UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 40-F

 

¨   REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

OR
x   ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

 

Commission file number: 000-54420

 

SILVERCREST MINES INC.
(Exact Name of Registrant as Specified in its Charter)

 

British Columbia, Canada
(Province or other jurisdiction of incorporation or organization)

 

1400
(Primary Standard Industrial Classification Code)

 

N/A
(I.R.S. Employer Identification No.)

 

Suite 501, 570 Granville Street
Vancouver, British Columbia, Canada  V6C 3P1
(604) 694-1730
(Address and Telephone Number of  Registrant’s Principal Executive Offices)

 

CT Corporation
111 Eighth Avenue
New York, NY 10011
(800) 624-0909
(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class: Common Shares without par value
Name of each exchange on which registered: NYSE MKT LLC

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

For annual reports, indicate by check mark the information filed with this form:

 

x Annual Information Form x Audited Annual Financial Statements

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:  As at December 31, 2014, 118,753,205 common shares of the Registrant were issued and outstanding.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

 

 

 

EXPLANATORY NOTE

 

SilverCrest Mines Inc. (the “Company” or the “Registrant”) is a Canadian issuer eligible to file its annual report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on Form 40-F pursuant to the multi-jurisdictional disclosure system of the Exchange Act. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act. Equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3 under the Exchange Act.

 

FORWARD-LOOKING STATEMENTS

 

This annual report on Form 40-F and the exhibits attached hereto contain “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation which may include, but is not limited to, statements with respect to the future financial or operating performance of the Company, its subsidiaries and its projects, the future price of gold, silver and copper, currency fluctuations, energy price fluctuations, the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital, operating and exploration expenditures, costs and timing of the development of new deposits, costs and timing of future exploration, requirements for additional capital, government regulation of mining operations, environmental risks, reclamation expenses, title disputes or claims and limitations of insurance coverage.  These estimates and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies, many of which, with respect to future events, are subject to change. These uncertainties and contingencies could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by the Company, or on its behalf.

 

Often, but not always, forward looking statements can be identified by the use of words such as “expect”, “anticipate”, “estimate”, “may”, “could”, “would”, “might”, “will”, “should”, “intend”, “believe”, “target”, “budget”, “plan”, “strategy”, “goals”, “objectives”, “projection” or similar expressions, including negative variations. Information concerning mineral reserve and mineral resource estimates also may be considered forward-looking statements, as such information constitutes a prediction of what mineralization might be found to be present and/or economically recoverable if and when a project is actually developed or as development continues. In light of the risks and uncertainties inherent in all forward-looking statements, the inclusion or incorporation by reference of forward-looking statements in this annual report should not be considered as a representation by the Company or any other person that the Company’s objectives or plans will be achieved. Numerous factors could cause the Company’s actual results to differ materially from those expressed or implied in the forward-looking statements, including the following, which are discussed in greater detail under the heading “Risk Factors” in the Company’s Annual Information Form and the documents incorporated by reference herein:

 

·risks related to precious and base metal price fluctuations;
·risks related to the fluctuations in the price of consumed commodities;
·risks related the foreign exchange fluctuation (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 as to actual capital costs, operating costs, production and economic returns, and uncertainty that development activities will result in profitable mining operations;
·uncertainty in the Company’s ability to fund the development of our mineral properties or the completion of further exploration programs;
·uncertainty as to whether the Company’s exploration and development programs and properties will result in the discovery, development or production of another commercially viable ore body or yield new reserves to replace or expand current reserves;
·risks related to the adequacy and availability of infrastructure for the Company’s projects;
·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;

 

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·risks related to governmental regulations, tax and labour laws and obtaining necessary licenses and permits;
·risks related to the business being subject to environmental laws and regulations, which may increase costs of doing business and restrict our operations;
·risks related to mineral properties being subject to prior unregistered agreements, transfers, or claims and other defects in title;
·risks related to our ability to successfully integrate acquisitions;
·uncertainty in our ability to obtain financing if required;
·risks related to all of the Company’s properties being located in Mexico, including political, economic, social and regulatory instability and the need for surface access rights, licenses and permits; and
·risks related to officers and directors becoming associated with other natural resource companies, which may give rise to conflicts of interests.

 

This list is not exhaustive of the factors that may affect the Company’s forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements are described further in the Annual Information Form of the Company filed as Exhibit 99.1 to this annual report on Form 40-F and are incorporated by reference herein.  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 contained in the exhibits incorporated by reference into this annual report on Form 40-F are made as of the respective dates set forth in such exhibits. Such forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made.  In preparing this annual report on Form 40-F, the Company has not updated such forward-looking statements to reflect any change in circumstances or in management’s beliefs, expectations or opinions that may have occurred prior to the date hereof; nor does the Company assume any obligation to update such forward-looking statements in the future, except as may be required by law.  For the reasons set forth above, investors should not place undue reliance on forward-looking statements.

 

NOTE TO UNITED STATES READERS-
DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES

 

The Company is permitted, under the multi-jurisdictional disclosure system adopted by the United States Securities and Exchange Commission (the “SEC”), to prepare this annual report on Form 40-F in accordance with Canadian disclosure requirements, which differ from those of the United States.  The Company has prepared its financial statements, which are filed as Exhibit 99.2 to this annual report on Form 40-F, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and they are subject to Canadian auditing and auditor independence standards. They are not comparable to financial statements of United States companies.

 

RESOURCE AND RESERVE ESTIMATES

 

The Company’s Annual Information Form filed as Exhibit 99.1 to this annual report on Form 40-F 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”, “proven 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 1933, as amended (the “Securities Act”). Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, three-year historical average prices are to be 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.

 

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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 metal.

 

Accordingly, information contained in this annual report on Form 40-F, and the documents incorporated by reference herein, contain descriptions of the Company’s 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 thereunder.

 

CURRENCY

 

Unless otherwise indicated, all dollar amounts in this annual report on Form 40-F are in Canadian dollars.  The exchange rate of Canadian dollars into United States dollars, on December 31, 2014, based upon the noon rate of exchange as quoted by the Bank of Canada was U.S.$1.00 = Cdn.$1.1601 or Cdn.$1.00 = U.S.$0.8620.

 

ANNUAL INFORMATION FORM

 

The Company’s Annual Information Form for the fiscal year ended December 31, 2014 is filed as Exhibit 99.1 to this annual report on Form 40-F, and is incorporated by reference herein.

 

AUDITED ANNUAL FINANCIAL STATEMENTS

 

The audited consolidated financial statements of the Company for the years ended December 31, 2014 and 2013, including the report of the independent auditor with respect thereto, are filed as Exhibit 99.2 to this annual report on Form 40-F, and are incorporated by reference herein.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

The Company’s management’s discussion and analysis (“MD&A”) is filed as Exhibit 99.3 to this annual report on Form 40-F, and is incorporated by reference herein.

 

TAX MATTERS

 

Purchasing, holding, or disposing of securities of the Company may have tax consequences under the laws of the United States and Canada that are not described in this annual report on Form 40-F.

 

CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

At the end of the period covered by this annual report on Form 40-F for the fiscal year ended December 31, 2014, an evaluation was carried out under the supervision of, and the with the participation of, the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Company’s CEO and CFO have concluded that the disclosure controls and procedures designed by the Company were effective to give reasonable assurance that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

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Management’s Annual Report on Internal Control Over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. The Company’s management has employed a framework consistent with Exchange Act Rule 13a-15(c), to evaluate the Company’s internal control over financial reporting described below. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. It should be noted that a control system, no matter how well conceived or operated, can only provide reasonable assurance, not absolute assurance, that the objectives of the control system are met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

 

Management, including the CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting, and has used the 2013 framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “2013 COSO Framework”) to evaluate the effectiveness of the Company’s controls in 2014. Based on this evaluation, management concluded that the Company’s  internal control over financial reporting was effective as at December 31, 2014, and provided a reasonable assurance of the reliability of the Company’s financial reporting and preparation of financial statements.

 

It should be noted that while the Company’s CEO and CFO believe that the Company’s internal controls over financial reporting provide a reasonable level of assurance that they are effective, they do not expect that the Company’s internal controls over financial reporting will prevent all errors and fraud.

 

Attestation Report of the Registered Public Accounting Firm

 

This annual report does not include an attestation report of the Company’s registered independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered independent public accounting firm as the Company qualifies as an “emerging growth company” under the Jumpstart Our Business Start-ups Act of 2012.

 

Changes in Internal Control over Financial Reporting

 

The Company adopted the 2013 COSO Framework to design and evaluate its internal control over financial reporting during the year ended December 31, 2014. During the year ended December 31, 2014, there were no changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

CORPORATE GOVERNANCE

 

The Company has a Corporate Governance and Nominating Committee and a Compensation Committee. The Company’s Board of Directors (the “Board”) has determined that the Corporate Governance and Nominating Committee and the Compensation Committee be comprised of independent directors, based on the requirements for independence under Rule 10A-3 of the Exchange Act and Section 803A of the NYSE MKT Company Guide.  The Company’s Corporate Governance and Nominating Committee Charter and Compensation Committee Charter may be found on the Company’s website at http://silvercrestmines.com/.

 

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Corporate Governance and Nominating Committee

 

The members of the Corporate Governance and Nominating Committee are as follows:

 

George W. Sanders

Ross O. Glanville

Graham C. Thody (since March 2015)

Dunham L. Craig (from July 2014 to March 2015)

 

The Corporate Governance and Nominating Committee is tasked with the responsibility of, among other things, developing and recommending to the Board corporate governance principles applicable to the Company and identifying and recommending qualified individuals for nomination to the Board.

 

The Corporate Governance and Nominating Committee (i) reviews on an annual basis the adequacy of the Company’s corporate governance procedures and recommends changes to the Board for approval, (ii) reviews and recommends changes to the Board of the Company’s Code of Business Conduct and Ethics and (iii) is principally responsible for the selection and nomination of directors.

 

Compensation Committee

 

The members of the Compensation Committee are as follows:

 

George W. Sanders

Ross O. Glanville

Graham C. Thody (since March 2015)

Dunham L. Craig (from July 2014 to March 2015)

 

The Compensation Committee is tasked with the responsibility of, among other things, recommending to the Board compensation policies and guidelines for the Company and for implementing and overseeing compensation policies approved by the Board.

 

The Compensation Committee and the Board review on an annual basis the cash compensation, performance and overall compensation package of each executive officer and provides its recommendations as to each executive officer’s total compensation package to the Board. All compensation arrangements with executive officers approved by the Board must also be approved by the majority of the independent members of the Board.

 

AUDIT COMMITTEE

 

Audit Committee

 

The Company has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the  Exchange Act.  The Company’s Audit Committee is composed of Graham C. Thody, George W. Sanders, and Ross O. Glanville. In the opinion of the Board of Directors, each of Messrs. Thody, Sanders and Glanville are independent, as determined under Rule 10A-3 of the Exchange Act and Section 803A of the NYSE MKT Company Guide.  All three members of the Audit Committee are financially literate, meaning they are able to read and understand the Registrant’s financial statements and to understand the breadth and level of complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements.  Please refer to the Company’s Annual Information Form attached as Exhibit 99.1 to this annual report on Form 40-F for details in connection with each of these members and their qualifications.

 

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The members of the Audit Committee serve for a term of one year ending at each annual general meeting of the Company and are re-appointed by resolution of the directors after each annual general meeting.

 

The Audit Committee meets with the CEO and the CFO and the Company’s independent auditors to review and inquire into matters affecting financial reporting, the system of internal accounting and financial controls, as well as audit procedures and audit plans. The Audit Committee also selects which independent registered public auditing firm should be appointed by the Company.  In addition, the Audit Committee reviews and recommends to the Board of Directors for approval the annual financial statements and the MD&A, and undertakes other activities required by exchanges on which the Company’s securities are listed and by regulatory authorities to which the Company is held responsible.

 

The full text of the Audit Committee Charter is attached as Appendix A to the Company’s Annual Information Form, attached hereto as Exhibit 99.1.

 

Audit Committee Financial Expert

 

The Company’s Board of Directors has determined that Graham C. Thody qualifies as a financial expert, as defined in Item 407(d)(5) of Regulation S-K under the Exchange Act, and is financially sophisticated, as determined in accordance with Section 803B(2)(iii) of the NYSE MKT Company Guide.

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES – INDEPENDENT AUDITORS

 

The required tabular disclosure is included under the heading ITEM 10 – AUDIT COMMITTEE DISCLOSURE – External Auditor Service Fees (By Category) in the Company’s Annual Information Form for the fiscal year ended December 31, 2014, filed as Exhibit 99.1 to this annual report on Form 40-F and is incorporated herein by reference.

 

PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES PROVIDED BY
INDEPENDENT AUDITORS

 

With respect to the adoption of any specific policies and procedures for the engagement of non-audit services, the Audit Committee has specifically pre-approved the auditor’s review of the Company’s corporate tax returns, including the corporate tax returns of the Company’s Mexican subsidiaries, at a rate which together with the auditor’s review of the Company’s interim financial statements, are approved at US$15,000 per interim period.

 

OFF-BALANCE SHEET TRANSACTIONS

 

The Company does not have any off-balance sheet financing arrangements.

 

CODE OF ETHICS

 

In December 2014, the Company adopted a new Code of Business Conduct and Ethics (the “Code”) for all its directors, executive officers and employees. The Code, filed as Exhibit 99.8 to this annual report on Form 40-F, meets the requirements for a “code of ethics” within the meaning of that term in Form 40-F. The Code is available on the Company’s website at http://silvercrestmines.com/.

 

Apart from the adoption of the new Code of Conduct, no other amendments were made to the new Code of Conduct in 2014. In addition, no waivers or implicit waivers to the Code were granted from any provision of the Code in 2014.

 

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

 

The required tabular disclosure is included under the heading “Commitments” in the Company’s MD&A for the fiscal year ended December 31, 2014, filed as Exhibit 99.3 to this annual report on Form 40-F and is incorporated herein by reference.

 

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NOTICES PURSUANT TO REGULATION BTR

 

There were no notices required by Rule 104 of Regulation BTR that the Company sent during the year ended December 31, 2014 concerning any equity security subject to a blackout period under Rule 101 of Regulation BTR.

 

MINE SAFETY DISCLOSURE

 

Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities under the regulation of the Federal Mine safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977.

 

The Company did not have any mines in the United States subject to regulation by MSHA during the fiscal year ended December 31, 2014.

 

NYSE MKT CORPORATE GOVERNANCE

 

The Company’s common shares are listed on the NYSE MKT. Section 110 of the NYSE MKT Company Guide permits the NYSE MKT to consider the laws, customs and practices of foreign issuers, and to grant exemptions from the NYSE MKT listing criteria based on these considerations. A company seeking relief under these provisions is required to provide written certification from independent local counsel that the non-complying practice is not prohibited by home country law. A description of the significant ways in which the Company’s governance practices differ from those followed by domestic companies pursuant to NYSE MKT standards is as follows:

 

Board Composition: Section 802 of the NYSE MKT Company Guide provides that at least a majority of the directors on the Board of Directors of a company listed on the NYSE MKT must be independent directors as defined in Section 803A of the NYSE MKT Company Guide. The Company's Board of Directors is currently comprised of seven directors, three of whom are considered to be independent directors under the NYSE MKT Company Guide. Under Canadian securities laws, it is not mandatory that a company have a majority of independent directors on its Board of Directors. In addition, the Toronto Stock Exchange (“TSX”) policies require the Company to have a minimum of two independent directors.

 

Quorum Requirements: The NYSE MKT Company Guide specifies a quorum requirement of at least 33-1/3% of the shares issued and outstanding and entitled to vote for meetings of a listed company’s shareholders.  The TSX does not specify a quorum requirement for shareholders’ meetings of its listed issuers.  The Company’s quorum requirements, as set forth in its articles, for meetings of its shareholders is two shareholders entitled to vote at the meeting, whether present in person or represented by proxy. SilverCrest’s current quorum requirement is not prohibited by, and does not constitute a breach of applicable Canadian securities laws or the rules and policies of the TSX.

 

Proxy Delivery Requirement: The NYSE MKT requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies be solicited pursuant to a proxy statement that conforms to SEC proxy rules. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act, and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Company solicits proxies in accordance with applicable rules and regulations in Canada.

 

The foregoing are consistent with the laws, customs and practices in Canada.

 

In addition, the Company may from time-to-time seek relief from the NYSE MKT corporate governance requirements on specific transactions under Section 110 of the NYSE MKT Company Guide by providing written certification from independent local counsel that the non-complying practice is not prohibited by the Company’s home country law, in which case, the Company shall make the disclosure of such transactions available on the Company’s website at http://www.silvercrestmines.com. Information contained on the Company’s website is not part of this annual report.

 

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UNDERTAKING

 

The Company undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

 

CONSENT TO SERVICE OF PROCESS

 

The Company has filed a written consent to service of process and power of attorney on Form F-X with the SEC on May 31, 2011.  Any change to the name or address of the Company’s agent for service shall be communicated promptly to the SEC by amendment to the Form F-X referencing the file number of the Company.

 

SIGNATURES

 

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.

 

  SILVERCREST MINES INC.
 
  By: “J. Scott Drever”
  Name: J. Scott Drever
  Title: Chief Executive Officer and Director

 

Date: March 31, 2015

 

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EXHIBIT INDEX

 

The following exhibits have been filed as part of this annual report on Form 40-F:

 

Exhibit Description
99.1. Annual Information Form of the Company for the year ended December 31, 2014
99.2. Audited consolidated financial statements of the Company and notes thereto for the years ended December 31, 2014 and 2013 together with the report of the auditors thereon
99.3. Management’s Discussion and Analysis for the years ended December 31, 2014 and 2013
99.4. Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
99.5. Certificate of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
99.6. Certificate of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.7. Certificate of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.8. Code of Conduct
99.9. Update to Santa Elena Pre-Feasibility Study, Sonora, Mexico, dated effective December 31, 2014 (incorporated by reference from the Current Report on Form 6-K filed by the Company with the SEC on March 31, 2015)
99.10. Preliminary Economic Assessment for La Joya Property Durango, Mexico NI 43-101 Technical Report dated effective October 21, 2013, as amended on March 4, 2014 (incorporated by reference from the Current Report on Form 6-K/A filed by the Company with the SEC on March 31, 2014)
99.11. Consent of Nathan Eric Fier
99.12. Consent of Sabry Abdel-Hafez
99.13. Consent of P. James Barr
99.14. Consent of Carlos Chaparro
99.15. Consent of Hassan Ghaffari
99.16. Consent of Mark Horan
99.17. Consent of Ting Lu
99.18. Consent of Scott Martin
99.19 Consent of Nick Michael
99.20 Consent of Graham Wilkins
99.21 Consent of Davidson & Company

 

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Exhibit 99.1

 

 

 

ANNUAL INFORMATION FORM

 

For the year ended December 31, 2014

 

Dated as of March 31, 2015

 

 
 

 

FORWARD LOOKING STATEMENTS

 

This Annual Information Form contains “forward-looking statements” within the meaning of applicable Canadian securities legislation and United States securities laws. Such forward-looking statements concern the Company’s anticipated results and developments in its 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:

·economic viability, strategic plans and expectations for the development of the Company’s operations and properties;
·estimates of mineral reserves, and mineral resources;
·amount of future production of gold and silver;
·expected metal or mineral recoveries;
·expected cash operating costs, sustaining 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:

·presence of and continuity of metals at the Company’s projects;
·cost of production and productivity levels at the Company’s Santa Elena Mine;
·availability and costs of mining equipment and skilled labour;
·plant and equipment for operations and development function as anticipated;
·accuracy of the interpretations and assumptions used in calculating reserve and resource estimates;
·operations not being disrupted or delayed by unusual geological or technical problems;
·ability to develop and finance projects;
·political and regulatory stability.

 

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:

·risks related to precious and base metal price fluctuations;
·risks related to the fluctuations in the price of consumed commodities;
·risks related the foreign exchange fluctuation (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 as to actual capital costs, operating costs, production and economic returns, and uncertainty that development activities will result in profitable mining operations;
·uncertainty in the Company’s ability to fund the development of our mineral properties or the completion of further exploration programs;
·uncertainty as to whether the Company’s exploration and development programs and properties will result in the discovery, development or production of another commercially viable ore body or yield new reserves to replace or expand current reserves;
·risks related to the adequacy and availability of infrastructure for the Company’s projects;
·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;
·risks related to governmental regulations, tax and labour laws and obtaining necessary licenses and permits;
·risks related to the business being subject to environmental laws and regulations, which may increase costs of doing business and restrict our operations;
·risks related to mineral properties being subject to prior unregistered agreements, transfers, or claims and other defects in title;
·risks related to our ability to successfully integrate acquisitions;
·uncertainty in our ability to obtain financing if required;
·risks related to all of the Company’s properties being located in Mexico, including political, economic, social and regulatory instability and the need for surface access rights, licenses and permits; and
·risks related to officers and directors becoming associated with other natural resource companies, which may give rise to conflicts of interests.

 

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 news release if these beliefs, estimates and opinions or other circumstances should change, except as otherwise required by applicable law.

 

 
 

  

TABLE OF CONTENTS

       
1. GENERAL 1
  1.1 Date of Information 1
  1.2 Conversion Table 1
  1.3 Technical Abbreviations 1
  1.4 Currency 1
  1.5 Notice Regarding Mineral Reserve and Resource Estimates 1
  1.6 Qualified Persons 2
2. CORPORATE STRUCTURE 2
  2.1 Name, Address and Incorporation 2
  2.2 Inter-corporate Relationships 3
3. GENERAL DEVELOPMENT OF THE BUSINESS 4
  3.1 Overview 4
  3.2 Most Recent Three-Year Operational History 6
  3.3 Significant Acquisitions 11
4. DESCRIPTION OF BUSINESS 11
  4.1 General 11
  4.2 Risk Factors 12
  4.3 Mineral Projects 19
5. DIVIDENDS 41
  5.1 Dividends 41
6. CAPITAL STRUCTURE 41
  6.1 General Description of Capital Structure 41
7. MARKET FOR SECURITIES 43
  7.1 Trading Price and Volume 43
8. ESCROWED SECURITIES 43
  8.1 Escrowed Securities 43
9. DIRECTORS AND OFFICERS 43
  9.1 Name, Occupation and Security Holding 43
  9.2 Cease Trade Orders, Bankruptcies, Penalties or Sanctions 45
  9.3 Conflicts of Interest 47
10. AUDIT COMMITTEE DISCLOSURE 47
11. LEGAL PROCEEDINGS AND REGULATORY ACTIONS 48
  11.1 Legal Proceedings 48
  11.2 Regulatory Actions 49
12. INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS 49
  12.1 Interest of Management and Others in Material Transactions 49
13. TRANSFER AGENT AND REGISTRARS 49
  13.1 Transfer Agent and Registrars 49
14. MATERIAL CONTRACTS 49
  14.1 Material Contracts 49
15. INTERESTS OF EXPERTS 49
  15.1 Names of Experts 49
  15.2 Interests of Experts 50
16. ADDITIONAL INFORMATION 50
  APPENDIX A – AUDIT COMMITTEE CHARTER A-1

 

 
 

  

1.GENERAL

 

1.1Date of Information

 

All information in this Annual Information Form is as of March 31, 2015 unless otherwise indicated and the information contained herein is current as of such date, unless otherwise stated.

