasibility Study to the Mining Ministry, from which date it is enjoying the benefits of fiscal stability.
- Financial risk management
The Company is exposed to a variety of risks and uncertainties which may have a financial impact on the Company and which also impact the achievement of social, economic and environmental objectives. These risks include strategic, commercial, operational, legal and financial risks and are further categorized into risk areas to facilitate risk reporting across the Company.
The Company has made significant developments in the management of the Company’s risk environment which seeks to identify and, where appropriate, implement the controls to mitigate the impact of the Company’s significant risks.
(a) Commodity price risk
Silver and gold prices have a material impact on the Company’s results of operations. Prices are significantly affected by changes in global economic conditions and related industry cycles. Generally, producers of silver and gold are unable to influence prices directly; therefore, the Company’s profitability is ensured through the control of its cost base and the efficiency of its operations.
The Company has provisional pricing features (included in trade receivables) arising from the sale of concentrate and doré which were provisionally priced at the time the sale was recorded (refer to note 3). For these features, the sensitivity of the fair value to an immediate 10% favorable or adverse change in the price of gold and silver (assuming all other variables remain constant), is as follows:
| <br><br><br><br> | | | | |
|---|---|---|---|---|
| <br><br><br><br>Year | | Increase/<br>decrease price of ounces of: | | Effect on <br>profit before tax <br>US$000 |
| <br><br>2021 | | Gold +/-10% Silver +/-10% | | +/-2,885<br><br>+/-2,294 |
| <br><br>2020 | | Gold +/-10%<br>Silver +/-10% | | +/-3,855<br><br>+/-3,402 |
30
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
(b) Foreign currency risk
The Company produces silver and gold which are typically priced in US dollars. A portion of the Company’s costs are incurred in Argentinian pesos. Accordingly, the Company’s financial results are affected by exchange rate fluctuations between the US dollar and the local currency. The long-term relationship between commodity prices and currencies in the country provides a certain degree of natural protection. The Company does not use derivative instruments to manage its foreign currency risks.
The following table demonstrates the sensitivity of financial assets and liabilities, at the reporting date, denominated in their respective currencies, to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the Company’s profit before tax:
| <br><br><br><br><br><br> | | | | | |
|---|---|---|---|---|---|
| Year | | Increase/decrease in US$/other currencies’ rate | | Effect on profit before tax <br>US$000 | |
| 2021 | | | | | |
| Argentinian pesos | | +/-10% | | +/-705 | |
| 2020 | | | | | |
| Argentinian pesos | | +/-10% | | +/-203 | |
(c) Credit risk
Credit risk arises from debtors’ inability to make payment of their obligations to the Company as they become due (without taking into account the fair value of any guarantee or pledged assets). The Company is primarily exposed to credit risk as a result of commercial activities and non-compliance, by counterparties, in transactions in cash which are primarily limited to cash balances deposited in banks and accounts receivable at the statement of financial position date.
Counterparty credit exposure based on commercial activities, including trade receivables and cash balances in banks as at December 31, 2021 and December 31, 2020 is shown as follows:
| | | | | | | | | |
|---|---|---|---|---|---|---|---|---|
| Summary commercial partners – Trade receivables | | As at December 31, 2021 US$000 | | Credit <br>rating or % collected as at<br><br>June 29, 2022 | | As at <br>December 31, 2020<br>US$000 | | Credit <br>rating or % collected as at<br><br>June 29, 2021 |
| LS Nikko | | 14,008 | | 100% | | 8,559 | | 100% |
| Sumitomo | | 27 | | 100% | | - | | 100% |
| Aurubis AG (formerly Nordeutsche Affinerie AG) | | 4,287 | | 100% | | 8,957 | | 100% |
| Argor Heraus S.A. | | 845 | | 100% | | 202 | | 100% |
| Aurubis Bulgaria | | - | | 100% | | 4,245 | | 100% |
| Complejo Metalurgico Altonorte S.A | | 485 | | 100% | | 590 | | 100% |
| Total | | 19,652 | | | | 22,553 | | |
| Financial counterparties | As at | Credit | As at | |
|---|---|---|---|---|
| December 31, 2021 | December 31, 2020 | |||
| US000 | US$000 | |||
| Citibank US | 15,301 | A-3 | 10,799 | |
| BBVA | 3 | A1+ | 7,388 | |
| BBVA NY | 5 | C | 5,712 | |
| BBVA España | 2 | C | - | |
| JP Morgan | 4,449 | A3- | 5,026 | |
| Citibank N.A. | 3,728 | A3- | 5,004 | |
| ICBC | 2,228 | A1- | 1,325 | |
| Santander | 2 | A1 | 2,443 | |
| Total | 25,718 | 37,697 |
All values are in US Dollars.
