UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
For the month of August, 2015
Commission File Number 000-54420
SILVERCREST MINES INC.
(Translation of registrant’s name into
English)
Suite 501, 570 Granville Street Vancouver,
British Columbia, Canada V6C 3P1
(Address of principal executive offices)
Indicate by check mark whether the registrant
files or will file annual reports under cover Form 20-F or Form 40-F
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Note: Regulation S-T Rule 101(b)(1) only permits the submission
in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Note: Regulation S-T Rule 101(b)(7) only permits the submission
in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish
and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the
registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s
securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed
to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission
or other Commission filing on EDGAR.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
SILVERCREST MINES INC. |
|
|
|
/s/ N. Eric Fier |
Date: August 13, 2015 |
N. Eric Fier |
|
Chief Operating Officer |
INDEX
TO EXHIBITS
99.1 |
Condensed Consolidated Interim Financial Statements
for the Six Months Ended June 30, 2015
|
99.2 |
Management’s Discussion & Analysis of Financial Conditions
& Results of Operations for the Six Months Ended June 30, 2015 |
99.3 |
Certification of Interim Filings - CEO |
99.4 |
Certification of Interim Filings - CFO |
Exhibit 99.1
CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015
AND 2014
(UNAUDITED)
MANAGEMENT’S RESPONSIBILITY FOR
FINANCIAL REPORTING
CONDENSED CONSOLIDATED INTERIM FINANCIAL
REPORTING
The accompanying condensed consolidated
interim financial statements of SilverCrest Mines Inc. (“the Company”) have been prepared by management in accordance
with International Financial Reporting Standards (“IFRS”). Management acknowledges responsibility for the preparation
and presentation of the condensed consolidated interim financial statements, including responsibility for significant accounting
estimates and the choice of accounting principles and methods that are appropriate to the Company‘s circumstances. Management
is responsible for establishing internal controls over financial reporting for the Company. Management has designed and implemented
internal controls over financial reporting that provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with IFRS.
The Audit Committee of the Board of Directors
meets periodically with Management to review results of the condensed consolidated interim financial statements and related financial
reporting matters prior to submitting the condensed consolidated interim financial statements to the Board of Directors for approval.
The Audit Committee is appointed by the Board of Directors and all of its members are independent directors.
The condensed consolidated interim financial
statements have been approved by the Board of Directors on the recommendation of the Audit Committee.
SILVERCREST MINES INC.
Table of Contents
|
Page |
|
|
Condensed Consolidated Statements of Financial Position |
3 |
|
|
Condensed Consolidated Interim Statements of Operations and Comprehensive
Earnings |
4 |
|
|
Condensed Consolidated Interim Statements of Cash Flows |
5 |
|
|
Condensed Consolidated Interim Statements of Changes in Shareholders’
Equity |
6 |
|
|
Notes to the Condensed Consolidated Interim Financial Statements |
7 – 17 |
SILVERCREST MINES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited – Expressed in United States Dollars)
AS AT
| |
June
30, 2015 | | |
December
31, 2014 | |
| |
| | |
| |
ASSETS | |
| | |
| |
| |
| | |
| |
Current Assets | |
| | |
| |
Cash and cash equivalents | |
$ | 36,396,795 | | |
$ | 31,251,143 | |
Amounts receivable | |
| 96,109 | | |
| 2,396,509 | |
Prepaid expenses | |
| 566,113 | | |
| 890,301 | |
Deferred finance costs (note 9) | |
| 176,757 | | |
| 171,586 | |
Taxes receivable (note 4) | |
| 11,206,227 | | |
| 8,287,598 | |
Inventories (note 5) | |
| 10,274,044 | | |
| 5,166,427 | |
Total
Current Assets | |
| 58,716,045 | | |
| 48,163,564 | |
| |
| | | |
| | |
Non-Current Assets | |
| | | |
| | |
Deferred finance costs (note 9) | |
| - | | |
| 90,259 | |
Inventories (note 5) | |
| 5,618,682 | | |
| 6,261,185 | |
Property, plant and equipment (note 6) | |
| 103,443,491 | | |
| 106,332,271 | |
Exploration and evaluation assets (note 7) | |
| 17,961,382 | | |
| 16,421,345 | |
Total
Non-Current Assets | |
| 127,023,555 | | |
| 129,105,060 | |
| |
| | | |
| | |
TOTAL
ASSETS | |
$ | 185,739,600 | | |
$ | 177,268,624 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS’
EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 4,807,967 | | |
$ | 4,267,257 | |
Taxes payable | |
| 1,020,290 | | |
| 1,180,155 | |
Deferred revenue (note 8) | |
| 1,886,078 | | |
| 1,769,198 | |
Total
Current Liabilities | |
| 7,714,335 | | |
| 7,216,610 | |
| |
| | | |
| | |
Non-Current Liabilities | |
| | | |
| | |
Asset retirement obligations | |
| 3,639,628 | | |
| 4,026,507 | |
Credit facility obligation (note 9) | |
| 15,000,000 | | |
| 15,000,000 | |
Deferred revenue (note 8) | |
| 2,607,896 | | |
| 3,742,693 | |
Deferred tax liability (note 19) | |
| 11,906,000 | | |
| 9,557,000 | |
Total
Non-Current Liabilities | |
| 33,153,524 | | |
| 32,326,200 | |
| |
| | | |
| | |
Total
Liabilities | |
| 40,867,859 | | |
| 39,542,810 | |
| |
| | | |
| | |
Shareholders’ Equity | |
| | | |
| | |
Capital stock (note 10) | |
| 128,776,622 | | |
| 128,776,622 | |
Share-based payments reserve (note 10) | |
| 8,531,014 | | |
| 7,835,962 | |
Currency translation reserve | |
| (3,487,505 | ) | |
| (3,487,505 | ) |
Retained earnings | |
| 11,051,610 | | |
| 4,600,735 | |
Total
Shareholders' Equity | |
| 144,871,741 | | |
| 137,725,814 | |
| |
| | | |
| | |
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
$ | 185,739,600 | | |
$ | 177,268,624 | |
Nature of operations (note 1)
Contingencies (note 21)
Subsequent events (notes 1, 9,
10)
Approved by the Board and authorized
for issue on August 12, 2015.
“Graham
Thody” |
Director |
“Scott
Drever” |
Director |
The accompanying notes are an integral part of these
condensed consolidated interim financial statements. |
SILVERCREST MINES INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS
OF OPERATIONS AND COMPREHENSIVE EARNINGS
(Unaudited – Expressed in United States Dollars)
For the periods ended June 30, | |
Three months ended | | |
Six months
ended | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Revenues (note 11) | |
$ | 20,731,379 | | |
$ | 7,719,057 | | |
$ | 40,243,739 | | |
$ | 20,724,584 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of sales (note 12) | |
| (10,356,202 | ) | |
| (3,046,958 | ) | |
| (20,513,700 | ) | |
| (7,733,481 | ) |
| |
| | | |
| | | |
| | | |
| | |
Depletion,
depreciation and amortization | |
| (3,080,939 | ) | |
| (1,577,897 | ) | |
| (6,094,373 | ) | |
| (3,299,303 | ) |
| |
| | | |
| | | |
| | | |
| | |
Mine
operating earnings | |
| 7,294,238 | | |
| 3,094,202 | | |
| 13,635,666 | | |
| 9,691,800 | |
| |
| | | |
| | | |
| | | |
| | |
Corporate and administrative expenses (notes 13, 16) | |
| (1,376,523 | ) | |
| (1,407,025 | ) | |
| (2,593,537 | ) | |
| (2,884,027 | ) |
Share-based compensation (notes 10, 16) | |
| (361,786 | ) | |
| (534,499 | ) | |
| (767,786 | ) | |
| (1,106,233 | ) |
Foreign exchange gain (loss) | |
| (224,611 | ) | |
| 34,506 | | |
| (558,226 | ) | |
| (450,943 | ) |
Other income (note 14) | |
| - | | |
| - | | |
| - | | |
| 614,314 | |
| |
| | | |
| | | |
| | | |
| | |
Operating earnings | |
| 5,331,318 | | |
| 1,187,184 | | |
| 9,716,117 | | |
| 5,864,911 | |
| |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 72,818 | | |
| 55,583 | | |
| 142,959 | | |
| 266,618 | |
Accretion expense | |
| (93,162 | ) | |
| (75,765 | ) | |
| (186,325 | ) | |
| (151,531 | ) |
Finance costs (note 9) | |
| (198,414 | ) | |
| (88,652 | ) | |
| (387,610 | ) | |
| (192,660 | ) |
| |
| | | |
| | | |
| | | |
| | |
Earnings before taxes | |
| 5,112,560 | | |
| 1,078,350 | | |
| 9,285,141 | | |
| 5,787,338 | |
| |
| | | |
| | | |
| | | |
| | |
Income Taxes | |
| | | |
| | | |
| | | |
| | |
Current income tax expense | |
| (461,000 | ) | |
| (479,000 | ) | |
| (558,000 | ) | |
| (2,722,000 | ) |
Deferred tax recovery (expense) | |
| (785,000 | ) | |
| 715,000 | | |
| (2,349,000 | ) | |
| 717,000 | |
| |
| | | |
| | | |
| | | |
| | |
Net
earnings and comprehensive earnings | |
| 3,866,560 | | |
| 1,314,350 | | |
| 6,378,141 | | |
| 3,782,338 | |
| |
| | | |
| | | |
| | | |
| | |
Earnings per common share (note 15) | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.03 | | |
$ | 0.01 | | |
$ | 0.05 | | |
$ | 0.03 | |
Diluted | |
$ | 0.03 | | |
$ | 0.01 | | |
$ | 0.05 | | |
$ | 0.03 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number
of common shares outstanding | |
| 118,753,205 | | |
| 118,728,205 | | |
| 118,753,205 | | |
| 115,042,542 | |
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
SILVERCREST MINES INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited – Expressed in United States Dollars)
For the periods ended June 30, | |
Three months ended | | |
Six months ended | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| | |
| | |
| |
Net earnings for the period | |
$ | 3,866,560 | | |
$ | 1,314,350 | | |
$ | 6,378,141 | | |
$ | 3,782,338 | |
Items not affecting cash: | |
| | | |
| | | |
| | | |
| | |
Depletion, depreciation and amortization | |
| 3,080,939 | | |
| 1,577,897 | | |
| 6,094,373 | | |
| 3,299,303 | |
Share-based compensation | |
| 361,786 | | |
| 534,499 | | |
| 767,786 | | |
| 1,106,233 | |
Accretion expense | |
| 93,162 | | |
| 75,765 | | |
| 186,325 | | |
| 151,531 | |
Unrealized foreign exchange loss (gain) | |
| (12,446 | ) | |
| (16,377 | ) | |
| 49,041 | | |
| (9,202 | ) |
Deferred revenue (note 8) | |
| (554,299 | ) | |
| (174,828 | ) | |
| (1,017,917 | ) | |
| (493,774 | ) |
Interest income | |
| (72,818 | ) | |
| (55,583 | ) | |
| (142,959 | ) | |
| (266,618 | ) |
Finance costs | |
| 42,779 | | |
| 42,779 | | |
| 85,088 | | |
| 85,088 | |
Current income tax expense | |
| 461,000 | | |
| 479,000 | | |
| 558,000 | | |
| 2,722,000 | |
Deferred tax expense (recovery) | |
| 785,000 | | |
| (715,000 | ) | |
| 2,349,000 | | |
| (717,000 | ) |
Cash flows before changes in working capital items | |
| 8,051,663 | | |
| 3,062,502 | | |
| 15,306,878 | | |
| 9,659,899 | |
Amounts receivable | |
| (33,691 | ) | |
| 283,668 | | |
| 2,311,898 | | |
| (70,834 | ) |
Taxes receivable | |
| (2,487,224 | ) | |
| (2,116,830 | ) | |
| (2,646,630 | ) | |
| 1,280,034 | |
Prepaid expenses | |
| 19,659 | | |
| (283,664 | ) | |
| 353,064 | | |
| (70,726 | ) |
Inventories | |
| (1,743,291 | ) | |
| 92,693 | | |
| (3,812,408 | ) | |
| 1,413,113 | |
Taxes payable | |
| 482,980 | | |
| 1,228,668 | | |
| (159,865 | ) | |
| 2,781,039 | |
Accounts payable and accrued liabilities | |
| (326,271 | ) | |
| 1,472,988 | | |
| 773,246 | | |
| 635,403 | |
Cash flows before income taxes | |
| 3,963,825 | | |
| 3,740,025 | | |
| 12,126,183 | | |
| 15,627,928 | |
Income taxes paid | |
| - | | |
| (1,512,000 | ) | |
| (830,000 | ) | |
| (5,690,000 | ) |
Net cash provided by operating activities | |
| 3,963,825 | | |
| 2,228,025 | | |
| 11,296,183 | | |
| 9,937,928 | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | | |
| | | |
| | |
Capital stock issued | |
| - | | |
| - | | |
| - | | |
| 20,822,001 | |
Capital stock issuance costs | |
| - | | |
| (58,322 | ) | |
| - | | |
| (1,489,408 | ) |
Stock options exercised | |
| - | | |
| - | | |
| - | | |
| 500,724 | |
Credit facility drawdown | |
| - | | |
| - | | |
| - | | |
| 15,000,000 | |
Net cash provided by (used in) financing activities | |
| - | | |
| (58,322 | ) | |
| - | | |
| 34,833,317 | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | | |
| | | |
| | |
Property, plant and equipment (note 6) | |
| | | |
| | | |
| | | |
| | |
- Additions | |
| (2,373,379 | ) | |
| (15,582,416 | ) | |
| (4,705,441 | ) | |
| (26,238,005 | ) |
- Sandstorm contribution | |
| - | | |
| - | | |
| - | | |
| 10,000,000 | |
- Sales of silver and gold capitalized | |
| - | | |
| 915,126 | | |
| - | | |
| 955,113 | |
Exploration and evaluation | |
| (490,567 | ) | |
| (1,311,254 | ) | |
| (1,457,266 | ) | |
| (3,377,943 | ) |
Interest received | |
| 72,818 | | |
| 55,583 | | |
| 142,959 | | |
| 266,618 | |
Net cash used in investing activities | |
| (2,791,128 | ) | |
| (15,922,961 | ) | |
| (6,019,748 | ) | |
| (18,394,217 | ) |
| |
| | | |
| | | |
| | | |
| | |
Impact of exchange rate changes on cash and cash equivalents | |
| 33,648 | | |
| 90,034 | | |
| (130,783 | ) | |
| 44,185 | |
| |
| | | |
| | | |
| | | |
| | |
Change in cash and cash equivalents, during the period | |
| 1,206,345 | | |
| (13,663,224 | ) | |
| 5,145,652 | | |
| 26,421,213 | |
CASH AND CASH EQUIVALENTS, beginning of the
period | |
| 35,190,450 | | |
| 54,519,890 | | |
| 31,251,143 | | |
| 14,435,453 | |
CASH AND CASH EQUIVALENTS, end of the period | |
$ | 36,396,795 | | |
$ | 40,856,666 | | |
$ | 36,396,795 | | |
$ | 40,856,666 | |
| |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents is represented by: | |
| | | |
| | | |
| | | |
| | |
Cash | |
| 34,556,795 | | |
| 40,856,666 | | |
| 34,556,795 | | |
| 40,856,666 | |
Cash equivalents | |
| 1,840,000 | | |
| - | | |
| 1,840,000 | | |
| - | |
| |
$ | 36,396,795 | | |
$ | 40,856,666 | | |
$ | 36,396,795 | | |
$ | 40,856,666 | |
Supplemental disclosure with respect
to cash flows (note 17)
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
SILVERCREST MINES INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited – Expressed in United States Dollars)
| |
Capital
Stock | | |
Reserves
| | |
Retained
Earnings/ | | |
Total | |
| |
Number | | |
Amount | | |
Share-Based
| | |
Currency
| | |
(Deficit)
| | |
| |
| |
| | |
| | |
Payments
| | |
Translation | | |
| | |
| |
Balance at
December 31, 2013 | |
| 108,918,205 | | |
$ | 108,676,353 | | |
$ | 6,021,431 | | |
$ | (3,487,505 | ) | |
$ | 5,923,855 | | |
$ | 117,134,134 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock options exercised | |
| 955,000 | | |
| 750,324 | | |
| (249,600 | ) | |
| - | | |
| - | | |
| 500,724 | |
Issuance of capital stock | |
| 8,855,000 | | |
| 20,822,001 | | |
| - | | |
| - | | |
| - | | |
| 20,822,001 | |
Share issuance costs | |
| - | | |
| (1,489,408 | ) | |
| - | | |
| - | | |
| - | | |
| (1,489,408 | ) |
Share-based compensation | |
| - | | |
| - | | |
| 1,106,233 | | |
| - | | |
| - | | |
| 1,106,233 | |
Net and comprehensive earnings for the period | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,782,338 | | |
| 3,782,338 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at June 30,
2014 | |
| 118,728,205 | | |
| 128,759,270 | | |
| 6,878,064 | | |
| (3,487,505 | ) | |
| 9,706,193 | | |
| 141,856,022 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock options exercised | |
| 25,000 | | |
| 17,352 | | |
| (5,719 | ) | |
| - | | |
| - | | |
| 11,633 | |
Share issuance costs | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Share-based compensation | |
| - | | |
| - | | |
| 1,156,472 | | |
| - | | |
| - | | |
| 1,156,472 | |
Forfeited stock options | |
| - | | |
| - | | |
| (192,855 | ) | |
| - | | |
| 192,855 | | |
| - | |
Net and comprehensive loss for the period | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,298,313 | ) | |
| (5,298,313 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31,
2014 | |
| 118,753,205 | | |
| 128,776,622 | | |
| 7,835,962 | | |
| (3,487,505 | ) | |
| 4,600,735 | | |
| 137,725,814 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share-based compensation | |
| - | | |
| - | | |
| 767,786 | | |
| - | | |
| - | | |
| 767,786 | |
Forfeited stock options | |
| - | | |
| - | | |
| (72,734 | ) | |
| - | | |
| 72,734 | | |
| - | |
Net and comprehensive earnings for the period | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,378,141 | | |
| 6,378,141 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at June 30,
2015 | |
| 118,753,205 | | |
$ | 128,776,622 | | |
$ | 8,531,014 | | |
$ | (3,487,505 | ) | |
$ | 11,051,610 | | |
$ | 144,871,741 | |
The accompanying notes are an integral
part of these condensed consolidated interim financial statements.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited – Expressed in United States Dollars)
THREE AND
SIX MONTHS ENDED JUNE 30, 2015 and 2014 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
SilverCrest Mines Inc. (“SilverCrest”
or the “Company”) is engaged in the operation, exploration, development and acquisition of precious metal properties
in Mexico. The Company’s current sources of operating cash flows are primarily from the sale of silver and gold. The Company’s
flagship property is its 100%-owned Santa Elena Mine near Banamichi in the State of Sonora, Mexico.
SilverCrest is incorporated under the
jurisdiction of the Province of British Columbia, Canada pursuant to the British Columbia Business Corporations Act. SilverCrest
is a public company whose shares trade on the NYSE MKT LLC (“NYSE MKT”) (under the symbol SVLC), on the Toronto Stock
Exchange (“TSX”) (under the symbol SVL) and the Frankfurt Stock Exchange (“FSE”) (under the symbol CW5).
The head office and principal address of the Company is 570 Granville Street, Suite 501, Vancouver, BC, Canada, V6C 3P1. The address
of the Company’s registered and records office is 19th Floor, 885 West Georgia Street, Vancouver, BC, Canada, V6C 3H4.