 

1.2Conversion Table

 

All data and information is presented in metric units. In this Annual Information Form, the following conversion factors were used:

 

2.47 acres = 1 hectare 0.4047 hectares = 1 acre
3.28 feet = 1 metre 0.3048 metres = 1 foot
0.62 miles = 1 kilometre 1.609 kilometres = 1 mile
0.032 ounces (troy) = 1 gram 31.103 grams = 1 ounce (troy)
1.102 tons (short) = 1 tonne 0.907 tonnes = 1 ton
0.029 ounces/ton = 1 gram/tonne 34.286 grams/tonne = 1 ounce/ton
1 ppm = 1 gram/tonne      
1 ounce/ton = 34.286 ppm      
1% = 10,000 ppm      

 

1.3Technical Abbreviations

 

Ag silver   Mo molybdenum
Ag Eq. silver equivalent   NI 43-101 National Instrument 43-101 Standards of Disclosure for Mineral Projects
Au gold   NSR net smelter returns
Au Eq. gold equivalent   opt ounces per ton
aver. average   oz ounce(s)
cm centimetres   Pb lead
Cu copper   RC reverse circulation
g grams   t tonne
gpt or g/t grams per tonne   tpd tonnes per day
ha hectares   tr trench
km kilometres   W tungsten
m metres      

 

1.4Currency

 

All dollar ($) amounts stated in this Annual Information Form refer to Canadian dollars ($ or Cdn.$) unless United States dollars (U.S.$) are indicated. On March 30, 2015, the noon exchange rate for the United States dollar in terms of Canadian dollars, as quoted by the Bank of Canada, was U.S.$1.00 = Cdn.$1.2689 (Cdn.$1.00 = U.S.$0.7881). On December 31, 2014, the noon exchange rate for the United States dollar in terms of Canadian dollars, as quoted by the Bank of Canada, was U.S.$1.00 = Cdn.$1.1601 (Cdn.$1.00 = U.S.$0.8620).

 

1.5Notice Regarding Mineral Reserve and Resource Estimates

 

In this Annual Information Form, the definitions of probable mineral reserves, and indicated and inferred mineral resources are those used by the Canadian provincial securities regulatory authorities and conform to the definitions utilized by the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) in the “CIM Standards on Mineral Resources and Reserves – Definitions and Guidelines” adopted on August 20, 2000 and amended November 14, 2004, November 27, 2010 and May 10, 2014 (“CIM Definition Standards”).

 

Page 1 of 50
 

 

This Annual Information Form 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”, “proven 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 CIM Definition Standards. These definitions differ from the definitions in SEC Industry Guide 7 under the United States Securities Act of 1933, 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”, “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 Annual Information Form contains descriptions of Company 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 thereunder.

 

1.6Qualified Persons

 

N. Eric Fier, CPG, P. Eng, is a “qualified person” within the meaning of NI 43-101 and has reviewed and approved the scientific and technical information relating to the Company's mineral properties disclosed in this Annual Information Form. Mr. Fier is the Chief Operating Officer and a director of SilverCrest. Other qualified persons are responsible for the technical and scientific information contained in the various technical reports incorporated by reference in this Annual Information Form. See “Interests of Experts – Names of Experts”.

 

2.CORPORATE STRUCTURE

 

2.1Name, Address and Incorporation

 

The head office of SilverCrest Mines Inc. (“SilverCrest” or the “Company”) is located at Suite 501, 570 Granville Street, Vancouver, British Columbia, V6C 3P1, and its registered office is located at 19th Floor, 885 West Georgia Street, Vancouver, British Columbia, V6C 3H4.

 

The Company was incorporated on May 22, 1973, under the laws of Ontario as “Equitable Mines Limited” and changed its name to “Magic Foods Inc.” on July 24, 1985. The Company was continued on May 15, 1998, under the laws of British Columbia as “Lucre Ventures Ltd.” with an authorized capital of common shares without par value, which authorized capital was increased to 100,000,000 common shares without par value on February 22, 1999. The name of the Company was changed to “Strathclair Ventures Ltd.” on September 5, 2001, and to “SilverCrest Mines Inc.” on May 23, 2003.

 

On November 24, 2004, the Company was transitioned under the Business Corporations Act (British Columbia) and, on September 7, 2005, the Company replaced its Articles and amended its Notice of Articles to provide for, among other things, an authorized capital consisting of an unlimited number of common shares without par value. On June 26, 2008, the Company altered its authorized capital by adding a class of an unlimited number of preferred shares without par value.

 

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2.2Inter-corporate Relationships

 

Unless the context otherwise requires, all references herein to the “Company” or “SilverCrest” or “our” refer to SilverCrest Mines Inc. and include SilverCrest Mines Inc. and its subsidiaries. The following chart illustrates the inter-corporate relationships of the Company and its principal subsidiaries and their jurisdictions of incorporation, together with the ownership of its principal assets.

 

 

 

*the La Joya Property is comprised of 15 mineral concessions of which 3 are subject to option agreements

 

**the Ermitaño Property is comprised of 2 mineral concessions which are subject to an option agreement

 

*** the Cumobabi Property is comprised of 7 mineral concessions which are subject to an option agreement

 

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3.GENERAL DEVELOPMENT OF THE BUSINESS

 

3.1Overview

 

The Company is a Canadian precious metals producer headquartered in Vancouver, British Columbia, with a silver and gold asset base and an operating mine located in Mexico. The Company’s principal property is the 100% owned Santa Elena Project. The Santa Elena Mine, located 150 km northeast of Hermosillo, near Banamichi in the State of Sonora, Mexico is a high-grade, epithermal silver and gold producer. The Company’s other material property is the La Joya Property 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 also has a portfolio of other mineral properties, which are comprised of the Ermitaño Property (Mexico), Cumobabi Property (Mexico), the Cruz de Mayo Project (Mexico), the Silver Angel Project (Mexico) and the El Zapote Project (El Salvador).

 

The Company’s common shares are currently traded on the Toronto Stock Exchange (“TSX”) under the symbol “SVL”, on the NYSE MKT under the symbol “SVLC” and on the Regulated Unofficial Market of the Frankfurt Stock Exchange under the symbol “CW5”.

 

Santa Elena Project

 

The Santa Elena Project is comprised of seven mineral concessions totalling 51,172.5 hectares, portions of which include the producing gold and silver Santa Elena Mine. Concessions include the Ermitaño and Cumobabi Properties that are under option.

 

In 2005, the Company (through its indirect wholly-owned subsidiary, Nusantara de Mexico S.A. de C.V. (“Nusantara”)) entered into an option agreement dated December 8, 2005 (the “Santa Elena Option Agreement”) with certain vendors to acquire five of the seven concessions comprising the Santa Elena Project. The Company was granted the right to acquire a 100% interest in the five concessions by making staged option payments over a period of five years and by making a final payment conditional upon receipt of a feasibility study and all operating and environmental permits relating to the project. In 2009, the Company elected to exercise its option and completed the acquisition of the five concessions.

 

In 2008 a Pre-Feasibility Study on the Santa Elena Project was prepared by Scott Wilson Roscoe Postle Associates Inc. (“RPA”). In October 2010 the Company completed the construction of an open pit heap leach mine on the Santa Elena Project (the “Santa Elena Mine”), with first dore poured on September 9, 2010. Commercial production was declared on July 13, 2011, and the Santa Elena Mine produced 377,071 ounces of silver and 26,969 ounces of gold during 2011. Since declaring commercial production to December 31, 2014, the Santa Elena Mine produced 2,892,727 ounces of silver and 118,681 ounces of gold. See “General Development of the Business – Most Recent Three-Year Operational History – Santa Elena Project”.

 

In 2010, the Company engaged independent consultants to examine the preliminary economics of expanding the production at Santa Elena by phasing in the construction of a conventional mill facility, supplementing the ore from the Santa Elena open pit with the development of Santa Elena underground resources and re-treating the leach pad material to recover the residual gold and silver, (collectively, the “Expansion Project”).

 

In May 2011, the Company released a preliminary economic assessment of the Expansion Project and disclosed updated mineral resources and reserves. In July 2013, the Company released a pre-feasibility study on the Expansion Project and further updated mineral resources and reserves for Santa Elena, dated effective April 30, 2013, as amended on March 4, 2014. On March 31, 2015, the Company filed an updated pre-feasibility study for Santa Elena. See “General Development of the Business – Most Recent Three-Year Operational History – Santa Elena Project” and “Mineral Projects – Santa Elena Project – Sonora, Mexico”.

 

Page 4 of 50
 

 

La Joya Property

 

The La Joya Property is comprised of 15 mineral concessions with a total area of approximately 4,647 hectares.

 

Nine of the 15 mineral concessions comprising the La Joya Property 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 comprising the La Joya Property are known as the La Joya East concessions, which the Company still maintains an option to purchase from the original owners. The La Joya West and La Joya East concessions together encompass a total of approximately 1,642 hectares and are located approximately 75 km southeast of the city of Durango, Mexico.

 

The remaining three contiguous mineral concessions comprising the La Joya Property encompass a total of approximately 3,005 hectares and were staked directly by the Company’s wholly-owned subsidiary, SilverCrest de Mexico S.A. de C.V., between April 2011 and April, 2012.

 

Prior to 2013, the Company held an option to acquire a 100% interest in the La Joya West concessions (encompassing approximately 531 hectares), which option was exercised in full on May 24, 2013, by making staged payments totalling U.S.$2.68 million over a three year period commencing June 2010. The final payment of U.S.$2,500,000 was settled on May 24, 2013, by a combination of cash payment (U.S.$1,250,000) and the issuance of a total of 615,776 common shares of the Company. In March 2014, the Company released the final payment on the La Joya West concessions upon verification of title registration in Mexico. Upon exercising the option, the vendors of the La Joya West concessions were granted a 2% NSR royalty pursuant to the option terms. The Company has the right to purchase one-half (50%) of the NSR royalty at a price to be agreed upon by paying a combination of cash and common shares in such ratio to be negotiated by the parties at the time.

 

On November 25, 2010, the Company entered into an option agreement to acquire a 100% interest in the 3 La Joya East concessions, which encompasses 1,111.6 hectares. 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 totalling U.S.$1.5 million over a three year period commencing January 2011 (of which U.S.$912,500 has been paid). On November 6, 2013, the Company amended the La Joya East option agreement so that the final payment of U.S.$1,175,000 may be paid in two equal cash payments in the amount of U.S.$587,500 each, with the first payment due May 6, 2014 (paid) and the second and final payment due May 6, 2015. There are no work commitments on the La Joya East concessions. If the Company exercises its option to acquire the La Joya East concessions, the property will be subject to a 2% NSR royalty, and the Company would have the right to purchase one-half (50%) of the NSR royalty at a price to be agreed upon by paying a combination of cash and common shares in such ratio to be negotiated by the parties at the time. Of the total option payment, U.S.$750,000 is deemed to be an advance royalty payment made on account of the aforementioned NSR.

 

In January 2012, the Company announced an initial resource estimate for the La Joya Property, which was subsequently updated in January 2013. The Company released a preliminary economic assessment on the La Joya Property on December  23, 2013, which was amended on March 4, 2014. See “General Development of the Business – Most Recent Three-Year Operational History – La Joya Property”.

 

Other Mineral Properties

 

Except for the Company’s Ermitaño and Cumobabi properties, SilverCrest currently holds its other mineral properties, Cruz de Mayo, Silver Angel and El Zapote on care and maintenance.

 

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Ermitaño and Cumobabi

 

The Ermitaño Property consists of two concessions (I and II) totalling 165 square km of contiguous mineral tenure located approximately 145 km from Hermosillo and contiguous with the Santa Elena Project in Sonora, Mexico. The Ermitaño Property is under option to the Company pursuant to an option granted by Evrim Resources Corp. (“Evrim”) on January 2014. Pursuant to the option agreement, the Company may earn a 100% interest in the Ermitaño Property by paying U.S.$75,000 upon signing (paid) and U.S.$50,000 each anniversary thereafter, completing a minimum of U.S.$500,000 in exploration expenditures in the first year, 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% NSR. There is also a third party 2% underlying NSR.

 

The Cumobabi Property is in the general vicinity of the Santa Elena Mine and adjacent to the Ermitaño property and consists of seven mineral concessions. In November, 2014, the Company signed a five year option agreement to acquire a 100% interest in the Cumobabi Property from Evrim. SilverCrest can earn a 100% interest in Cumobabi by paying U.S.$75,000 upon signing (paid) and U.S.$50,000 each anniversary thereafter, completing a minimum of US$500,000 in exploration expenditures by the second anniversary, and delivering a production notice within five years specifying mine and construction plans with accompanying permits. Upon vesting, SilverCrest will no longer be required to make the annual payments and Evrim will retain a 1.5% NSR. There is also a third party 2% underlying NSR.

 

The acquisition of Ermitaño and Cumobabi mineral concessions significantly consolidates SilverCrest's land position in nearby areas of the Santa Elena Mine, and the Company now controls over 300 square km of mineral rights, prospective for gold and silver resources. During the fiscal year 2014, SilverCrest started exploration drilling at the El Durazno Target located approximately eight km southeast of the Santa Elena Mine with the objective to initially drill test surface mineralization for potential open pit targets. El Durazno is the first of several targets identified by surface work to be drilled in the Ermitaño I & II and Cumobabi mineral concessions. In February 2015, SilverCrest announced the results of nine shallow drill holes (totalling an estimated 2,656 m) completed at the El Durazno Target within the Ermitaño I concession. The program resulted in the discovery of near surface gold and silver mineralization which SilverCrest believes confirms a potential low grade oxide open pit target. SilverCrest expects to carry out additional exploratory work in 2015 at El Durazno and will concurrently advance the exploration program in nearby target areas within the Ermitaño and Cumobabi concessions.

 

3.2Most Recent Three-Year Operational History

 

Santa Elena Project

 

2012

 

The year 2012 marked the first full year of commercial production at the Santa Elena Mine, with 579,609 ounces of silver and 33,004 ounces of gold produced during the year.

 

In 2012, revenues reported from the Santa Elena Mine amounted to U.S.$70,520,085. Costs of sales for the year amounted to U.S.$18,307,681. Cash cost per silver equivalent ounce sold amounted to U.S.7.39 with a Au:Ag ratio of 54.3:1. After deducting depreciation, depletion and amortization totalling U.S.$5,931,042, mine operating earnings for the year were U.S.$46,281,362. After deductions for loss on derivative instruments of $3,839,146, general and administrative expenses and other items of U.S.$6,549,472, and taxes of U.S.$5,417,000, net earnings for the 2012 year were U.S.$30,475,744 or U.S.$0.33 per share (basic).

 

In May 2012, the Company commenced a proposed 114 hole (39,000 m) drill program to re-categorize Indicated and Inferred Mineral Resources to Probable Reserves and expand the underground resources. The program was extremely successful with a number of holes having identified multiple bonanza grade intercepts (greater than 34 gpt Au or 1,000 gpt Ag) and two new high grade gold and silver zones (“El Cholugo and El Cholugo Dos”) that lie below and are sub-parallel to the Main Mineralized Zone (“MMZ”) currently being mined.

 

All holes included in this program supported the resource and reserve confirmation and reclassification included in the pre-feasibility study on the Expansion Project (the “Expansion Project Pre-Feasibility Study”) announced in 2013.

 

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Work on the underground decline development of the main ramp commenced in January 2012 and progressed to approximately 1,050 m in length by the end of 2012. The proposed 4.5 x 4.0 m production decline ramp is to provide access to underground resources, with anticipated initial production starting in the second half of 2014.

 

An expansion of the existing leach pad was completed in September 2012. This pad expansion provided a further two years of capacity for open pit heap leach material. Use of the leach pads was to be discontinued once the new processing plant became operational. All long lead time equipment for the new processing plant was secured by the end of 2012.

 

2013

 

The year 2013 marked the second full year of commercial production at the Santa Elena Mine, with 779,026 ounces of silver and 31,099 ounces of gold produced during the year.

 

In 2013, revenues reported from the Santa Elena Mine amounted to U.S.$54,893,651. Costs of sales for the year amounted to U.S.$19,895,374. Cash cost per silver equivalent ounce sold amounted to U.S.$7.78 with an Au:Ag ratio of 60.5:1. After deducting depreciation, depletion and amortization totalling U.S.$6,134,532, mine operating earnings for the year were U.S.$28,863,745. After deductions for general and administrative expenses and other items of U.S.$7,516,482 and taxes of U.S.$12,868,000, net earnings for the 2013 year were U.S.$8,479,263 or U.S.$0.08 per share (basic).

 

In 2013, the company completed a 1,590 metre underground infill drill program (22 core holes) to assist with detailed design of initial production stopes.

 

On July 6, 2013, the Company successfully negotiated with the surface rights owners amendments to the Land Occupation Agreement at Santa Elena. These amendments have been approved by the Company and surface rights owners and were ratified by the Agrarian Tribunal. The term of the agreement was extended for a further 20 years.

 

On July 25, 2013, the Company released the Santa Elena Expansion Pre-Feasibility Study and Open Pit Reserve Update NI 43-101 Technical Report, dated effective April 30, 2013 (which was amended March 4, 2014) (the “Santa Elena Expansion Pre-Feasibility Study”), which involves combined processing of ore from the remaining resources and reserves in the open pit, new reserves from underground development, and reprocessing of spent ore from the existing heap leach pad in a new mill and processing plant. The Santa Elena Expansion Pre-Feasibility Study also contained updated reserve and resource estimations for the Santa Elena Mine.

 

In September 2013, the Company announced the results of the remaining 47 holes of the 181 core and RVC hole drilling program at Santa Elena. One hundred thirty four holes were utilized in the Santa Elena Expansion Pre-Feasibility Study. The results show further expansion of the Santa Elena deposit which is still open latterly and to depth. Several of the 47 reported holes identified additional high grade intercepts, expanded the recently discovered El Cholugo and El Cholugo Dos Zones and discovered a new zone called “Tortuga”. Tortuga is northwest trending, and is exposed in the north wall of the pit, making this discovery easily accessible from the open pit and planned underground development of the Main Mineralized Trend. Further work is planned at Tortuga for resources estimation.

 

2014

 

The year 2014 marked the third full year of commercial production at the Santa Elena Mine, with 1,157,021 ounces of silver and 27,609 ounces of gold produced during the year. During 2014, the Santa Elena Mine successfully transitioned from an open pit heap leach operation to an underground mining and milling operation.

 

In 2014, revenues reported from Santa Elena Mine amounted to U.S.$45,132,599. Cost of sales for the year amounted to U.S.$23,596,973. Cash operating cost per silver equivalent ounce sold amounted to U.S.$9.64 with an Au:Ag ratio 60.0:1. After deducting depreciation, depletion and amortization totalling U.S.$8,167,486, mine operating earnings for the year were U.S.$13,368,140. After deductions for general and administrative expenses of U.S.$6,504,047, share-based compensation of U.S.$2,262,705, impairment charges of $4,956,418, other items of U.S.$385,142 and taxes of U.S.$776,000, net loss and comprehensive loss for the 2014 year was U.S.$1,515,975 or U.S.$0.01 loss per share (basic and diluted).

 

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The new 3,000 tpd mill and CCD/MC processing facilities were commissioned in August of 2014 and generated 526,525 tonnes of mill throughput in approximately seven months of production, including pre-commissioning milling. In addition to production from the mill, an estimated 213,017 tonnes were placed on the leach pad during the first half of 2014. 2014 mill metal recoveries were 62.4% silver and 89.3% gold, or slightly below design criteria of 67.5% silver and 92% gold. Mill recoveries continue to be optimized (grinding size and cyanide rates) with 2015 targets of 70% silver and 92% gold.

 

In July 2014, the Company completed 25 closely-spaced underground infill drill holes, totalling 2,856 m to better define reserves and verify widths and grades for planned production stopes. The results of all holes are part of the resource update incorporated into the technical report prepared in compliance with NI 43-101, titled “Update to Santa Elena Pre-Feasibility Study, Sonora Mexico” (the “UPFS”). This underground drill program was successful in confirming previous resource model expectations with delineation of high grade zones in the initial stopes This detailed in-fill information continues to improve the resource model and enhances tonnage and grade projections for production planning and budgeting. On October 1, 2014, Santa Elena’s underground mine successfully achieved commercial production.

 

La Joya Property

 

2012

 

In early 2012, the Company announced an initial resource estimate for the La Joya Property, and filed an independent NI 43-101 technical report disclosing the La Joya Property resource estimates.

 

The initial resource estimates at La Joya were considered by the Company to cover only a portion of the overall potential within the Phase I area and the Trend. The Trend, which includes the Phase I and Phase II drilling areas, has an overall length of 2.5 km and a minimum width of 700 m.

 

In 2012, the Company continued to validate the results of 56 historic core holes drilled on the La Joya Property between 1979 and 2003 by previous operators. The historic holes included 37 holes on the MMT, 6 holes on the adjacent Coloradito target and 4 and 1 on each of the Santo Nino and Esperanza targets, respectively, and 8 holes outside of the target areas.

 

During the year ended December 31, 2012, the Company incurred U.S.$110,000 in acquisition costs and U.S.$5,471,670 in deferred exploration costs on the La Joya Property. Most of the expenses incurred on this property during the year consisted of exploration and general (U.S.$1,079,953), drilling (U.S.$3,133,341), assays (U.S.$490,080) and technical services and consulting (U.S.$444,529).