| (1) | The long-term credit rating as of December 2021. |
|---|
31
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
To manage the credit risk associated with commercial activities, the Company took the following steps:
| ● | Active use of prepayment/advance clauses in sales contracts; |
|---|---|
| ● | Delaying delivery of title and/or requiring advance payments to reduce exposure timeframe (potential delay in sales recognition); |
| --- | --- |
| ● | Obtaining parent guarantees or contracting directly with parent company to shore up the credit profile of the customer (where possible); and |
| --- | --- |
| ● | Maintaining as diversified a portfolio of clients as possible. |
| --- | --- |
To manage credit risk associated with cash balances deposited in banks, the Company took the following steps:
| ● | Increasing banking relationships with large, established and well-capitalized institutions in order to secure access to credit and to diversify credit risk; |
|---|---|
| ● | Limiting exposure to financial counterparties according to Board approved limits; and |
| --- | --- |
| ● | Investing cash in short-term, highly liquid and low risk instruments (money market accounts, term deposits, US Treasuries). |
| --- | --- |
Receivable balances are monitored on an ongoing basis. See Note 9 for bad debts.
(d) Liquidity risk
Liquidity risk arises from the Company’s inability to obtain the funds it requires to comply with its commitments, including the inability to sell a financial asset quickly enough and at a price close to its fair value. Management constantly monitors the Company’s level of short- and medium-term liquidity, and its access to credit lines, in order to ensure appropriate financing is available for its operations. In 2021 the Company maintained uncommitted short-term bank lines for approximately US$51,634.
The table below categorizes the undiscounted cash flows of Company’s financial liabilities into relevant maturity groupings based on the remaining period as at the statement of financial position to the contractual maturity date.
| <br><br><br><br> | | Less than <br>1 year <br>US$000 | | Between<br><br>1 and 2 years <br>US$000 | | Between <br>2 and 5 years <br>US$000 | | Over <br>5 years <br>US$000 | | Total <br>US$000 |
|---|---|---|---|---|---|---|---|---|---|---|
| At December 31, 2021 | | | | | | | | | | |
| Trade and other payables | | 48,530 | | 944 | | - | | - | | 49,474 |
| Borrowings | | - | | - | | - | | - | | - |
| Provisions | | - | | - | | 2,046 | | 26,896 | | 28,942 |
| Total | | 48,530 | | 944 | | 2,046 | | 26,896 | | 78,416 |
| At December 31, 2020 | | | | | | | | | | |
| Trade and other payables | | 28,886 | | 747 | | - | | - | | 29,633 |
| Borrowings | | 10,628 | | - | | - | | - | | 10,628 |
| Provisions | | - | | - | | 1,020 | | 27,645 | | 28,665 |
| Total | | 39,514 | | 747 | | 1,020 | | 27,645 | | 68,926 |
(e) Fair value hierarchy
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
| ● | Level 1 — quoted (unadjusted) prices in active markets for identical assets or liabilities. |
|---|---|
| ● | Level 2 — other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. |
| --- | --- |
| ● | Level 3 — techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. |
| --- | --- |
32
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
As at December 31, 2021 and 2020, the Company held the following financial instruments measured at fair value:
| | | | | | | | | |
|---|---|---|---|---|---|---|---|---|
| Assets measured at fair value^(1)^ | | December 31, 2021 US$000 | | Level 1 US$000 | | Level 2 US$000 | | Level 3 US$000 |
| Provisional pricing features | | (115) | | - | | - | | (115) |
| | | | | | | | | |
|---|---|---|---|---|---|---|---|---|
| Assets measured at fair value^(1)^ | | December 31, 2020<br>US$000 | | Level 1 <br>US$000 | | Level 2 <br>US$000 | | Level 3 <br>US$000 |
| Provisional pricing features | | 1,947 | | - | | - | | 1,947 |
| (1) | Within trade receivables. |
|---|
During the period ending December 31, 2021 and 2020, there were no transfers between these levels.
(f) Capital risk management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders, benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. Management considers as part of its capital, the financial sources of funding from shareholders and third parties. During 2021 management decided to cancel all its short-term debt.
During 2020 management decided to increase its short-term debt. In addition, management reserves the right to use short-term pre-shipment financing (financing of commercial accounts receivables and finished goods inventory.
- Impairment of Non-financial assets
The Company evaluates annually each asset or CGU at December 31, or impairment reversal to determine whether there are any indicators of impairment or impairment reversal. As at December 31, 2021 indicators of impairment reversal were not identified. As at December 31, 2020 indicators of impairment reversal were identified therefore al December 31, 2020 the company performed an impairment test and concluded that impairment reversals were applicable. See Note 11.