Subsequent to June 30, 2015, SilverCrest
announced it had entered into a definitive agreement (the “Arrangement Agreement”) with First Majestic Silver Corp.
(“First Majestic”) pursuant to which First Majestic has agreed to acquire all of the issued and outstanding common
shares of SilverCrest for consideration of 0.2769 of a common share of First Majestic (the “Exchange Ratio”) plus
CAD$0.0001 in cash per SilverCrest common share. The transaction will be implemented by way of a plan of arrangement (the “Arrangement”)
under the Business Corporations Act (British Columbia). In addition, shareholders of SilverCrest will receive shares in
a newly formed company (“New SilverCrest”) which will hold certain exploration assets currently held by SilverCrest
and First Majestic. The Board of Directors of SilverCrest has unanimously approved the transaction and will provide a written
recommendation that SilverCrest shareholders vote in favour of the transaction which will be included in the Information Circular
to be mailed in early September 2015 to shareholders in connection with the Arrangement. Upon completion of the transaction, certain
transaction and related costs will become payable as they are contingent upon the approval of the transaction by its shareholders.
Please refer to the SilverCrest news release dated July 27, 2015. Information is available on the Company’s website, www.silvercrestmines.com,
and on www.SEDAR.com.
These condensed consolidated interim financial
statements were authorized for issue by the board of directors of the Company on August 12, 2015.
Statement of Compliance
These condensed consolidated interim financial
statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as issued
by the International Accounting Standards Board (“IASB”). These condensed consolidated interim financial statements
should be read in conjunction with SilverCrest’s most recently issued audited consolidated financial statements for the
year ended December 31, 2014, which include information necessary or useful to understanding the Company’s business and
financial statement presentation. In particular, the Company’s significant accounting policies, use of judgments and estimates
were presented in notes 2 and 3, respectively, of these audited consolidated financial statements, and have been consistently
applied in the preparation of these condensed consolidated interim financial statements.
Basis of Preparation
These condensed consolidated interim financial
statements have been prepared on a historical cost basis, except for certain financial instruments which are measured at fair
value. Additionally, these condensed consolidated interim financial statements have been prepared using the accrual basis of accounting,
except for cash flow information. Certain comparatives amounts have been re-presented to conform to the current period presentation.
These condensed consolidated interim financial
statements include the accounts of SilverCrest and its subsidiaries which are all wholly-owned. SilverCrest consolidates subsidiaries
where the Company has the ability to exercise control. Control is achieved when the Company has the power to govern the financial
and operating policies of the entity. Control is normally achieved through ownership, directly or indirectly, of more than 50
percent of the voting power. Control can also be achieved through power over more than half of the voting rights by virtue of
an agreement with other investors or through the exercise of de facto control. All intercompany balances, transactions, income
and expenses, and profits or losses have been eliminated on consolidation.
Company |
Ownership% |
Place of
Incorporation |
Principal
Activity |
NorCrest Silver Inc. |
100% |
Canada |
Holding Company |
SVL Minerals Ltd. |
100% |
Canada |
Holding Company |
Nusantara de Mexico S.A. de C.V. |
100% |
Mexico |
Santa Elena Mine and Mineral Development |
Santa Elena Oro y Plata S.A. de C.V. |
100% |
Mexico |
Service Company |
Minera de Cerro Santo S.A. de C.V. |
100% |
Mexico |
Service Company |
Magellan Exploracion S.A. de C.V. |
100% |
Mexico |
Service Company |
Minera Metro S.A. de C.V. |
100% |
Mexico |
Service Company |
SilverCrest de Mexico
S.A. de C.V. |
100% |
Mexico |
Exploration and Evaluation
Company |
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited – Expressed in United States Dollars)
THREE AND
SIX MONTHS ENDED JUNE 30, 2015 and 2014 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
| 3. | NEW STANDARDS NOT YET ADOPTED |
IFRS 9 – Financial Instruments
(“IFRS 9”)
In July
2014, the IASB issued the final version of IFRS 9 which replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS
9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets:
amortized cost and fair value. The basis of classification depends on an entity’s business model and the contractual cash
flow of the financial asset. Classification is made at the time the financial asset is initially recognized, namely when the entity
becomes a party to the contractual provisions of the instrument.
IFRS
9 amends some of the requirements of IFRS 7 Financial Instruments: Disclosures, including added disclosures about investments
in equity instruments measured at fair value in other comprehensive income, and guidance on financial liabilities and derecognition
of financial instruments. The amended standard is effective for annual periods beginning on or after January 1, 2018, with earlier
adoption permitted.
IFRS
15 – Revenue from Contracts with Customers (“IFRS 15”)
In May
2014, IASB issued IFRS 15 to replace IAS 18 – Revenue, which establishes a new single five-step control-based revenue recognition
model for determining the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.
IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted.
IAS 16 – Property, Plant and
Equipment (“IAS 16”) and IAS 38 – Intangibles (“IAS 38”)
IAS
16 and IAS 38 were issued in May 2014 and prohibit the use of revenue-based depreciation methods for property, plant and equipment
and limit the use of revenue-based amortization for intangible assets. These amendments are effective for annual periods beginning
on or after January 1, 2016 and are to be applied prospectively.
The
Company has not yet completed the process of assessing the impact that IFRS 9, IFRS 15, IAS 16 and IAS 38 will have on its consolidated
financial statements, or whether to early adopt these new requirements.
| |
June
30, 2015 | | |
December
31, 2014 | |
Value added taxes receivable | |
$ | 7,213,184 | | |
$ | 3,603,901 | |
Income taxes receivable | |
| 3,993,043 | | |
| 4,683,697 | |
| |
$ | 11,206,227 | | |
$ | 8,287,598 | |
Value added taxes receivable (“VAT”)
are taxes paid in Mexico, and are due to be refunded or deducted from income taxes payable. The Company is advised that delayed
VAT refunds are currently pervasive in Mexico. The Company is working with its advisors and the authorities to expedite VAT refunds.
The Company believes the balance is fully recoverable and has not provided an allowance.
Income taxes receivable (“ITR”)
relates to income tax payments paid in Mexico in 2014. The ITR balance will be applied against 2015 income tax installments.
Both tax receivable balances have been
negatively impacted by the weakening of the Mexican peso against the US Dollar. SilverCrest translated its Mexican Peso balances
at 15.6:1 at June 30, 2015 compared to 14.7:1 at December 31, 2014.
5. INVENTORIES
| |
June
30, 2015 | | |
December
31, 2014 | |
Supplies | |
$ | 3,442,764 | | |
$ | 2,487,764 | |
Finished goods - dore bars | |
| 5,526,386 | | |
| 1,357,630 | |
Unprocessed ore in stockpile | |
| 165,994 | | |
| 207,742 | |
Leach
pad ore (1) | |
| 6,757,582 | | |
| 7,374,476 | |
| |
| 15,892,726 | | |
| 11,427,612 | |
Less non-current
portion (1) | |
| (5,618,682 | ) | |
| (6,261,185 | ) |
| |
$ | 10,274,044 | | |
$ | 5,166,427 | |
(1) The leach pad ore inventory
is measured based on the lower of average cost per ounce of estimated contained silver and gold and net realizable value. This
inventory will be expensed as leach pad ore tonnes are processed through the mill. The Company recognizes a portion of the leach
pad ore inventory in cost of sales based on the number of leach pad ore tonnes processed in the period, compared to the total
tonnes remaining on the leach pad.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited – Expressed in United States Dollars)
THREE AND
SIX MONTHS ENDED JUNE 30, 2015 and 2014 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
| 6. | PROPERTY, PLANT AND EQUIPMENT |
| |
Santa Elena Mine | | |
Santa Elena Mine | | |
Corporate | | |
Total | |
| |
Equipment | | |
Mining
Assets | | |
EIP | | |
Office | | |
| |
Cost | |
| | |
| | |
| | |
| | |
| |
Balance at December 31, 2013 | |
$ | 21,395,800 | | |
$ | 15,388,416 | | |
$ | 73,567,397 | | |
$ | 121,742 | | |
$ | 110,473,355 | |
Additions | |
| 677,781 | | |
| - | | |
| 39,648,751 | | |
| 11,436 | | |
| 40,337,968 | |
Change in asset retirement obligations | |
| - | | |
| (364,823 | ) | |
| - | | |
| - | | |
| (364,823 | ) |
Sales of silver and gold (1) | |
| - | | |
| - | | |
| (8,520,350 | ) | |
| - | | |
| (8,520,350 | ) |
Direct production costs capitalized | |
| - | | |
| - | | |
| 1,477,358 | | |
| - | | |
| 1,477,358 | |
Sandstorm contribution (2) | |
| - | | |
| - | | |
| (10,000,000 | ) | |
| - | | |
| (10,000,000 | ) |
Santa Elena Mine EIP reclass (mill)
(1) | |
| 66,716,751 | | |
| - | | |
| (66,716,751 | ) | |
| - | | |
| - | |
Santa Elena Mine EIP reclass (underground)
(1) | |
| 3,337,403 | | |
| 26,119,002 | | |
| (29,456,405 | ) | |
| - | | |
| - | |
Impairment
charges (3) | |
| (3,412,681 | ) | |
| - | | |
| - | | |
| - | | |
| (3,412,681 | ) |
Balance at December 31, 2014 | |
| 88,715,054 | | |
| 41,142,595 | | |
| - | | |
| 133,178 | | |
| 129,990,827 | |
Additions | |
| 445,674 | | |
| 3,985,831 | | |
| - | | |
| - | | |
| 4,431,505 | |
Change
in asset retirement obligations (4) | |
| - | | |
| (573,205 | ) | |
| - | | |
| - | | |
| (573,205 | ) |
Balance at June 30, 2015 | |
$ | 89,160,728 | | |
$ | 44,555,221 | | |
$ | - | | |
$ | 133,178 | | |
$ | 133,849,127 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Accumulated depreciation and depletion | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2013 | |
$ | 7,544,643 | | |
$ | 9,688,907 | | |
$ | - | | |
$ | 97,235 | | |
$ | 17,330,785 | |
Charge for the year | |
| 5,530,164 | | |
| 2,287,392 | | |
| - | | |
| 11,698 | | |
| 7,829,254 | |
Impairment
charges (3) | |
| (1,501,483 | ) | |
| - | | |
| - | | |
| - | | |
| (1,501,483 | ) |
Balance at December 31, 2014 | |
| 11,573,324 | | |
| 11,976,299 | | |
| - | | |
| 108,933 | | |
| 23,658,556 | |
Charge
for the period (4) | |
| 4,787,969 | | |
| 1,952,236 | | |
| - | | |
| 6,875 | | |
| 6,747,080 | |
Balance at June 30, 2015 | |
$ | 16,361,293 | | |
$ | 13,928,535 | | |
$ | - | | |
$ | 115,808 | | |
$ | 30,405,636 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Carrying amounts | |
| | | |
| | | |
| | | |
| | | |
| | |
At December 31, 2014 | |
$ | 77,141,730 | | |
$ | 29,166,296 | | |
$ | - | | |
$ | 24,245 | | |
$ | 106,332,271 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
At June 30, 2015 | |
$ | 72,799,435 | | |
$ | 30,626,686 | | |
$ | - | | |
$ | 17,370 | | |
$ | 103,443,491 | |
(1) Prior to completing
the commissioning of Santa Elena’s Expansion in Progress (“EIP”), the Company capitalized proceeds from sales
of silver and gold ounces and related expenses attributed to the underground mine, mill and CCD/MC processing facilities. For
the year ended December 31, 2014, the Company capitalized sales proceeds of $3,571,688 related to pre-commercial production from
Santa Elena’s underground mine and $4,948,662 from production during the commissioning period from Santa Elena’s new
mill and processing facilities.
At the completion of commissioning the
mill, on August 1, 2014, the Company reclassified the carrying value of $66,716,751 related to the mill and processing facilities
from Santa Elena Mine EIP to Santa Elena Mine Equipment.
Upon completion of commissioning the underground
mine, on October 1, 2014, the Company reclassified the carrying value of $26,119,002 related to the development of the underground
mine and $3,337,403 related to underground equipment from Santa Elena EIP to Santa Elena Mining Assets and Santa Elena Equipment,
respectively.
(2) In March 2014, in accordance
with the terms of the Purchase Agreement (note 8), Sandstorm made an additional $10 million Upfront Deposit for their share of
Santa Elena’s expansion capital costs related to the underground development. The additional $10 million Upfront Deposit
was recorded as a reduction to the carrying value of the Santa Elena EIP asset.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited – Expressed in United States Dollars)
THREE AND
SIX MONTHS ENDED JUNE 30, 2015 and 2014 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
| 6. | PROPERTY, PLANT AND EQUIPMENT
(continued) |
(3) At December 31, 2014, the
Company recorded an impairment charge of $1,911,198 against crushing equipment that was no longer in use at Santa Elena. This
equipment had originally cost $3,412,681 with accumulated depreciation of $1,501,483.
(4) On March 31, 2015, the
Company filed a Technical Report prepared in compliance with National Instrument 43-101 Standards of Disclosure for Mineral Projects
titled, “Update to Santa Elena Pre-Feasibility Study, Sonora, Mexico” (the “UPFS”), for the Santa Elena
mine. The UPFS with an effective date of December 31, 2014 updates the Santa Elena Pre-Feasibility Study and Open Pit Reserve
Update, dated effective April 30, 2013, as amended March 4, 2014. Effective January 1, 2015, the Company updated its depletion,
depreciation and amortization estimate to reflect the updated reserves in Santa Elena. The Company revised its asset retirement
obligation model input assumptions to reflect the revised 8 year mine life of Santa Elena, which resulted in a reduction of the
carrying value in the amount of $573,205.
| 7. | EXPLORATION AND EVALUATION
ASSETS |
Title to mineral properties involves certain
inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising
from the frequently ambiguous conveyancing history characteristic of many mineral properties. The Company has investigated title
to all of its mineral properties and, to the best of its knowledge, title to all of its properties are in good standing except
as otherwise disclosed. However, this should not be considered as a guarantee of title. The mineral properties may be subject
to prior claims or agreements, or transfers, and rights of ownership may be affected by undetected defects.
| |
Ermitaño | | |
La Joya | | |
Cruz de Mayo | | |
Other | | |
Total | |
Balance at December 31, 2013 | |
$ | - | | |
$ | 12,568,905 | | |
$ | 2,981,200 | | |
$ | 125,193 | | |
$ | 15,675,298 | |
Additions | |
| | | |
| | | |
| | | |
| | | |
| | |
Acquisition and option payments | |
$ | 75,000 | | |
$ | 587,500 | | |
$ | 30,000 | | |
$ | 200,000 | | |
$ | 892,500 | |
Deferred exploration costs | |
| 1,495,414 | | |
| 1,337,952 | | |
| 13,968 | | |
| 201,433 | | |
| 3,048,767 | |
Change in asset retirement obligations | |
| - | | |
| - | | |
| (150,000 | ) | |
| - | | |
| (150,000 | ) |
Impairment charges | |
| - | | |
| - | | |
| (2,875,168 | ) | |
| (170,052 | ) | |
| (3,045,220 | ) |
Subtotal, 2014 additions | |
| 1,570,414 | | |
| 1,925,452 | | |
| (2,981,200 | ) | |
| 231,381 | | |
| 746,047 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2014 | |
$ | 1,570,414 | | |
$ | 14,494,357 | | |
$ | - | | |
$ | 356,574 | | |
$ | 16,421,345 | |
Additions | |
| | | |
| | | |
| | | |
| | | |
| | |
Acquisition and option payments | |
$ | 50,000 | | |
$ | 176,250 | | |
$ | - | | |
$ | - | | |
$ | 226,250 | |
Deferred exploration costs | |
| 1,185,659 | | |
| 155,548 | | |
| - | | |
| (27,420 | ) | |
| 1,313,787 | |
Subtotal, 2015 additions | |
| 1,235,659 | | |
| 331,798 | | |
| - | | |
| (27,420 | ) | |
| 1,540,037 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at June 30, 2015 | |
$ | 2,806,073 | | |
$ | 14,826,155 | | |
$ | - | | |
$ | 329,154 | | |
$ | 17,961,382 | |
Ermitaño Property, Sonora, Mexico
In January 2014, SilverCrest signed an
option agreement with Evrim Resources Corp. (“Evrim”) whereby the Company can acquire a 100% interest in Evrim’s
Ermitaño Property in the State of Sonora, Mexico. The Ermitaño Property consists of two concessions (I and II) contiguous
to the Santa Elena Mine. SilverCrest can earn a 100% interest in the Ermitaño Property by paying $75,000 upon signing (paid)
and $50,000 each anniversary thereafter, completing a minimum of $500,000 in exploration expenditures in the first year (completed),
and delivering a Production Notice within five years specifying mine and construction plans with accompanying permits. Upon delivery
of the Production Notice, the annual payments will cease and Evrim will retain a 2% Net Smelter Royalty (“NSR”) on
revenues from production of minerals.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited – Expressed in United States Dollars)
THREE AND
SIX MONTHS ENDED JUNE 30, 2015 and 2014 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
| 7. | EXPLORATION AND EVALUATION
ASSETS (continued) |
La Joya Project, Mexico
The La Joya Project, located southeast
of Durango City, Durango State, Mexico is comprised of fifteen mineral concessions. Nine of the 15 mineral concessions are known
as the La Joya West concessions, which the Company acquired on May 24, 2013, pursuant to the Company’s full exercise of
an option granted in 2010 by the original vendors of the concessions. Three of the 15 mineral concessions are known as the La
Joya East concessions, for which the Company still maintains an option to purchase from the original owners. The remaining three
contiguous mineral concessions were acquired directly by the Company’s wholly-owned subsidiary, SilverCrest de Mexico S.A.
de C.V.
Prior to 2013, the Company held an option
to acquire a 100% interest in the La Joya West concessions, which option was exercised in full on May 24, 2013 by making staged
payments totaling $2,680,000 over a three year period commencing June 2010. The final payment of $2,500,000 was settled on May
24, 2013, by a combination of cash payment ($1,250,000) and the issuance of a total of 615,776 common shares of the Company at
a value of $1,250,000. In March 2014, the Company released the final payment on the La Joya West concessions upon verification
of title registration in Mexico. There is a 2% NSR on revenues from production of minerals.
On November 25, 2010, the Company entered
into an option agreement to acquire a 100% interest in the three La Joya East concessions. Under the terms of the original option
agreement, the Company may exercise its option to acquire the La Joya East concessions by making staged payments totaling $1,500,000
over a three year period commencing January 2011 (of which $912,500 has been paid). On November 6, 2013, the Company amended the
La Joya East option agreement so that the final payment of $1,175,000 may be paid in two equal cash payments in the amount of
$587,500 each, with the first payment having been made on May 6, 2014 and the second and final payment due May 6, 2015. In March
2015, the Company renegotiated the final payment on the La Joya East option agreement, whereby 30% of the $587,500, or $176,250,
was paid on May 6, 2015, and the remaining balance plus an additional 5% interest, or $431,813, is due on May 6, 2016. There is
a 2% NSR on revenues from production of minerals. Of the total option payments, $750,000 shall be deemed to be advanced royalty
payments made on account of the NSR.
On May 14, 2009, the Company entered into
a definitive purchase agreement with Sandstorm Gold Ltd. (“Purchase Agreement”) under which the Company’s wholly-owned
Mexican subsidiary, Nusantara de Mexico S.A. de C.V., agreed to sell 20% of future gold production from the Santa Elena Project
to Sandstorm in exchange for of $12,000,000 (“Upfront Deposit”) and 3,500,000 common shares of Sandstorm and ongoing
per-ounce payments by Sandstorm equal to the lesser of $350 and the prevailing spot gold market price upon delivery of gold until
a total of 50,000 ounces of gold have been delivered. The per ounce price of $350 is subject to an increase of 1% per annum commencing
April 1, 2014.