 

2013

 

In January 2013, the Company announced an updated Inferred Mineral Resource estimation for the La Joya Property. The updated La Joya resource model separates the deposit into two broad categories based on their predominant mineralogy. The first category is comprised of silver, gold and copper mineralization (the “Ag Cu Rich Zone”), with lesser amounts of tungsten, molybdenum, lead and zinc. The second category is predominantly tungsten and molybdenum mineralization (the “Contact Zone”) with lesser amounts of Ag, Cu, Au, Pb, and Zn. The AgCu Rich Zone lies spacially above the Contact Zone and generally follows the contours of the underlying intrusive, which outcrops in several areas.

 

The Company believed that a certain portion of the deposit could be a priority area to be examined as a potential “Starter Pit” for initial conceptual operations. In February 2013, the Company engaged EBA Engineering Consultants Ltd of Vancouver, BC (“EBA”, a Tetra Tech, Inc. subsidiary) to prepare a preliminary economic assessment to evaluate this.

 

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Much of the Contact Zone resource is considered to be near-surface and potentially amenable to conventional open pit mining. This zone also contains gold, silver, copper and tin (as defined by geochemistry), which may add secondary value as a result of increased metal content.

 

On December 23, 2013, the Company released the preliminary economic assessment study for the La Joya Property dated effective October 21, 2013, as amended March 4, 2014 (the “La Joya Preliminary Economic Assessment”)

 

The La Joya Preliminary Economic Assessment focuses on the first stage of La Joya development (“Starter Pit”) as a low strip ratio open pit with an initial nine year life of mine plan (“LOMP”) using the 60g/t AgEq cut off inferred resource for Manto and Structure Zones representing mineralized zones near surface. The preliminary economic assessment open pit and economic analysis excludes the Contact Zone, Santo Nino and Cerro Coloradito resources. The Contact Zone resources, not incorporated in the La Joya Preliminary Economic Assessment, contain consistent Tungsten mineralization, which is currently the subject of additional studies aimed at definition of preliminary economic parameters to be integrated in future assessments of the La Joya Property.

 

The foregoing approach, with lower initial capital costs, provides attractive economic returns using conservative metal price estimates. The conceptual open pit operation would be in conjunction with a 5,000 tpd conventional mill and flotation/leaching plant to produce a high grade silver-copper concentrate with gold credits. The Starter Pit will have a conceptual average annual production of 3.9 million AgEq ounces per year and approximately 5 million ounces AgEq per year for each of the first 4 years of operation. An expansion of the Starter Pit to include additional resources within a larger pit would then be contemplated.

 

During the year ended December 31, 2013, the Company incurred U.S.$2,670,000 in acquisition costs and U.S.$1,712,226 in deferred exploration costs on the La Joya Property. Most of the expenses incurred on this property during the year consisted of exploration and general (U.S.$844,957), drilling (U.S.$114,583), assays (U.S.$87,357) and technical services and consulting (U.S.$665,329).

 

2014

 

During fiscal 2014, the Company paid acquisition costs of U.S.$587,500 and incurred U.S.$1,337,952 in deferred exploration costs. Most of the expenses incurred at La Joya during fiscal 2014 were to complete the 17 hole in-fill drilling program (2,698 m) which commenced at the end of 2013. The Company intends to use the information towards an updated resource model and conduct ongoing low cost desktop Pre-Feasibility work on the property during 2015.

 

Financing

 

Sandstorm Gold Purchase Agreement

In May 2009, the Company entered into a definitive gold purchase agreement dated as of May 14, 2009 (the “Gold Purchase Agreement”) with Nusantara, Sandstorm Resources Ltd. (“Sandstorm”), Sandstorm Resources (Barbados) Ltd. (“Sandstorm Barbados”), pursuant to which Sandstorm Barbados agreed to purchase an amount equal to 20% of the payable gold produced (the “Payable Gold”) over the life of mine of the Santa Elena Project for an upfront deposit of U.S.$12 million in cash (the “Upfront Deposit”) and 3,500,000 common shares of Sandstorm, plus ongoing per ounce payments equal to the lesser of (a) U.S.$350 (subject to an increase equal to 1% per annum commencing on the third anniversary of the date that the Santa Elena Project begins commercial production), and (b) the then prevailing market price per ounce of gold. The Upfront Deposit was used by the Company to finance a portion of the costs of construction and development of the Santa Elena Mine.

 

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On February 25, 2014 pursuant to the Gold Purchase Agreement, the Company received notice of Sandstorm’s election to participate in the Underground Mine Option at the Santa Elena Mine. As consideration for participation, Sandstorm made a U.S.$10 million payment to the Company on March 10, 2014, representing approximately 20% of the capital expenditures incurred relating to the gold stream produced from the underground mine. Sandstorm will continue to make ongoing per ounce payments of U.S.$350 (subject to an increase equal to 1% per annum commencing on the third anniversary of the date that the Santa Elena Project begins commercial production) until 50,000 ounces of gold have been delivered to Sandstorm, at which time the per ounce payments will increase to U.S.$450, subject to an increase of 1% per annum commencing on the third anniversary from the date of commercial production occurring at the underground mine.

 

The Company has granted to Sandstorm Barbados a subordinated security interest over all of its interests in, and assets in respect of, the Santa Elena Project in order to secure the obligations of the Company under the Gold Purchase Agreement.

 

Financing Facilities

 

In July 2013, the Company entered into a three year U.S.$40 million secured corporate credit facility (the “Credit Facility”) with the Bank of Nova Scotia (“Scotiabank”). The credit limit available under the Facility is reduced by U.S.$10 million on each of July 11, 2014, and July 11, 2015, and will mature on July 11, 2016, subject to a one year extension of these dates by mutual agreement. The Credit Facility is to be used for general corporate purposes and to complete the Santa Elena Mine expansion program which will release operational cash flow for other corporate purposes. The Credit Facility is principally secured by a pledge of the Company's equity interests in its material subsidiaries, including Nusantara and SilverCrest de Mexico S.A. de C.V., and their assets. Depending on the Company's total indebtedness to EBITDA ratio, the interest rate margin on the Credit Facility will, at the Company's election, range from certain percentages over LIBOR, or over Scotiabank's Base Rate in Canada. The availability of the Credit Facility is subject to customary conditions precedent and qualitative and quantitative covenants. SilverCrest drew down U.S.$15 million from the Credit Facility in February 2014 to fund Santa Elena expansion expenditures.

 

Equity Financings

 

In October 2012, the Company completed a public offering of 13,529,750 common shares of the Company at a price of $2.55 per share for gross proceeds of $34,500,863, with Dundee Securities Ltd., Canaccord Genuity Corp. and ROTH Capital Partners, LLC acting as underwriters. The underwriters received a cash commission of $1,897,547. The net proceeds were used to pay out and eliminate the remainder of the Company’s commitments under the Hedging Facility (which was paid out and settled in November 2012) and for general corporate purposes.

 

During the 2012 financial year, 5,052,200 previously outstanding warrants of the Company were exercised for aggregate cash proceeds to the Company of U.S.$4,595,047 and 176,000 previously granted stock options were exercised for aggregate cash proceeds to the Company of U.S.$258,132.

 

During the 2013 financial year, 510,300 previously outstanding warrants of the Company were exercised for cash proceeds to the Company of $805,469, and 1,900,000 previously granted stock options were exercised for cash proceeds to the Company of $2,178,631.

 

On March 13, 2014, the Company completed a public offering of 8,855,000 common shares of the Company at a price of $2.60 per share for gross proceeds of $23,023,000 (the “2014 Public Offering”), with Dundee Securities Ltd., as lead underwriter, and National Bank Financial Inc., Raymond James Ltd. and PI Financial Corp., acting as underwriters. The underwriters received a cash commission of $1,266,265. The net proceeds of the 2014 Public Offering was to be used for working capital and general corporate purposes.

 

During the 2014 financial year, 980,000 previously granted stock options of the Company were exercised for cash proceeds to the Company of $566,750.

 

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3.3Significant Acquisitions

 

There were no significant acquisitions completed by the Company during the year ended December 31, 2014.

 

4.DESCRIPTION OF BUSINESS

 

4.1General

 

The Business of the Company

 

The Company is a Canadian precious metals producer with a significant silver and gold asset base in Mexico. The Company’s flagship property is the 100% owned Santa Elena Mine, a high-grade, epithermal silver and gold deposit. Refined silver and gold metal produced by the Company at its Santa Elena Mine in Mexico are sold to a limited number of international financial institutions specializing in the precious metals market. For a summary of Santa Elena Mine’s recent metal production and financial results, see “General Development of the Business – Most Recent Three-Year Operational History – Santa Elena Project”.

 

The Company’s ongoing initiative is to increase its production and asset base by acquiring and developing substantial precious metal resources, and ultimately operating high grade silver mines in Mexico.

 

Specialized Skill and Knowledge

 

Most aspects of the Company’s business require specialized skills and knowledge. Such skills and knowledge include the areas of geology, exploration, development, construction, production and accounting. The Company has a number of executive officers and employees with extensive experience in mining, geology, exploration and development in Mexico and other parts of North, Central and South America and generally, as well as executive officers and employees with relevant accounting experience.

 

Competitive Conditions

 

The Company competes with major mining companies and other smaller natural resource companies in the acquisition, exploration, financing and development of new properties and projects in Central America. Many of these companies are more experienced, larger and have greater financial resources for, among other things, financing and the recruitment and retention of qualified personnel. See “Risk Factors – Competitive Conditions”.

 

Environmental Protection

 

The Company’s operations are presently primarily focussed in Mexico, and are subject to national and local laws and regulation in respect of the construction, operating standards for the mine and, once mine closure occurs, the eventual abandonment and restoration costs for the site.

 

Each operation is subject to an asset retirement obligation review at year end, which assesses the abandonment and restoration cost for the operation at that point in time, and any changes are reflected in the balance sheet and could flow through the earnings statement.

 

The Company’s asset retirement obligations relate to the operation of the Santa Elena project and exploration of La Joya property. The total undiscounted amount of the estimated cash flows required to settle the Company’s reclamation and remediation obligations, as at December 31, 2014, is estimated to be U.S.$5,579,309. The ultimate amount of the asset retirement obligation is uncertain. The fair value estimate of the Company’s obligations to undertake site reclamation and remediation is based on information currently available.

 

The fair value of the estimated future expenditures as at December 31, 2014, has been estimated to be U.S.$4,026,507. In determining the fair value of the asset retirement obligation, the Company has assumed a long-term inflation rate of 4.1%, a discount rate of 10.0%, and a remaining projected mine life of 7 years. In view of uncertainties concerning asset retirement obligations, the ultimate costs could be materially different from the amounts estimated. The estimate of future asset retirement obligations is subject to change based on amendments to applicable laws and legislation. Future changes in asset retirement obligations, if any, could have a significant impact. See “Risk Factors – Government Regulations” and “Risk Factors – Environmental Factors”.

 

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Foreign Operations

 

The Company’s activities are currently focused on the Santa Elena Project located in Sonora, Mexico, which exposes it to various levels of political, economic and other risks and uncertainties associated with operating in a foreign jurisdiction. Operating in Mexico, a developing economy, has certain risks, including changes to or invalidation of government mining regulations; expropriation or revocation of land or property rights; changes in foreign ownership rights; changes in foreign taxation rates; corruption; uncertain political climate; terrorist actions or war; and lack of a stable economic climate. See “Risk Factors – Foreign Operations”.

 

Employees

 

As at December 31, 2014, the Company and its subsidiaries had an aggregate of approximately 323 full-time employees. All management functions of the Company are performed by the executive officers of the Company, either directly or through their consulting companies.

 

Corporate Social Responsibility and Health, Safety & Environment Policies

 

The Company’s corporate performance is based on integrity, openness and respect for employees, the communities in the areas of its operations and supporting institutions.  The Company’s goal is to establish constructive relationships based on open dialogue with communities situated in its area of operations from the early stages of a project, with continuing communication as a project advances.  During fiscal 2013 and 2014, the Company conducted an extensive stakeholder engagement process and regional socio-economic study at both its mining operation and exploration sites. The focus of the Company’s Social Investment in fiscal 2014 was a Rural Development project aimed at supporting agriculture and other local livelihoods. 

 

In fiscal 2014, the Company implemented a policy framework within its Code of Conduct customized to the reality of its operations, to ensure that its activities follow best practice in Environment, Social and Governance, with the long term goal of ensuring positive relations with stakeholders and the sustainability of its operations.  In addition, the Company has set up a Grievance Mechanism and Questions Line, a confidential communication channel for employees and other stakeholders to report violations of the Code of Conduct, bring issues to the attention of the Company, and ask questions privately.  This enables the Company to effectively mitigate risk by addressing issues early and be proactive in reaching solutions.   

 

4.2Risk Factors

 

The following factors are those which are the most applicable to the Company. The discussion which follows is not inclusive of all potential risks. Risk management is an ongoing exercise upon which the Company spends a substantial amount of time. While it is not possible to eliminate all of the risks inherent to the mining business, the Company strives to manage these risks, to the greatest extent possible, to ensure that its assets are protected.

 

Precious and Base Metal Price Fluctuations

 

The profitability of the precious and base metal operations in which the Company has an interest will be significantly affected by changes in the market prices of precious and base metals. Prices for precious and base metals fluctuate on a daily basis, have historically been subject to wide fluctuations and are affected by numerous factors beyond the control of the Company such as the level of interest rates, the rate of inflation, central bank transactions, world supply of precious and base metals, foreign currency exchange rates, international investments, monetary systems, speculative activities, international economic conditions and political developments. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving adequate returns on invested capital or the investments retaining their respective values. Declining market prices for these metals could materially adversely affect the Company’s operations and profitability.

 

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Operating Hazards and Risks

 

Mining operations generally involve a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. These risks include, but are not limited to, the following: environmental hazards, industrial accidents, third party accidents, unusual or unexpected geological structures or formations, fires, power outages, labour disruptions, floods, explosions, cave-ins, land-slides, acts of God, periodic interruptions due to inclement or hazardous weather conditions, earthquakes, war, rebellion, revolution, delays in transportation, inaccessibility to property, restrictions of courts and/or government authorities, other restrictive matters beyond the reasonable control of the Company, and the inability to obtain suitable or adequate machinery, equipment or labour and other risks involved in the operation of mines.

 

Operations in which the Company has a direct or indirect interest will be subject to all the hazards and risks normally incidental to exploration, development and production of precious and base metals, any of which could result in work stoppages, delayed production and resultant losses, increased production costs, asset write downs, damage to or destruction of mines and other producing facilities, damage to life and property, environmental damage and possible legal liability for any or all damages. The Company may become subject to liability for pollution, cave-ins or hazards against which it cannot insure or against which it may elect not to insure. Such liabilities may have a material, adverse effect on the Company’s financial position.

 

The Company’s property, business interruption and liability insurance may not provide sufficient coverage for losses related to these or other hazards. Insurance against certain risks, including certain liabilities for environmental pollution, may not be available to the Company or to other companies within the industry at reasonable terms or at all. In addition, the Company’s insurance coverage may not continue to be available at economically feasible premiums, or at all. Any such event could have a material adverse effect on the Company’s business.

 

Mining Capital and Operation Costs

 

The capital costs required by the Company’s projects may be significantly higher than anticipated. Capital and operating costs, production and economic returns, and other estimates contained in the Company’s current technical and feasibility reports, may differ significantly from those provided for in future studies and estimates and from management guidance, and there can be no assurance that the Company’s actual capital and operating costs will not be substantially higher than currently anticipated. In addition, delays to construction and exploration schedules may negatively impact the net present value and internal rates of return from the Company’s mineral properties as set forth in the applicable report. Similarly, there can be no assurance that historical rates of production, grades of ore processed, rates of recoveries or mining cash costs will not experience fluctuations or differ significantly from current levels over the course of the mining operations conducted by the Company.

 

Calculation of Reserves and Resources and Precious Metal Recoveries

 

There is a degree of uncertainty attributable to the calculation and estimates of reserves and resources and their corresponding metal grades to be mined and recovered. Until reserves or resources are actually mined and processed, the quantities of mineralization and metal grades must be considered as estimates only. Any material change in the quantity of mineral reserves, mineral resources, grades and recoveries may affect the economic viability of the Company’s properties.

 

Replacement of Reserves and Resources

 

The Santa Elena Mine is the Company’s only current source of production. The current life-of-mine plan provides for a defined production life for mining at the Santa Elena Mine. If the Company’s mineral reserves and resources are not replaced either by the development or discovery of additional reserves and/or extension of the life-of-mine at the Santa Elena Mine or the acquisition or development of an additional producing mine, this could have an adverse impact on the Company’s future cash flows, earnings, results of operations and financial condition, including as a result of requirements to expend funds for reclamation and decommissioning.

 

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Infrastructure

 

Mining, processing, development and exploration activities depend, to one degree or another, on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important determinants, which affect capital and operating costs. The lack of availability on acceptable terms or the delay in the availability of any one or more of these items could prevent or delay exploitation or development of the Company’s projects. If adequate infrastructure is not available in a timely manner, there can be no assurance that the exploitation or development of the Company’s projects will be commenced or completed on a timely basis, if at all, that the resulting operations will achieve the anticipated production volume, or the construction costs and ongoing operating costs associated with the exploitation and/or development of the Company’s advanced projects will not be higher than anticipated. In addition, unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect the Company’s operations and profitability.

 

Fluctuations in the Price of Consumed Commodities

 

Prices and availability of commodities consumed or used in connection with exploration, development and mining, such as diesel, cyanide and other reagents fluctuate, affecting the costs of production at the Company’s operations. These fluctuations can be unpredictable, can occur over short periods of time and may have a materially adverse impact on the Company’s operating costs or the timing and costs of various projects. The Company’s general policy is not to hedge its exposure to changes in prices of the commodities it uses in its business.

 

Foreign Exchange Rate Fluctuations

 

Operations in Canada and Mexico are subject to foreign currency exchange fluctuations. The Company raises its funds through equity issues which are priced in Canadian dollars, debt issuances which are priced in U.S. dollars, cash flow from operations is received in U.S. dollars and the majority of the exploration costs of the Company are denominated in United States dollars or Mexican Pesos. The Company may suffer losses due to adverse foreign currency fluctuations.

 

Exploration and Development

 

There is no assurance that the Company’s exploration and development programs and properties will result in the discovery, development or production of another commercially viable ore body or yield new reserves to replace or expand current reserves.

 

The business of exploration for minerals and mining involves a high degree of risk. Few properties that are explored are ultimately developed into producing mines. At this time, apart from the mineral reserves on the Company’s Santa Elena Project, the other properties of of the Company do not have any defined ore-bodies with proven reserves.

 

The economics of developing silver, gold and other mineral properties are affected by many factors including capital and operating costs, variations of the tonnage and grade of ore mined, fluctuating mineral markets, and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection. Depending on the prices of silver, gold or other minerals produced, the Company may determine that it is impractical to commence or continue commercial production. Substantial expenditures are required to discover an ore-body, to establish reserves, to identify the appropriate metallurgical processes to extract metal from ore, and to develop the mining and processing facilities and infrastructure. The marketability of any minerals acquired or discovered may be affected by numerous factors which are beyond the Company’s control and which cannot be accurately foreseen or predicted, such as market fluctuations, conditions for precious and base metals, the proximity and capacity of milling and smelting facilities, and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting minerals, and environmental protection. In order to commence exploitation of certain properties presently held under exploration concessions, it is necessary for the Company to apply for an exploitation concession. There can be no guarantee that such a concession will be granted. Unsuccessful exploration or development programs could have a material adverse impact on the Company’s operations and profitability.

 

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Acquisition Strategy

 

As part of the Company’s business strategy, it has sought and will continue to seek new mining and development opportunities in the mining industry. In pursuit of such opportunities, it may fail to select appropriate acquisition candidates, negotiate appropriate acquisition terms, conduct sufficient due diligence to determine all related liabilities or to negotiate favourable financing terms. The Company may encounter difficulties in transitioning the business, including issues with the integration of the acquired businesses or its personnel into the Company. The Company cannot assure that it can complete any acquisition or business arrangement that it pursues, or is pursuing, on favourable terms, or that any acquisitions or business arrangements completed will ultimately benefit its business.

 

Competitive Conditions

 

Significant competition exists for natural resource acquisition opportunities. As a result of this competition, some of which is with large, well established mining companies with substantial capabilities and significant financial and technical resources, the Company may be unable to either compete for or acquire rights to exploit additional attractive mining properties on terms it considers acceptable. Accordingly, there can be no assurance that the Company will be able to acquire any interest in additional projects that would yield reserves or results for commercial mining operations.

 

Anti-takeover provisions

 

Some of the provisions in our constating documents could delay or prevent a third party from acquiring us or replacing members of our board of directors, even if the acquisition or the replacements would be beneficial to our shareholders. Such provisions include the following:

 

·shareholders cannot amend our notice of articles and our articles unless at least two-thirds of the shares entitled to vote approve the amendment;
·our board of directors can, without shareholder approval, issue preferred shares having any terms, conditions, rights and preferences that the board determines; and
·shareholders must give advance notice to nominate directors or to submit proposals for consideration at shareholders’ meetings.

 

These provisions could also reduce the price that certain investors might be willing to pay for our securities and result in the market price for our securities, including the market price for our common shares, being lower than it would be without these provisions.

 

Foreign Operations

 

The Company’s operations are currently conducted through subsidiaries principally in Mexico, as such, its operations are exposed to various levels of political, economic and other risks and uncertainties which could result in work stoppages, blockades of the Company’s mining operations and appropriation of assets. Some of the Company’s operations are located in areas where Mexican drug cartels operate. These risks and uncertainties vary from region to region and include, but are not limited to, terrorism; hostage taking; local drug gang activities; military repression; expropriation; extreme fluctuations in currency exchange rates; high rates of inflation; labour unrest; the risks of war or civil unrest; renegotiation or nullification of existing concessions, licenses, permits and contracts; illegal mining; changes in taxation policies; restrictions on foreign exchange and repatriation; and changing political conditions, currency controls and governmental regulations that favour or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction.

 

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Local opposition to mine development projects could arise in Mexico, and such opposition could be violent. There can be no assurance that such local opposition will not arise with respect to the Company’s foreign operations. If the Company were to experience resistance or unrest in connection with its operations, it could have a material adverse effect on its operations and profitability.