- Economic context and main foreign exchange regulations
Due to the uninterrupted currency flow faced by the Argentine government from the COVID-19 pandemic and the domestic and international economic and financial situation, the BCRA (Central Bank of Argentina) issued Communication “A” 7030 of May 28, 2020, as supplemented, the BCRA set forth that for a financial institution to grant access to a customer to the free and foreign exchange market to pay the imports of goods or services, the payments of principal and interest from financial payables to foreign parties, and the payment of profits and dividends, among other concepts, the BCRA’s previous approval is required.
On September 15, 2020, the BCRA issued Communication “A” 7106 to tighten effective exchange controls for accessing the free and foreign exchange market for the creation of external assets or to settle principal related to financial payables abroad.
This does not apply to (i) loans granted by international bodies or related agencies or secured by them; (ii) loans granted to the debtor by official credit agencies or secured by them; (iii) if the amount for which the foreign exchange market is accessed to settle principal does not exceed USD 1 million per calendar month.
The refinancing plan for payables falling due through December 31, 2020, had to be filed with the BCRA before September 30, 2020. For those falling due between January 1, 2021, and March 31, 2021, they should be filed at least 30 calendar days before the expiry of principal to be refinanced.
Moreover, on February 25, 2021, the BCRA issued Communication “A” 7230, to extend the terms set in Communication “A” 7106 for principal falling due between April 1 and December 31, 2021. The refinancing plan should be filed with the BCRA before Match 15, 2021, for principal falling due between April 1 and April 15, 2021. In the remainder cases, they should be filed at least 30 calendar days before expiry of principal to be refinanced. 33
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
Moreover, as of April 1, 2021, the amount for which the debtor accesses the foreign exchange market to settle principal in relation to the loans contained in Communication “A” 7106, point 7, is raised from USD 1 million to USD 2 million.
On July 10, 2021, new measures issued by BCRA were released. These measures established additional restrictions to the operations in the foreign exchange market.
On October 28, 2021, through Communiqué “A” 7385 (as subsequently amended by Communiqué 7422, as revised, and Communiqué “A” 7433 of January 6, 2022), the BCRA introduced new amendments (effective as from November 1, 2021) in the supplementary provisions related to the payments of imports of goods established in foreign trade and foreign exchange regulations.
The Argentine government established, through Presidential Decree No. 329/2020 of April 1, 2020, the prohibition: (i) to dismiss employees with no fair reason and based on the lack of or reduced work and force majeure, and (ii) to suspend employees on the grounds of force majeure or the lack of or reduced work. It also established that dismissals and suspensions in violation of such provision will produce no effects and the employment relationships and current conditions will remain effective. This prohibition was initially effective for 60 days, but was extended successively.
Double severance pay for the termination of the employment relationship during the employment crisis remains effective through December 31, 2021.
On December 23, 2021, Decree No. 886/2021 was issued, by which the Public Emergency in Occupational Matters was extended until June 30, 2022.
In this sense, it is established that the affected workers will have the right to receive, in addition to the compensation corresponding to the applicable legislation, an increase equivalent to the following percentages:
75% from January 1, 2022 to February 28, 2022.
50% from March 1, 2022 to April 30, 2022.
25% from May 1, 2022 to June 30, 2022.
Likewise, the rule provides that the amount corresponding to the increase may not exceed, in any case, the sum of pesos ARG $ 500,000.
- COVID-19
During 2020, the spread of COVID-19 has impacted many countries with a significant level of severity. In March 2020, the World Health Organization (WHO) declared COVID-19 a global pandemic. During this period, countries, organizations and company have taken considerable steps to mitigate the risk to communities, employees and business operations.
The Argentine Government implemented a series of measures aimed at reducing the circulation of the population, providing for preventive and mandatory social isolation from March 20, 2020, allowing the movement only of those people linked to the provision / production of services and essential products; this isolation was extendable for the time that was considered necessary in view of the epidemiological situation, the National Executive through Decree No. 867/21 extended the health emergency until December 31, 2022.
The Company continues to take a cautious approach and prioritizes employee welfare by facilitating social distancing at the operations, implementing testing, and taking other relevant measures. The Company’s COVID-19 Crisis Plan, which provides for numerous mitigating measures to be adopted in response to an outbreak of infections, can be implemented as required.
The Company monitors effects of these issues on an ongoing basis and estimates that, based on the information and the effects known to the date of issuance of these financial statements, this situation will not generate a material effect on the Company’s financial position or continuity of its operations 34
Minera Santa Cruz S.A.
Notes to the financial statements (continued)
For the years ended December 31, 2021, 2020 and 2019
- Subsequent Events
Except as mentioned above, at the date of issuance of these financial statements, there have been no significant subsequent events that could have an effect on the company's assets and results of operations as of December 31, 2021. 35