Under the terms of the Purchase Agreement,
the Company could have been required to return a portion of the Upfront Deposit if certain production levels were not achieved.
Therefore, the Upfront Deposit and fair value of the shares were treated as deferred revenue. As deliveries of gold are made to
Sandstorm, the Company recognizes a portion of the deferred revenue as operating revenue. The amount recognized for the six month
period ended June 30, 2015, is based on the proportion of gold ounces sold to Sandstorm in the period, to 50,000 (June 30, 2014
– 50,000) ounces of gold deliverable to Sandstorm.
In February 2014 pursuant to the Purchase
Agreement, the Company received notice of Sandstorm’s election to participate in the underground mine in exchange for an
additional Upfront Deposit of $10 million and an increase to $450 per ounce of gold once a total of 50,000 ounces of gold has
been delivered under the Purchase Agreement. The Company recorded the additional $10 million Upfront Deposit as a reduction to
the carrying value of the Santa Elena EIP asset (note 6) as there are no requirements to return any portion of the deposit.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited – Expressed in United States Dollars)
THREE AND
SIX MONTHS ENDED JUNE 30, 2015 and 2014 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
| 8. | DEFERRED REVENUE (continued) |
As a condition of the Purchase Agreement
the Company granted Sandstorm a charge on the assets of the Company that is subordinate to any existing and future bank debt.
During the six month period ended June
30, 2015, the Company recorded revenue of $2,753,470 (June 30, 2014 – $1,387,522) from the delivery of 4,883 gold ounces
(June 30, 2014 – 2,479) to Sandstorm, which consisted of $1,735,553 (June 30, 2014 – $870,830) in cash and $1,017,917
(June 30, 2014 – $516,692) from amortization of deferred revenue.
Details of changes in the balance are
as follows:
| |
Upfront Deposit | | |
Sandstorm Shares | | |
Total Deferred Revenue | |
| |
| | |
| | |
| |
As at December 31, 2013 | |
$ | 5,951,062 | | |
$ | 710,720 | | |
$ | 6,661,782 | |
Delivery of gold | |
| (1,027,214 | ) | |
| (122,677 | ) | |
| (1,149,891 | ) |
As at December 31, 2014 | |
| 4,923,848 | | |
| 588,043 | | |
| 5,511,891 | |
Less current portion | |
| (1,580,449 | ) | |
| (188,749 | ) | |
| (1,769,198 | ) |
Deferred revenue | |
$ | 3,343,399 | | |
$ | 399,294 | | |
$ | 3,742,693 | |
| |
| | | |
| | | |
| | |
As at December 31, 2014 | |
$ | 4,923,848 | | |
$ | 588,043 | | |
$ | 5,511,891 | |
Delivery of gold | |
| (909,319 | ) | |
| (108,598 | ) | |
| (1,017,917 | ) |
As at June 30, 2015 | |
| 4,014,529 | | |
| 479,445 | | |
| 4,493,974 | |
Less current portion | |
| (1,684,860 | ) | |
| (201,218 | ) | |
| (1,886,078 | ) |
Deferred revenue | |
$ | 2,329,669 | | |
$ | 278,227 | | |
$ | 2,607,896 | |
On July 11, 2013, SilverCrest entered
into a three year $40 million secured corporate credit facility (the “Facility”) with the Bank of Nova Scotia (“Scotiabank”).
The Facility is principally secured by a pledge of the Company’s equity interests in its material subsidiaries, including
Nusantara de Mexico S.A. de C.V., and SilverCrest de Mexico S.A. de C.V., and their assets. SilverCrest drew down $15 million
from the Facility in February, 2014 to fund Santa Elena expansion expenditures.
On July 11, 2014, the credit limit of
the Facility reduced by $10 million to $30 million. On July 11, 2015, the credit limit of the Facility was reduced by a further
$10 million to $20 million, leaving $5 million available for further drawdown. The Facility will mature on July 11, 2016, subject
to a one year extension of these dates by mutual agreement.
Depending on the Company’s total
indebtedness to EBITDA ratio, the interest rate margin on the Facility will, at the Company’s election, range from 3.00%
to 4.25% over LIBOR, or 2.00% to 3.25% over Scotiabank’s Base Rate in Canada. The Facility is subject to standby fees and
interest is currently payable at the rate of 3.28% per annum.
The availability of the Facility is subject
to various qualitative and quantitative covenants, including a current ratio, a debt to EBITDA leverage ratio, interest service
coverage ratio and a tangible net worth calculation. The Company is in compliance with all such covenants as at June 30, 2015.
During the six month period ended June 30, 2015, the Company incurred $246,625 (June 30, 2014 – $176,448) in interest expense
under the Facility, of which $nil (June 30, 2014 – $176,448) was capitalized to Santa Elena EIP and $246,625 (June 30, 2014
– $nil) was included in “Finance costs” in the statement of operations and comprehensive earnings. During the
six month period ended June 30, 2015, standby fees on the Facility amounted to $55,897 (June 30, 2014 – $108,152) which
is included in Finance costs.
In fiscal 2013, the Company deferred $514,758
of incremental costs associated with the set-up of the Facility. These costs are being amortized over the three year term of the
Facility. During the six month period ended June 30, 2015, the Company amortized $85,088 (June 30, 2014 – $85,088), included
in Finance costs in the statement of operations and comprehensive earnings. The unamortized portion as at June 30, 2015, amounting
to $176,757 (December 31, 2014 – $261,845), is included in “Deferred finance costs” on the consolidated statement
of financial position.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited – Expressed in United States Dollars)
THREE AND
SIX MONTHS ENDED JUNE 30, 2015 and 2014 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
| 10. | CAPITAL STOCK AND RESERVES
|
Authorized Shares
The Company’s authorized capital
stock consists of an unlimited number of common shares and an unlimited number of preferred shares without par value. At June
30, 2015, the Company had 118,753,205 common shares outstanding and no preferred shares outstanding.
Stock options
The Company has a rolling stock option
plan under which it is authorized to grant stock options to executive officers and directors, employees and consultants, enabling
them to acquire up to 10% of the issued and outstanding common stock of the Company. The exercise price of each option equals
the market price of the Company's stock as of the date of the grant. The options can be granted for a maximum term of 10 years,
and certain options to employees and consultants vest over periods of time, determined by the board of directors. Options granted
to investor relations consultants shall vest over a period of at least 1 year. The Company has not granted options for periods
exceeding 5 years.
Stock option transactions and the number
of stock options outstanding and exercisable are summarized as follows:
| |
Number of | | |
Weighted Average | |
| |
Options | | |
Exercise Price - CAD$ | |
As at December 31, 2013 | |
| 8,985,000 | | |
$ | 1.69 | |
Issued | |
| 3,050,000 | | |
$ | 1.58 | |
Exercised | |
| (980,000 | ) | |
$ | 0.58 | |
Forfeited | |
| (310,000 | ) | |
$ | 2.07 | |
As at December 31, 2014 | |
| 10,745,000 | | |
$ | 1.75 | |
Forfeited | |
| (145,000 | ) | |
$ | 1.89 | |
As at June 30, 2015 | |
| 10,600,000 | | |
$ | 1.75 | |
| |
Options Outstanding | | |
Options Exercisable | |
Expiry Date | |
Number of Shares Issuable on Exercise | | |
Weighted Average Remaining Life (Years) | | |
Weighted Average Exercise Price - CAD$ | | |
Number of Shares Issuable on Exercise | | |
Weighted Average Exercise Price - CAD$ | |
September 10, 2015 | |
| 950,000 | | |
| 0.20 | | |
$ | 1.05 | | |
| 950,000 | | |
$ | 1.05 | |
November 7, 2015 | |
| 240,000 | | |
| 0.36 | | |
$ | 1.60 | | |
| 240,000 | | |
$ | 1.60 | |
February 15, 2016 | |
| 175,000 | | |
| 0.63 | | |
$ | 1.94 | | |
| 175,000 | | |
$ | 1.94 | |
June 17, 2016 | |
| 200,000 | | |
| 0.97 | | |
$ | 1.17 | | |
| 200,000 | | |
$ | 1.17 | |
August 2, 2016 | |
| 1,450,000 | | |
| 1.09 | | |
$ | 1.65 | | |
| 1,450,000 | | |
$ | 1.65 | |
November 7, 2016 | |
| 45,000 | | |
| 1.36 | | |
$ | 1.60 | | |
| 45,000 | | |
$ | 1.60 | |
December 5, 2017 | |
| 1,620,000 | | |
| 2.44 | | |
$ | 2.60 | | |
| 1,620,000 | | |
$ | 2.60 | |
January 31, 2018 | |
| 350,000 | | |
| 2.59 | | |
$ | 2.60 | | |
| 350,000 | | |
$ | 2.60 | |
December 13, 2018 | |
| 2,630,000 | | |
| 3.46 | | |
$ | 1.68 | | |
| 2,630,000 | | |
$ | 1.68 | (1) |
June 11, 2019 | |
| 150,000 | | |
| 3.95 | | |
$ | 1.95 | | |
| 112,500 | | |
$ | 1.95 | |
December 10, 2019 | |
| 2,790,000 | | |
| 4.45 | | |
$ | 1.55 | | |
| 1,490,000 | | |
$ | 1.55 | (1) |
| |
| 10,600,000 | | |
| 2.75 | | |
$ | 1.75 | | |
| 9,262,500 | | |
$ | 1.78 | |
| (1) | 50,000 options
with an exercise price of CAD$1.68 and 30,000 options with an exercise price of CAD$1.55
were forfeited subsequent to June 30, 2015. |
Share-based compensation
During the six month period ended June
30, 2015, the Company granted nil (June 30, 2014 – 250,000) incentive stock options with a weighted average fair value per
option granted of CAD$nil (June 30, 2014 – CAD$0.85) for a total fair value of $nil (June 30, 2014 – $193,507). The
share-based compensation recognized during the six month period ended June 30, 2015, under the fair value method, was $767,786
(June 30, 2014 – $1,106,233).
The following weighted average assumptions
were used for the Black-Scholes valuation of stock options granted during the period.
| |
June 30, 2015 | | |
June 30, 2014 | |
Risk-free interest rate | |
| - | | |
| 1.42 | % |
Expected dividend yield | |
| - | | |
| - | |
Expected stock price volatility | |
| - | | |
| 54.62 | % |
Expected forfeiture rate | |
| - | | |
| 0.9 | % |
Expected option lives | |
| - | | |
| 4.2 years | |
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited – Expressed in United States Dollars)
THREE AND
SIX MONTHS ENDED JUNE 30, 2015 and 2014 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
| |
Three months ended | | |
Six months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | | |
June 30, 2015 | | |
June 30, 2014 | |
Gold revenue - spot prices | |
$ | 10,709,988 | | |
$ | 4,917,910 | | |
$ | 22,104,633 | | |
$ | 12,992,841 | |
Gold revenue - Sandstorm (note 8) | |
| 1,503,668 | | |
| 533,076 | | |
| 2,753,470 | | |
| 1,387,522 | |
Silver revenue | |
| 8,517,723 | | |
| 3,206,115 | | |
| 15,385,636 | | |
| 7,322,252 | |
| |
| 20,731,379 | | |
| 8,657,101 | | |
| 40,243,739 | | |
| 21,702,615 | |
Capitalized to Santa Elena Mine EIP (1) | |
| - | | |
| (938,044 | ) | |
| - | | |
| (978,031 | ) |
| |
$ | 20,731,379 | | |
$ | 7,719,057 | | |
$ | 40,243,739 | | |
$ | 20,724,584 | |
(1) Prior to completing the commissioning of Santa
Elena’s underground mine on October 1, 2014 and the mill and processing facilities on August 1, 2014, proceeds from the
sale of silver and gold were capitalized to the Santa Elena Mine EIP included in property, plant and equipment (note 6).
| |
Three months ended | | |
Six months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | | |
June 30, 2015 | | |
June 30, 2014 | |
Mining | |
$ | 4,595,709 | | |
$ | 89,834 | | |
$ | 7,595,940 | | |
$ | 1,311,263 | |
Crushing and processing | |
| 6,570,219 | | |
| 859,397 | | |
| 12,822,072 | | |
| 2,519,262 | |
General and administrative | |
| 1,197,909 | | |
| 1,102,019 | | |
| 2,525,928 | | |
| 2,059,488 | |
Refining and transport | |
| 91,751 | | |
| 64,743 | | |
| 266,472 | | |
| 212,111 | |
Direct production costs | |
| 12,455,588 | | |
| 2,115,993 | | |
| 23,210,412 | | |
| 6,102,124 | |
Amortization of leach pad ore inventory (1) | |
| 308,395 | | |
| - | | |
| 616,893 | | |
| - | |
Environmental mining duty (2) | |
| 104,000 | | |
| 39,000 | | |
| 203,000 | | |
| 105,000 | |
Capitalized to Santa Elena Mine EIP (3) | |
| - | | |
| (415,017 | ) | |
| - | | |
| (415,017 | ) |
Inventory adjustment | |
| (2,511,781 | ) | |
| 1,306,982 | | |
| (3,516,605 | ) | |
| 1,941,374 | |
Cost of sales | |
$ | 10,356,202 | | |
$ | 3,046,958 | | |
$ | 20,513,700 | | |
$ | 7,733,481 | |
| (1) | Effective July 1, 2014, the
Company commenced recognizing a portion of the leach pad ore inventory in cost of sales
based on the number of leach pad ore tonnes processed through the mill in the period,
to the total tonnes remaining on the leach pad (note 5). |
| (2) | The Mexican Environmental
Mining Duty is based on 0.5% of gross revenues. |
| (3) | Prior to completing the commissioning
at Santa Elena’s underground mine, the Company capitalized proceeds from sale of
silver and gold ounces and related expenses provided by the underground mine. |
| 13. | CORPORATE AND ADMINISTRATIVE EXPENSES |
| |
Three months ended | | |
Six months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | | |
June 30, 2015 | | |
June 30, 2014 | |
Remuneration (note 16) | |
$ | 464,339 | | |
$ | 456,503 | | |
$ | 914,571 | | |
$ | 924,789 | |
Professional fees (note 16) | |
| 123,912 | | |
| 181,218 | | |
| 222,337 | | |
| 319,006 | |
General exploration | |
| 216,789 | | |
| 11,371 | | |
| 228,651 | | |
| 25,728 | |
Regulatory | |
| 27,086 | | |
| 32,174 | | |
| 74,996 | | |
| 272,027 | |
Shareholder and investor relations | |
| 43,279 | | |
| 90,040 | | |
| 81,258 | | |
| 183,140 | |
Trade shows and travel | |
| 93,199 | | |
| 202,781 | | |
| 192,842 | | |
| 391,647 | |
Other corporate expenses | |
| 136,825 | | |
| 166,432 | | |
| 347,117 | | |
| 328,519 | |
Mexico corporate expenses | |
| 271,094 | | |
| 266,506 | | |
| 531,765 | | |
| 439,171 | |
| |
$ | 1,376,523 | | |
$ | 1,407,025 | | |
$ | 2,593,537 | | |
$ | 2,884,027 | |
Other
income of $614,314 relates to net proceeds received from an insurance claim received in March, 2014.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited – Expressed in United States Dollars)
THREE AND
SIX MONTHS ENDED JUNE 30, 2015 and 2014 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
| 15. | EARNINGS PER COMMON SHARE |
The
following table sets forth the computation of basic and diluted earnings per share:
| |
Three months ended | | |
Six months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | | |
June 30, 2015 | | |
June 30, 2014 | |
Numerator | |
| | | |
| | | |
| | | |
| | |
Net earnings | |
$ | 3,866,560 | | |
$ | 1,314,350 | | |
$ | 6,378,141 | | |
$ | 3,782,338 | |
| |
| | | |
| | | |
| | | |
| | |
Denominator | |
| | | |
| | | |
| | | |
| | |
For basic - weighted average number of common shares outstanding | |
| 118,753,205 | | |
| 118,728,205 | | |
| 118,753,205 | | |
| 115,042,542 | |
Effect of dilutive stock options | |
| 286,405 | | |
| 1,653,379 | | |
| 286,405 | | |
| 1,653,379 | |
For diluted - adjusted weighted average number of common shares outstanding | |
| 119,039,610 | | |
| 120,381,584 | | |
| 119,039,610 | | |
| 116,695,921 | |
| |
| | | |
| | | |
| | | |
| | |
Earnings per common share | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.03 | | |
$ | 0.01 | | |
$ | 0.05 | | |
$ | 0.03 | |
Diluted | |
$ | 0.03 | | |
$ | 0.01 | | |
$ | 0.05 | | |
$ | 0.03 | |
| 16. | RELATED PARTY TRANSACTIONS |
During the six month period ended June
30, 2015, the Company entered into the following transactions with related parties:
Legal Fees
Paid or accrued $83,159 (June 30, 2014
– $88,666) for legal fees, which were included in professional fees, and $nil (June 30, 2014 – $131,548) for share
issuance costs to Koffman Kalef LLP, a law firm in which the Company’s Corporate Secretary is partner. The Company recognized
$1,227 (June 30, 2014 – $10,513) in share-based payments to this officer.
Key Management Compensation (1)
| |
June 30, 2015 | | |
June 30, 2014 | |
Salaries and short-term benefits (2) | |
$ | 433,452 | | |
$ | 426,440 | |
Directors' fees | |
| 86,310 | | |
| 63,778 | |
Share-based payments | |
| 672,602 | | |
| 669,552 | |
| |
$ | 1,192,364 | | |
$ | 1,159,770 | |
| (1) | SilverCrest’s key management personnel have
authority and responsibility for planning, directing and controlling the activities of
the Company. |
| (2) | Total remuneration paid
to the Chief Operating Officer, the Chief Executive Officer, the Chief Financial Officer
and Interim President of SilverCrest. |
Other transactions
Paid $89,101 (June 30, 2014 – $89,124)
for technical and administrative services and recognized $12,399 (June 30, 2014 – $23,608) in share-based payments to immediate
family members of individuals who are part of key management personnel.
The Company shares rent, salaries, administrative
services and other reimbursable expenses with Goldsource Mines Inc. (“Goldsource”), a company related by common directors
and officers. During the six month period ended June 30, 2015, the Company incurred $74,391 (June 30, 2014 – $85,069) on
behalf of Goldsource for these services, of which $39,387 (December 31, 2014 – $15,347) is receivable at June 30, 2015.
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited – Expressed in United States Dollars)
THREE AND
SIX MONTHS ENDED JUNE 30, 2015 and 2014 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
| 17. | SUPPLEMENTAL DISCLOSURE WITH RESPECT
TO CASH FLOWS |
Supplemental
disclosure of significant non-cash transactions is provided in the table:
| |
June 30, 2015 | | |
June 30, 2014 | |
Non-cash investing and financing activities | |
| | |
| |
Capitalized to property, plant and equipment | |
| | |
| |
Asset retirement obligation | |
$ | (573,205 | ) | |
$ | - | |
Accounts payable and accrued liabilities | |
$ | 366,476 | | |
$ | 329,728 | |
| |
| | | |
| | |
Capitalized to exploration and evaluation assets | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 109,343 | | |
$ | 23,700 | |
| |
| | | |
| | |
Capitalized to equity reserves | |
| | | |
| | |
Transfer of share-based payments reserve upon exercise of stock options | |
$ | - | | |
$ | 249,600 | |
| 18. | FINANCIAL INSTRUMENTS
AND FAIR VALUE MEASUREMENTS |
Financial instruments carrying value and fair value
The Company’s financial instruments
consist of cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities and credit facility. The fair
values of amounts receivable, accounts payable and accrued liabilities and the credit facility approximate their carrying values
due to the short term to maturities of these financial instruments.