 

To the extent the Company acquires mineral properties in jurisdictions other than Mexico, it may be subject to similar and additional risks with respect to its operations in those jurisdictions.

 

Surface Rights

 

A mineral concession in Mexico does not confer any ownership of surface rights. The majority of the Company’s mineral properties are located in remote and relatively uninhabited areas. There are currently no areas of interest to the Company within its mineral concessions that are overlain by significant habitation or industrial users, however there are potential overlapping surface usage issues in some areas. Some surface rights are owned by local communities or “Ejidos” and some surface rights are owned by private ranching or residential interests. The Company will be required to negotiate the acquisition of surface rights in those areas where it may wish to develop mining operations. SilverCrest’s mineral interests are located on community or private land, and it is necessary to deal with the owners for access and any potential development or exploitation rights. There can be no assurance that the Company will be able to negotiate and acquire surface access rights on terms acceptable to the Company or at all.

 

Contractual interests in the properties

 

The Company is a party to agreements pursuant to which it may earn interests in certain properties. Title to such properties may be held in the names of parties other than the Company. Any of such properties may become the subject of an agreement which conflicts with the agreement pursuant to which the Company may earn its interest, in which case the Company may incur expenses in resolving any dispute relating to its interest in such property and such a dispute could result in the delay, indefinite postponement of further exploration and development of properties or the possible loss of such properties.

 

Government Regulation

 

The Company’s operations, exploration and development activities are subject to extensive foreign federal, state and local laws and regulations governing such matters as environmental protection, management and use of toxic substances and explosives, management of natural resources, health, exploration and development of mines, production and post-closure reclamation, safety and labour, mining law reform, price controls, import and export laws, taxation, maintenance of claims, tenure, government royalties and expropriation of property. There is no assurance that future changes in such regulation, if any, will not adversely affect the Company’s operations. The activities of the Company require licenses and permits from various governmental authorities.

 

The costs associated with compliance with these laws and regulations are substantial, and possible future laws and regulations, changes to existing laws and regulations and more stringent enforcement of current laws and regulations by governmental authorities, could cause additional expenses, capital expenditures, restrictions on or suspensions of the Company’s operations and delays in the development of its properties. Moreover, these laws and regulations may allow governmental authorities and private parties to bring lawsuits based upon damages to property and injury to persons resulting from the environmental, health and safety practices of the Company’s past and current operations, or possibly even those actions of parties from whom the Company acquired its mines or properties, and could lead to the imposition of substantial fines, penalties or other civil or criminal sanctions. The Company retains competent and well trained individuals and consultants in jurisdictions in which it does business; however, even with the application of considerable skill the Company may inadvertently fail to comply with certain laws. Such events can lead to financial restatements, fines, penalties, and other material negative impacts on the Company.

 

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Obtaining and Renewing Government Permits

 

In the ordinary course of business, the Company is required to obtain and renew government permits for the operation and expansion of existing operations or for the development, construction and commencement of new operations. Obtaining or renewing the necessary governmental permits is a complex and time-consuming process involving numerous jurisdictions and possibly involving public hearings and costly undertakings on the Company’s part. The duration and success of the Company’s efforts to obtain and renew permits are contingent upon many variables not within its control, including the interpretation of applicable requirements implemented by the permitting authority. The Company may not be able to obtain or renew permits that are necessary to its operations, or the cost to obtain or renew permits may exceed what the Company believes it can recover from a given property once in production. Any unexpected delays or costs associated with the permitting process could delay the development or impede the operation of a mine, which could adversely impact the Company’s operations and profitability.

 

Environmental Factors

 

All phases of the Company’s operations are subject to environmental regulation in the various jurisdictions in which it operates. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that any future changes in environmental regulation, will not adversely affect the Company’s operations. The costs of compliance with changes in government regulations have the potential to reduce the profitability of future operations. Environmental hazards that may have been caused by previous or existing owners or operators may exist on the Company’s mineral properties, but are unknown to the Company at the present.

 

Title to Assets

 

Although the Company has or will receive title opinions for any properties in which it has a material interest, there is no guarantee that title to such properties will not be challenged or impugned. The Company has not conducted surveys of certain of the claims in which it holds direct or indirect interest and, therefore, the precise area and location of such claims may be in doubt. The Company’s mineral concessions may be subject to prior unregistered agreements or transfers or native land claims, and title may be affected by unidentified or unknown defects. The Company has conducted as thorough an investigation as possible on the title of properties that it has acquired or will be acquiring to be certain that there are no other claims or agreements that could affect its title to the concessions or claims. If title to the Company’s properties is disputed it may result in the Company paying substantial costs to settle the dispute or clear title and could result in the loss of the property, which events may affect the economic viability of the Company.

 

Uncertainty of Funding

 

The mineral concessions in which the Company has an interest or an option to acquire an interest require financial expenditures to be made by the Company. There can be no assurance that adequate funding will be available to the Company so as to exercise its option or to maintain its interests once those options have been exercised. Further exploration work and development of the properties in which the Company has an interest or option to acquire depend upon the Company’s ability to obtain funding through cash flow from operations, joint venturing of projects, debt financing or equity financing or other means. Failure to obtain adequate funding on a timely basis could cause the Company to forfeit certain of its interests in mineral properties or reduce its operations.

 

Employee Recruitment and Retention

 

Recruiting and retaining qualified personnel is critical to the Company’s success. The Company is dependent on the services of key executives including the Company’s Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and other highly skilled and experienced executives and personnel focused on managing the Company’s interests. The number of persons skilled in acquisition, exploration, development and operation of mining properties is limited and competition for such persons is intense. As the Company’s business activity grows, the Company will require additional key financial, administrative and mining personnel as well as additional operations staff. The Company could experience increases in its recruiting and training costs and decreases in its operating efficiency, productivity and profit margins. Failure of the Company to attract, hire and retain qualified personnel and the departure of any of its key executives could impair the efficiency of its operations and could have an adverse impact on the Company’s future cash flows, earnings, results of operations and financial condition.

 

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Potential Conflicts of Interest

 

The directors and officers of the Company may serve as directors and/or officers of other public and private companies, and may devote a portion of their time to manage other business interests. This may result in certain conflicts of interest. To the extent that such other companies may participate in ventures in which the Company is also participating, such directors and officers of the Company may have a conflict of interest in negotiating and reaching an agreement with respect to the extent of each company’s participation. The laws of British Columbia, Canada, require the directors and officers to act honestly, in good faith, and in the best interests of the Company and its shareholders. However, in conflict of interest situations, directors and officers of the Company may owe the same duty to another company and will need to balance the competing obligations and liabilities of their actions.

 

Absolute Assurance on Financial Statements

 

The Company prepares its financial statements in accordance with accounting policies and methods prescribed by International Financial Reporting Standards. In the preparation of financial statements, management may need to rely upon assumptions, make estimates or use their best judgment in determining the financial condition of the Company. In order to have a reasonable level of assurance that financial transactions are properly authorized, assets are safeguarded against unauthorized or improper use, and transactions are properly recorded and reported, the Company has implemented and continues to analyze its internal control systems for financial reporting. Although the Company believes that its financial reports and financial statements are prepared with reasonable safeguards to ensure reliability, the Company cannot provide absolute assurance in that regard.

 

Mexican Foreign Investment and Income Tax Laws

 

On October 31, 2013, the Mexican Tax Reform package was approved by the Mexican Congress and it came into effect on January 1, 2014. This law applies on a prospective basis and is expected to affect the future earnings of the Company’s operations in Mexico. The Company has taken the position that the 7.5% mining royalty is an income tax in accordance with IFRS for financial reporting purpose, as it is based on a measure of revenue less certain specified costs. On substantial enactment, a taxable temporary difference arises, as property, plant and equipment and exploration and evaluation assets have book basis but no tax basis for purposes of the royalty. The Company has recognized a deferred tax liability of $5.8 million as at December 31, 2013 in respect of this royalty. This deferred tax liability will be drawn down to $nil as a reduction to tax expense over the life of mine as the Santa Elena Mine and its related assets are depleted or depreciated.

 

In December 2012, the Mexican government amended federal labour laws with respect to the use of service companies, subcontracting arrangements and the obligation to compensate employees with appropriate profit-sharing in Mexico. While the Company believes it is probable that these amended labour laws will not result in any material obligation or additional profit-sharing entitlements for its Mexican employees, there can be no assurance that this will continue to be the case.

 

The Company relies on the advice of local experts and professionals in connection with current and new regulations that develop in respect of tax, labour and other matters in Mexico. Any developments or changes in such legal, regulatory or governmental requirements as described above or otherwise are beyond the control of the Company and may adversely affect its business.

 

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Substantial Volatility of Share Price

 

In recent years, the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the securities of many mineral exploration and mining companies have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. The price of the Company’s common shares is also likely to be significantly affected by short-term changes in mineral prices or in the Company’s financial condition or results of operations as reflected in its quarterly financial reports. Other factors unrelated to the Company’s performance that may have an effect on the price of its common shares include the following: the extent of analytical coverage available to investors concerning the Company’s business may be limited if investment banks with research capabilities do not follow the Company’s securities; lessening in trading volume and general market interest in the Company’s securities may affect an investor’s ability to trade significant numbers of the Company’s common shares; and the size of the Company’s public float may limit the ability of some institutions to invest in the Company’s securities.

 

Potential dilution of present and prospective shareholdings

 

In order to finance future operations and development efforts, the Company may raise funds through the issue of common shares or securities convertible into common shares. The Company cannot predict the size of future issues of common shares or securities convertible into common shares or the effect, if any, that future issues and sales of the Company’s common shares will have on the market price of its common shares. Any transaction involving the issue of shares, or securities convertible into shares, could result in dilution, possibly substantial, to present and prospective holders of shares.

 

Lack of Dividends

 

No dividends on the Company’s common shares have been paid to date. The Company currently plans to retain all future earnings and other cash resources, if any, for the future operation and development of its business. Payment of any future dividends, if any, will be at the discretion of the Board of Directors after taking into account many factors, including the Company’s operating results, financial condition, and current and anticipated cash needs.

 

Financial Instruments

 

From time to time, the Company may use certain financial instruments to manage the risks associated with changes in gold and silver prices, interest rates and foreign currency exchange rates. The use of financial instruments involves certain inherent risks including, among other things: (i) credit risk, the risk of default on amounts owing to the Company by the counterparties with which Company has entered into such transaction; (ii) market liquidity risk, the risk that the Company has entered into a position that cannot be closed out quickly, either by liquidating such financial instrument or by establishing an offsetting position; (iii) unrealized mark-to-market risk, the risk that, in respect of certain financial instruments, an adverse change in market prices for commodities, currencies or interest rates will result in the Company incurring an unrealized mark-to-market loss in respect of such derivative products.

 

4.3Mineral Projects

 

The Company currently has active mineral property interests in Mexico. The Company considers the Santa Elena Project and the La Joya Property to be the properties material to it within the meaning of NI 43-101.

 

4.3.1Santa Elena Project – Sonora, Mexico

 

Certain information regarding the Santa Elena Project is extracted from the summary section of the Update to Santa Elena Pre-Feasibility Study, dated effective December 31, 2014, and prepared for the Company by N. Eric Fier, C.P.G., P.Eng., Chief Operating Officer of the Company. The Update to Santa Elena Pre-Feasibility Study is incorporated in its entirety into this Annual Information Form by reference.

 

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The following summary does not purport to be a complete summary of the Santa Elena Mine and is subject to all the assumptions, qualifications and procedures set out in the Update to Santa Elena Pre-Feasibility Study and is qualified in its entirety with reference to the full text of the Update to Santa Elena Pre-Feasibility Study. Readers should read this summary in conjunction with the Update to Santa Elena Pre-Feasibility Study which is available for review on SEDAR (www.sedar.com) under the Company’s profile and on the Company’s website (www.silvercrestmines.com).

 

Introduction

 

SilverCrest Mines Inc. (SilverCrest, SVL) of Vancouver, British Columbia, Canada has prepared this Update to Pre-Feasibility Study for the Santa Elena Mine, located in central Sonora, Mexico. The Technical Report prepared is in compliance with National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) titled, “Update to Santa Elena Pre-Feasibility Study, Sonora Mexico” (the “UPFS”), for its operating Santa Elena mine. The UPFS updates the Santa Elena Pre-Feasibility Study and Open Pit Resource Update dated effective April 30, 2013, as amended March 4, 2014 (the “2013 PFS”). Summaries of the revised Reserves and Resources, Life of Mine Plan (“LOMP or LOM”), operating costs, sustaining capital costs and project economics are presented in tables below. All dollar amounts are expressed in U.S. dollars unless otherwise specified. The effective date of this Technical Report is December 31, 2014. Refer to the “Santa Elena Expansion Pre-Feasibility Study and Open Pit Reserve Update” with effective date of April 30, 2013, and amended date of March 4, 2014 for further information being referenced in this report.

 

Nusantara de Mexico S.A. de C.V., a 100% owned Mexican subsidiary and a legal operating entity of SilverCrest, holds the rights to the Santa Elena Mine and associated exploration concessions.

 

The Santa Elena Mine is currently producing gold and silver from a 3,000 tonne per day open pit, underground and reprocessing of heap leaching material using a new fully commissioned Merrill Crowe/CCD processing facility. The Santa Elena Project involves combined processing of ore from the remaining reserves in the open pit, updated reserves from underground development and reprocessing of spent ore from the existing heap leach pad. Commercial production for the 3,000 tonne per day mill and plant facility was declared in August 2014. Underground development has been ongoing since January 2013 with commercial production declared in October 2014. As of December 2014, the decline had been developed to the 575 metre elevation with development drifts on the 700, 675, 650, 625, 600, and 575 metre levels (elevations above sea level). Underground stope production in late 2014 consisting of long hole stoping of Stope #1 which is located between the 575 to 600 metre levels and preparation and of stope #2 and #3.

 

The purpose of this report is to document an Update to the 2013 Pre-Feasibility Study completed for the Santa Elena Project supported by updated Mineral Resource, Mineral Reserve Estimates, mine design, Life of Mine Plan (LOMP), sustaining capital and operating costs and economic analyses.

 

This report conforms to National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101 and Form 43-101F1), and incorporates the Canadian Institute for Mining, Metallurgy and Petroleum Definition Standards for Mineral Resources and Mineral Reserves (CIM Definition Standards).

 

Santa Elena Update to Mineral Resources and Mineral Reserves

 

Update to Mineral Reserve and Resource (open pit, underground and leach pad) are shown in the table below. Only Indicated Resources were used to define Mineral Reserves in the UPFS mine plan, schedule and economic analyses. To summarize, Total Reserves are 7.45 million tonnes grading 1.23 gpt Au and 78.4 gpt Ag, containing 295 thousand ounces of gold and 18.76 million ounces of silver. This represents a 10% decrease in contained gold and 5% decrease in contained silver over previous Probable Reserves stated in the 2013 PFS Technical Report. Updated Indicated Resources (exclusive of Probable Reserves) are estimated at 1.1 million tonnes grading 1.39 gpt Au and 89.7 gpt Ag, containing 50 thousand ounces of gold and 3.2 million ounces of silver. This represents a 57% decrease in contained gold ounces and 59% decrease in contained silver ounces over previous Indicated Resources. Updated Inferred Resources are estimated at 0.56 million tonnes grading 1.69 gpt Au and 106.5 gpt Ag, containing 31 thousand ounces of gold and 1.9 million ounces of silver. This represents a 57% decrease in contained gold ounces and 74% decrease in contained silver ounces. The percentage differences in gold and silver from PFS (April 30, 2013) are based on:

 

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·A minimal of decrease of overall reserves from mining depletion even with base case metal price used for cut off analyses changed from $1,450 per ounce of gold to $1300 and $28 per ounce of silver to $19.50.

 

·A decrease in open pit reserves due to depletion due to mining from April 30, 2013 to March 24, 2014.

 

·An increase in leach pad reserves with continuation of open pit mining in 2013 and 2014 and partial leaching (300 day leach cycle) of ore.

 

·Overall, increase in mine life after mining depletion.

 

·Resources have been impacted by conversion to reserves, lower base case metal prices, update geological model incorporating infill drilling and changes in estimation supported by additional drilling completed in 2013 and 2014 and production data generated during the life of mine at the open pit operations.

 

Table 1.1: Update to Mineral Reserve and Resource Estimates (December 31, 2014)

 

 SANTA ELENA RESERVES (DECEMBER 31, 2014)

 

CLASSIFICATION  TONNES   AU GPT   AG GPT   CONTAINED
AU OZ		   CONTAINED AG OZ 
                     
SANTA ELENA UNDERGROUND DILUTED AND RECOVERABLE RESERVES*
PROBABLE   3,981,557    1.67    115.0    214,000    14,724,000 
                          
SANTA ELENA OPEN PIT RESERVES**
PROBABLE   121,706    2.75    117.0    11,000    458,000 
                          
SANTA ELENA LEACH PAD RESERVES***
PROBABLE   3,344,652    0.65    33.3    70,000    3,582,000 
                          
TOTAL SANTA ELENA RESERVES
PROBABLE   7,447,915    1.23    78.4    295,000    18,764,000 
                          
SANTA ELENA RESOURCES (DECEMBER 31, 2014) ****
INDICATED   1,117,032    1.39    89.7    50,000    3,220,000 
INFERRED   564,073    1.69    106.5    31,000    1,932,000 

 

Note: All numbers are rounded. Underground and Leach Pad Reserves and Resources are based on LOMP metal price trends of US$19.50/oz silver, US$1,300/oz gold and metallurgical recoveries of 92% Au and 67.5% Ag. All Mineral Resources and Reserves conform to NI 43-101 and CIM definitions for Resources and Reserves. Inferred Resources have been estimated from geological evidence and limited sampling and must be treated with a lower level of confidence than Indicated Resources.

* Underground Probable Reserve is based on a cut-off grade of 2.49 gpt AuEq with an average est. 10% dilution and 90% mine recovery. Average true thickness of the designed stopes is 10 metres.

** Open Pit Reserve is based on a cut-off grade of 0.20 gpt AuEq in a constrained pit shell with applied capping of 8 gpt Au and 300 gpt Ag.

*** Leach Pad Reserve based on production and drill hole data for volumetrics and grade model using a cut-off grade of 0.5 gpt AuEq. No capping was applied.

****Mineral Resources exclude Mineral Reserves and are based on a 1.5 gpt AuEq cut-off grade using assumptions for prices and recoveries as stated in note above. Capping was applied at 12 gpt Au and 700 gpt Ag.

 

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Table 1.2: Previous Reserve and Resource Estimates (April 2013) for comparative purposes

 

Classification1  Tonnes   Au Gpt   Ag Gpt   Au Oz   Ag Oz 
                     
Santa Elena Underground Diluted and Recoverable Reserves2
Probable   3,920,510    1.57    108.1    198,170    13,624,640 
                          
Santa Elena Open Pit Reserves3
Probable   1,426,710    1.52    66.8    69,830    3,062,200 
                          
Santa Elena Leach Pad Reserves4
Probable   2,844,530    0.65    33.3    59,420    3,048,200 
Total Reserves   8,191,760    1.24    74.9    327,430    19,735,050 
                          
Santa Elena Underground Resources5
Indicated   2,142,820    1.69    114.9    116,000    7,919,000 
Inferred   1,489,750    1.50    155.6    72,000    7,453,000 

Note: All numbers are rounded. Underground and Leach Pad Reserves and Resources are based on 3 year historic metal price trends of US$28/oz silver, US$1450/oz gold and metallurgical recoveries of 92% Au and 67.5% Ag with a metal ratio of Ag:Au at 70:1 used for grade cut-off determination . All Mineral Resources and Reserves conform to NI 43-101 and CIM definitions for Resources and Reserves. Inferred Resources have been estimated from geological evidence and limited sampling and must be treated with a lower level of confidence than Indicated Resources.

1 Open Pit and Leach Pad Probable Reserves were classified by SilverCrest. Underground Reserves and Resources were classified by EBA, a Tetra Tech Company.

2 Underground Probable Reserve is based on a cut-off grade of 1.47 gpt AuEq with an average 10% dilution and 90% mine recovery. Average true thickness of the designed stopes is 13.4 metres.

3 Open Pit Reserve is based on a cut-off grade of 0.20 gpt AuEq in a constrained pit shell with applied capping of 8 gpt Au and 300 gpt Ag.

4 Leach Pad Reserve based on production and drill hole data for volumetrics and grade model using a cut-off grade of 0.5 gpt AuEq. No capping was applied.

5 Underground Resources are exclusive of Probable Reserves and based on 1 gpt AuEq grade shell, a cut-off grade of 1.4 gpt AuEq, and applied capping of 12 gpt Au and 600 gpt Ag.

 

The update to underground Reserves and Resources have been estimated by SilverCrest utilizing 2013 and 2014 drilling and production results along with previous independently-validated data (see 2013 PFS and previous NI 43-101 compliant Technical Reports on SEDAR at www.sedar.com). Drilling in 2013 and 2014 was focused on underground and surface in-fill drilling, conversion and expansion of underground Resources to Reserves with an average drill hole spacing of approximately 35 to 45 metres.

 

The update to open pit Reserves have been estimated by SilverCrest utilizing extensive production data (blastholes), exploration drilling data drilling data and a 3D computer modelling. All Indicated Resources in the currently operating open pit have been converted to Reserves.

 

The Leach Pad Reserves (spent ore) have been estimated by SilverCrest utilizing production data, crusher composite samples, drill data from verification holes on the pad, bottle roll tests to process design specifications and SilverCrest production leach curves. Spent ore material on the leach pad is currently being reprocessed through the new processing facility. No further leach pad material is anticipated to be loaded on the pad.

 

Drilling data used for Resource estimation from discovery of the deposit (2006) to December 2014 included 366 holes (88,881 metres). A total of 1,983 two metre composite samples were used as the basis for the block model, with 1,871 within the Main Mineralized Zones, 88 for El Cholugo, and 24 for Tortuga.

 

As of April 2011 before commencement of initial production at Santa Elena, the Reserve was stated as 5.1 million tonnes grading 1.72 gpt Au and 73.4 gpt Ag (refer to Technical Report dated April 1, 2011). As of April 2103, the Santa Elena open pit had a Reserve of 1.43 million tonnes grading 1.52 gpt Au and 66.8 gpt Ag (refer to 2013 PFS). In December 2014, the open pit Reserve was depleted by approximately 3.75 year of production and optimized with the remaining 4.79 million tonnes grading 1.81 gpt Au and 75.9 gpt Ag (reported in Technical Report dated April 1, 2011). By January 2012, the open pit was depleted from 2011 production and re-optimized with a resultant Reserve of 3.45 million tonnes grading 1.96 gpt Au and 87.3 gpt Ag showing lesser tonnes and higher grade. Re-optimization of the open pit between April 2011 and December 2014 has reclassified approximately 1.4 million tonnes of open pit Reserve to underground Resources which was converted mostly to the new underground Reserves. The main purpose for re-optimization was to avoid a higher open pit strip ratio at higher cost in future years in the mine life but still be able to mine the displaced Reserves from underground.

 

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Extensive metallurgical test work including ongoing operations data show that all declared Reserves are amenable to conventional leaching by standard CCD milling with a Merrill Crowe recovery system for doré bar production. Estimated recovery grades are stated in Table 1.3 below, and in Section 1.5.

 

Reserve Criteria

 

The updated Santa Elena Mineral Reserves as stated above were completed using GEMS resource models for defining open pit, underground and leach pad Reserves along with criteria as presented in the following table.

 

Table 1.3: Santa Elena Reserve Estimation Criteria

 

Base Case Metal Prices1  All US$ 
Gold  $1,300.00 
Silver  $19.50 

 

Mining Method  Open Pit   U/G Long
Hole		   U/G Cut &
Fill		   Leach Pad 
Process Method  CCD Mill   CCD Mill   CCD Mill   CCD Mill 
Mining Cost/T ore  $9.9   $28.72  $50.02  $0.03
Processing Cost/T3  $24.5   $24.5   $24.5   $24.5 
General & Administration4  $5.3   $5.3   $5.3   $5.3 
Overall Metal Recoveries (Life of Pad)5                    
Gold   92%   92%   92%   92%
Silver   67.5%   67.5%   67.5%   67.5%
Ramp Width (metres)   10 to 15    4.5    4.5    NA 
Average Dilution   5%   10%2   10%2   NA 
Ave. Mining Recovery   95%   90%2   90%2   100%

1 Based on LOMP metal price trends

2 Underground mining costs, dilution and mine recovery are based on stope type, either long hole (89% of design stopes) or cut and fill (11% of designed stopes) mining method.

3 Processing includes leach pad costs, crushing, milling, site refining and dry stack tailings disposal.

4 Estimated based on current operations and may vary on an annual basis.

5 Recoveries for leach pad material are based on recent Company production leach cycles of 300 days for life of pad to assess together with data the available reserves. During the period from 2010 through 2014, an average recovery of 60% Au and 30% Ag was achieved. Recoveries reflect partial 300 day leach cycle with pad leaching discontinued prematurely in Q2 2014. Leach pad CCD mill recoveries are based on in-situ remaining ounces on the pad.

* For economic analyses, the gold prices range is defined as $1250 (2015), $1275(2016) and $1300 for remaining years for LOMP. For silver prices, the range is defined as $18 (2015), $19(2016), $20 (2017) and $21 for remaining years for LOMP.

 

Ore development costs are estimated at $36/t and represent approximately 6% of total underground ore planned to be mined during LOMP.

 

Mining Methods

 

The Santa Elena ore body varies in dip and thickness along strike and at depth. As a result, two well established underground mining methods have been selected for ore extraction. These mining methods are categorized in Table 1.4 below:

 

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Table 1.4: Mining Method Selection Criteria

 

Orebody Geometry   Mining Method
Dip > 55 degrees, Thickness > 5m   Longitudinal Long hole Stoping
Dip < 55 Degrees, > 5m   Mechanized Cut and Fill

 

In general, conventional mechanised mining methods have been selected. The basis of the development of the mining methods and consequent equipment selection has been that SilverCrest will undertake production drilling, blasting and loading using a contractor for the waste rock and ore haulage to surface. Initially a contractor will be retained to carry out mine development, with jumbo drill rigs purchased later in the mining life, after which development will be done in house. Approximately 81% of stoping will be by long hole method and 11% by cut and fill methods. Most long hole stopes are produced early in the mine schedule. Average stope width is 10.0 metres.

 

Conventional open pit mining will continue using a contractor until the second quarter of 2015 when open pit reserves are depleted. Mining of the heap leach spent ore (“pad ore”) will be completed by loader and conveyor to transport material to the plant until 2021.

 

Mining Schedule

 

The mining schedule estimates the tonnages to be mined from the underground, open pit and the existing heap leach facility to feed the process plant at a nominal rate of 3,000 tpd. Table 1.5 shows the combined schedule for the Santa Elena Project. The schedule is based on optimizing higher grade long hole stopes first, with more costly cut and fill mining left for later in the mine life.

 

Table 1.5: Summary of Mining Schedule

 

Aspect of operations  2015   2016   2017   2018   2019   2020   2021   2022   Total
Life of
Mine		 
Total Tonnes Underground   462,200    543,000    521,100    535,400    493,700    497,600    434,300    494,300    3,981,600 
Total Tonnes Leach Pad   502,300    543,200    565,100    550,800    592,500    588,600    2,200    -    3,344,700 
Total Tonnes Open pit   121,700    -    -    -    -    -    -    -    121,700 
Total Tonnes Processed   1,086,200    1,086,200    1,086,200    1,086,200    1,086,200    1,086,200    436,500    494,300    7,448,000 
Total Gold Ounces Sold   45,000    45,500    37,200    35,800    29,400    38,300    23,500    16,100    270,700 
Total Silver Ounces Sold   2,048,400    2,111,400    1,750,000    1,888,800    1,487,200    1,492,100    953,500    914,700    12,646,200 

 

Note: all numbers rounded

 

Underground Production

 

For the purpose of this PFS, an underground mining schedule has been developed for the stopes in the reserve model and for development required to access the stopes throughout the life of mine. The mining schedule results in grade and tonnage performance as shown in Figure 1.1. Peak production is reached in year 6. A 50/50% mix (underground to pad ore) is assumed for the first 6 years in the schedule.

 

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Figure 1.1: Summary of annual tonnes and grade for the life of mine

  

 

 

Recovery Methods

 

The ore from both underground and open pit resources will be processed by conventional milling and cyanide leaching technology. In addition partially leached material from the existing heap leach operations will be blended with open pit and underground ore at a variable rate and reprocessed through the same plant.

 

Santa Elena ore (Open Pit, Underground and Leach Pad) contains an estimated grade of 1.23 g/t Au and 78.4 g/t Ag and after crushing and grinding can be leached in cyanide to yield approximately 92% Au recovery and 67.5% Ag recovery. Because of the relatively high level of silver in the ore (and hence solutions) there are advantages and benefits to using traditional CCD and Merrill-Crowe for metal recovery rather than CIL/CIP. The partially leached heap ore yielded recoveries of approximately 60% Au and 29% Ag when crushed to 10 mm and processed on the heap leach (partial leach cycle to Q2 2014). On re-leaching after grinding in the new plant, the balance of the metals are recovered to the level expected from new ore from open pit and underground indicates as 92% for gold and 67.5% for Ag.

 

The process plant has been designed to treat a nominal 3000 tonne per day (tpd) of ore, a mixture of freshly mined material and partially leached heap leach residue. The plant has been designed to treat any proportion of these two types of feed.

 

Project Infrastructure

 

Initially, the Santa Elena open pit heap leach mine was constructed in late 2009 and 2010, and was operational from 2010 to 2014. During 2013 and 2014 the open pit heap leach was transitioned into an underground, milling, and CCD/Merrill Crowe 3,000 tpd processing facility. As of December 31, 2014, all transition projects have been fully constructed, commissioned and commercial production announced. There are a number of facilities currently in use at the Santa Elena site.

 

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Much of the same infrastructure facilities utilized for the open pit mine continue to be used for the new operations, including, but not limited to, access roads, waste dumps, explosive magazines, office buildings, fuel storage facilities, power generation, primary crushing equipment, heap leach pads and solution collection ponds. The material on the existing heap leach facility will be removed, adding additional space on the facility for rehandling of the tailings prior to transport by truck to the waste dump as dry stack tailings. With the removal of pad ore material, areas will be open for additional pad loading in the future. The additional commissioned facilities as part of the UPFS include:

 

1.A new CCD – MC processing facility.

 

2.Upgrade of surface power generation facility.

 

3.Construction of the underground decline and development (ongoing).

 

4.A ventilation shaft with ventilation fans (shaft completed from 625m level to surface, fans installed in H1 2015).

 

5.A fresh air raise which will act as an escape way.

 

6.Underground water recirculation facilities.

 

7.Underground electrical distribution system.

 

8.Underground maintenance facilities (ongoing).

 

9.Dry stack tailings disposal facility (incorporated onto existing waste rock dump -.

 

10.Additional surface facilities such as mine dry and maintenance shops for the underground mine.

 

11.New warehouse for storage and inventory.

 

12.Expansion of onsite laboratory (ongoing).

 

13.Upgrade to electronic security system including CCTV.

 

14.Expansion of exploration core storage facility (ongoing).

 

The Santa Elena Mine is located in the foothills of a north-south trending mountain range. Foothills area provides ample space to all required facilities and potential for future expansion.

 

Capital and Operating Costs

 

SilverCrest has estimated total sustaining capital costs during the LOM of $31 million dollars including contingency, which includes $4.8 million budgeted for surface and underground drilling. SilverCrest has estimated total operating costs ranging between $43 and $60 per tonne of ore processed, depending on mining method. The majority of the revised Reserve in this UPFS has assumed an approximate 50% underground ore to 50% pad ore blend. An average operating cost based on this assumption is $46.85 per tonne of ore including sustaining capital.

 

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Table 1.6: Capital Cost Summary

 

Sustaining capital cost table including exploration drilling expense
Site infrastructure  $2,066,200 
Mill sustaining capital  $1,785,000 
Underground waste development expenses  $16,086,600 
Underground equipment and infrastructure  $6,236,300 
Underground and 2015 surface drilling  $4,783,300 
Total capital costs  $30,957,400 

 

Operating costs for the Santa Elena Project have been estimated for the underground mining, processing costs and general and administrative costs as summarised in Table 1.7. SilverCrest has estimated the LOMP operating costs at an average of $46.85 per tonne of ore processed.

 

Table 1.7: Operating Costs

 

Mining Method  Open Pit   Underground
Long Hole
Average		   Underground
Cut & Fill
Average		   Leach Pad
Reprocess		 
Process Method  CCD Mill   CCD Mill   CCD Mill   CCD Mill 
Mining Cost/T ore1  $9.90   $28.71   $50.00   $0.002 
Processing Cost/T3  $24.49   $24.49   $24.49   $24.49 
General & Administration/T4  $5.41   $5.41   $5.41   $5.41 

1 Long hole stopes are 89% of designed stopes by volume and cut & fill stopes are 11% of designed stopes by reserve volume. Excludes ore development costs. It includes adjustment for exchange ratio impact in the mining costs.

2 Mining cost of spent ore on leach pad is covered under processing costs.

3 Processing includes crushing, milling, site refining and dry stack tailings disposal.

4 Estimated based on current operations and may vary on an annual basis. A 4% annual inflation rate has been applied to general and administrative costs.

 

Economic Analyses

 

SilverCrest prepared an economic evaluation of the Santa Elena Project based on a pre-tax economic model and a post-tax model. For the economic analyses long-term consensus metal prices and exchange rate (as of December 31, 2014) used in the base case were as follows:

 

·Price of gold – range defined as $1,250 (2015), $1,275 (2016) and $1,300 for remaining years for LOMP;

 

·Price of silver - range defined as $18 (2015), $19 (2016), $20 (2017) and $21 for remaining years for LOMP;

 

·Closure costs of $6 million; and

 

·Sandstorm receives 54,133 ounces of gold and pays SilverCrest an average price of $412/oz.

 

The pre-tax economic model was established on a 100% equity basis, excluding debt financing and loan interest charges. The economic results of the base case and the two alternative cases are presented in Table 1.8.

 

Table 1.8: Base Case Economic Analyses Results

 

Aspects of Santa Elena UPFS Economic Analyses
(Base Case)
Production
Gold Ounces Sold - post refiner credit1   270,700 
Silver Ounces Sold - post refiner credit   12,646,200 
Revenue   $(000) 
Gross Sales2  $554,530 
Operating Expenses3
Total Operating Costs4  $348,900 
Freight & Refining  $5,750 
Closure Costs  $6,000 
Sustaining Capital Expenses
Underground & Surface Drilling 5  $4,780 
Sustaining Capital Costs6  $26,170 
Pre-Tax Undiscounted Cash Flow
Total Cash Flow  $162,930 
Pre-Tax Economic Results
Pre-Tax NPV, DCF @ 5%  $143,840 
Post-Tax Economic Results
Post-Tax NPV, DCF @ 5%  $119,170 

 

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Note: All numbers rounded.

1 Sandstorm to be delivered an estimated 54,000 ounce of gold over remaining LOMP.

2 The financial model adopted a range of realized spot prices from 2015 to 2022. Gold prices ranged from $1,250 to $1,300 per ounce and silver prices ranged from $18 to $21 per ounce.

3 Excludes 0.5% governmental environmental fee of an estimated $3 million.

4 Approximate operating cost per AgEq ounce sold varies between $9 and $16 over the life of mine

5 All LOMP underground drilling costs and only 2015 surface program costs included.

6 Excludes sunk costs, up to December 31, 2014.

 

Metal price sensitivities were completed including spot price as $1,193/oz Au and $16.16/oz Ag (representing spot price at the middle of December, 2014) which showed a pre-tax NPV (DCF @ 5%) of $84.3 million.

 

Table 1.9: Comparison between the Base Case and
the Spot Price for the Pre-Tax Economic Results

 

Item  Base Case   Spot Price 
Gold Price (US$/oz.)   Range of Prices/yr   $1,193 
Silver price (US$/oz.)   Range of Prices /yr   $16.16 
Pre-Tax DCF NPV @ 5.0% in millions  $144   $84 
Post-Tax DCF NPV @ 5.0% in millions*  $119   $76 

 

* Post tax results have been included in section 22 for a 30% tax rate, Mexico Mining royalty and Environmental fee.

 

The economic analyses considers SilverCrest delivering 54,133 ounces of gold to Sandstorm Gold Ltd. (“Sandstorm”) at an average price of $412 per ounce ($350 to $450 per ounce with annual 1% inflationary increases) under the Sandstorm Purchase Agreement executed on May 14, 2009. The Purchase Agreement includes an option for Sandstorm to participate in the Santa Elena underground mine, which Sandstorm had elected to exercise in February 2014. The Purchase Agreement only applies to the original Santa Elena concessions and excludes recent regional acquisitions.

 

Update to Pre-Feasibility Recommendations

 

Further optimization of the mine schedule is warranted to investigate continued grade optimization versus stoping costs (long hole or cut and fill), potential to expand and accelerate increased underground production with a second ramp and expand resources with subsequent reserves. Further underground geotechnical studies are required to better optimize development and stoping and to ensure a safe working environment. Mineralization at Santa Elena is open in most directions with excellent potential to further increase resources and reserves for increased production and mine life. Further infill and expansion drilling is recommended. El Cholugo zone located immediately adjacent to the Main Mineralized Zone or MMZ is a priority target in 2015 for potential resource and reserve expansion. Silver recoveries in the new plant facility need further metallurgical work to potentially increase recovery rates. Recommended budget for further work is estimated at $5 million to be spent over several years.

 

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SilverCrest has estimated the costs for completion of the above recommended studies as summarised in the table 1.10 below:

 

Table 1.10: Breakdown of future costs related to recommendations

 

Recommendation  Future work  Estimated cost 
Geology and Underground Resources  An infill drilling program consisting of roughly 20,000m of drilling  $ 4.70 million 
Geotechnical Recommendations  Geotechnical design study for underground  $200,000 
Metallurgical Test work  Grinding, CN rates, oxidation, PbNO3, retention timing for better silver recoveries  $100,000 
Total future costs related to recommendations  $ 5 million 

 

4.3.2La Joya Property – Durango, Mexico

 

The following information pertaining to the La Joya Property is extracted from the summary section of the La Joya Preliminary Economic Assessment dated effective October 21, 2013, as amended March 4, 2014, and prepared for the Company by Sabry Abdel-Hafez, P.Eng., Mark Horan, P. Eng., James Barr, P.Geo., Hassan Ghaffari, P. Eng., Ting Lu, P.Eng., Carlos Chaparro, P.Eng., Scott Martin, P.Eng., Nick Michael, MBA, and Graham Wilkins, P.Eng., each of whom is a ‘‘qualified person’’ and ‘‘independent’’, as such terms are defined in NI 43-101. The La Joya Preliminary Economic Assessment is incorporated in its entirety into this Annual Information Form by reference. A copy of the La Joya Preliminary Economic Assessment was filed on March 6, 2014 and may be accessed on SEDAR (www.sedar.com) under the Company’s profile.

 

The following summary does not purport to be a complete summary of the La Joya Property and is subject to all the assumptions, qualifications and procedures set out in the La Joya Preliminary Economic Assessment and is qualified in its entirety with reference to the full text of the La Joya Preliminary Economic Assessment. Readers should read this summary in conjunction with the La Joya Preliminary Economic Assessment.

 

Introduction

 

EBA and Tetra Tech WEI Inc. jointly operating as “Tetra Tech” prepared the La Joya Preliminary Economic Assessment for the Company for the La Joya property located in Durango, Mexico.

 

The La Joya Preliminary Economic Assessment was prepared to disclose the results of the preliminary economic assessment (“PEA”) which was completed for the Main Mineralized Trend (“MMT”) deposit on the La Joya property. The La Joya Preliminary Economic Assessment conforms to NI 43-101 and incorporates the CIM Definition Standards for mineral resources and mineral reserves.

 

The effective date of the La Joya Preliminary Economic Assessment was October 21, 2013. The La Joya Preliminary Economic Assessment incorporates Mineral Resource Estimates for the property that were previously reported in a Technical Report filed by SilverCrest on March 27, 2013, with an effective date of December 16, 2012. All metallurgical work discussed in the La Joya Preliminary Economic Assessment was completed prior to May 29, 2013.

 

Property Description And Location

 

The La Joya property is approximately 75 km southeast of the state capital city of Durango, state of Durango, Mexico near the intersection of 23º 52' north latitude, and 103º 55' west longitude or 609,700E and 2,640,100 N (UTM WGS 84, zone 13Q). The property elevation ranges from 2,000 to 2,600 metres above sea level. The community of La Joya has a population of approximately 1,000 people and is located 9 km southwest of the La Joya property. Topographic information for the area is covered by the Instituto Nacional de Geografía y Estadística de México “La Joya” map; sheet F13B14, at a scale of 1:50,000.

 

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The property consists of 15 concessions with a total nominal area of 4,647 hectares. The La Joya concessions are contiguous within the area and are registered with the Mexico Mines Registry in the city of Durango and Mexico City. La Joya West concessions were originally in the name of Señior Sergio Gabriel Olvera Alevedo and Family (9 concessions), and La Joya East concessions in the name of Señior Pedro Vargas (3 concessions). In additional, SilverCrest de Mexico S.A de C.V. has 3 additional registered concessions (3 concessions). SilverCrest currently has exercised options to purchase 100% of the La Joya West and La Joya East concessions through agreements of cash and share payments and 2% NSR royalties.

 

The La Joya property can be accessed year round by road, commencing by a paved highway going southeast from city of Durango to the city of Vicente Guerrero, a distance of approximately 80 km, then north along a paved secondary road to the community of La Joya, a distance of approximately 10 km, and then by a network of farming and agricultural access dirt roads that span approximately 10 km east of the community of La Joya.

 

Water for drilling is currently being transported to the property and stored in a lined sump from two active wells, the first located at 608333 E, 2639173 N elev. 1,948 metres. Water for a production facility could come from a local groundwater source or a pre-constructed reservoir. The characteristics of the well, water supply and water quality have not been verified by Tetra Tech.

 

Electrical power is readily available from nearby sources that currently supply municipalities and agriculture.

 

Sufficient area is available for a processing plant, waste dumps and tailings disposal on the property. Surface rights are held by a local civil co-operative and need to be obtained if mining facilities are required. No permanent structures occupy the property.

 

The town of Vicente Guerrero is the closest urban area of any size (pop. est. 15,000), and is about 20 km southwest of the La Joya property by paved and unpaved road from the property. Many services and supplies are available in Vicente Guerrero, but it may be necessary to go to Durango for heavier machine shop, fabrication, and engineering services.

 

Currently, infrastructure on the La Joya property is limited to access roads, historical open cut and underground workings and an abandoned low-voltage power transmission line which crosses the property between Cerro Sacrificio and Cerro Coloradito.

 

Two prominent topographic features exist on the northern portion of the La Joya property, located on the uplifted horst block along with numerous rolling hills of exposed and incised bedrock features. Cerro Coloradito is the smaller of the two with and approximate vertical rise of 400 metres and is located to the west of and Cerro Sacrificio. Cerro Sacrificio has approximately 600 metres of vertical rise and is the host to the La Joya deposit.

 

Environmental studies and permitting

 

Work permits required for the exploration Phase III drilling permit are under review and awaits issuance by SEMARNAT by Q4 2013. Tetra Tech understands that SilverCrest has held the appropriate permits required for the exploration phases completed to date on the property. Water permits are not required for exploration work since the water is purchased locally from private active wells.

 

Construction and mining permits are not yet required for the project.

 

Geological setting, exploration and drilling

 

The La Joya property is underlain by Cretaceous sedimentary rocks along the western margin of the Mexican Mesa Central, at the transition from the Sierra Madre Occidental, along the broadly defined San Luis-Tepehuanes fault system. The sedimentary package at La Joya consists of the Cuesta del Cura Limestone comprised of limestone with minor chert and siltstone, overlain by calcareous siltstone, mudstone and siliciclastic rocks of the younger Indidura Formation.

 

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Multiple deformation events related to the Laramide orogeny during the late-Cretaceous to mid-Tertiary resulted in folding of the Cretaceous sedimentary rocks along northeast-southwest directed axes, followed by extensional basin and range style faulting generally oriented north-south throughout the mid to late Tertiary. The extension was accompanied by emplacement of intrusive stocks of various ages. These late Cretaceous and early to mid-Tertiary orogenic-related intrusions influenced both regional metamorphism as well as local metasomatic alteration within the Cretaceous sediments. The MMT of the La Joya deposit and peripheral Santo Nino is underlain by the Sacrificio quartz-feldspar phyric granite which is attributed to the mineralizing fluids responsible for skarn development and sulphide deposition within the limestone unit.