The fair value hierarchy establishes three
levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted)
in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted
prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset
or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used
to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived
principally from or corroborated by observable market data or other means. Level 3 inputs are unobservable (supported by little
or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level
3 inputs. The Company’s cash and cash equivalents are measured using Level 1 inputs.
The composition of the Company’s deferred tax assets
and liabilities are as follows:
| |
June 30, 2015 | | |
December 31, 2014 | |
Mexico operations | |
| | |
| |
Deferred tax assets: | |
| | |
| |
Non-Capital losses | |
$ | 4,089,000 | | |
$ | 4,833,000 | |
Asset retirement obligations | |
| 1,201,000 | | |
| 1,305,000 | |
Deferred tax liabilities: | |
| | | |
| | |
Property, plant and equipment | |
| (12,145,000 | ) | |
| (10,451,000 | ) |
Exploration and evaluation assets | |
| (2,135,000 | ) | |
| (2,208,000 | ) |
Deferred revenue | |
| (2,426,000 | ) | |
| (2,742,000 | ) |
Inventories | |
| (490,000 | ) | |
| (294,000 | ) |
Defered tax liabilities, net | |
$ | (11,906,000 | ) | |
$ | (9,557,000 | ) |
SILVERCREST MINES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited – Expressed in United States Dollars)
THREE AND
SIX MONTHS ENDED JUNE 30, 2015 and 2014 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
The Company has three reportable segments,
those being the mine operations at Santa Elena, Mexico; mine exploration and evaluation properties at Ermitaño, La Joya
and other exploration properties, Mexico; and Corporate. The Company has identified these reporting segments based on the internal
reports reviewed and used by the Chief Operating Officer, its chief operating decision maker, in allocating resources and assessing
performance. Operations whose revenue, earnings or losses or assets exceed 10% of the total consolidated revenues, earnings or
losses, or assets are reportable segments. The Company does not treat gold and silver concentrate production as separate operating
segments as they are the output of the same production process and only become separately identifiable as finished goods and are
not reported separately from a management perspective. Exploration and evaluation properties have been aggregated into a single
reportable segment where they have similar characteristics and do not have assets which exceed 10% of total reportable assets.
The Corporate segment is responsible for the evaluation and acquisition of new mineral properties, management of cash and cash
equivalents, regulatory reporting and general corporate activities conducted in Canada and Mexico.
Geographic segmented information is
presented as follows:
| |
Mexico | | |
Mexico | | |
Canada | | |
| |
June 30, 2015 | |
Santa Elena | | |
Other Projects | | |
Corporate | | |
Total | |
Revenue | |
$ | 40,135,141 | | |
$ | - | | |
$ | 108,598 | | |
$ | 40,243,739 | |
Cost of sales | |
| (20,513,700 | ) | |
| - | | |
| - | | |
| (20,513,700 | ) |
Depletion, depreciation and amortization | |
| (6,087,498 | ) | |
| - | | |
| (6,875 | ) | |
| (6,094,373 | ) |
Mine operating earnings | |
| 13,533,943 | | |
| - | | |
| 101,723 | | |
| 13,635,666 | |
Other net expenses | |
| (718,091 | ) | |
| - | | |
| (3,632,434 | ) | |
| (4,350,525 | ) |
Current income tax expense | |
| (558,000 | ) | |
| - | | |
| - | | |
| (558,000 | ) |
Deferred tax recovery | |
| (2,349,000 | ) | |
| - | | |
| - | | |
| (2,349,000 | ) |
Net earnings (loss) for the period | |
$ | 9,908,852 | | |
$ | - | | |
$ | (3,530,711 | ) | |
$ | 6,378,141 | |
| |
| | | |
| | | |
| | | |
| | |
Asset Information | |
| | | |
| | | |
| | | |
| | |
Property, plant and equipment | |
$ | 103,426,121 | | |
$ | - | | |
$ | 17,370 | | |
$ | 103,443,491 | |
Exploration and evaluation assets | |
$ | - | | |
$ | 17,961,382 | | |
$ | - | | |
$ | 17,961,382 | |
| |
| | | |
| | | |
| | | |
| | |
June 30, 2014 | |
Santa Elena | | |
Other Projects | | |
Corporate | | |
Total | |
Revenue | |
$ | 20,669,460 | | |
$ | - | | |
$ | 55,124 | | |
$ | 20,724,584 | |
Cost of sales | |
| (7,733,481 | ) | |
| - | | |
| - | | |
| (7,733,481 | ) |
Depletion, depreciation and amortization | |
| (3,294,066 | ) | |
| - | | |
| (5,237 | ) | |
| (3,299,303 | ) |
Mine operating earnings | |
| 9,641,913 | | |
| - | | |
| 49,887 | | |
| 9,691,800 | |
Other net expenses | |
| (587,580 | ) | |
| - | | |
| (3,316,882 | ) | |
| (3,904,462 | ) |
Current income tax expense | |
| (2,722,000 | ) | |
| - | | |
| - | | |
| (2,722,000 | ) |
Deferred tax recovery | |
| 717,000 | | |
| - | | |
| - | | |
| 717,000 | |
Net earnings (loss) for the period | |
$ | 7,049,333 | | |
$ | - | | |
$ | (3,266,995 | ) | |
$ | 3,782,338 | |
| |
| | | |
| | | |
| | | |
| | |
Asset Information | |
| | | |
| | | |
| | | |
| | |
Property, Plant and Equipment | |
$ | 104,641,799 | | |
$ | - | | |
$ | 27,776 | | |
$ | 104,669,575 | |
Exploration and evaluation assets | |
$ | - | | |
$ | 17,817,305 | | |
$ | - | | |
$ | 17,817,305 | |
In the normal course of business, the
Company is aware of certain claims and potential claims. The outcome of these claims and potential claims is not determinable
at this time, although the Company does not believe these claims and potential claims will have a material adverse effect on the
Company’s results of operations or financial position.
Exhibit 99.2
MANAGEMENT DISCUSSION & ANALYSIS OF
FINANCIAL CONDITIONS & RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2015
FORM 51-102F1
SILVERCREST MINES INC.
Table of Contents |
Page |
|
|
HIGHLIGHTS OF SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 2015 |
2 |
OVERVIEW OF THE BUSINESS |
4 |
PROPOSED TRANSACTION |
4 |
OUTLOOK |
5 |
KEY FINANCIAL PERFORMANCE INDICATORS |
6 |
RESULTS OF OPERATIONS |
7 |
NON-IFRS PERFORMANCE MEASURES |
9 |
ADDITIONAL IFRS MEASURES |
10 |
CASHFLOWS |
12 |
SANTA ELENA MINE – UPDATE |
14 |
EXPLORATION PROPERTIES |
15 |
OUTSTANDING SHARE CAPITAL |
15 |
COMMITMENTS |
16 |
OFF BALANCE SHEET ARRANGEMENTS |
16 |
RELATED PARTY TRANSACTIONS |
16 |
FINANCIAL INSTRUMENTS |
17 |
CRITICAL JUDGMENT AND ESTIMATES |
18 |
NEW STANDARDS NOT YET ADOPTED |
20 |
CAUTIONARY STATEMENT AND FORWARD-LOOKING STATEMENT DISCLAIMER |
20 |
DISCLOSURE CONTROLS AND PROCEDURES and internal control over financial reporting |
21 |
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS |
21 |
QUALIFIED PERSON |
21 |
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
This Management’s Discussion and Analysis
(“MD&A”) is an overview of the activities of SilverCrest Mines Inc. (the “Company” or “SilverCrest”)
for the three and six months ended June 30, 2015. The MD&A is intended to help the reader understand the Company’s operations,
financial performance and present and future business environment. The MD&A should be read in conjunction with the unaudited
condensed consolidated interim financial statements for the three and six months ended June 30, 2015, and 2014, and the related
notes contained therein which have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”). The following should also be read in conjunction
with the audited consolidated financial statements, the related MD&A and Annual Information Form for the year ended December
31, 2014, and all other disclosure documents of the Company. All amounts are stated in United States dollars (US$) unless Canadian
dollars (CAD$) are indicated. Additional information related to the Company is available for view on SEDAR at www.sedar.com
and on the Company’s website www.silvercrestmines.com. The date of this MD&A is August 12, 2015. This MD&A
contains forward looking information. Reference to the risk factors described in the “Cautionary Statement and Forward-Looking
Statement Disclaimer” section on page 20 of this MD&A is advised.
Cautionary Note to U.S. Investor’s
concerning Estimates of Reserves and Measured, Indicated and Inferred Resources:
This MD&A has been prepared in accordance
with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States securities
laws. The terms “mineral reserve”, and “probable mineral reserve” are Canadian mining terms as defined
in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”)
and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) – CIM Definition Standards on Mineral
Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in SEC
Industry Guide 7 under the United States Securities Act of 1993, as amended (the “Securities Act”).
Under SEC Industry Guide 7 standards, a “final”
or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in
any reserve or cash flow analysis to designate reserves, and the primary environmental analysis or report must be filed with the
appropriate governmental authority. In addition, the terms “mineral resource”, “measured mineral resource”,
“indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed
by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7, and are normally not permitted to be used
in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral
deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount
of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that
all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of
inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are
cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure
of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only
permits issuers to report mineralization that does not constitute “reserves” by SEC Industry Guide 7 standards as in
place tonnage and grade without reference to contained ounces. Accordingly, information contained in this MD&A contains descriptions
of mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and
disclosure requirements under the United States federal securities laws and the rules and regulations there under.
HIGHLIGHTS OF SECOND
QUARTER (“Q2”) AND SIX MONTHS (“H1”) ENDED JUNE 30, 2015
Financial and Operating Highlights: | |
Q2 2015 | |
Q2 2014 | |
H1 2015 | |
H1 2014 |
Cash flow from operations (1) (3) | |
$ | 8,051,663 | | |
$ | 3,062,502 | | |
$ | 15,306,878 | | |
$ | 9,659,899 | |
Cash flow from operations (1) (3) per share | |
$ | 0.07 | | |
$ | 0.03 | | |
$ | 0.13 | | |
$ | 0.08 | |
Cash cost per AgEq ounce sold (2) (3) | |
$ | 8.05 | | |
$ | 7.12 | | |
$ | 8.26 | | |
$ | 6.81 | |
All-in sustaining cash cost per AgEq ounce sold (2) (3) | |
$ | 10.97 | | |
$ | 11.73 | | |
$ | 11.11 | | |
$ | 10.04 | |
| |
| | | |
| | | |
| | | |
| | |
Revenues | |
$ | 20,731,379 | | |
$ | 7,719,057 | | |
$ | 40,243,739 | | |
$ | 20,724,584 | |
Net earnings | |
$ | 3,866,560 | | |
$ | 1,314,350 | | |
$ | 6,378,141 | | |
$ | 3,782,338 | |
Adjusted earnings (3) | |
$ | 4,459,047 | | |
$ | 966,783 | | |
$ | 8,477,010 | | |
$ | 3,654,879 | |
Net earnings per share | |
$ | 0.03 | | |
$ | 0.01 | | |
$ | 0.05 | | |
$ | 0.03 | |
Adjusted earnings per share (3) | |
$ | 0.04 | | |
$ | 0.01 | | |
$ | 0.07 | | |
$ | 0.03 | |
| |
| | | |
| | | |
| | | |
| | |
Silver ounces produced | |
| 681,302 | | |
| 173,000 | | |
| 1,146,694 | | |
| 374,101 | |
Gold ounces produced | |
| 14,137 | | |
| 3,995 | | |
| 27,392 | | |
| 11,540 | |
Silver equivalent ounces produced (2) | |
| 1,624,211 | | |
| 439,467 | | |
| 2,973,738 | | |
| 1,143,819 | |
| |
| | | |
| | | |
| | | |
| | |
Silver ounces sold | |
| 515,070 | | |
| 163,026 | | |
| 928,320 | | |
| 361,826 | |
Gold ounces sold | |
| 11,567 | | |
| 4,743 | | |
| 23,315 | | |
| 12,393 | |
Silver equivalent ounces sold (2) | |
| 1,286,589 | | |
| 479,384 | | |
| 2,483,431 | | |
| 1,188,439 | |
| (1) | Cash flow from operations before changes in working capital items. |
| | |
| (2) | Silver equivalent (“AgEq”) ratio for Q2, 2015 of 66.7:1 was calculated using metal
prices of $1,200/oz for gold and $18/oz for silver. For consistency with, comparative periods, the AgEq ratio reported during 2014
was changed from 60:1 to 66.7:1. |
| | |
| (3) | These are Non-IFRS performance measures. The Company presents these measures to provide additional
information regarding the Company's financial results and performance (refer to “NON-IFRS Performance Measures” section
for calculation details). |
Refer to the “Results of Operations” section for a detailed
comparison with the same period of the prior fiscal year.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
Santa Elena, Mexico, Q2 2015 highlights
| · | During Q2, 2015, Santa Elena had record
production of 1,624,211 AgEq ounces (Ag:Au 66.7:1) (Q1, 2015 – 1,349,527), representing an increase of 20%. H1, 2015, production
totalled 2,973,738 AgEq ounces (Ag:Au 66.7:1), as a result of this achievement, SilverCrest has increased its 2015 production market
guidance to 4.7 to 5.1 million AgEq ounces, from 4.0 to 4.4 million AgEq ounces. |
| · | During Q2, 2015, the mill processed a
quarterly record of 278,386 tonnes (first quarter (“Q1”), 2015: 271,392), with a daily average of 3,059 tonnes per
day (“tpd”) (Q1, 2015: 3,015). |
| · | Mill recovery rates for Q2, 2015 averaged
96% (Q1, 2015: 91%) for gold and 74% (Q1 2015 – 60%) for silver. The 23% increase in silver recoveries from Q1, 2015 was
due to increased cyanide levels and aeration (pressurized air) into the mill leach tanks. The second half (“H2”), 2015,
mill recovery rates are expected to be similar to Q2 2015. The average mill feed blend was 103.3 gpt silver and 1.65 gpt gold,
a 17% increase in silver and a 1% decrease in gold from Q1, 2015. |
| · | The Santa Elena open pit was temporarily
reopened in January 2015, and 71,394 tonnes with average grades of 142.0 gpt silver and 2.66 gpt gold were mined. Pit operations
were shut down in April, 2015, due to pit constraints. |
| · | During Q2, 2015, a daily average of 1,174
(Q1, 2015: 1,080) tonnes was mined from underground which includes daily mining of two to three long hole stopes and development
ore. Grade reconciliations are ongoing with volumes to date in line with the block model and grades higher than expected. SilverCrest
plans in H2, 2015 to continue to improve and optimize underground stoping, and explore and develop the higher grade El Cholugo
Zone (Alejandra Veins). The Company expects to achieve an underground mining rate of up to 1,500 tpd during H2, 2015, and achieve
an average rate of 1,292 tpd for fiscal 2015. Average mill feed volume at 3,000 tpd is targeted at approximately 40% underground
ore and 60% leach pad ore with no contribution from open pit ore for H2, 2015. |
| · | In
May, SilverCrest announced encouraging results of its accelerated underground exploration
of the El Cholugo Zone (“El Cholugo”) located immediately adjacent to the
Main Mineralized Zone (“MMZ”) currently in production at Santa Elena. El
Cholugo is a drill-identified epithermal vein system that intersects the MMZ at an oblique
angle. Previous drilling has shown at least two mineralized veins in the Zone, Alejandra
and El Cholugo Dos, ranging from 1 to 15 metres wide over a strike length of approximately
200 metres and a height of an estimated 150 metres. The high grade silver and gold values
that are currently being encountered in the current underground exploration drifts are
exceeding values of currently stated reserves as reported in the Company’s Update
to Santa Elena Pre-feasibility Study. This makes El Cholugo a priority target which could
potentially add to future underground production when practical. Additional drifting
and underground drilling at El Cholugo will be completed over the next several months
to confirm and potentially expand current reserves and resources. Please refer to the
SilverCrest news release dated May 7, 2015, for more information available on the Company’s
website, www.silvercrestmines.com. |
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
Corporate, Q2 2015 highlights
| · | SilverCrest announced the results of its
Annual General Meeting of Shareholders (“AGM”) held Wednesday, June 10, 2015, in Vancouver, B.C. Shareholders voted
in favor of all items of business, as follows; |
| o | the election of each director nominee – Dunham L. Craig, J. Scott Drever, Ross O. Glanville,
George W. Sanders, and Graham C. Thody; and |
| o | to re-appoint Davidson & Company, Chartered Accountants, as auditor of the Company. |
| · | At the Board of Directors meeting following
the AGM, Mr. Graham C. Thody was re-appointed Chairman of the Board, Mr. J. Scott Drever was re-appointed Chief Executive Officer
and Mr. Dunham L. Craig was re-appointed Interim President. In addition, the Board re-appointed Mr. N. Eric Fier as Chief Operating
Officer, Mr. Barney Magnusson as Chief Financial Officer, Mr. Tom Keating as Vice President, Finance & Administration, Mr.
Brent McFarlane as Vice President, Operations, Mr. Marcio B. Fonseca as Vice-President, Corporate Development, Mr. Michael Rapsch
as Vice President, Corporate Communications and Mr. Bernard Poznanski as Corporate Secretary. |
Subsequent to Q2, 2015
| · | On July 27, 2015, the Company entered
into a binding definitive agreement (“Arrangement Agreement”) with First Majestic Silver Corp. (“First Majestic”)
pursuant to which First Majestic will acquire all of the issued and outstanding common shares of SilverCrest by way of a statutory
plan of arrangement. Refer to the “Proposed Transaction” section for more detail. |
OVERVIEW OF THE
BUSINESS
SilverCrest Mines Inc. (NYSE MKT: SVLC)
(TSX: SVL) (FSE: CW5) is a Canadian precious metals producer headquartered in Vancouver, BC. SilverCrest’s flagship property
is the 100%-owned Santa Elena Mine, located 150 kilometres northeast of Hermosillo, near Banamichi in the State of Sonora, Mexico
(“Sonora”). The mine is a high-grade, epithermal silver and gold producer, with a current reserve estimated life of
mine of 8 years and average operating cash costs of $12 per ounce of silver equivalent (64.5:1 Ag:Au based on ounces sold). SilverCrest
anticipates the 3,000 tpd conventional mill facility at the Santa Elena Mine should recover an average of 1.6 million ounces of
silver and 33,800 ounces of gold per annum over the current reserve life.
The Company’s other principal property
is the La Joya Project in Durango state, Mexico, which contains a large polymetallic deposit that is being explored with the aim
of developing silver, copper, gold and tungsten resources. The Company is currently focusing on Sonoran Property targets within
a 30/60 kilometre radius from Santa Elena operations which includes the Ermitaño Property and the Cumobabi Property to provide
new discoveries that might be processed at the Santa Elena facility.
PROPOSED TRANSACTION
On July 27, 2015, SilverCrest announced it
had entered into an Arrangement Agreement with First Majestic pursuant to which First Majestic has agreed to acquire all of the
issued and outstanding common shares of SilverCrest for consideration of 0.2769 of a common share of First Majestic (the “Exchange
Ratio”) plus CAD$0.0001 in cash per SilverCrest common share. The transaction will be implemented by way of a plan of arrangement
(the “Arrangement”) under the Business Corporations Act (British Columbia). In addition, shareholders of SilverCrest
will receive shares in a newly formed company (“New SilverCrest”) which will hold certain exploration assets currently
held by SilverCrest and First Majestic.
BENEFITS TO SILVERCREST SHAREHOLDERS
| · | Provides SilverCrest shareholders with
a highly attractive premium to current market price; |
| · | Opportunity to participate in a leading
silver producer through an all-share transaction; |
| · | Gain access to First Majestic's operational
and underground mining expertise; |
| · | Diversifies SilverCrest’s single
asset risk profile and provides exposure to First Majestic’s broad portfolio of Mexican assets; |
| · | Increased leverage to silver with First
Majestic’s primarily silver resource base; |
| · | Enhances capital markets presence with
a pro forma market capitalization in excess of CAD$700 million including increased analyst coverage, trading liquidity and a broader
institutional investor base; |
| · | Provides SilverCrest shareholders with
ownership in SilverCrest Metals Inc.”, a well-capitalized exploration company created to leverage SilverCrest management’s
exploration expertise; and |
| · | The inclusion of SilverCrest’s Santa
Elena mine into First Majestic’s portfolio of operating mines provides the combined company greater flexibility in the current
difficult metals market and creates a strong platform from which First Majestic can continue its corporate growth to the benefit
of both sets of shareholders. SilverCrest shareholders will benefit from First Majestic's liquidity in the market place, the diversity
provided by six mines and Management's long history of successful operations in Mexico. |
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
TRANSACTION SUMMARY
Under the terms of the Arrangement Agreement,
on closing, each SilverCrest shareholder will receive 0.2769 common shares of First Majestic plus CAD$0.0001 in cash for each SilverCrest
common share held. Pursuant to the transaction, First Majestic will issue approximately 32.8 million common shares (assuming no
exercise of existing SilverCrest options), valuing SilverCrest’s equity at approximately CAD$154 million, based on July 24,
2015, closing prices. Following the completion of the transaction, the current shareholders of SilverCrest will hold approximately
21% of the issued and outstanding shares of First Majestic. The transaction will be carried out by way of a court-approved plan
of arrangement and will require the approval of at least 66 2/3% of the votes cast by the shareholders of SilverCrest, and approval
by the “majority of the minority”, being a majority of the votes cast by SilverCrest shareholders other than J. Scott
Drever, N. Eric Fier and Barney Magnusson, whose votes will not be included in determining minority approval pursuant to Multilateral
Instrument 61-101 - Protection of Minority Security Holders in Special Transactions.
The transaction will also require the approval
of a simple majority of the shareholders of First Majestic in accordance with the rules of the TSX and the NYSE. The special meetings
of shareholders of SilverCrest and First Majestic are expected to take place in late September 2015.
The Arrangement will also provide for the issuance
by First Majestic of an aggregate of approximately 2.9 million replacement stock options (the “Replacement Options”)
(assuming no exercise of existing SilverCrest options) to SilverCrest option holders who do not exercise such options prior to
the effective time of the Arrangement, at exercise prices adjusted by the Exchange Ratio. All other terms and conditions of the
Replacement Options will be the same as the SilverCrest option for which they were exchanged, except that the terms and conditions
of the First Majestic stock option plan relating to accelerated expiry of First Majestic options on account of early termination
after ceasing to hold office or ceasing to be an employee or consultant will not apply to the Replacement Options.
In connection with the Arrangement, each SilverCrest
shareholder will also receive 0.1667 common shares of New SilverCrest for each SilverCrest common share held. As part of the Arrangement,
SilverCrest will transfer the Las Chispas, Cruz de Mayo, Angel de Plata, Huasabas and Estacion Llano exploration properties located
in northern Mexico, as well as CAD$5.25 million in cash and certain other assets currently owned by SilverCrest to New SilverCrest.
First Majestic will also transfer its Guadalupe exploration property located in Durango, Mexico to New SilverCrest, and First Majestic
will own approximately 9.9% of the shares of New SilverCrest following completion of the transaction. SilverCrest’s La Joya
project will be retained by First Majestic following closing of the transaction, however First Majestic does not have any immediate
plans to advance the La Joya project. N. Eric Fier, SilverCrest’s Chief Operating Officer, will be the CEO and President
of New SilverCrest along with other members of SilverCrest’s current board and management team. New SilverCrest intends to
make application to list its shares on the TSX Venture Exchange.
In addition to shareholder, court and creditor
approvals, the transaction is subject to applicable regulatory approvals and the satisfaction of certain other closing conditions
customary in transactions of this nature. The Arrangement Agreement includes customary provisions, including non-solicitation of
alternative transactions, right to match superior proposals and fiduciary-out provisions. In addition, SilverCrest has agreed to
pay a termination fee to First Majestic of CAD$8 million upon the occurrence of certain events. First Majestic and SilverCrest
have each agreed to pay a CAD$1 million expense reimbursement fee to the other party upon termination of the Arrangement Agreement
due to the occurrence of certain other events.
The Board of Directors of SilverCrest has unanimously
approved the transaction and will provide a written recommendation that SilverCrest shareholders vote in favour of the transaction
which will be included in the Information Circular to be mailed to shareholders in connection with the Arrangement. Each of the
directors and senior officers of SilverCrest, who hold in the aggregate approximately 3.9% of the issued and outstanding SilverCrest
shares (assuming no exercise of existing SilverCrest stock options) have entered into a voting agreement with First Majestic and
have agreed to vote in favour of the transaction at the special meeting of SilverCrest shareholders to be held to consider the
Arrangement.
Full details of the Arrangement will be included
in a joint Information Circular to be filed with the regulatory authorities and mailed to SilverCrest and First Majestic shareholders
in accordance with applicable securities laws. SilverCrest and First Majestic expect to mail the joint Information Circular in
early September 2015.
OUTLOOK
Subject to the outcome of the Proposed Transaction,
SilverCrest’s immediate focus is to (i) continue the efficient operation of its flagship Santa Elena low cost silver and
gold mine, (ii) increase underground ore production rates to 1,500 tpd by the end of 2015 to achieve an average rate of 1,292 tpd
for fiscal 2015, (iii) expand resources and associated reserves at Santa Elena by continued systematic exploration of the deposit,
(iv) continue to evaluate and acquire low cost exploration properties in proximity to Santa Elena, (v) update the La Joya resource
model for a new resource estimate in 2015, and (vi) manage a strong cash position to support growth while sustaining existing operations.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
Santa Elena 2015 Targets
| · | Achieve estimated 2015 production guidance
of 1.6 million – 1.8 million ounces of silver and 36,000 – 39,000 ounces of gold, for an aggregate of 4.0 million –
4.4 million AgEq ounces (Ag:Au 66.7:1). 2015 PRODUCTION GUIDANCE REVISED – 6 months 2015 production
was 1,146,694 ounces of silver and 27,392 ounces of gold, or 2,973,738 silver equivalent ounces, Ag:Au 66.7:1. As a result of this
achievement, SilverCrest has increased its 2015 production market guidance to range 4.7 to 5.1 million AgEq ounces (Ag:Au 66.7:1). |
| · | Achieve estimated cash operating cost
of $10 – $11 per AgEq ounce sold (Ag:Au 66.7:1). 2015 COST GUIDANCE REVISED - 6 months, 2015; $8.26
per silver equivalent ounce sold, Ag:Au 66.7:1. SilverCrest has reduced its H2 2015 cash operating cost to range $9 - $10 per
AgEq ounce sold (Ag:Au 66.7:1). |
| · | Achieve estimated all-in sustaining cash
cost of $14 – $15 per AgEq ounce sold (Ag:Au 66.7:1). 2015 COST GUIDANCE REVISED - 6 months; $11.11
per silver equivalent ounce sold, Ag:Au 66.7:1. SilverCrest has reduced its H2 2015 all-in sustaining cash cost to range $12
- $13 per AgEq ounce sold (Ag:Au 66.7:1). |
| · | Achieve budgeted average mill recovery
rates of 92% for gold and 70% for silver. (6 months; 94% for gold and 68% for silver – gold and silver recovery are expected
to be approximately 92% and 75%, respectively, for H2, 2015) |
| · | Achieve 2015 annual average underground
ore production rates of 1,292 tpd (reduced from 1,320 tpd). (6 months; 1,127 average tpd mined) |
| · | Target 1,100 metres of ramp development,
2,100 metres of lateral development and 200 metres of vertical development. (6 months; 225 metres of ramp development, due to
shift in development to the El Cholugo and the Alejandra Vein, 823 metres of lateral development and 74 metres of vertical development)
|
| · | Accelerate exploratory drift at the El
Cholugo and the Alejandra Vein. (6 months; 920 metres developed) |
Sonora Project 2015 Targets
| · | Incur $2.8 million in aggregate exploration
expenditures. Exploration expenditures may be adjusted or reallocated to other targets throughout the year depending on success
and cash availability. (6 months; $1.4 million primarily on the Ermitaño Property) |
| · | Complete approximately 6,000 metres of
drilling and advance surface exploration program at Ermitaño I & II and Cumobabi concessions to delineate additional
targets. (6 months; 1,881 metres of drilling) |
La Joya Project 2015 Targets
| · | Release an updated resource model incorporating
17 in-fill core hole drill program completed in 2014. (In process) |
| · | Negotiate access agreements for continued
exploration and potential development. (In process) |
| · | Advance additional metallurgical and economic
studies. (In process) |
KEY FINANCIAL PERFORMANCE
INDICATORS
The financial performance of SilverCrest is
dependent on the following key performance drivers:
| · | Production rates, operating costs and
efficiencies at Santa Elena. |
| · | Commodity prices and foreign exchange
rates. |
Production rates, operating and sustaining
costs and efficiencies at Santa Elena
The profitability and operating cash flow at
Santa Elena are affected by numerous factors, including but not limited to, the tonnes and grade of ore mined and milled, the amount
of metals produced, the level of operating and sustaining costs and general and administrative costs. SilverCrest believes the
right team is in place to manage these risks, but many factors affecting these risks are beyond the Company’s control.
Commodity prices and foreign exchange rates
Commodity prices and exchange rates are entirely
outside the control of SilverCrest and may impact the long term viability of current operations, exploration projects and the overall
financial position of the Company.
Adequate financing
Historically, the major sources of liquidity
have been the capital markets and project financing. As the Santa Elena Expansion Project has been successfully constructed, capital
expenditures are now focused on sustaining and underground development costs at Santa Elena and new Sonoran exploration programs.
With proceeds from the sale of silver and gold, current cash position of $36.4 million and working capital of $51.0 million, SilverCrest
expects to meet its financial commitments and pursue other corporate opportunities for growth.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
RESULTS OF OPERATIONS
For the periods ended June 30, | |
Three months ended | |
Six months ended |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
| |
| |
| |
|
Silver revenue | |
$ | 8,517,723 | | |
$ | 3,206,115 | | |
$ | 15,385,636 | | |
$ | 7,322,252 | |
Gold revenue - cash basis | |
| 11,659,357 | | |
| 5,253,240 | | |
| 23,840,186 | | |
| 13,863,671 | |
| |
| 20,177,080 | | |
| 8,459,355 | | |
| 39,225,822 | | |
| 21,185,923 | |
Gold revenue - non cash | |
| | | |
| | | |
| | | |
| | |
- amortization of deferred revenue | |
| 554,299 | | |
| 197,746 | | |
| 1,017,917 | | |
| 516,692 | |
| |
| | | |
| | | |
| | | |
| | |
- capitalized to Santa Elena Mine EIP (1) | |
| - | | |
| (938,044 | ) | |
| - | | |
| (978,031 | ) |
Revenues | |
| 20,731,379 | | |
| 7,719,057 | | |
| 40,243,739 | | |
| 20,724,584 | |
Cost of sales | |
| 10,356,202 | | |
| 3,046,958 | | |
| 20,513,700 | | |
| 7,733,481 | |
Depletion, depreciation and amortization | |
| 3,080,939 | | |
| 1,577,897 | | |
| 6,094,373 | | |
| 3,299,303 | |
| |
| | | |
| | | |
| | | |
| | |
Mine operating earnings | |
| 7,294,238 | | |
| 3,094,202 | | |
| 13,635,666 | | |
| 9,691,800 | |
Corporate and administrative expenses | |
| (1,376,523 | ) | |
| (1,407,025 | ) | |
| (2,593,537 | ) | |
| (2,884,027 | ) |
Share-based compensation | |
| (361,786 | ) | |
| (534,499 | ) | |
| (767,786 | ) | |
| (1,106,233 | ) |
Foreign exchange gain (loss) | |
| (224,611 | ) | |
| 34,506 | | |
| (558,226 | ) | |
| (450,943 | ) |
Other income | |
| - | | |
| - | | |
| - | | |
| 614,314 | |
| |
| | | |
| | | |
| | | |
| | |
Operating earnings | |
| 5,331,318 | | |
| 1,187,184 | | |
| 9,716,117 | | |
| 5,864,911 | |
| |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 72,818 | | |
| 55,583 | | |
| 142,959 | | |
| 266,618 | |
Accretion expense | |
| (93,162 | ) | |
| (75,765 | ) | |
| (186,325 | ) | |
| (151,531 | ) |
Finance costs | |
| (198,414 | ) | |
| (88,652 | ) | |
| (387,610 | ) | |
| (192,660 | ) |
| |
| | | |
| | | |
| | | |
| | |
Earnings before taxes | |
| 5,112,560 | | |
| 1,078,350 | | |
| 9,285,141 | | |
| 5,787,338 | |
| |
| | | |
| | | |
| | | |
| | |
Taxes | |
| | | |
| | | |
| | | |
| | |
Current income tax expense | |
| (461,000 | ) | |
| (479,000 | ) | |
| (558,000 | ) | |
| (2,722,000 | ) |
Deferred tax recovery (expense) | |
| (785,000 | ) | |
| 715,000 | | |
| (2,349,000 | ) | |
| 717,000 | |
Net earnings and comprehensive earnings | |
| 3,866,560 | | |
| 1,314,350 | | |
| 6,378,141 | | |
| 3,782,338 | |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding | |
| 118,753,205 | | |
| 118,728,205 | | |
| 118,753,205 | | |
| 115,042,542 | |
Earnings per common share – basic | |
$ | 0.03 | | |
$ | 0.01 | | |
$ | 0.05 | | |
$ | 0.03 | |
Earnings per common share - diluted | |
$ | 0.03 | | |
$ | 0.01 | | |
$ | 0.05 | | |
$ | 0.03 | |
(1) Prior to completing the commissioning
of Santa Elena’s Expansion in Progress (“EIP”), the Company capitalized proceeds from the sales of silver and
gold ounces and related expenses attributed to the underground mine, mill and processing facilities.
Comparison of the three months ended June 30, 2015 to June
30, 2014
Net earnings were $3,866,560 ($0.03 per share
basic and diluted) for the second quarter compared with $1,314,350 ($0.01 per share basic and diluted) in the second quarter of
2014. The increase in net earnings in the second quarter was primarily attributed to a significant increase in ounces produced
and sold, relating from the transition from an open pit heap leach operation to an underground mining and milling operation. Q2,
2015 production was also assisted by better silver and gold recoveries which increased from Q1 2015 from 60% to 74% and 91% to
96% respectively. These positive aspects were partially offset by lower realized metal prices, higher operating costs and an increase
in taxes compared to Q2, 2014.
Silver and gold revenue amounted to $20,731,379
(2014 – $7,719,057) in the second quarter. Silver sales totalled 515,070 ounces (2014 – 163,026), 216% higher than
the same period in 2014. The foregoing silver sales, combined with a 16% lower average realized price of $16.54 (2014 – $19.67)
per ounce, resulted in 166% more silver revenue. Total gold revenue in the second quarter increased 124% compared to the same period
in 2014. Total gold sales were 11,567 ounces (2014 – 4,743) or 144% above 2014. The Company sold 8,908 (2014 – 3,794)
ounces of gold at an average realized price of $1,202 (2014 – $1,296) per ounce, a 7% decline, and delivered 2,659 gold ounces
(2014 – 949) under the Sandstorm Purchase Agreement for cash of $357 (2014 – $354) per ounce.
Cost of sales amounted to $10,356,202 (2014
– 3,046,958). Cash operating cost and all-in sustaining cash cost per AgEq ounce sold in Q2, 2015 were $8.05 and $10.97 (Ag:Au
66.7:1) per ounce, respectively, compared to $7.12 and $11.73 (Ag:Au 66.7:1) per ounce in the comparable 2014 quarter. The increase
in cash operating cost per AgEq ounce sold for Q2, 2015, is a result of additional direct production costs related to the transition
of Santa Elena during 2014 from an open pit heap leach operation to an underground mining and milling operation. The cost increases
were partially offset by the benefit of a weaker Mexican Peso. All-in sustaining cash operating cost per AgEq ounce sold decreased
from $11.73 to $10.97 primarily from the benefit of a weaker Mexican Peso. Cash operating costs for Q2, 2015 experienced a favorable
foreign exchange effect, as the quarterly average Mexican Peso weakened against the U.S. Dollar by 18% compared to Q2, 2014. Approximately
50% of Q2, 2015 cash operating costs are in Mexican Pesos. (Refer to the “Non-IFRS Performance Measures” section).
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
RESULTS OF OPERATIONS (continued)
Depletion, depreciation and amortization increased to $3,080,939
(2014 – $1,577,897) with the incorporation of a depletion charge for the underground mine and depreciation charges for Santa
Elena’s mill and CCD/MC processing facilities that were not recorded in Q2, 2014.
Corporate and administrative expenses amounted
to $1,376,523 (2014 – $1,407,025), consistent with Q2, 2014. Share-based compensation decreased to $361,786 (2014 –
$534,499) with the vesting of a lower number of stock options. The Company granted no incentive stock options during the second
quarter of 2015 (2014 – 150,000) with a weighted average fair value per option granted of CAD$0.92).
Deferred tax expense amounted to $785,000 (2014
– recovery $715,000). Deferred tax arises due to differences between the financial statement carrying amounts and the respective
Mexican tax bases. The primary reasons for the significant change with the comparative quarter in 2014 are 1) taking an income
tax deduction for capitalized underground development costs incurred at Santa Elena and 2) a reduction in the carrying value of
the Mexican tax bases due to the weakening Mexican Peso.
Comparison of the six months ended June 30, 2015 to June 30,
2014
Net earnings were $6,378,141 ($0.05 per share
basic and diluted) for H1, 2015 compared with $3,782,338 ($0.03 per share basic and diluted) in 2014. The increase in net earnings
in H1, 2015 was primarily attributed to a significant increase in ounces produced and sold, relating from the transition from open
pit heap leach lower ounces recovery to underground milling high ounces recovery, but partially offset by lower realized metal
prices, higher operating costs and an increase in taxes compared to H2, 2014.
Silver and gold revenue totalled $40,243,739
(2014 – $20,724,584) for H1, 2015. Silver sales amounted to 928,320 ounces (2014 – 361,826), 157% higher than the same
period in 2014. The foregoing silver sales, combined with an 18% lower average realized price of $16.57 (2014 – $20.24) per
ounce, resulted in 110% more silver revenue. Total gold revenue reported during H1, 2015 increased 73% compared to the same period
in 2014. Total gold sales were 23,315 ounces (2014 – 12,393) or 88% above 2014. The Company sold 18,432 (2014 – 9,914)
ounces of gold at an average realized price of $1,199 (2014 – $1,311) per ounce, a 9% decline, and delivered 4,883 gold ounces
(2014 – 2,479) under the Sandstorm Purchase Agreement for cash of $355 (2014 – $351) per ounce.