 

The La Joya deposits are carbonate hosted copper skarn deposits with associated silver and gold mineralization, similar in style to the Fortitude-Copper Canyon deposit in Nevada, USA, and to the adjacent Sabinas/San Martin mines in Zacatecas, Mexico. Calc-silicate skarn mineralization is found on the property as andradite garnet, pyroxene, actinolite and wollastonite and is distributed amongst three styles of mineralization recognized to exist on the property. Silver-Copper-Gold (Ag-Cu-Au) mineralization is concentrated within stratiform manto-style skarn controlled along sub-horizontal bedding (Manto style mineralization). Silver-Copper-Gold, Lead-Zinc and Tungsten (Ag-Cu-Au, Pb-Zn, and W) mineralization is concentrated within structurally controlled stockwork and veining related skarn (Structure style mineralization). Finally, tungsten W mineralization is found within late stage retrograde skarn development along the intrusive contact (Contact Skarn style mineralization). Sulphide mineralization generally transitions from chalcopyrite-dominant in proximal skarn to bornite-dominant in distal skarn. Late sub-vertical laminated quartz-calcite veins bearing freibergite and arsenopyrite cross-cut pre-existing skarn mineralization and, although related to magmatic fluids, are not considered to be related to the skarn mineralizing events. Trace amounts of oxide from meteoric weathering processes are present within the structural corridors at depth.

 

Evidence of historic pits and small underground mining operations within Cerro Sacrificio is seen in numerous small adits and excavations along the hillside. Today, the adits remain open and are accessible for sampling and identifying structures related to mineralization on the property. Exploitation from these small historic operations is considered to be volumetrically insignificant in respect to the current resource estimate.

 

Recent activity began on the property in 1977 when Minas SanLuis (“Luismin”) entered into option agreements with local mineral concession holders and staked additional concessions. From 1977 to 1997, Luismin completed extensive drilling, mapping and geophysical surveying on the property. In total, 37 diamond and RC drill holes (9,767.34 metres) were completed across the property during this period, targeting silver-copper-gold skarn and tungsten mineralization. Between 1998 and 2001, Boliden Limited entered into a joint venture agreement with Luismin and continued to drill 15 more diamond drill holes (4,095.41 metres) targeting skarn and epithermal mineralization. Luismin did not complete the terms of the option agreement and withdrew from their interest in 2001. Mineral concessions staked by Luismin that are adjacent to the SilverCrest concessions were maintained and are now held by Goldcorp Inc. through the acquisition of the Luismin assets.

 

In 2006, Solid Resources Ltd. completed four diamond drill holes (1,856.34 metres) to test for deep seated copper-molybdenum porphyry style mineralization in the center of the Sacrificio intrusion. Solid Resources did not consider the results to indicate significant evidence for a porphyry style deposit at that time.

 

SilverCrest commenced exploration on the property in June 2010 at which time property scale mapping and chip sampling established targets for the Phase I drilling campaign. A total of 27 diamond drill holes (totalling 5,753.7 metres) were completed during the campaign between October 2010, and July 2011. The Phase I drill holes have been logged and sampled with a total of 2,303 core samples.

 

Independent validation of the SilverCrest and historic sampling was completed by Tetra Tech QP, James Barr, during three site visits between November 2010 and October 2011. Eight historic drill holes (2,574.35 metres) were validated in addition to the 27 SilverCrest holes (5,753.7 metres) and 177 SilverCrest surface samples, totalling 3,764 validated assay samples, for inclusion into the Phase I Mineral Resource Estimate.

 

Phase II independent validation of the SilverCrest and historic sampling was completed by Tetra Tech QP, James Barr during an additional two site visits between November 2011 to November 2012. Phase II drilling consisted of 78 SilverCrest holes (25,812.65 metres) and 542 surface samples (not used in the resource). This program consisted of infill drilling of the Phase I resource area and drilling to extended mineralization in all directions of the MMT.

 

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Four additional diamond drill holes totalling 1,811.52 metres were completed late in 2012 and are located along the eastern margin of the current block model. These holes were not incorporated into the current block model with an effective date of December 27, 2013, as assay results were not returned from the laboratory until January 2013. Based on cross-sectional interrogation, the results of these holes generally conform to both the geological and grade model used in the current block model. Tetra Tech is not aware of any further drilling on the property.

 

Metallurgical Testwork and Recovery

 

Preliminary and confirmation metallurgical test programs have been conducted on metallurgical samples of Contact, Manto and Structure mineralization in the MMT area of La Joya property. These programs include comminution testing, froth flotation, cyanidation leaching, gravity concentration and mineralogical examinations to support a PEA level process design. The resulting flowsheet and process design is a conventional circuit composed of crushing, grinding, flotation and leaching circuit to produce copper flotation concentrate and silver dore bar.

 

Initial metallurgy tests in 2011 suggested the mineralization may be amenable to conventional flotation concentration. This observation was further confirmed in the subsequent test program during 2012 to 2013 that involved ore hardness, mineralogy, flotation concentration, cyanidation leaching and gravity separation tests.

 

Material hardness data were determined from SMC, Bond work index and abrasion index measurements. In terms of resistance to impact breakage, Manto and Structure samples were considered as medium hard; while as Contact sample was considered as hard material. For grindability characteristics, all the three composites were categorised as medium hard and mild abrasive materials.

 

High grade copper flotation concentrates were produced in the locked cycle flotation tests, grading at 36.6% Cu from Manto composite sample and 34.3% Cu from Structure sample. Additionally, each concentrate contained more than 4 kg/t silver and a payable level of gold. Elevated levels of antimony and bismuth were, however, also identified in the copper flotation concentrates. This is a common observation in local producers.

 

Preliminary cyanidation tests indicate that gold extraction were about 84% and 92% from Manto and Structure samples respectively; silver extraction exceeded 90% for both sample composites. A high cyanide consumption rate was reported on both samples. Gravity concentration testing recovered a small portion of tungsten and tin on the tested samples.

 

Mineral Resource Estimates

 

Three deposits which include the MMT, Santo Nino, and Coloradito were previously delineated on the property as was presented in the Technical Report dated March 27, 2013. The Mineral Resource Estimates were prepared by Tetra Tech in compliance with NI 43-101 Standards of Disclosure and has incorporated terms as defined by the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Reserves: Definitions and Guidelines.

 

Analytical data from 13,834 samples extracted from 20 validated historical drillholes (7,022.83 metres), SilverCrest Phase 1 drilling (5,753.7 metres) and SilverCrest Phase 2 drilling (25,812.65) were used for geological interpretation and construction of mineralized solids created as triangulations using Gemcom GEMS software (“GEMS”). The analytical data was interpolated into a percent block model using the inverse distance squared (ID2) interpolation method and was constrained by mineralized solids segmented into three sets determined by mineralization style.

 

The MMT and Santo Nino deposits are considered to be a polymetallic Ag-Cu-Au-W-Mo deposits with metal distributions for W-Mo as part of or immediately adjacent to the Ag-Cu-Au resources. Ag-Cu-Au data is reported as a silver equivalent value (“AgEQ”) which is based on per tonne value of the metals using five-year historical price trends summarized in Table 1. AgEQ is calculated as Ag(gpt)+50*Au(gpt)+86*Cu(%). Three individual Mineral Resource Estimates are presented below for Ag-Cu-Au concentrations, Pb-Zn concentrations and W concentrations, respectively. Molybdenum concentrations were not considered as part of this resource estimation.

 

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Table 1: 5-Year Metal Price Trends and AgEQ Calculation for Silver, Copper and Gold
 
Metal   5-year Trend Metal Price (U.S.$)   Price/tonne ratio to Ag
Ag   $24/oz (troy)   1:1
Cu   $3/lb ($6,615/t)   86:1
Au   $1,200/oz(troy)   50:1
         
AgEQ   =Ag(gpt) + 86*Cu% + 50*Au(gpt)

 

Analytical data from drill sampling on the property that was considered valid for resource estimation was composited to two metre lengths before the interpretation and construction of the mineralized wireframes. These composites were used as the explicit analytical data for the resource estimate. A value of 15 gpt AgEQ was used as an initial grade threshold for cross-sectional interpretation of mineralized wireframes defining continuous mineralization on the property. Three sets of mineralized solids were constructed using GEMS from these wireframes representing manto, structurally controlled stockwork and veining, or contact skarn styles of mineralization. By deposit area, twenty-nine were defined for the MMT, six for Santo Nino and two for Coloradito to reduce the two metre composite data set and to constrain interpolation within the block model. Block model interpolation methods were designed to control grade distribution within each mineralization style.

 

Anomalous high grade values from the two metre composite data set were capped at 550 gpt silver, 5.5 gpt Au and 6 % copper based on visual inspection of histogram and log-histogram population distribution.

 

A representative average value for specific gravity was determined to be 3.0 based on laboratory analysis of 1279 drill core samples. This value was applied to all materials found within the bounds of the block model.

 

All Mineral Resource Estimates in this report were classified as Inferred based on the CIM Definition Standards for Mineral Resources and Mineral Reserves. Analytical data available from exploration on the property to date is sufficient to allow a reasonable geological interpretation and assumption of grade continuity, however, the geological understanding of the property is considered to be in early stages for the project.

 

The resource estimate for silver, copper, gold and silver equivalent concentrations has been reported based on a AgEQ cut-off value as summarized in Table 2 and the resource estimate for tungsten has been reported using WO3 (%) as summarized in Table 3. Tetra Tech considers the 30gpt AgEQ and 0.05% WO3 (tungsten trioxide) as an appropriate reporting cut-off for these Inferred Mineral Resource Estimates. Pit constraints have not been applied to the Mineral Resource Estimates.

 

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Table 2: Inferred Ag-Cu-Au- Resource Estimation for MMT and Santo Nino Deposits,

Effective Date December 16, 2012

 

Zone  Category**  Cut off  Rounded
Tonnes		   SG  Av Ag
(gpt)		   Av Au
(gpt)		   Av Cu
(%)		   Contained
Ag (oz)		   Contained
Au (oz)		   Contained
Cu (lbs)		   Contained
AgEQ
(oz)*		 
MMT     15   120,570,000   3   23.7    0.18    0.18    91,855,000    708,000    466,474,000    185,757,000 
(Ag,  ***Inferred  30   67,618,000   3   34.67    0.24    0.25    75,367,000    519,000    377,392,000    148,671,000 
Au, Cu)     60   26,109,000   3   58.53    0.3    0.42    49,129,000    256,000    240,114,000    92,035,000 
Santo     15   6,169,000   3   20.36    0.04    0.49    4,039,000    8,000    66,775,000    12,826,000 
Nino (Ag,  ***Inferred  30   3,586,000   3   29.17    0.05    0.75    3,363,000    5,000    59,384,000    11,078,481 
Au, Cu)     60   1,818,000   3   43.06    0.05    1.2    2,517,000    3,000    48,269,000    872,000 
      15   126,739,000       23.5    0.17    0.20    95,894,000    716,000    533,249,000    198,583,000 
TOTAL  ***Inferred  30   71,204,000       34.4    0.23    0.28    78,730,000    524,000    436,776,000    159,749,481 
      60   27,927,000       57.5    0.28    0.47    51,646,000    259,000    288,383,000    92,907,000 
*Silver equivalency includes silver, gold and copper and excludes lead, zinc, molybdenum and tungsten values. Ag:Au is 50:1, Ag:Cu is 86:1, based on 5 year historic metal price trends of U.S.$24/oz silver, U.S.$1200/oz gold, U.S.$3/lb copper. 100% metallurgical recovery is assumed.
**Classified by EBA, A Tetra Tech Company and conforms to NI 43-101 and CIM Definition Standards for resources. All numbers are rounded. Inferred Resources have been estimated from geological evidence and limited sampling and must be treated with a lower level of confidence than Measured and Indicated Resources. The baseline scenario for reporting of Mineral Resources is highlighted in light blue.

*** Mineralization boundaries used in the interpretation of the geological model and resource estimate are based on a cut-off grade of 15 gpt AgEq & 0.05% WO3 using the metal price ratios described above.

 

Table 3: Inferred W-Mo- Resource Estimation for MMT, Santo Nino and Coloradito Deposits, Effective Date Dec. 16, 2012

 

Zone  Category**  Cut off   Rounded
Tonnes		   SG  Mo (%)   WO3 (%)   Contained
W
(tonnes)		   Contained Mo
(tonnes)		 
La Joya Contact      0.025    60,508,000   3   0.0035    0.053    32,000    2,000 
Zone (W, Mo,  ***Inferred   0.05    25,136,000   3   0.0039    0.075    19,000    1,000 
Ag, Au, Cu)      0.095    4,395,000   3   0.0023    0.109    5,000    100 
Santo Nino      0.025    5,220,000   3   0.0077    0.04    2,000    400 
Contact Zone  ***Inferred   0.05    950,000   3   0.0132    0.07    1,000    100 
(W, Mo, Ag, Au, Cu)      0.095    750   3   0.0115    0.101    1    0 
Coloradito      0.025    31,907,000   3   0.0283    0.062    20,000    9,000 
Contact Zone  ***Inferred   0.05    18,486,000   3   0.0322    0.079    15,000    6,000 
(W, Mo, Ag, Au, Cu)      0.095    4,159,000   3   0.0335    0.112    5,000    1,000 
       0.025    97,635,000       0.031    0.145    54,000    11,400 
TOTAL  ***Inferred   0.05    44,572,000       0.036    0.176    35,000    7,100 
       0.095    8,554,750       0.036    0.227    10,001    1,100 

 

* Classified by EBA, A Tetra Tech Company and conforms to NI 43-101 and CIM Definition Standards for resources. All numbers are rounded. Inferred Resources have been estimated from geological evidence and limited sampling and must be treated with a lower level of confidence than Measured and Indicated Resources. The baseline scenario for reporting of Mineral Resources is highlighted in light blue.

** Mineralization boundaries used in the interpretation of the geological model and resource estimate are based on a cut-off grade of 15 g/t AgEq & 0.05% WO3using the metal price ratios described above.

 

Mineral Reserve

 

A Mineral Reserve has not been estimated for the Project as part of the PEA study.

 

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Mining Method

 

Tetra Tech evaluated the MMT deposit on the La Joya property as the basis of a constructing a mine and processing facility capable of processing 5,000 tpd. This PEA has evaluated a “Starter Pit”, which is considered a subset of the Mineral Resources. Tetra Tech has not included material outside the “Starter Pit” in the PEA, and has not provided or evaluated additional criteria in the PEA for material outside the Starter Pit in terms of potential for “reasonable economic extraction”. Underground mining was not considered for the PEA.

 

The PEA proposes conventional open pit truck and shovel operation utilizing a mining contractor to carry out the day to day work consisting of production drilling, blasting, loading, and hauling of both ore and waste. Pit optimizations were carried out by Tetra Tech based on the preliminary criteria, including costs, metal prices, and recovery, dilution and metal sales terms. The pit optimization was done using Geovia WhittleTM software and 41 different Lerch-Grossman nested pit shells were generated. For the purpose of this PEA; however, the pit shell that best aligned with an 8-10 year mine life was chosen and further investigated in terms of pit design, mine scheduling and subsequent economic viability.

 

Geotechnical assessment for the open pit design consisted of the analysis of data collected from seventy-seven exploration diamond drill holes in 2011 and 2012. Geotechnical data was then made available to Tetra Tech to interpret the results and calculate RQD, RMR, and Q values. The data presented homogenous geotechnical conditions with RMR76 varying between 70-90 for the main rock types and RQD rating varying between 75 to 90. For this PEA, no structural (rock fabric and major structures) information was available; therefore, it is likely that the structure of the rock will be the limiting factor controlling the stability of the pit slope. As a result, a conservative approach was taken to reflect the unavailable structural information and pit slope angle of 50° was recommended for the purpose of this PEA.

 

The geotechnical criteria in addition to provisional criteria for haul roads, bench height and bench face angles and minimum mining widths were considered for designing the open pit using Geovia GEMSTM. The designed pit consisted of two distinct areas namely the main pit and Patricia pit, which occurs to the south of the main pit.

 

Mining Schedule

 

The mining schedule provides for a one year pre-strip (year -1) that will stockpile some mineralized material and with the remaining waste rock deposited at one of the 2 selected waste storage locations on the east side of the Cerro Sacrificio ridge. The schedule provides for the commencement of processing in year 1, with the mill feed at 1.8 Mt/a (5,000 tonnes per day) of mineralised material contained within designed pits, with exhaustion of mill feed in year 9. The schedule has been generated based on an annual mining rate of 7 Mt of rock with stockpiling of potential mill feed, enabling a feed of 1.8 Mt/a consistently of over the operating life for processing. The life of mine stripping ratio is estimated to be 2.9 with total extraction of an estimated 15.5 Mt of mineralized material and 45.5 Mt of waste rock.

 

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Table 4 and Figure 1 below summarize the life of mine schedule for La Joya.

 

Figure 1: LOM Tonnage Breakdown

 

 

Table 4: Production Schedule

 

Year  Mine to Mill   Mine to SP*   SP to Mill   Total
mineralized
material
mined		   Total tonnes
processed		   Head Grade   Waste   Strip
ratio		   Total tonnes
mined		 
                       AG   AU   CU   AG
EQ**		             
   t   t   t   t   t   gpt   gpt   %   gpt   t       t 
-1   0    666,441    0    666,441                             2,333,559         3,000,000 
1   1,133,604    1,119,763    666,396    2,253,367    1,800,000    71    0.25    0.57    132    4,746,632    2.6    7,000,000 
2   1,411,747    774,387    388,253    2,186,134    1,800,000    65    0.30    0.40    114    4,813,865    2.7    7,000,000 
3   1,547,449    419,833    252,551    1,967,282    1,800,000    61    0.19    0.37    102    5,032,718    2.8    7,000,000 
4   1,147,466    523,698    652,534    1,671,164    1,800,000    46    0.20    0.32    84    5,328,836    3.0    7,000,000 
5   743,761    480,777    1,056,239    1,224,538    1,800,000    31    0.15    0.21    56    5,775,462    3.2    7,000,000 
6   1,109,843    308,084    690,157    1,417,927    1,800,000    36    0.14    0.23    63    5,582,072    3.1    7,000,000 
7   1,245,819    297,612    554,181    1,543,431    1,800,000    39    0.19    0.23    69    5,456,569    3.0    7,000,000 
8   1,800,000    431,933    0    2,231,933    1,800,000    65    0.18    0.40    109    4,768,068    2.7    7,000,000 
9   317,455    0    762,219    317,455    1,079,674    27    0.11    0.19    49    1,662,584    1.5    1,980,039 
                                                             
Total   10,457,144    5,022,528    5,022,530    15,479,672    15,479,674    50    0.19    0.33    88    45,500,365    2.94    60,980,039 

 

*SP means stockpile

**Silver equivalency includes silver, gold and copper and excludes lead, zinc, molybdenum and tungsten values. Ag:Au is 50:1, Ag:Cu is 86:1, based on 5 year historic metal price trends of U.S.$22/oz silver, U.S.$1200/oz gold, U.S.$3/lb copper.

 

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Process Design

 

The design basis for the process facility is a concentrator with a throughput capacity of 5,000 tpd. Process design criteria for the facilities are based on the bench scale testwork with two types of composite samples, Manto and Structure, from central MMT mineralogy of the La Joya property. A simplified schematic of the flowsheet is shown in Figure 2.

 

ROM ore from the open pit will be crushed and conveyed to the concentrator. The ore feed will be ground to liberate the mineral values from the host rock, and then separated by industry-standard flotation processes. A bulk copper/silver/gold sulphide concentrate will be produced and bagged for transportation. The first cleaner scavenger tailings will be sent to a leaching circuit.

 

The leaching circuit will recover silver and gold components by using the conventional CIL technology. The designed leaching circuit will have a nominal capacity of 300 tpd. It will be composed of leach feed thickening, cyanide leaching, zinc precipitation (Merrill Crowe process), and cyanide destruction stages. The precipitated silver and gold will be smelted to silver dore on site.

 

Tailings in the milling process will be generated from the rougher flotation circuit (bulk tailings), and CIL residues. Bulk tailings solids are alkaline and will be combined with the treated CIL residues. The combined tailings materials will be dewatered and dry stacked on site to maximize process water recycling.

 

Figure 2: Simplified La Joya Process Flowsheet

 

 

Project Infrastructure

 

The current infrastructure on site at La Joya includes access roads and tracks required for the exploration phase of the project. The property is 13 km from the town of La Joya and another 6 km from two other small towns. Tetra Tech proposed various options for the layout of the mine site infrastructure; however for the PEA the scenario being considered is the placement of the infrastructure in the valley to the east of the Cerro Sacrificio ridge. The layout plan considered for the PEA consists of the open pit west of the Cerro Sacrificio ridge, with two waste dumps as side hill dumps. Haul roads will be constructed to enable hauling of the mill feed to a primary crusher on the east of the ridge. The material will then be transported via over land conveyor to a live stockpile to be fed into the mill complex located at the base of the valley. At the mill complex power, water and road access will be available and mine offices, truck shops and warehouses will be placed in this area. The tailings facility has been considered as dry stack tailings and will be placed south of the mill complex, as a side hill facility. The tailings will be transported by overland conveyors and positioned on the facility using grasshopper conveyors and mobile machinery. Explosive magazines could be positioned, to the south west of the tailings facility, along existing tracks or farm roads accessing the property.

 

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Overall, for the purpose of the PEA, Tetra Tech has provided the following infrastructure and facilities:

 

1.Upgrade of the site access road;

 

2.Site and haul roads;

 

3.Administration office buildings, a mine dry/change house and warehouse;

 

4.Fresh water supply systems including a pump house to treat and piping to distribute the water as process water, fire water, and potable water;

 

5.Water management infrastructure, including diversion ditches;

 

6.Waste rock storage facilities;

 

7.A dry stack tailings storage facility including a tailings water pond, diversion berms and necessary liners;

 

8.Solid waste disposal pad with solid waste skips/bins and hazardous waste skips/bins;

 

9.On-site fuel storage;

 

10.On-site explosive magazines and storage;

 

11.Process facilities including a crusher, mill building and process plant;

 

12.Assay laboratory;

 

13.Power supply and distribution, including:

 

 I.a substation, and

 

II.power cables and lines;

 

14.A security/weigh station;

 

15.Process control and instrumentation; and

 

16.Communication systems.

 

Capital Costs

 

Tetra Tech has estimated preproduction capital costs totalling U.S.$141 million, including contingency of U.S.$17 million. The sustaining capital is estimated to be U.S.$6.3 million over the operational life of the project.

 

Table 5 below highlights the main components of the project for which capital costs are allocated. Closure and reclamation costs of U.S.$6 million have been estimated and working capital has been estimated at U.S.$7 million.

 

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Table 5: Capital Expenditure

Capital Expense Item  Estimated cost in U.S.$
($000)		 
     
Overall Site  $17,915 
Open Pit Mining  $6,700 
Ore Handling  $9,095 
Process  $44,992 
Tailings & Water Management  $6,850 
On-Site Infrastructure  $9,116 
Total Direct Costs  $94,666 
      
Total Project Indirects  $24,824 
      
Total Owner's Costs  $4,733 
      
Total Contingency  $16,965 
      
Preproduction capital costs including indirect and contingency  $141,190 

*Subtotals and Totals do not add correctly due to the rounding of values to $000

 

Operating Costs

 

Four categories of operating costs have been estimated by Tetra Tech namely; mining, processing, G & A and tailings management. Table 6 shows a summary of the operating costs estimated for the La Joya property. The mining contract cost is based on a quote provided by a Mexican mining contractor, and has been validated by Tetra Tech.

 

Table 6: Capital Cost per tonne over LOM

Aspects of Operation  Estimated Average Cost per tonne,
over LOM (U.S.$)		 
Mining (contract) per tonne rock handled  $2.16 
Average mining cost per tonne processed  $8.09 
Costs per tonne processed  $13.86 
Tailings per tonne processed  $0.49 
G & A per tonne processed  $1.81 
Total per tonne processed  $24.25 

 

Economic Analysis

 

On the basis of the Inferred Resources, preliminary mine design and preliminary process engineering, Tetra Tech have estimated a positive NPV for the project of U.S.$92 million post-tax and U.S.$133 million pre-tax, with IRR of 22% post-tax and 30% pre-tax. The economic analysis was based on a 9 year mine operating life, with a 2.6 year payback period, for the La Joya property.

 

Sensitivity analysis was carried out using varying commodity prices, and by varying capital and operating costs. The project is positively most sensitive to increases in commodity prices and negatively most sensitive to operating costs. The commodity price sensitivity is shown in Figure 3 below.

 

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Figure 3: Starter pit economic sensitivities

 

 

The Starter Pit economics are more sensitive to silver and copper price, as they represent 56% and 37% of the total revenues respectively under the base case scenario. Each 10% increment in metal prices from the base case changes the pre-tax NPV by approximately $60 million and the IRR by approximately 8%.

 

Note: This preliminary economic assessment is preliminary in nature and includes Inferred Mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary economic assessment will be realized. Mineral resources are not mineral reserves and therefore do not have demonstrated economic viability.

 

Conclusions and Recommendations

 

The resource model, and preliminary open pit design, and subsequent preliminary economic analysis favour the undertaking of further drilling into the assessed open pit or Starter Pit. The PEA also provides guidance on the expected metallurgical and mining constraints which require further work to increase the confidence level so that they can be applied to future resource delineation and any subsequent feasibility assessment. An estimated cost to complete the additional studies totals U.S.$3.1 million as shown in the table below.

 

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Table 7: Breakdown of future costs related to recommendations

 

Recommendation  Future work  Estimated cost
(U.S.$)		 
Drilling and mineral resources  10,000 m of infill drilling and geological modelling  $2,500,000 
Location of project infrastructure  Conduct a trade-off study on the location of project infrastructure  $25,000 
Pit selection and open pit design  Conduct a trade-off study using a larger pit  $25,000 
Mine scheduling  Run an optimization study for scheduling  $25,000 
Waste dump locations  Evaluate the possibility of locating waste dumps closer to the open pits  $25,000 
Geotechnical and Hydrogeological Assessments  Conduct geotechnical drilling and hydrogeological drilling programmes  $100,000 
Dry stack tailings management facility  Conduct geotechnical and hydrogeological drilling programmes as well as a waste rock characterization study  $100,000 
Process water  Undertake drilling for sources of ground water  $150,000 
Mineral processing and Metallurgical Testing  Advanced metallurgical studies  $150,000 
Total of Estimated Costs     $3,100,000 

 

Update to the Summary of the La Joya Property Preliminary Assessment Report

 

During fiscal 2014, the Company paid acquisition costs of U.S.$587,500 and incurred U.S.$1,337,952 in deferred exploration costs. Most of the expenses incurred at La Joya during fiscal 2014 were to complete the 17 hole in-fill drilling program (2,698 m) which commenced at the end of 2013. The Company intends to use the information towards an updated resource model and conduct ongoing low cost desktop Pre-Feasibility work on the property during 2015.

 

5.DIVIDENDS

 

5.1Dividends

 

Since its organization, the Company has not paid any dividends on its common shares. Although the Company anticipates that available funds will be reinvested in the short term to finance acquisition, exploration and development of mineral properties, it will review from time to time the possibility of initiating payment of sustainable dividends.

 

6.CAPITAL STRUCTURE

 

6.1General Description of Capital Structure

 

The Company’s authorized share capital is comprised of an unlimited number of common shares without par value and an unlimited number of preferred shares without par value. As of the date of this Annual Information Form, the Company had 118,753,205 common shares issued and outstanding and no preferred shares issued and outstanding. As of the date of this Annual Information Form, the Company also had incentive stock options outstanding for the purchase of an aggregate of 10,735,000 common shares of the Company.

 

Common Shares

 

Each common share ranks equally with all other common shares with respect to distribution of assets upon dissolution, liquidation or winding-up of the Company and payment of dividends. The holders of common shares are entitled to one vote for each share on all matters to be voted on by such holders and are entitled to receive pro rata such dividends as may be declared by the Board of Directors of the Company. The holders of common shares have no pre-emptive or conversion rights. The rights attaching to the common shares can only be modified by the affirmative vote of at least two-thirds of the votes cast at a meeting of shareholders called for that purpose.

 

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Preferred Shares

 

Preferred shares may at any time and from time to time be issued by the directors of the Company in one or more series with special rights and restrictions as may be determined by the directors of the Company, subject to the rights and restrictions applicable to the preferred shares as a class, and without further shareholder approval. The holders of preferred shares are entitled upon dissolution, liquidation or winding-up of the Company to receive, before any distribution is made to the holders of common shares the amount paid up with respect to each preferred share, together with any accrued and unpaid dividends thereon; provided that after such payment, the holders of preferred shares shall not be entitled to share in any further distribution of the property or assets of the Company, except as specifically provided for in the special rights and restrictions attached to any particular series. Except for such rights relating to the election of directors on a default in payment of dividends as may be attached to any series of preferred shares by the directors, holders of preferred shares are not entitled to receive notice of, or to attend or vote at, any general meeting of shareholders of the Company.

 

Shareholders Rights Plan

 

At the Company’s Annual General Meeting held on June 26, 2008, shareholders approved the implementation of a Shareholders Rights Plan (the "Rights Plan"). The Rights Plan is designed to encourage the fair treatment of shareholders in the event of any take-over offer for the Company. The Rights Plan provides the board of directors and the shareholders with more time than the 35 days provided by statute, to fully consider any unsolicited take-over bid for the Company without undue pressure, to allow the board of directors to pursue, if appropriate, other alternatives to maximize shareholder value and to allow additional time for competing bids to emerge.

 

Under the Rights Plan, a bidder making a Permitted Bid (as defined in the Rights Plan) for the common shares of the Company may not take up any shares before the close of business on the 60th day after the date of the bid and unless at least 50% of the Company's common shares not beneficially owned by the person making the bid and certain related parties are deposited, in which case the bid must be extended for 10 business days on the same terms to allow other shareholders to deposit to the bid. The Rights Plan will encourage an offer or to proceed by way of Permitted Bid or to approach the board of directors with a view to negotiation by creating the potential for substantial dilution of the offeror's position if a non-Permitted Bid is attempted. The Permitted Bid provisions of the Rights Plan are designed to ensure that, in any take-over bid, all shareholders are treated equally, receive the maximum available value for their investment and are given adequate time to properly assess the bid on a fully informed basis.

 

The Rights Plan was not proposed in response to, or in anticipation of, any acquisition or take-over offer and is not intended to prevent a take-over of the Company, to secure continuance of current management or the directors in office, or to deter fair offers for the common shares of the Company. The Rights Plan does not affect in any way the financial condition of the Company. The initial issuance of the rights under the Rights Plan is not dilutive until the rights separate from the underlying common shares and become exercisable.

 

The Rights Plan was re-confirmed by the shareholders of the Company at the Company’s Annual General Meetings on June 15, 2011 and June 15, 2014.The Rights Plan has a term of three years and will expire at the close of the annual meeting of shareholders after the third anniversary of the confirmation of the Rights Plan, unless extended upon reconfirmation by the shareholders.

 

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7.MARKET FOR SECURITIES

 

7.1Trading Price and Volume

 

The common shares of the Company are listed for trading on the TSX under the symbol “SVL” and on the NYSE MKT under the symbol “SVLC” and are also traded through the Regulated Unofficial Market of the Frankfurt Stock Exchange under the symbol “CW5”. Prior to listing on the TSX as of February 24, 2014, the common shares of the Company were listed on the TSX Venture Exchange (the “TSX-V”). The monthly high and low closing prices and trading volumes for the Company’s common shares on the TSX-V and the TSX during fiscal year ended December 31, 2014 are as set out below:

 

Month  High
($)		   Low
($)		   Volume 
January 2014  $2.32   $1.81    3,279,500 
February 2014  $3.05   $2.08    8,621,600 
March 2014  $2.77   $1.97    6,079,700 
April 2014  $2.15   $1.80    3,674,000 
May 2014  $2.06   $1.67    2,723,800 
June 2014  $2.42   $1.73    3,679,400 
July 2014  $2.37   $2.07    2,447,100 
August 2014  $2.35   $2.10    1,325,800 
September 2014  $2.17   $1.67    1,826,900 
October 2014  $1.71   $1.40    1,886,000 
November 2014  $1.71   $1.40    1,847,400 
December 2014  $1.65   $1.31    3,246,500 

 

8.ESCROWED SECURITIES

 

8.1Escrowed Securities

 

To the Company’s knowledge, there are no securities of the Company in escrow or subject to a contractual restriction on transfer.

 

9.DIRECTORS AND OFFICERS

 

9.1Name, Occupation and Security Holding

 

As at the date of this Annual Information Form, the following information with respect to each director and executive officer of the Company sets out that individual’s name, province (or state) and country of residence, the positions and offices in the Company presently held by that individual, the period during which such individual has served as a director of the Company and that individual’s principal occupation(s) during the past five years:

 

Name, Province (or State) and
Country of Residence		   Office   Date of Appointment
as Director		   Principal Occupation Within
the Five Preceding Years
             
J. Scott Drever
British Columbia, Canada		   Chief Executive Officer and Director   Director since November 5, 2002   Chief Executive Officer (since June 2013), Chairman (from May 2008 – June 2014) and President (from May 2003 to June, 2013) of the Company; Chief Executive Officer (since February 2014), Chairman (from May 2008 to February 2014) and President (from August 2005 to February 2014) of Goldsource Mines Inc. (“Goldsource”), a mineral exploration company; and President of Nemesis Enterprises Ltd., a management consulting company (since 1995)

 

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Name, Province (or State) and
Country of Residence		   Office   Date of Appointment
as Director		   Principal Occupation Within
the Five Preceding Years
             
Ross O. Glanville(1) (2)
British Columbia, Canada		   Director   Director since
June 15, 2011		   Professional Mining Engineer; President of Ross Glanville & Associates Ltd., a mining consulting firm (since October 1990); and Chairman of Clifton Star Resources, a mineral exploration company (since October 2011), and Director of three other publicly listed mining and exploration companies
             
Barney Magnusson
British Columbia, Canada		   Chief Financial Officer and Director   Director since
May 23, 2003		   Chief Financial Officer of the Company (since May 2003); Chief Financial Officer of Goldsource (since June 2010); and President of Adapa Management Ltd., a private management and investment company (since 1985)
             
George W. Sanders(1) (2)
British Columbia, Canada		   Director   Director since
June 28, 2006		   President (since March 2007) and Director (since May 2002) of Goldcliff Resource Corporation, a mineral exploration company
             
Graham C. Thody(1) (2)
British Columbia, Canada		   Chairman and Director   Director since
May 23, 2003		   Chairman of the Company (since June 2014); Chairman of Goldsource (since February 2014); President and Chief Executive Officer of UEX Corporation (from November 2009 to January 2014); and Director of several publicly listed mineral exploration companies
             
Dunham Craig
British Columbia, Canada		   Interim President and Director   Director since
June 11, 2014		   Interim President of the Company (since February 2015); and President and Chief Executive Officer of Geologix Exploration Inc., a mineral exploration company (since September 2005)
             
Nathan Eric Fier
British Columbia, Canada		   Chief Operating Officer and Director   Director since
June 10, 2013		   Chief Operating Officer (since May 2003) and President (from June 2013 to February 2015) of the Company; Chief Operating Officer of Goldsource (since June 2010); President of Maverick Mining Consultants Inc., a consulting company (since July 2001); and Market Director of EBA Engineering Consultants Ltd. (from October 2003 to October 2013)
             
Brent McFarlane
Arizona, U.S.A.		   Vice-President, Operations   n/a   Vice-President, Operations of the Company (since February 2011); Self-employed mining consultant (from May 2007 to February 2011); and President of Huichoro US LLC, a consulting company

 

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Name, Province (or State) and
Country of Residence		   Office   Date of Appointment
as Director		   Principal Occupation Within
the Five Preceding Years
             
Marcio Bastos Fonseca
British Columbia, Canada		   Vice-President, Corporate Development   n/a   Vice-President, Corporate Development of the Company (since March 2013); Senior Management and Director positions with Macquarie Metals and Energy Capital a primary division within Macquarie Group (Canada) (from January 2004 to February 2013); and President of Margeo Consulting Inc., a consulting company
             
Tom Keating
British Columbia, Canada		   Vice-President, Finance and Administration   n/a   Vice-President, Finance & Administration (since July 2014) and Corporate Controller (from July 2009 to June 2014) of the Company.
             
Michael Rapsch
British Columbia, Canada		   Vice-President, Corporation Communications   n/a   Vice-President, Corporation Communications (since February 2015) and Manager, Corporate Communications of the Company (from October 2011 to January 2015); Self-employed consultant (from February 2011 to September 2011); and Investor Relations at Pediment Gold Corp, a mineral exploration company (from February 2006 to February 2011)
             
Bernard Poznanski
British Columbia, Canada		   Corporate Secretary   n/a   Partner of Koffman Kalef LLP, a law firm (since 1993)

_______________________

(1)    Member of the Audit Committee.
(2)    Member of the Corporate Governance and Compensation Committee.

 

Each director will serve as a director until the next annual general meeting of the Company or until his successor is elected or appointed.

 

As at December 31, 2014, the directors and executive officers of the Company as a group beneficially owned, or controlled or directed, directly or indirectly, approximately 5,348,480 common shares or 4.5% of the then issued and outstanding common shares of the Company.

 

9.2Cease Trade Orders, Bankruptcies, Penalties or Sanctions

 

Other than as disclosed herein, no director or executive officer of the Company is, as at the date of this Annual Information Form, or has been, within the ten years preceding the date of this Annual Information Form, a director, chief executive officer or chief financial officer of any company (including the Company) that

 

(a)was subject to a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days, when such order was issued while the person was acting in the capacity of a director, chief executive officer or chief financial officer of the relevant company; or

 

(b)was subject to a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days, that was issued after such person ceased to be a director, chief executive officer or chief financial officer of the relevant company, and which resulted from an event that occurred while the person was acting in the capacity of a director, chief executive officer or chief financial officer of the relevant company.

 

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The current directors and executive officers of the Company (with the exception of Ross O. Glanville, Dunham Craig, Brent McFarlane, Marcio Fonseca, Tom Keating and Michael Rapsch) were directors and/or executive officers of the Company in December 2010 when the Company received notification of administrative proceedings from the United States Securities and Exchange Commission (“SEC”). This notification was issued as a result of a registration statement filed in 1999 by Strathclair Ventures Ltd., a predecessor company to the Company which was under different management until the Company assumed control in 2003. The order alleged that Strathclair (now the Company) had not filed periodic reports with the SEC sufficient to maintain its registration in the United States. Following discussions with the SEC and in order to remedy the situation, the Company entered into a consent order with the SEC dated January 10, 2011 through which the Company agreed to the revocation of the registration of its common shares under the United States Securities Exchange Act of 1934. As a result, broker-dealers in the United States were unable to effect transactions in the common shares of the Company. On May 31, 2011, the Company filed a registration statement on Form 40-F for the purpose of registering its common shares under the United States Securities Exchange Act of 1934. Upon the registration statement taking effect on August 1, 2011, broker-dealers in the United States were able to effect transactions in common shares of the Company in the United States.

 

Ross O. Glanville, a director of the Company, was also a director of Clifton Star Resources Inc. (“Clifton”), when the British Columbia Securities Commission (“BCSC”) issued a cease trade order on July 22, 2011 in connection with the failure to file technical reports and material change reports in the required forms disclosing Clifton’s mineral resource estimates on its material properties. After changes in the management and Board of Directors (including the appointment of Mr. Glanville as Chairman of Clifton Star), and the filing of the relevant documents, the cease trade order was revoked on March 5, 2012.

 

Bernard Poznanski, the Corporate Secretary of the Company, was a director of Energem Resources Inc. (“Energem”) when certain management cease trade orders were issued against the insiders of Energem. Mr. Poznanski ceased to be a director of Energem on May 1, 2006. Particulars of the orders are as follows:

 

(a)On March 7, 2006, the BCSC issued a management cease trade order in connection with the late filing of Energem’s 2005 comparative annual financial statements, 2005 annual MD&A and a 2005 Annual Information Form. The management cease trade order was revoked on May 31, 2006, after the relevant documents were filed; and

 

(b)On April 20, 2005, the BCSC issued a management cease trade order in connection with the late filing of Energem’s 2004 comparative annual financial statements, 2005 first interim period financial statements and MD&A for the 2005 first interim period. The management cease trade order was revoked on June 2, 2005 after the relevant documents were filed.

 

Other than as disclosed herein, no director or executive officer of the Company or any shareholder holding a sufficient number of common shares of the Company to affect materially the control of the Company:

 

(a)is, as at the date of this Annual Information Form, or has been, within the ten years preceding the date of this Annual Information Form, a director or executive officer of any company (including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets;

 

(b)has, within the ten years preceding the date of this Annual Information Form, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that person;

 

(c)has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or

 

(d)has been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision regarding the Company.

 

The foregoing information, not being within the knowledge of the Company, has been furnished by the respective directors, officers and shareholders holding a sufficient number of securities of the Company to affect materially the control of the Company.

 

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9.3Conflicts of Interest

 

Certain officers and directors of the Company are officers and/or directors of, or are associated with, other companies that are similarly engaged in the business of acquiring, developing and exploiting natural resource properties. Such associations may give rise to conflicts of interest from time to time. The directors are required by law, however, to act honestly and in good faith with a view to the best interest of the Company and its shareholders and to disclose any personal interest which they may have in any material transaction which is proposed to be entered into with the Company and to abstain from voting as a director for the approval of any such transaction.

 

10.AUDIT COMMITTEE DISCLOSURE

 

Audit Committee

 

Pursuant to National Instrument 52-110—“Audit Committees” (“NI 52-110”), the Company is required to have an audit committee.

 

Audit Committee Charter

 

Pursuant to NI 52-110, the audit committee of the Company (the “Audit Committee”) is required to have a charter. A copy of the Company’s Audit Committee Charter is set out in Appendix A to this Annual Information Form.

 

Composition of the Audit Committee

 

As at the date of this Annual Information Form, the following is information on the members of the Company’s Audit Committee:

 

Name   Independent   Financial Literacy
Graham C. Thody (Chair)   Yes   Yes
Ross O. Glanville   Yes   Yes
George W. Sanders   Yes   Yes

 

Relevant Education and Experience

 

Graham C. Thody — Mr. Thody is a member of the British Columbia Institute of Chartered Accountants (“BCICA”) as well as the Canadian Institute of Chartered Accountants. He served as a member of the BCICA By-Laws Committee for several years. Mr. Thody has also served as a Director and Executive Member of the Lions Gate Hospital Foundation, as well as the Chair of its Finance Committee. He holds a Bachelor of Commerce degree (Marketing) from the University of British Columbia. He was a Partner of Nemeth Thody Anderson, Chartered Accountants of Vancouver, British Columbia from 1979 until his retirement in 2007. His practice focus included audits of reporting companies, corporate finance (including initial public offerings), corporate mergers and acquisitions as well as domestic and international tax matters. He was President and CEO of UEX Corporation (“UEX”) from November 2009 until his retirement in January 2014. He is currently a director of several reporting companies, including UEX, which are involved in mineral exploration and development throughout North, Central and South America.

 

Ross O. Glanville — Mr. Glanville has over forty years of resource-related experience in numerous countries, and has been involved in the exploration, financing, development, and operation of a number of mines. Mr. Glanville obtained a Bachelor of Applied Science in Engineering (Mining) in 1970, became a member of the Professional Engineers Association of British Columbia in 1972, obtained a Masters Degree in Business Administration in 1974, and became a member of the Certified General Accountants Association of B.C. in 1980. He has specialized in valuations, fairness opinions, and litigation support, often as expert witness, related to the mining and exploration industry. He has prepared hundreds of valuations and fairness opinions for mining and exploration companies in North America, Africa, Australia, South America, Asia, and Europe. Mr. Glanville has formed public companies, listed on the TSX, the Australian Stock Exchange, NASDAQ, and the TSX-V, and has served on the Boards of Directors of five companies with producing mines, and still serves as a director of three of these companies.