Cost of sales amounted to $20,513,700 (2014
– 7,733,481). Cash operating cost and all-in sustaining cash cost per AgEq ounce sold in H1, 2015 were $8.26 and $11.11 (Ag:Au
66.7:1) per ounce, respectively, compared to $6.81 and $10.04 (Ag:Au 66.7:1) per ounce in the comparable 2014 quarter. The increase
in cash operating cost per AgEq ounce sold for H1, 2015, is a result of additional direct production costs due to the transition
of Santa Elena during 2014 from an open pit heap leach operation to an underground mining and milling operation and partially offset
by the benefit of a weaker Mexican Peso. The increase in all-in sustaining cash operating cost per AgEq ounce sold for H1, 2015,
is a result of higher production costs and the inclusion of Santa Elena’s sustaining underground development, infrastructure
and equipment costs and partially offset by the benefit of a weaker Mexican Peso. Cash operating costs for H1, 2015 experienced
a favorable foreign exchange effect, as the average Mexican Peso rate weakened against the U.S. Dollar by 15% compared to H1, 2014.
Approximately 50% of H1, 2015 cash operating costs are in Mexican Pesos. (Refer to the “Non-IFRS Performance Measures”
section).
Depletion, depreciation and amortization increased
to $6,094,373 (2014 – $3,299,303) with the incorporation of a depletion charge for the underground mine and depreciation
charges for Santa Elena’s mill and CCD/MC processing facilities that were not recorded in H2, 2014.
Corporate and administrative expenses decreased
by 10% to $2,593,537 (2014 – $2,884,027) primarily due to a decrease in regulatory expenses and tradeshows and travel expenses
in the period, partially offset by an increase in Mexico corporate expenses. Regulatory expenses decreased by 72% to $74,996 (2014
– $272,027) primarily due to the onetime TSX listing fee incurred during Q1, 2014 as the Company’s shares commenced
trading on the TSX in February 2014. Tradeshows and travel expenses decreased by 51% to $192,842 (2014 – $391,647), with
less marketing and reduced corporate travel activities, due to implementation of cost cutting measures. Mexico corporate expenses
increased by 21% to $531,765 (2014 – $439,171) from the reallocation of a number of exploration personnel to administrative
positions in Mexico.
Share-based
compensation decreased to $767,786 (2014 – $1,106,233) with the vesting of
a lower number of stock options. The Company granted no incentive stock options during H1, 2015
(2014 – 250,000 with a weighted average fair value per option granted of CAD$0.85).
Current income tax expense amounted to $558,000
(2014 – $2,722,000). The decrease in income tax expense compared with H1, 2014, is primarily attributable to the Company
taking a 100% tax deduction for underground development costs incurred at Santa Elena.
Deferred tax expense amounted to $2,349,000
(2014 – recovery $717,000). The primary drivers for the change are essentially the same as those explained above in the three
month comparison.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
NON-IFRS PERFORMANCE
MEASURES
The Company uses performance indicators that
are not defined according to IFRS, such as “Cash flows from operations before changes in working capital items”, “Cash
flows per common share”, “Cash cost per AgEq ounce sold”, “All-in sustaining cash cost per AgEq ounce sold”,
“Adjusted earnings” and “Adjusted earnings per share”. These performance indicators are widely used in
the mining industry but are not standards prescribed by IFRS. The Company believes that some investors use these indicators, in
addition to the financial information prepared in accordance with IFRS, to evaluate the Company's performance and its ability to
generate cash flow.
Consequently, this information must be considered
supplementary and should not under any circumstances be regarded as a substitute for performance indicators prepared in accordance
with IFRS.
The following table provides a reconciliation
of cash provided by operating activities per the condensed consolidated interim financial statements to cash flows from operations
before working capital items and cash flows per common share:
For the periods ended June 30, | |
Three months ended | |
Six months ended |
| |
2015 | |
2014 | |
2015 | |
2014 |
Cash provided by operating activities | |
$ | 3,963,825 | | |
$ | 2,228,025 | | |
$ | 11,296,183 | | |
$ | 9,937,928 | |
Income taxes paid | |
| - | | |
| 1,512,000 | | |
| 830,000 | | |
| 5,690,000 | |
Change in non-cash working capital items | |
| 4,087,838 | | |
| (677,523 | ) | |
| 3,180,695 | | |
| (5,968,029 | ) |
Cash flows before changes in working capital items | |
$ | 8,051,663 | | |
$ | 3,062,502 | | |
$ | 15,306,878 | | |
$ | 9,659,899 | |
Weighted average number of common shares outstanding | |
| 118,753,205 | | |
| 118,728,205 | | |
| 118,753,205 | | |
| 115,042,542 | |
Cash flows per common share | |
$ | 0.07 | | |
$ | 0.03 | | |
$ | 0.13 | | |
$ | 0.08 | |
The following table provides a reconciliation
of cost of sales per the condensed consolidated interim financial statements to cash cost per silver equivalent ounce sold:
For the periods ended June 30, | |
Three months ended | |
Six months ended |
| |
2015 | |
2014 | |
2015 | |
2014 |
Direct production costs | |
$ | 12,455,588 | | |
$ | 2,115,993 | | |
$ | 23,210,412 | | |
$ | 6,102,124 | |
Amortization of leach pad ore inventory | |
| 308,395 | | |
| - | | |
| 616,893 | | |
| - | |
Capitalized to Santa Elena Mine EIP (1) | |
| - | | |
| (415,018 | ) | |
| - | | |
| (415,017 | ) |
Mining environmental duty (2) | |
| 104,000 | | |
| 39,000 | | |
| 203,000 | | |
| 105,000 | |
Inventory adjustment | |
| (2,511,781 | ) | |
| 1,306,983 | | |
| (3,516,605 | ) | |
| 1,941,374 | |
Cost of sales | |
$ | 10,356,202 | | |
$ | 3,046,958 | | |
$ | 20,513,700 | | |
$ | 7,733,481 | |
| |
| | | |
| | | |
| | | |
| | |
Total AgEq ounces sold (3) | |
| 1,286,589 | | |
| 479,384 | | |
| 2,483,431 | | |
| 1,188,439 | |
AgEq ounces capitalized to Santa Elena Mine EIP (1) | |
| - | | |
| (51,564 | ) | |
| - | | |
| (53,508 | ) |
AgEq ounces sold, reported in the statement of operations (3) | |
| 1,286,589 | | |
| 427,820 | | |
| 2,483,431 | | |
| 1,134,931 | |
Cash cost per AgEq ounce sold | |
$ | 8.05 | | |
$ | 7.12 | | |
$ | 8.26 | | |
$ | 6.81 | |
The following table provides a reconciliation
of cost of sales per the condensed consolidated interim financial statements to all-in sustaining cash cost per silver equivalent
ounce sold:
For the periods ended June 30, | |
Three months ended | |
Six months ended |
| |
2015 | |
2014 | |
2015 | |
2014 |
Direct production costs | |
$ | 12,455,588 | | |
$ | 2,115,993 | | |
$ | 23,210,412 | | |
$ | 6,102,124 | |
Amortization of leach pad ore inventory | |
| 308,395 | | |
| - | | |
| 616,893 | | |
| - | |
Capitalized to Santa Elena Mine EIP (1) | |
| - | | |
| (415,018 | ) | |
| - | | |
| (415,017 | ) |
Mining environmental duty (2) | |
| 104,000 | | |
| 39,000 | | |
| 203,000 | | |
| 105,000 | |
Inventory adjustment | |
| (2,511,781 | ) | |
| 1,306,983 | | |
| (3,516,605 | ) | |
| 1,941,374 | |
Cost of sales | |
$ | 10,356,202 | | |
$ | 3,046,958 | | |
$ | 20,513,700 | | |
$ | 7,733,481 | |
Corporate and administrative expenses | |
| 1,376,523 | | |
| 1,407,025 | | |
| 2,593,537 | | |
| 2,884,027 | |
Sustaining capital expenditures | |
| 219,635 | | |
| 27,001 | | |
| 445,674 | | |
| 177,718 | |
Sustaining underground development and infrastructure | |
| 1,956,600 | | |
| - | | |
| 3,540,765 | | |
| - | |
Exploration costs (4) | |
| 204,410 | | |
| 539,014 | | |
| 486,753 | | |
| 593,955 | |
Total all-in sustaining cash costs | |
$ | 14,113,370 | | |
$ | 5,019,998 | | |
$ | 27,580,429 | | |
$ | 11,389,181 | |
| |
| | | |
| | | |
| | | |
| | |
Total AgEq ounces sold (3) | |
| 1,286,589 | | |
| 479,384 | | |
| 2,483,431 | | |
| 1,188,439 | |
AgEq ounces capitalized to Santa Elena Mine EIP (1) | |
| - | | |
| (51,564 | ) | |
| - | | |
| (53,508 | ) |
AgEq ounces sold, reported in the statement of operations (3) | |
| 1,286,589 | | |
| 427,820 | | |
| 2,483,431 | | |
| 1,134,931 | |
All-in sustaining cash cost per AgEq ounce sold | |
$ | 10.97 | | |
$ | 11.73 | | |
$ | 11.11 | | |
$ | 10.04 | |
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
NON-IFRS PERFORMANCE MEASURES (continued)
The following table provides a reconciliation
of net earnings as reported in the Company’s condensed consolidated interim financial statements to adjusted earnings
and adjusted earnings per share:
For the periods ended June 30, | |
Three months ended | |
Six months ended |
| |
2015 | |
2014 | |
2015 | |
2014 |
Net earnings reported | |
$ | 3,866,560 | | |
$ | 1,314,350 | | |
$ | 6,378,141 | | |
$ | 3,782,338 | |
Adjustments for non-cash or non-recurring items | |
| | | |
| | | |
| | | |
| | |
Deferred revenue | |
| (554,299 | ) | |
| (167,066 | ) | |
| (1,017,917 | ) | |
| (516,692 | ) |
Deferred income tax expense (recovery) | |
| 785,000 | | |
| (715,000 | ) | |
| 2,349,000 | | |
| (717,000 | ) |
Share-based compensation | |
| 361,786 | | |
| 534,499 | | |
| 767,786 | | |
| 1,106,233 | |
Adjusted earnings | |
$ | 4,459,047 | | |
$ | 966,783 | | |
$ | 8,477,010 | | |
$ | 3,654,879 | |
Weighted average number of common shares outstanding | |
| 118,753,205 | | |
| 118,728,205 | | |
| 118,753,205 | | |
| 115,042,542 | |
Adjusted earnings per common share | |
$ | 0.04 | | |
$ | 0.01 | | |
$ | 0.07 | | |
$ | 0.03 | |
| (1) | Prior to completing the commissioning of Santa Elena’s underground mine, mill and CCD/MC processing facilities, proceeds
from the sale of silver and gold and related expenses were capitalized to the Santa Elena EIP. |
| (2) | The Mexican Environmental Mining Duty is based on 0.5% of gross revenues. |
| (3) | AgEq ratio for Q2 and H1, 2015 of 66.7 was calculated using metal prices of $1,200/oz for gold
and $18/oz for silver. For consistency with, comparative periods, the AgEq ratio reported during 2014 was changed from 60:1 to
66.7:1. |
| (4) | Exploration costs include only expenditures incurred in the relevant periods at Santa Elena. |
ADDITIONAL IFRS
MEASURES
The Company has included additional IFRS measures
which include mine operating earnings and operating earnings throughout this document and the condensed consolidated interim statements
of operations and comprehensive earnings. Management believes that, in addition to conventional measures prepared in accordance
with IFRS, certain investors use this information to evaluate the Company’s performance. Accordingly, they are intended to
provide additional information and should not be considered in isolation or as a substitute for measures of performance reported
in accordance with IFRS.
Mine operating earnings represent the difference
between metal revenues and cost of sales and depletion, depreciation and amortization. Management believes that this presentation
provides useful information to investors to evaluate the Company’s mine operating performance and to assess the Company’s
ability to generate operating cash flow.
Operating earnings represent the difference
between earnings from mine operations and corporate and administrative expenses. Management believes that this presentation provides
useful information to investors to evaluate the Company’s mine operating performance when also taking into account certain
costs not directly associated with production. The additional IFRS measures described above do not have a standardized meaning
prescribed by IFRS. As such, there are likely to be differences in the method of computation when compared to similar measures
presented by other issuers.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
SUMMARY OF QUARTERLY RESULTS
The following financial data is selected information
for the Company for the eight most recently completed financial quarters, prepared in accordance with IFRS:
| |
Q2 | |
Q1 | |
Q4 | |
Q3 | |
Q2 | |
Q1 | |
Q4 | |
Q3 |
| |
June
30,
2015 | |
March
31,
2015 | |
December
31,
2014 | |
September
30,
2014 | |
June
30,
2014 | |
March
31,
2014 | |
December
31,
2013 | |
September
30,
2013 |
Revenues | |
$ | 20,731,379 | | |
$ | 19,512,360 | | |
$ | 16,406,592 | | |
$ | 8,001,423 | | |
$ | 7,719,057 | | |
$ | 13,005,527 | | |
$ | 12,866,617 | | |
$ | 13,669,133 | |
Mine operating earnings (1) | |
| 7,294,238 | | |
| 6,341,428 | | |
| 1,828,422 | | |
| 1,847,918 | | |
| 3,094,202 | | |
| 6,597,598 | | |
| 6,062,522 | | |
| 6,924,458 | |
Net earnings (loss) for the period (2) | |
| 3,866,560 | | |
| 2,511,581 | | |
| (5,539,328 | ) | |
| 241,014 | | |
| 1,314,350 | | |
| 2,467,989 | | |
| (4,094,410 | ) | |
| 3,705,317 | |
Comprehensive earnings (loss) for the period
(2) | |
| 3,866,560 | | |
| 2,511,581 | | |
| (5,539,328 | ) | |
| 241,014 | | |
| 1,314,350 | | |
| 2,467,989 | | |
| (4,538,728 | ) | |
| 4,164,565 | |
EPS (LPS) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 0.03 | | |
| 0.02 | | |
| (0.05 | ) | |
| 0.01 | | |
| 0.01 | | |
| 0.02 | | |
| (0.04 | ) | |
| 0.03 | |
Diluted | |
| 0.03 | | |
| 0.02 | | |
| (0.05 | ) | |
| 0.01 | | |
| 0.01 | | |
| 0.02 | | |
| (0.04 | ) | |
| 0.03 | |
Cash divdends declared per
share (3) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Total assets (4) | |
| 185,739,600 | | |
| 181,013,006 | | |
| 177,268,624 | | |
| 185,813,151 | | |
| 180,537,473 | | |
| 179,507,383 | | |
| 143,507,653 | | |
| 139,899,279 | |
Total debt (5) | |
| 15,000,000 | | |
| 15,000,000 | | |
| 15,000,000 | | |
| 15,000,000 | | |
| 15,000,000 | | |
| 15,000,000 | | |
| - | | |
| - | |
Tax liabilities (6) | |
| 12,926,290 | | |
| 11,658,311 | | |
| 10,737,155 | | |
| 12,353,339 | | |
| 9,294,353 | | |
| 9,813,684 | | |
| 10,198,314 | | |
| 3,623,000 | |
Other liabilities | |
$ | 12,941,569 | | |
$ | 13,711,300 | | |
$ | 13,805,655 | | |
$ | 16,116,768 | | |
$ | 14,387,098 | | |
$ | 14,628,203 | | |
$ | 16,175,205 | | |
$ | 15,543,639 | |
| (1) | Mine operating earnings decreased significantly throughout fiscal 2014, primarily from less revenues
reported from lower metal prices and, prior to completing the commissioning of Santa Elena’s Expansion in Progress, SilverCrest
capitalized proceeds from sales of silver and gold ounces. Mine operating earnings have also been impacted by an increase in direct
production costs and depreciation charges as Santa Elena transitioned from an open pit heap leach operation to an underground mining
and milling operation. |
| (2) | Net and comprehensive earnings (loss) have fluctuated significantly from the impact of recording
the fair value changes of current income and deferred tax expense (recovery), foreign exchange gain (loss) on translation to United
States dollars, and impairment charges. The loss recorded in Q4, 2013, resulted primarily from the Company recording a one-time
non-cash deferred tax accounting expense of $5.8 million as a result of the enactment of the Mexican Tax Reform. The loss for Q4,
2014, resulted primarily from non-cash impairment charges totalling $5.0 million relating to crushing equipment no longer in use
at Santa Elena ($1.9 million) and exploration properties ($3.1 million). |
| (3) | The Company has not paid any dividends since incorporation, and currently does not plan to pay
dividends in the near term. |
| (4) | Total assets increased significantly during 2014, mainly from capital investment at the Santa Elena
Mine. In Q1, 2014, total assets increased primarily due to cash receipts of $20.8 million from the equity financing, the additional
$10 million Upfront Deposit from Sandstorm and the $15 million draw-down from the Facility with Scotiabank. |
| (5) | The available credit limit of the Scotia Bank Facility is currently $20 million, $15.0 million
drawn down with $5.0 million available, and will mature on July 11, 2016, subject to a one year extension of these dates by mutual
agreement. |
| (6) | Tax liabilities consist of current income tax expense relating to the estimate of tax payable from
Santa Elena operations and deferred tax expense (recovery) relating to differences between the financial statement carrying amounts
and the respective Mexican tax book bases. |
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
CASHFLOWS
For the periods ended June 30, | |
Three months ended | |
Six months ended |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
| |
| |
| |
|
Net earnings | |
$ | 3,866,560 | | |
$ | 1,314,350 | | |
$ | 6,378,141 | | |
$ | 3,782,338 | |
Items not affecting cash | |
| 4,185,103 | | |
| 1,748,152 | | |
| 8,928,737 | | |
| 5,877,561 | |
Cash flows from operations before changes in working capital items and income taxes | |
| 8,051,663 | | |
| 3,062,502 | | |
| 15,306,878 | | |
| 9,659,899 | |
Working capital items | |
| (4,087,838 | ) | |
| 677,523 | | |
| (3,180,695 | ) | |
| 5,968,029 | |
Income taxes paid | |
| - | | |
| (1,512,000 | ) | |
| (830,000 | ) | |
| (5,690,000 | ) |
Operating Activities | |
| 3,963,825 | | |
| 2,228,025 | | |
| 11,296,183 | | |
| 9,937,928 | |
| |
| | | |
| | | |
| | | |
| | |
Financing Activities | |
| - | | |
| (58,322 | ) | |
| - | | |
| 34,833,317 | |
| |
| | | |
| | | |
| | | |
| | |
Investing Activities | |
| (2,791,128 | ) | |
| (15,922,961 | ) | |
| (6,019,748 | ) | |
| (18,394,217 | ) |
| |
| | | |
| | | |
| | | |
| | |
Impact of exchange rate changes | |
| 33,648 | | |
| 90,034 | | |
| (130,783 | ) | |
| 44,185 | |
| |
| | | |
| | | |
| | | |
| | |
Net increase in cash and cash equivalents | |
| 1,206,345 | | |
| (13,663,224 | ) | |
| 5,145,652 | | |
| 26,421,213 | |
Cash beginning of period | |
| 35,190,450 | | |
| 54,519,890 | | |
| 31,251,143 | | |
| 14,435,453 | |
Cash end of period | |
$ | 36,396,795 | | |
$ | 40,856,666 | | |
$ | 36,396,795 | | |
$ | 40,856,666 | |
Operating Activities
The cash flow generated from operating activities
was $3,963,825 (2014 – $2,228,025) for the second quarter and $11,296,183 (2014 – $9,937,928) for H1, 2015. SilverCrest
maintained a strong cash flow from operations, compared to H1, 2014, despite lower metal prices and higher operating costs during
the period.
Financing Activities
There were no financing activities in H1, 2015.
On March 13, 2014, the Company completed a
prospectus offering for total gross proceeds of CAD$23.0 million ($20.8 million). The Company issued a total of 8,855,000 common
shares at a price of CAD$2.60 per share. Total share issuance costs amounted to $1,489,408.
In February 2014, SilverCrest drew down $15
million from the currently available $20 million Facility with Scotiabank. The proceeds were primarily used to fund Santa Elena
expansion expenditures.
During H1, 2014, the Company received $500,724
from the exercise of 955,000 incentive stock options.
Investing Activities
SilverCrest incurred $2,373,379 (2014 –
$15,582,416) during the second quarter and $4,705,441 (2014 – $26,238,005) during H1, 2015, primarily on Santa Elena underground
mine development, infrastructure and sustaining capital costs included within property plant and equipment.
In March 2014, the Company received a $10 million
contribution from Sandstorm as per the Sandstorm Purchase Agreement, and executed option held by Sandstorm to participate in the
future underground mine production which would require payment by Sandstorm of 20% (pro-rata of gold) of the capital cost for their
share of Santa Elena’s Expansion capital costs.
SilverCrest spent $490,567 (2014 – $1,311,254)
during the second quarter and $1,457,266 (2014 – $3,377,943) during H1, 2015 on exploration and evaluation expenditures,
primarily on the Ermitaño Property and the La Joya Project. During H1, 2014, the Company released the final cash payment
of $1.25 million on the La Joya West concessions upon receipt of title registration in Mexico, made a $0.6 million cash payment
on La Joya East concessions and incurred $1.5 million in exploration costs primarily at the La Joya Project and Ermitaño
Property.
The Company received interest income of $72,818
(2014 – $55,583) during the second quarter and $142,959 (2014 – $266,618) during H1, 2015.
Impact of exchange rate changes
As at June 30, 2015, the Company held $36.4
million (2014 – $40.9 million) in cash and cash equivalents, of which $33.4 million
(2014 – $40.3 million) were dominated in United States dollars, $0.5 million (2014
– $0.3 million) in Canadian dollars, and $2.5 million (2014 – $0.2 million)
in Mexican pesos. During the six months period ended June 30, 2015, the Company’s cash and cash equivalents were negatively
impacted by $130,783 (2014 – positively affected by $44,185) on translation to United
States dollars due to the weakening of the Canadian dollar and Mexican Peso against the United States dollar. The Company has not
entered into any agreements or purchased any instruments to hedge currency risks at this time.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
LIQUIDITY AND CAPITAL RESOURCES
| |
| |
2015 | |
2014 |
Assets | |
| |
| | | |
| | |
Current assets | |
| |
| | | |
| | |
Cash and cash equivalents | |
(i) | |
$ | 36,396,795 | | |
$ | 31,251,143 | |
Taxes receivable | |
(i) | |
| 11,206,227 | | |
| 8,287,598 | |
Inventories | |
(i) | |
| 10,274,044 | | |
| 5,166,427 | |
Other current assets | |
(i) | |
| 838,979 | | |
| 3,458,396 | |
Non-current assets | |
| |
| 127,023,555 | | |
| 129,105,060 | |
| |
| |
| | | |
| | |
Total Assets | |
| |
$ | 185,739,600 | | |
$ | 177,268,624 | |
| |
| |
| | | |
| | |
Liabilities | |
| |
| | | |
| | |
Current liabilities | |
| |
| | | |
| | |
Deferred revenue | |
(ii) | |
$ | 1,886,078 | | |
$ | 1,769,198 | |
Accounts payable and accrued liabilities | |
(ii) | |
| 4,807,967 | | |
| 4,267,257 | |
Taxes payable | |
(ii) | |
| 1,020,290 | | |
| 1,180,155 | |
Non-current liabilities | |
| |
| | | |
| | |
Deferred tax liabilities | |
| |
| 11,906,000 | | |
| 9,557,000 | |
Credit facility obligation | |
| |
| 15,000,000 | | |
| 15,000,000 | |
Other non-current liabilities | |
| |
| 6,247,524 | | |
| 7,769,200 | |
| |
| |
| | | |
| | |
Total Liabilities | |
| |
$ | 40,867,859 | | |
$ | 39,542,810 | |
| |
| |
| | | |
| | |
Working Capital | |
(i-ii) | |
$ | 51,001,710 | | |
$ | 40,946,954 | |
ASSETS
At June 30, 2015, SilverCrest held cash and
cash equivalents of $36.4 million (December 2014 – $31.3 million). SilverCrest continues to monitor cash resources against
expenditures forecasts associated with implementation of the Company’s growth strategies.
Taxes receivable at June 30, 2015, were $11,206,227
(December 2014 – $8,287,598), which consisted of value added taxes receivable (“VAT”) of $7,213,184 (December
2014 – $3,603,901) and income tax receivable (“ITR”) of $3,993,043 (December 2014 – $4,683,697). VAT receivables
are taxes paid in Mexico, and are due to be refunded or deducted from income taxes payable. The Company is advised that delayed
VAT refunds are currently pervasive in Mexico. The Company is working with its advisors and the authorities to expedite returns
of VAT refunds. ITR relates to monthly income tax payments paid in Mexico in 2014. The ITR balance will be applied against 2015
income tax installments. Both tax receivable balances have been negatively impacted by the weakening of the Mexican peso against
the US Dollar. SilverCrest translated its Mexican Peso balances at 15.6:1 at June 30, 2015 compared to 14.7:1 at December 31, 2014.
The inventories balance primarily relates to
supplies, finished goods and leach pad ore at Santa Elena. The leach pad ore carrying balance at June 30, 2015, including the non-current
amount was $6.8 million (December 2014 – $7.4 million). The leach pad ore inventory is measured based on the lower of average
cost per ounce of silver and gold and net realizable value and will be expensed as leach pad ore tonnes are processed through the
mill. The Company recognizes a portion of the leach pad ore inventory in cost of sales based on the number of pad ore tonnes processed
in the period, to the total tonnes remaining on the leach pad. During the six months ended June 30, 2015, the Company recognized
$616,893 (June 30, 2014 – $Nil) in cost of sales related to pad ore tonnes processed through the mill.
In finished goods at June 30, 2015, SilverCrest
had dore bars containing 5,090 (December 2014 – 1,046) ounces of gold, including Sandstorm’s allocation, and 247,841
(December 2014 – 31,514) ounces of silver.
Property, plant and equipment decreased to
$103.4 million (December 2014 – $106.3 million). During the six months ended June 30, 2015, SilverCrest added $4.4 million
primarily from the development and infrastructure of the underground mine and sustaining capital, reduced by a change in estimate
in asset retirement obligations of $0.6 million and depreciation and depletion charge of $ 6.7 million.
Exploration and evaluation assets increased
to $18.0 million (December 2014 – $16.4 million) from exploration and evaluation expenditures incurred at the Ermitaño
Property ($1.2 million) and the La Joya Project ($0.3 million).
LIABILITIES
Deferred revenue decreased to $4.5 million
(December 2014 – $5.5 million), resulting from the delivery of 4,883 (June 30, 2014 – 2,479) gold ounces to Sandstorm.
As deliveries of gold are made to Sandstorm, the Company recognizes a portion of the deferred revenue as operating revenue. The
amount recognized for H1, 2015, is based on the proportion of gold ounces sold to Sandstorm in the period, to 50,000 (2014 –
50,000) ounces of gold deliverable to Sandstorm.
Accounts payable and accrued liabilities increased
to $4.8 million (December 2014 – $4.3 million). The balance relates primarily to various ongoing operational and exploration
commitments in Mexico.
The credit facility obligation relates to the
$15 million drawn down from the currently available $20 million Facility with Scotiabank. The credit facility will mature on July
11, 2016, subject to a one year extension of these dates by mutual agreement.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
LIQUIDITY OUTLOOK
At current precious metals prices, SilverCrest
is confident that its $36.4 million (June 30, 2015) cash and cash equivalents balance, the cash flow expected to be generated from
the operation of the Santa Elena Mine, and the $20 million Facility with Scotiabank ($15 million drawn down at June 30, 2015),
will enable the Company to complete its growth strategies and meet its contractual obligations for the next twelve months. The
significant capital and exploration expenditures for H2, 2015 include the following:
Santa Elena Sustaining Capital ($11.6 million):
| · | Sustaining Development Costs – $5.8
million. (6 months; $2.4 million) |
| · | Sustaining Property, Plant and Equipment
Costs – $3.2 million. (6 months; $1.5 million) |
| · | Sustaining Exploration Costs: |
| o | Surface program – $1.9 million. (6 months; $ 0.5 million) |
| o | Definition drill program – $0.7 million. (scheduled in H2, 2015) |
Exploration Expenditures ($2.4 million):
| · | Sonora – Exploration Properties
30/60 km radius from Santa Elena Operations – $2.4 million. (6 months; $1.5 million) |
Note: Exploration expenditures may be adjusted
throughout the year depending on success.
SANTA ELENA MINE
– UPDATE
Operating Statistics | |
H1 2015 | |
Q2 2015 | |
Q1 2015 | |
H1 2014 |
| |
| |
| |
| |
|
Tonnes milled (t) | |
| 549,778 | | |
| 278,386 | | |
| 271,392 | | |
| 40,122 | |
Average tpd milled | |
| 3,037 | | |
| 3,059 | | |
| 3,015 | | |
| 1,337 | |
Average silver grade processed through mill (g/t) | |
| 95.92 | | |
| 103.37 | | |
| 88.27 | | |
| 54.15 | |
Average gold grade processed through mill (g/t) | |
| 1.65 | | |
| 1.65 | | |
| 1.66 | | |
| 0.79 | |
Silver recovery per mill (1) | |
| 68 | % | |
| 74 | % | |
| 60 | % | |
| 74 | % |
Gold recovery per mill (1) | |
| 94 | % | |
| 96 | % | |
| 91 | % | |
| 80 | % |
Silver ounces produced (2) | |
| 1,146,694 | | |
| 681,302 | | |
| 465,391 | | |
| 374,066 | |
Silver ounces sold | |
| 928,320 | | |
| 515,070 | | |
| 413,250 | | |
| 361,826 | |
| |
| | | |
| | | |
| | | |
| | |
Gold ounces produced (2) | |
| 27,392 | | |
| 14,137 | | |
| 13,255 | | |
| 11,499 | |
Gold ounces sold | |
| 23,315 | | |
| 11,567 | | |
| 11,748 | | |
| 12,393 | |
Ounces delivered to spot market | |
| 18,432 | | |
| 8,908 | | |
| 9,524 | | |
| 9,914 | |
Ounces delivered to Sandstorm | |
| 4,883 | | |
| 2,659 | | |
| 2,224 | | |
| 2,479 | |
| |
| | | |
| | | |
| | | |
| | |
Silver equivalent ounces produced (3) | |
| 2,973,738 | | |
| 1,624,211 | | |
| 1,349,527 | | |
| 1,141,044 | |
Silver equivalent ounces sold (3) | |
| 2,483,431 | | |
| 1,286,589 | | |
| 1,196,842 | | |
| 1,188,439 | |
Ag: Au ratio (3) | |
| 66.7:1 | | |
| 66.7:1 | | |
| 66.7:1 | | |
| 66.7:1 | |
(1) Estimated recoveries are as
reported, based on calculated grade.
(2) Silver and gold ounces produced
for H1, 2014, consist of ounces recovered from the leach pad which commenced decommissioning during Q2, 2014.
(3) AgEq ratio for 2015, of 66.7:1
was calculated using metal prices of $1,200/oz for gold and $18/oz for silver. For consistency with, comparative periods, the AgEq
ratio reported during 2014 was changed from 60:1 to 66.7:1.
During Q2, 2015, the mill processed a quarterly
record of 278,386 tonnes (Q1 2015 – 271,392), with a daily average of 3,059 tpd (Q1, 2015 – 3,015). The plant processed
open pit and underground ore at 49% (Q1, 2015 – 48%) blended with 51% (Q1, 2015 – 52%) leach pad ore. The average grades
processed during Q2, 2015 for open pit and underground ore were 165.8 gpt silver (Q1, 2015 – 124.8) and 2.71 gpt gold (Q1,
2015 – 2.55). Leach pad ore grades were 43.0 gpt silver (Q1, 2015 – 54.8) and 0.62 gpt gold (Q1, 2015 – 0.85).
Mill recovery rates for Q2, 2015 averaged 96%
(Q1, 2015 – 91%) for gold and 74% (Q1, 2015 – 60%) for silver. The 23% increase in silver recoveries from Q1, 2015
was due to increased cyanide levels and aeration (pressurized air) into the mill leach tanks. H2 mill recovery rates are expected
to be similar to Q2. The average mill feed blend was 103.3 gpt silver and 1.65 gpt gold, a 17% increase in silver and a 1% decrease
in gold from Q1 2015.
The Santa Elena open pit was temporarily reopened
in January 2015, and 71,394 tonnes with average grades of 142.0 gpt silver and 2.66 gpt gold were mined. The Company market guidance
for 2015 which was announced on January 15, 2015 did not account for re-opening the pit, therefore, part of H1 higher production
reflects this positive impact. Pit operations were shut down in April 2015, due to pit constraints. The remaining unmined 50,312
tonnes of open pit reserves will be included in underground reserves.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
SANTA ELENA MINE
– UPDATE (continued)
During Q2, 2015, a daily average of 1,174 (Q1,
2015 – 1,080) tonnes was mined from underground which includes daily mining of two to three long hole stopes and development
ore. Grade reconciliations are ongoing with volumes to date in line with the block model and grades higher than expected. SilverCrest
plans in H2, 2015 to continue to improve and optimize underground stoping, and explore and develop the higher grade El Cholugo
Zone (Alejandra Veins). The Company expects to achieve an underground mining rate of up to 1,500 tpd during H2, 2015. Average mill
feed volume at 3,000 tpd is targeted at approximately 40% underground ore and 60% leach pad ore with no contribution from open
pit ore for H2, 2015.
EXPLORATION PROPERTIES
Santa Elena – MEXICO
A 5 hole drill program is ongoing to evaluate
extension of the MMZ to the east. In Q3 2015, a 2 to 4 hole drill program will be completed to test expansion of the El Cholugo
(Alejandra Veins) Zone.
Exploration drifting continues on the El Cholugo
(Alejandra Veins) Zone with 920 metres of drifting to date on four levels.
Sonora Properties – MEXICO
ERMITAÑO CONCESSIONS
At Ermitaño East, 3 core holes were drilled in H1, 2015,
for a total 791.7 metres. Data is under review. At Veta Valentina, 7 core holes were drilled in H1 2015 for a total 1,089 metres.
Data is under review.
CUMOBABI CONCESSIONS
In Q2 2015, the Company's emphasis was on determining areas within
the 23,308 hectare concession land package to drop for cost savings. Approximately 7,000 hectares were determined for dropping
but will be held for further review until at least January 2016.
OUTSTANDING SHARE
CAPITAL
Capital stock
| a) | Unlimited number of common shares without par value authorized |
| b) | Unlimited number of preferred shares without par value (none outstanding) authorized |
As at June 30, 2015, SilverCrest had 118,753,205
common shares outstanding. In addition, SilverCrest had 10,600,000 outstanding share purchase options with exercise prices ranging
between CAD$1.05 and CAD$2.60 per share which, if exercised, would result in fully diluted common shares outstanding of 129,353,205.
As at the date hereof, SilverCrest had 118,753,205
common shares outstanding. In addition, SilverCrest had 10,520,000 outstanding share purchase options with exercise prices ranging
between CAD$1.05 and CAD$2.60 per share which, if exercised, would result in fully diluted common shares outstanding of 129,273,205.
Subsequent to June 30, 2015, 80,000 incentive stock options with exercise prices ranging between CAD$1.55 and CAD$1.68 per share
expired unexercised.
More information on these instruments and the
terms of their conversion is set out in note 10 of the condensed consolidated interim financial statements.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
COMMITMENTS
The following table lists as of June 30,
2015 information with respect to the Company’s known contractual obligations.
Payments due by period (in thousands of dollars and denominated in U.S. dollars) |
Contractual Obligations | |
Total | |
Less than 1 year | |
1 – 3 years | |
3 – 5 years | |
More than 5 years |
Operating Lease Obligations | |
$ | 199 | | |
$ | 199 | | |
$ | Nil | | |
$ | Nil | | |
$ | Nil | |
Accounts payable and accrued liabilities | |
$ | 4,808 | | |
$ | 4,808 | | |
$ | Nil | | |
$ | Nil | | |
$ | Nil | |
Taxes payable | |
$ | 1,020 | | |
$ | 1,020 | | |
$ | Nil | | |
$ | Nil | | |
$ | Nil | |
Credit Facility (1) | |
$ | 15,000 | | |
$ | Nil | | |
$ | 15,000 | | |
$ | Nil | | |
$ | Nil | |
Asset Retirement Obligations (2) | |
$ | 3,640 | | |
$ | Nil | | |
$ | Nil | | |
$ | Nil | | |
$ | 3,640 | |
Deferred Revenue (3) | |
$ | 4,494 | | |
$ | 1,886 | | |
$ | 2,608 | | |
$ | Nil | | |
$ | Nil | |
Total | |
$ | 29,161 | | |
$ | 7,913 | | |
$ | 17,608 | | |
$ | - | | |
$ | 3,640 | |
| 1) | In February 2014, SilverCrest drew down $15 million from the available $20 million Facility with
Scotiabank. |
| 2) | Asset retirement obligations relate to the operation of the Santa Elena Mine and La Joya Project.
The fair value of the estimated future expenditures required to settle the Company’s reclamation and remediation obligations
as at June 30, 2015, has been estimated to be $3.6 million, using a long-term inflation rate of 4.1%, a discount rate of 10.0%
and remaining projected mine life of eight years. |
| 3) | Deferred revenue relates to the Upfront Deposit from Sandstorm for the future delivery of gold
ounces at contract prices and to common shares of Sandstorm received by the Company for the guarantee of obligations under a definitive
Purchase Agreement dated May 14, 2009 between Sandstorm and a wholly-owned Mexican subsidiary of the Company. Once deliveries of
gold are made to Sandstorm, the Company recognizes a portion of the deferred revenue as sales on the basis of the proportion of
gold ounces sold to Sandstorm over the 50,000 (2014 – 50,000) ounces of gold deliverable to Sandstorm. |
OFF BALANCE SHEET
ARRANGEMENTS
As at June 30, 2015, the Company had no off
balance sheet arrangements.
RELATED PARTY TRANSACTIONS
The Company entered into the following transactions
with related parties:
Legal Fees
Paid or accrued $82,838 (June 30, 2014 –
$88,666) for legal fees, which were included in professional fees, and $nil (June 30, 2014 – $131,548) for share issuance
costs to Koffman Kalef LLP, a law firm in which the Company’s Corporate Secretary is partner. The Company recognized $1,227
(June 30, 2014 – $10,513) in share-based payments to this officer.
Key Management Compensation (1)
| |
June 30, 2015 | |
June 30, 2014 |
Salaries and short-term benefits (2) | |
$ | 433,452 | | |
$ | 426,440 | |
Directors' fees | |
| 86,310 | | |
| 63,778 | |
Share-based payments | |
| 672,602 | | |
| 669,552 | |
| |
$ | 1,192,364 | | |
$ | 1,159,770 | |
| (1) | SilverCrest’s key management personnel have authority and responsibility for planning, directing and controlling the
activities of the Company. |
| (2) | Total remuneration paid to the Chief Operating Officer, the Chief Executive Officer, the Chief
Financial Officer and Interim President of SilverCrest. |
Other transactions
Paid $89,101 (June 30, 2014 – $89,124)
for technical and administrative services and recognized $12,399 (June 30, 2014 – $23,608) in share-based payments to immediate
family members of individuals who are part of key management personnel.
The Company shares rent, salaries, administrative
services and other reimbursable expenses with Goldsource Mines Inc. (“Goldsource”), a company related by common directors
and officers. During the six month period ended June 30, 2015, the Company incurred $74,390 (June 30, 2014 – $85,069) on
behalf of Goldsource for these services, of which $39,387 (December 31, 2014 – $15,347) is receivable at June 30, 2015.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
FINANCIAL INSTRUMENTS
The Company’s
financial instruments consist of cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities and credit
facility. They are initially recorded at amounts that approximate their fair values. The Company is exposed to various financial
instrument risks, and assesses the impact and likelihood of this exposure. These risks include liquidity risk, credit risk, foreign
currency risk, interest rate risk and commodity price risk. Where material, these risks are reviewed and monitored by the Board
of Directors.
Liquidity
risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has in place
a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet
its operating and growth objectives. The Company maintains adequate cash balances in order to meet short and long term business
requirements, after taking into account cash flows from operations, and believes that these sources will be sufficient to cover
the likely short and long term cash requirements. The Company’s cash and cash equivalents is invested in business accounts
with quality financial institutions, and is available on demand for the Company’s programs, and is not invested in any asset
backed commercial paper.
Credit risk
is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations.
The Company’s credit risk is primarily attributable to its liquid financial assets, including cash and cash equivalents,
amounts receivable and taxes receivable. The Company limits exposure to credit risk on liquid financial assets through maintaining
its cash and cash equivalents with high-credit quality financial institutions. Valued added tax receivables are generated on the
purchase of supplies and services for operations, which are refundable from the Mexican government. The Company believes these
institutions to be of sound credit worthiness, and to date, all receivables have been settled in accordance with agreed upon term
and conditions.
The carrying
amount of financial assets, as stated in the condensed consolidated interim statement of financial position, represents the Company’s
maximum credit exposure.
The Company operates in Canada and Mexico,
and is therefore exposed to foreign exchange risk arising from transactions denominated in a foreign currency. The operating results
and the financial position of the Company are reported in United States dollars. The fluctuations of the operating currencies in
relation to the United States dollar will, consequently, have an impact upon the reporting results of the Company, and may also
affect the value of the Company’s assets and liabilities. The Company has not entered into any agreements or purchased any
instruments to hedge possible currency risks at this time.
The Company’s
exposure to interest rate risk arises from the interest rate impact on its cash and cash equivalents, short term investments and
corporate credit facility. The Company’s practice has been to invest cash at floating rates of interest, in cash equivalents
and short term investments, in order to maintain liquidity, while achieving a satisfactory return for shareholders. There is minimal
risk that the Company would recognize any loss as a result of a decrease in the fair value of any term deposit or guaranteed bank
investment certificate, as they are held with large and stable financial institutions. The Company monitors its exposure to interest
rates and has not entered into any derivative contracts to manage this risk. At June 30, 2015, with all other variables unchanged,
a 1 percentage point change in interest rates would not have a significant impact on the Company’s comprehensive earnings
for the period.
Commodity
price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities.
The commodity price risk could affect whether some resources are extracted and the completion of future equity transactions such
as equity offerings and the exercise of stock options. The Company closely monitors prices of precious metals, individual equity
movements, and the stock market to determine the appropriate course of action to be taken by the Company. The Company has not engaged
in any hedging activities, other than short term metal forward sales contracts and commodity option contracts less than 90 days,
to reduce its exposure to commodity price risk.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
CRITICAL JUDGMENT
AND ESTIMATES
The preparation of the condensed consolidated
interim financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect
the reported amounts and the valuation of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the condensed consolidated interim financial statements and the reported amounts of revenues and expenditures during the
year.
These judgments and estimates are continuously
evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. Actual results
may differ from the estimates. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s
assets and liabilities are accounted for prospectively. Management has made the following critical judgments and estimates:
Critical Judgments in applying Accounting
Policies
The critical judgments that the Company’s
management has made in the process of applying the Company’s accounting policies, apart from those involving estimations,
that have the most significant effect on the amounts recognized in the Company’s condensed consolidated interim financial
statements are as follows:
Commencement of Commercial Production
The determination of the date on which a mine
or mill enters the production stage is a significant judgment since capitalization of certain costs ceases and depletion and amortization
of capitalized costs commence upon entering production. As a mine or mill is constructed and commissioned, costs incurred are capitalized
and proceeds from mineral sales are offset against the capitalized costs. This continues until the mine or mill is capable of operating
in the manner intended by management, which requires significant judgment in its determination.
Economic Recoverability and Probability of Future Economic Benefit
of Exploration, Evaluation and Development Costs
Management has determined that costs related
to exploration drilling, evaluation studies and other development work that have been capitalized have probable future benefit
and are economically recoverable. Management uses several criteria in its assessments of economic recoverability and probability
of future economic benefit including geologic and metallurgic information, history of conversion of mineral deposits to probable
reserves, scoping and feasibility studies, accessible facilities, existing permits and life of mine plans.
Functional Currency
The functional currency for each of the Company’s
subsidiaries is the currency of the primary economic environment in which the entity operates. For fiscal 2014 and 2015, the Company
had determined the functional currency of its Canadian and Mexican operations to be the United States dollar. Determination of
functional currency may involve certain judgments to determine the primary economic environment and the Company reconsiders the
functional currency of its entities if there is a change in events and conditions which determined the primary economic environment.
Deferred revenue
The measurement of the Company’s Purchase
Agreement with Sandstorm requires significant judgment and careful consideration of the facts and circumstances. Management determined
in fiscal 2009, that the ‘own use’ exemption applied to the receipt of the initial Upfront Deposit and common shares
so accounted for this as a commodity arrangement and recorded the deemed value as deferred revenue. In fiscal 2014, SilverCrest
received an additional $10 million Upfront Deposit from Sandstorm as a contribution towards Santa Elena’s expansion capital
costs and treated this as a reduction to the carrying value of the Santa Elena EIP asset.
Key Sources of Estimation Uncertainty
The significant assumptions about the future
and other major sources of estimation uncertainty as at the end of the reporting period that have a significant risk of resulting
in a material adjustment to the carrying amounts of the Company’s assets and liabilities are as follows:
Reserves and Resources
Estimates of the quantities of probable reserves
are used in the calculation of depletion expense, and forecasting the timing of the payments related to the asset retirement obligations.
Figures for reserves are determined in accordance with NI 43-101 of the Canadian Securities Administrators and Canadian Institute
of Mining, Metallurgy and Petroleum standards. Probable reserves are the economically mineable parts of the Company’s measured
and indicated mineral resources demonstrated by at least a preliminary feasibility study. The Company estimates its probable reserves
based on information compiled by appropriately qualified persons. The information relating to the geological data on the size,
depth and shape of an orebody requires complex geological judgments to interpret the data. The estimation of future cash flows
related to probable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital
requirements and production costs, along with geological assumptions and judgments made in estimating the size and grade of the
orebody. Changes in the probable reserves may impact the carrying value of property, plant and equipment, asset retirement obligations,
recognition of deferred tax amounts and depletion expense. Mining assets are depreciated on a UOP basis over the probable
reserves to which they relate; resources are not included in probable reserves or the calculation of depletion.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
CRITICAL JUDGMENT AND ESTIMATES (continued)
On March 31, 2015, the Company filed a Technical
Report prepared in compliance with NI 43-101 titled, Update to Santa Elena Pre-Feasibility Study, Sonora, Mexico, (“UPFS”)
for its operating Santa Elena mine. The UPFS updates the Santa Elena Pre-Feasibility Study and Open Pit Reserve Update, dated
effective April 30, 2013, as amended March 4, 2014. For further information on the UPFS, please refer to the News Release dated
March 31, 2015 on the Company’s website at www.silvercrestmines.com, and filed on SEDAR at www.sedar.com.
Effective January 1, 2015, the Company updated its depletion, depreciation and amortization estimate and asset retirement obligation
to reflect the renewed 8 year mine life for Santa Elena. The Company revised its asset retirement obligation model input assumptions
to reflect the revised 8 year mine life of Santa Elena, which resulted in a reduction of the carrying value in the amount of $573,205.
Impairment of Non-Current Assets
The Company considers both external and internal
sources of information at the end of each quarter in assessing whether there are any indications that its capital projects are
impaired. External sources of information the Company considers include changes in the market, economic and legal environment in
which the Company operations that are not within its control and affect the recoverable amount of non-current assets. Internal
sources of information the Company considers include the manner in which mineral properties and property, plant and equipment are
being used or expected to be used and indications of economic performance of the asset.
Calculating the estimated fair values of cash
generating units for non-current asset impairment tests requires management to make estimates and assumptions with respect to metal
selling prices, future capital expenditures, reductions in the amount of recoverable reserves, resources, and exploration potential,
production cost estimates, discount rates and exchange rates. Reductions in metal price forecasts, increases in estimated future
costs of production, increases in estimated future non-expansionary capital expenditures, reductions in the amount of recoverable
reserves, resources, and exploration potential, and/or adverse current economics can result in a write-down of the carrying amounts
of the Company’s non-current assets.
As at June 30, 2015, management did not identify
indicators of impairment for Santa Elena. As a result, an impairment test was not required for the six months ended June 30, 2015.
Depreciation and depletion
The Company’s PPE and mining assets are
depreciated and depleted over the estimated asset lives and probable ore reserves. Should the asset life, ore reserves, depletion
rates or depreciation rates differ from the initial estimate, the change in estimate would be made prospectively in the condensed
consolidated interim statements of operations and comprehensive earnings.
Inventories and cost of sales
Silver and gold in process, pad ore and unprocessed
ore in stockpiles are valued at the lower of cost and net realizable value. Net realizable value is calculated at the estimated
price at the time of sale based on prevailing and future metal prices less estimated future production costs to covert the inventories
into saleable form and associated selling costs. The determination of future sales price, production and selling costs requires
significant assumptions that may impact the stated value of our inventories. Changes in these estimates can result in a change
in cost of sales of future periods and carrying amounts of inventories.
Income Taxes
Management is required to make estimations
regarding the tax basis of assets and liabilities and related deferred income tax assets and liabilities, the measurement of income
tax expense and indirect taxes. A number of these estimates require management to make estimates of future taxable profit, and
if actual results are significantly different than our estimates, the ability to realize the deferred tax assets recorded on our
consolidated statements of financial position could be impacted. The Company is subject to assessments by tax authorities who may
interpret the tax law differently. These factors may affect the final amount or the timing of tax payments.
Share-based payments
SilverCrest uses the Black-Scholes Option Pricing
Model for valuation of share-based payments. Option pricing models require the input of the subjective assumptions including expected
price volatility, interest rate and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate
and the Company’s earnings and equity reserves.
Provisions for Asset Retirement Obligations
The Company’s provision for asset retirement
obligations represents management’s best estimate of the present value of the future cash outflows required to settle the
liability. Management assesses these provisions on an annual basis or when new information becomes available. This assessment includes
the estimation of the future rehabilitation costs, the timing of these expenditures, inflation, and the impact of changes in discount
rates, interest rates and foreign exchange rates. The actual future expenditures may differ from the amounts currently provided
if the estimates made are significantly different than actual results or if there are significant changes in environmental and/or
regulatory requirements in the future.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
NEW STANDARDS NOT
YET ADOPTED
The IASB
issued the following pronouncements that are effective for years beginning January 1, 2016, or later and may affect the Company’s
future consolidated financial statements:
| · | IFRS 9 – Financial Instruments; |
| · | IFRS 15 – Revenue from Contracts with Customers; and |
| · | IAS 16 – Property, Plant & Equipment and IAS 38 –
Intangibles. |
These new
and revised accounting standards have not yet been adopted by SilverCrest, and the Company has not yet completed the process of
assessing the impact that they will have on its consolidated financial statements, or whether to early adopt these new requirements.
CAUTIONARY STATEMENT
AND FORWARD-LOOKING STATEMENT DISCLAIMER
Readers of this MD&A are encouraged to
read the “Risk Factors” contained in the Company’s Annual Information Form (“AIF”) dated March 31,
2015. There have been no major changes from the reported risks factors outlined in the AIF. Important risk factors to consider,
among others, are
| · | Precious and base metal price fluctuations |
| · | Operating hazards and risks |
| · | Calculation of reserves and resources and precious metal recoveries |
| · | Substantial volatility of share price |
The AIF is available on the Company’s website at www.silvercrestmines.com
and on the SEDAR website under the Company’s profile at www.sedar.com.
Certain statements contained in this MD&A
and elsewhere constitute “forward-looking statements” within the meaning of Canadian securities legislation and the
United States Securities Litigation Reform Act of 1995. Such forward-looking statements concern the Company’s anticipated
benefits of the Arrangement to First Majestic, SilverCrest and their respective shareholders; the timing and receipt of required
shareholder, court, stock exchange, creditor and regulatory approvals for the Arrangement; the ability of First Majestic and SilverCrest
to satisfy the other conditions to, and to complete, the Arrangement; the anticipated timing of the mailing of the joint information
circular regarding the Arrangement; the closing of the Arrangement; the listing of the New SilverCrest shares on the TSX Venture
Exchange; anticipated results and developments in the Company’s operations in future periods, planned exploration and development
of its properties, plans related to its business and other matters that may occur in the future and include, without limitation,
statements with respect to: the economic viability of a project; strategic plans and expectations for the development of the Company’s
operations and properties; the estimated amount of probable mineral reserves and indicated and inferred mineral resources; the
amount of future production of gold and silver over any period; the amount of expected grades and ounces of metals and minerals;
expected metal or mineral recoveries; expected cash operating costs and outflows; life of mine; and prices of metals and minerals.
These forward-looking statements relate to
analyses and other information that are based on, without limitation, the following estimates and assumptions: the time required
to prepare and mail shareholder meeting materials, including the required joint information circular; the ability of the parties
to receive, in a timely manner, the necessary shareholder, court, stock exchange, creditor and regulatory approvals; and the ability
of the parties to satisfy, in a timely manner, the other conditions to the closing of the Arrangement; the presence of and continuity
of metals at the Company’s projects; cost of production and productivity levels; plant and equipment for operations and development
functioning as anticipated; ability for contracted parties to provide goods and services on agreed time frame; ability to develop
and finance projects; accuracy of the interpretations and assumptions used in calculating reserve and resource estimates; and operations
not being disrupted or delayed by unusual geological or technical problems.
Forward-looking statements are subject to a
variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those
expressed or implied by the forward-looking statements, including, without limitation: the satisfaction or waiver of all applicable
conditions to closing of the Arrangement including, without limitation, receipt of all necessary shareholder, court, stock exchange,
creditor and regulatory approvals or consents and lack of material changes with respect to First Majestic and SilverCrest and their
respective businesses, all as more particularly set forth in the Arrangement Agreement; the synergies expected from the Arrangement
not being realized; business integration risks; risks related to precious and base metal price fluctuations; risks related to fluctuations
in the currency markets (particularly the Mexican peso, Canadian dollar and United States dollar); risks related to the inherently
dangerous activity of mining, including conditions or events beyond our control, and operating or technical difficulties in mineral
exploration, development and mining activities; uncertainty in the Company’s ability to fund the exploration and development
of its mineral properties; uncertainty as to actual capital costs, operating costs, production and economic returns, and uncertainty
that development activities will result in profitable mining operations; risks related to reserves and mineral resource figures
being estimates based on interpretations and assumptions which may result in less mineral production under actual conditions than
is currently estimated and to diminishing quantities or grades of mineral reserves as properties are mined; and risks related to
the business being subject to environmental laws and regulations which may increase costs of doing business and restrict our operations.
SILVERCREST MINES INC. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS |
|
For the six months ended June 30, 2015 |
NYSE MKT: SVLC TSX: SVL FSE: CW5 |
CAUTIONARY STATEMENT
AND FORWARD-LOOKING STATEMENT DISCLAIMER (continued)
This list is not exhaustive of the factors
that may affect our forward-looking statements. Should one or more of these risks and uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements. The Company’s
forward-looking statements are based on beliefs, expectations and opinions of management on the date the statements are made. For
the reasons set forth above, investors should not place undue reliance on forward-looking statements. The Company undertakes no
obligation to update or revise any forward-looking statements included in this MD&A if these beliefs, estimates and opinions
or other circumstances should change, except as otherwise required by applicable law.
DISCLOSURE CONTROLS
AND PROCEDURES and internal control over financial reporting
Management of the Company, under the supervision
of the Chairman and Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), is responsible
for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures are designed to
provide reasonable assurance that material information related to the Company, including its consolidated subsidiaries, is made
known to the Company’s certifying officers. The Company’s CEO and CFO believe that the Company’s disclosure controls
and procedures are effective in providing reasonable assurance that information required to be disclosed under applicable securities
regulations is recorded, processed, summarized and reported within the time periods specified. Management regularly reviews the
Company’s disclosure controls and procedures; however, they cannot provide an absolute level of assurance because of the
inherent limitations in cost effective control systems to prevent or detect all misstatements due to error or fraud.
Management is responsible for establishing
and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS. The
Company uses the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") internal control framework
(2013) to design internal controls over financial reporting. The design of any system of controls and procedures is based in part
upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions, regardless of how remote.
There has been no change in the Company’s
internal control over the financial reporting during the six month period ended June 30, 2015, that has materially affected, or
is reasonably likely to materially affect, the Company’s internal control over financial reporting.
MANAGEMENT’S
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Information provided in this MD&A, including
the condensed consolidated interim financial statements, is the responsibility of management. In the preparation of these statements,
estimates are sometimes necessary to make a determination of future value for certain assets or liabilities. Management believes
such estimates have been based on careful judgments and have been properly reflected in the consolidated financial statements.
QUALIFIED PERSON
Technical information contained in this MD&A
has been prepared by or under the supervision of N. Eric Fier, CPG, P.Eng., Chief Operating Officer of SilverCrest Mines Inc. who
is a ‘Qualified Person’ for the purpose NI 43-101.
Exhibit 99.3
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, J. Scott Drever, Chief Executive Officer
of SilverCrest Mines Inc., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together,
the “interim filings”) of SilverCrest Mines Inc. (the “issuer”) for the interim period ended June 30, 2015. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence,
the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated
or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to
the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence,
the interim financial report together with the other financial information included in the interim filings fairly present in all
material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods
presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR),
as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings,
for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3,
the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance
that |
| (i) | material information relating to the issuer is made known to us by others, particularly during
the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods
specified in securities legislation; and |
| (b) | designed ICFR, or caused it 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 the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s)
and I used to design the issuer’s ICFR is the Internal Control - Integrated Framework (2013) (COSO Framework) published by
The Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
| 5.2. | ICFR – material weakness relating to design:
N/A |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change
in the issuer’s ICFR that occurred during the period beginning on April 1, 2015 and ended on June 30, 2015 that has
materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: August 12, 2015 |
|
“J. Scott Drever” |
_______________________ |
J. Scott Drever |
Chief Executive Officer |
Exhibit 99.4
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, J. Barney Magnusson, Chief Financial
Officer of SilverCrest Mines Inc., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together,
the “interim filings”) of SilverCrest Mines Inc. (the “issuer”) for the interim period ended June 30, 2015. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence,
the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated
or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to
the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence,
the interim financial report together with the other financial information included in the interim filings fairly present in all
material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods
presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR),
as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings,
for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3,
the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance
that |
| (i) | material information relating to the issuer is made known to us by others, particularly during
the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods
specified in securities legislation; and |
| (b) | designed ICFR, or caused it 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 the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s)
and I used to design the issuer’s ICFR is the Internal Control - Integrated Framework (2013) (COSO Framework) published by
The Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
| 5.2. | ICFR – material weakness relating to design:
N/A |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change
in the issuer’s ICFR that occurred during the period beginning on April 1, 2015 and ended on June 30, 2015 that has
materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: August 12, 2015 |
|
|
|
“Barney Magnusson” |
|
_______________________ |
|
Barney Magnusson |
|
Chief Financial Officer |
|