 

Page 47 of 50
 

 

George W. Sanders — Mr. Sanders is a mining entrepreneur with over 35 years in mining and exploration finance experience. Mr. Sanders is also a Director of Bitterroot Resources Ltd., and a Director and President of Goldcliff Resource Corporation. He spent over 15 years as a registered representative and precious metals specialist with the investment firm Canaccord Capital Corporation (now Canaccord Genuity Corp.) and its predecessor companies. Mr. Sanders has held Corporate Development positions with Richmont Mines Ltd., Consolidated Cinola Mines and Shore Gold Inc. He provides the Company with a solid base in corporate finance and investor relations.

 

Reliance on Certain Exemptions

 

At no time since January 1, 2014 has the Company relied on the following exemptions under NI 52-110:

 

(a)the exemption in section 2.4. (De Minimis Non-audit Services);
(b)the exemption in section 3.2 (Initial Public Offerings);
(c)the exemption in section 3.3(2) (Controlled Companies);
(d)the exemption in section 3.4 (Events Outside Control of Member);
(e)the exemption in section 3.5 (Death, Disability or Resignation of Audit Committee Member);
(f)the exemption in section 3.6 (Temporary Exemption for Limited and Exceptional Circumstances);
(g)the exemption in section 3.8 (Acquisition of Financial Literacy); and
(h)an exemption from NI 52-110, in whole or part, granted under Part 8 (Exemptions).

 

Audit Committee Oversight

 

At no time since January 1, 2014 was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the Board of the Company.

 

Pre-Approval Policies and Procedures for Non-Audit Services

 

The Audit Committee has specifically pre-approved the auditor's review of the Company's corporate tax returns, including the corporate tax returns of the Company's Mexican subsidiaries, at a rate which together with the auditor's review of the Company's interim financial statements, are approved at U.S.$15,000 per interim period.

 

External Auditor Service Fees (By Category)

 

Davidson & Company, Chartered Accountants, is the auditor of the Company. The aggregate fees billed by Davidson & Company, Chartered Accountants, in each of the last two financial years of the Company for services in each of the categories indicated are as follows:

 

Financial Year Ended  Audit Fees   Audit Related Fees(1)   Tax Fees(2)   All Other Fees 
December 31, 2014  $171,696   $Nil   $9,750   $Nil 
December 31, 2013  $188,190   $Nil   $12,750   $Nil 

 

 

(1)Pertains to assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and that are not reported under “Audit Fees”.

 

(2)Pertains to professional services for tax compliance, tax advice, and tax planning. During the financial years ended December 31, 2014 and December 31, 2013, the nature of the services comprising the fees disclosed under this category include the preparation of the T2 Corporate Tax Returns of the Company and its Canadian subsidiary, NorCrest Silver Inc., together with related schedules.

 

11.LEGAL PROCEEDINGS AND REGULATORY ACTIONS

 

11.1Legal Proceedings

 

There are no legal proceedings in the Company’s last financial year which are material and to which the Company is a party or to which any of its property is subject, and there are no such proceedings known to the Company to be contemplated.

 

Page 48 of 50
 

 

11.2Regulatory Actions

 

During the financial year ended December 31, 2014:

 

(a)no penalties or sanctions were imposed against the Company by a court relating to securities legislation or by a securities regulatory authority;

 

(b)no other penalties or sanctions were imposed by a court or regulatory body against the Company that would likely be considered important to a reasonable investor in making an investment decision in the Company’s securities; and

 

(c)no settlement agreements of the Company were entered into with any court relating to securities legislation or with any securities regulatory authority.

 

12.INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

 

12.1Interest of Management and Others in Material Transactions

 

Except as otherwise disclosed herein, no director or executive officer of the Company and no person or company that beneficially owns, or controls or directs, directly or indirectly, more than 10% of common shares of the Company, and no associate or affiliate of any of the person or companies referred to above, has any material interest, direct or indirect, in any transactions since January 1, 2012, that has materially affected or is reasonably expected to materially affect the Company or any of its subsidiaries.

 

13.TRANSFER AGENT AND REGISTRARS

 

13.1Transfer Agent and Registrars

 

Computershare Investor Services Inc. (at its principal transfer offices in Vancouver, British Columbia and Toronto, Ontario) is the transfer agent and registrar for the common shares of the Company.

 

14.MATERIAL CONTRACTS

 

14.1Material Contracts

 

Other than the following contracts, available on SEDAR (www.sedar.com), there are no contracts that are material to the Company that were entered into during the financial year ended December 31, 2014 or prior thereto but which are still in effect, other than contracts entered into in the ordinary course of business of the Company:

 

(a)Gold purchase agreement dated as of May 14, 2009, among Nusantara, Sandstorm, Sandstorm Barbados and the Company. For further details, see “General Development of the Business – Most Recent Three-Year Operational History – Financing”; and

 

(b)Credit facility agreement made as of July 11, 2013 between the Company and Scotiabank for a three-year U.S.$40 million (current U.S.$30 million) secured corporate credit facility. See “General Development of the Business – Most Recent Three Year Operational History – Financing”.

 

15.INTERESTS OF EXPERTS

 

15.1Names of Experts

 

Davidson & Company LLP is the Company’s auditor, and such firm has prepared an auditor’s report dated March 24, 2015, with respect to the Company’s consolidated financial statements as at and for the financial year ended December 31, 2014, which were filed with the Canadian securities regulators on SEDAR (www.sedar.com). Davidson & Company LLP are independent within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of British Columbia.

 

N. Eric Fier, C.P.G., P.Eng. prepared the Update to Santa Elena Pre-Feasibility Study, Sonora, Mexico, dated effective December 31, 2014, in respect of the Santa Elena Project in accordance with NI 43-101. See “Description of the Business – Mineral Projects – Santa Elena Project – Sonora, Mexico”.

 

Page 49 of 50
 

 

Sabry Abdel-Hafez, P.Eng., Mark Horan, P. Eng., James Barr, P.Geo., Hassan Ghaffari, P. Eng., Ting Lu, P.Eng., Carlos Chaparro, P.Eng., Scott Martin, P.Eng., Nick Michael, MBA, and Graham Wilkins, P.Eng., have prepared the La Joya Preliminary Economic Assessment in respect of the La Joya Property in accordance with NI 43-101. See “Description of the Business – Mineral Projects – La Joya Property – Durango, Mexico”.

 

15.2Interests of Experts

 

To the best of the Company’s knowledge, no registered or beneficial interest, direct or indirect, in any securities or other property of the Company was held by each expert named in Item 15.1, other than N. Eric Fier, when the particular expert’s report was prepared, was received by such expert after the preparation of the report, or will be received by such expert.

 

N. Eric Fier is the author of the technical report titled, Update to Santa Elena Pre-Feasibility Study, Sonora, Mexico, dated effective December 31, 2014 and supervised the preparation of certain technical information set forth herein relating to the Company’s mineral properties. He is also not “independent” within the meaning of NI 43-101 because he also acts as Chief Operating Officer and a director of SilverCrest. As of December 31, 2014 and the date hereof, Mr. Fier holds 1,282,027 common shares of SilverCrest and options to acquire a further 1,325,000 common shares of SilverCrest.

 

16.ADDITIONAL INFORMATION

 

Additional information relating to the Company may be found on SEDAR at www.sedar.com.

 

Additional information, including directors’ and officers’ remuneration and indebtedness (if any), principal holders of the Company’s securities and securities authorized for issuance under equity compensation plans, is contained in the Company’s management information circular dated April 30, 2014, in respect of the Company’s annual general meeting of shareholders held on June 11, 2014.

 

Additional information is provided in the Company’s audited consolidated financial statements and management’s discussion and analysis for the year ended December 31, 2014 which may be obtained upon request from SilverCrest’s head office or may be viewed on the Company’s website (www.silvercrestmines.com) or on SEDAR (www.sedar.com).

 

Page 50 of 50
 

 

APPENDIX A

 

SILVERCREST MINES INC.
(the “Company”)

 

Audit Committee Charter

 

Mandate

 

The primary function of the audit committee (the “Committee”) is to assist the Board of Directors (“Board”) in fulfilling its financial oversight responsibilities by reviewing the financial reports and other financial information provided by the Company to regulatory authorities and shareholders, the Company’s systems of internal controls regarding finance and accounting and the Company’s auditing, accounting and financial reporting processes. The Committee’s primary duties and responsibilities are to:

 

·serve as an independent and objective party to monitor the Company’s financial reporting and internal control system and review the Company’s financial statements;

 

·review and appraise the performance of the Company’s external auditor; and

 

·provide an open avenue of communication among the Company’s auditor, financial and senior management and the Board.

 

Composition

 

The Committee shall be comprised of at least three directors as determined by the Board, all of whom shall be “independent” directors (as defined by Rule 803A of the NYSE Amex LLC Company Guide and as “independence” is described in National Instrument 52-110 – Audit Committees, or any successor instrument thereto) and shall satisfy the financial literacy and experience requirements of applicable securities laws, rules and any applicable stock exchange requirements, except as permitted by applicable securities regulatory guidelines. If any of the Company’s securities are listed on the NYSE Amex Equities or the NYSE, at least one member of the Committee shall be considered “financially sophisticated” within the meaning of Rule 803B of the NYSE Amex LLC Company Guide. The determination as to whether a particular director satisfies the requirements for membership on the Committee shall be made by the full Board.

 

A quorum of the Committee shall be a majority of the members. Each member of the Committee will be a member of the Board. In the event of an equality of votes, the Chair of the Committee shall not have a second casting vote.

 

The members of the Committee shall be elected by the Board at its first meeting following the annual shareholders’ meeting. Unless a Chair is elected by the Board, the members of the Committee may designate a Chair by a majority vote of the full Committee membership.

 

Meetings

 

The Committee shall meet a least quarterly, or more frequently as circumstances dictate or as may be prescribed by securities regulatory requirements. As part of its job to foster open communication, the Committee will meet at least quarterly with the Chief Financial Officer and the external auditor in separate sessions. The Committee shall hold in camera sessions, without management present, at every meeting.

 

A-1
 

 

Responsibilities and Duties

 

To fulfill its responsibilities and duties, the Committee shall:

 

1.Documents/Reports

 

(a)review and update, if applicable or necessary, this Audit Committee Charter annually;

 

(b)review with management and the independent auditor the Company’s annual and interim financial statements, management’s discussion and analysis, any annual and interim earnings press releases and any reports or other financial information to be submitted to any governmental and/or regulatory body, or the public, including any certification, report, opinion, or review rendered by the external auditor for the purpose of recommending their approval to the Board prior to their filing, issue or publication. The Chair of the Committee may represent the entire Committee for purposes of this review in circumstances where time does not allow the full Committee to be available;

 

(c)review analyses prepared by management and/or the external auditor setting forth significant financial reporting issues and judgements made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP or IFRS methods on the financial statements;

 

(d)review the effect of regulatory and accounting initiatives, as well as off balance sheet structures, on the financial statements of the Company;

 

(e)review policies and procedures with respect to directors’ and officers’ expense accounts and management perquisites and benefits, including their use of corporate assets and expenditures related to executive travel and entertainment, and review the results of the procedures performed in these areas by the external auditor, based on the terms of reference agreed upon by the external auditor and the Committee;

 

(f)review expenses of the Board Chair, President, Chief Executive Officer and Chief Financial Officer annually; and

 

(g)ensure that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements, as well as review any financial information and earnings guidance provided to analysts and rating agencies, and periodically assess the adequacy of those procedures.

 

2.External Auditor

 

(a)review annually, the performance of the external auditor who shall be ultimately accountable to the Board and the Committee as representatives of the shareholders of the Company;

 

(b)obtain annually, a formal written statement of external auditor setting forth all relationships between the external auditor and the Company;

 

(c)review and discuss with the external auditor any disclosed relationships or services that may have an impact on the objectivity and independence of the external auditor;

 

(d)take appropriate action to oversee the independence of the external auditor, including the resolution of disagreements between management and the external auditor regarding financial reporting;

 

A-2
 

 

(e)select and, where applicable, replace the external auditor to be nominated annually for shareholder approval;

 

(f)determine the compensation to be paid to the external auditor;

 

(g)at each meeting, where desired, consult with the external auditor, without the presence of management, about the quality of the Company’s accounting principles, internal controls and the completeness and accuracy of the Company’s financial statements;

 

(h)review and approve the Company’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditor of the Company;

 

(i)review with the external auditor the audit plan for the year-end financial statements; and

 

(j)deal directly with the external auditor and pre-approve all audit and audit-related services and the fees and other compensation related thereto, and any non-audit services, provided by the Company’s external auditor. The authority to pre-approve non-audit services may be delegated by the Committee to one or more independent members of the Committee, provided that such pre-approval must be presented to the Committee’s first scheduled meeting following such pre-approval. Pre-approval of non-audit services is satisfied if:

 

(i)the aggregate amount of all the non-audit services that were not pre-approved is reasonably expected to constitute no more than 5% of the total amount of fees paid by the Company and subsidiaries to the Company’s external auditor during the fiscal year in which the services are provided;

 

(ii)the Company or a subsidiary did not recognize the services as non-audit services at the time of the engagement; and

 

(iii)the services are promptly brought to the attention of the Committee and approved, prior to completion of the audit, by the Committee or by one or more of its members to whom authority to grant such approvals has been delegated by the Committee.

 

3.Financial Reporting Processes

 

(a)in consultation with the external auditor, review with management the integrity of the Company’s financial reporting process, both internal and external;

 

(b)consider the external auditor’s judgments about the quality and appropriateness of the Company’s accounting principles as applied in its financial reporting;

 

(c)consider and approve, if appropriate, changes to the Company’s auditing and accounting principles and practices as suggested by the external auditor and management;

 

(d)review significant judgments made by management in the preparation of the financial statements and the view of the external auditor as to appropriateness of such judgments;

 

(e)following completion of the annual audit, review separately with management and the external auditor any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information;

 

(f)review any significant disagreement among management and the external auditor in connection with the preparation of the financial statements;

 

A-3
 

 

(g)review with the external auditor and management the extent to which changes and improvements in financial or accounting practices have been implemented;

 

(h)review any complaints or concerns about any questionable accounting, internal accounting controls or auditing matters;

 

(i)review certification process;

 

(j)establish a procedure for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters;

 

(k)establish a procedure for the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters; and

 

(l)carry out a review designed to ensure that effective “whistle blowing” procedure exists to permit stakeholders to express any concerns regarding accounting, internal controls, auditing matters or financial matters to an appropriately independent individual.

 

4.Other

 

(a)review any material related party transactions;

 

(b)engage independent counsel and other advisors as it determines necessary to carry out its duties;

 

(c)set compensation for (i) an external auditor engaged for the purpose of preparing an audit report or performing other audit review or attest services for the Company, (ii) any advisors employed by the Committee, and (iii) ordinary administrative expenses of the Committee; and

 

(d)be provided with appropriate funding, as determined by the Committee, for payment of: (i) compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company (ii) compensation to any advisors’ employment by the Committee, and (iii) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

 

A-4

 



Exhibit 99.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

 

FOR THE YEAR ENDED DECEMBER 31, 2014

 

 

 

 

 

  
 

 

SILVERCREST MINES INC.

 

 

Table of Contents  

 

 

 

  Page
Independent Auditors’ Report 2
   
Consolidated Statements of Financial Position 3
   
Consolidated Statements of Operations and Comprehensive Earnings (Loss) 4
   
Consolidated Statements of Cash Flows 5
   
Consolidated Statements of Changes in Shareholders’ Equity 6
   
Notes to the Consolidated Financial Statements 7 – 30

 

 

 1
 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

To the Shareholders of

SilverCrest Mines Inc.

 

We have audited the accompanying consolidated financial statements of SilverCrest Mines Inc., which comprise the consolidated statements of financial position as at December 31, 2014 and 2013 and the consolidated statements of operations and comprehensive earnings (loss), changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

 

Management’s Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of SilverCrest Mines Inc. as at December 31, 2014 and 2013 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

"DAVIDSON & COMPANY LLP"

 

Vancouver, Canada Chartered Accountants
   
March 24, 2015  

 

 

 

 

 

 2
 

  

SILVERCREST MINES INC.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in United States Dollars)

 

AS AT

   December 31, 2014   December 31, 2013 
ASSETS          
Current Assets          
Cash and cash equivalents  $31,251,143   $14,435,453 
Amounts receivable (note 21)   2,396,509    121,308 
Prepaid expenses   890,301    387,414 
Deferred finance costs (note 11)   171,586    171,586 
Taxes receivable (note 6)   8,287,598    6,415,814 
Inventories (note 7)   5,166,427    12,896,365 
Total Current Assets   48,163,564    34,427,940 
           
Non-Current Assets          
Deferred finance costs (note 11)   90,259    261,845 
Inventories (note 7)   6,261,185    - 
           
Property, plant and equipment (note 8)   106,332,271    93,142,570 
Exploration and evaluation assets (note 9)   16,421,345    15,675,298 
Total Non-Current Assets   129,105,060    109,079,713 
           
TOTAL ASSETS  $177,268,624   $143,507,653 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current Liabilities          
Accounts payable and accrued liabilities  $4,267,257   $5,275,153 
Taxes payable   1,180,155    1,155,314 
Deferred revenue (note 10)   1,769,198    2,627,015 
Total Current Liabilities   7,216,610    9,057,482 
           
Non-Current Liabilities          
Asset retirement obligations (note 12)   4,026,507    4,238,270 
Credit facility obligation (note 11)   15,000,000    - 
Deferred revenue (note 10)   3,742,693    4,034,767 
Deferred tax liability (note 22)   9,557,000    9,043,000 
Total Non-Current Liabilities   32,326,200    17,316,037 
           
Total Liabilities   39,542,810    26,373,519 
           
Shareholders’ Equity          
Capital stock   128,776,622    108,676,353 
Share-based payments reserve   7,835,962    6,021,431 
Currency translation reserve   (3,487,505)   (3,487,505)
Retained earnings   4,600,735    5,923,855 
Total Shareholders' Equity   137,725,814    117,134,134 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $177,268,624   $143,507,653 

 

Nature of operations (note 1)

Commitments (note 21)

Contingencies (note 24)

Subsequent event (note 25)

 

Approved by the Board and authorized for issue on March 24, 2015.

 

 

“Graham Thody”
Director
“Barney Magnusson”
Director
 
The accompanying notes are an integral part of these consolidated financial statements.
 

  

 3
 

SILVERCREST MINES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS (LOSS)

(Expressed in United States Dollars)

 

 

Years Ended December 31,   2014    2013 
           
Revenues (note 14)  $45,132,599   $54,893,651 
           
Cost of sales (note 15)   (23,596,973)   (19,895,374)
           
Depletion, depreciation and amortization   (8,167,486)   (6,134,532)
           
Mine operating earnings   13,368,140    28,863,745 
           
General and administrative expenses (note 16, 19)   (6,504,047)   (6,951,892)
Share-based compensation (note 13, 19)   (2,262,705)   (2,507,893)
Foreign exchange gain (loss)   (462,889)   2,079,678 
Impairment charges (note 8, 9)   (4,956,418)   - 
Other income (note 17)   539,714    - 
           
Operating earnings   (278,205)   21,483,638 
           
Interest income   386,198    277,014 
Accretion expense (note 12)   (303,062)   (224,000)
Finance costs (note 11)   (544,906)   (189,389)
           
Earnings (loss) before taxes   (739,975)   21,347,263 
           
Income Taxes          
Current income tax expense (note 22)   (262,000)   (5,450,000)
Deferred tax expense (note 22)   (514,000)   (7,418,000)
           
Net earnings (loss)   (1,515,975)   8,479,263 
           
Other comprehensive loss          
Exchange loss in translation to US Dollars   -    (1,989,460)
           
Comprehensive earnings (loss) for the year  $(1,515,975)  $6,489,803 
           
Earnings (loss) per common share (note 18)          
Basic  $(0.01)  $0.08 
Diluted  $(0.01)  $0.08 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

  

 4
 

SILVERCREST MINES INC.

 CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in United States Dollars)

 

 

Years Ended December 31,   2014    2013 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net earnings (loss) for the year  $(1,515,975)  $8,479,263 
Items not affecting cash:          
Depletion, depreciation and amortization   8,167,486    6,134,532 
Share-based compensation   2,262,705    2,507,893 
Accretion expense   303,062    224,000 
Unrealized foreign exchange loss (gain)   12,244    (1,669,460)
Deferred revenue (note 10)   (979,127)   (2,257,563)
Interest income   (386,198)   (277,014)
Finance costs   171,586    81,327 
Impairment charges   4,956,418    - 
Current income tax expense   262,000    5,450,000 
Deferred tax expense   514,000    7,418,000 
Cash flows before changes in working capital items   13,768,201    26,090,978 
           
Amounts receivable   (2,269,898)   344,229 
Taxes receivable   5,266,216    (60,357)
Prepaid expenses   (488,769)   (34,252)
Inventory   1,130,502    (610,095)
Taxes payable   24,841    (1,204,686)
Accounts payable and accrued liabilities   789,901    595,734 
Cash flows before income taxes   18,220,994    25,121,551 
Income taxes paid   (7,400,000)   (3,090,000)
Net cash provided by operating activities   10,820,994    22,031,551 
CASH FLOWS FROM FINANCING ACTIVITIES          
Capital stock issued   20,822,001    - 
Capital stock issuance costs   (1,489,408)   (1,823)
Warrants exercised   -    805,469 
Stock options exercised   512,357    2,178,631 
Deferred finance costs   -    (514,758)
Credit facility drawdown   15,000,000    - 
Net cash provided by financing activities   34,844,950    2,467,519 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Property, plant and equipment (note 8)          
- Additions   (42,348,646)   (56,492,122)
- Sandstorm contribution   10,000,000    - 
- Sales of silver and gold capitalized   8,349,585    717,974 
Short term investments redemption   -    20,000,000 
Exploration and evaluation   (5,174,333)   (2,473,610)
Interest received   386,198    329,809 
Net cash used in investing activities   (28,787,196)   (37,917,949)
           
Impact of exchange rate changes on cash and cash equivalents   (63,058)   (292,717)
           
Change in cash and cash equivalents, during the year   16,815,690    (13,711,596)
CASH AND CASH EQUIVALENTS, beginning of the year   14,435,453    28,147,049 
CASH AND CASH EQUIVALENTS, end of the year  $31,251,143   $14,435,453 
           
Cash and cash equivalents is represented by:          
Cash   26,651,143    14,435,453 
           
Cash equivalents   4,600,000    - 
   $31,251,143   $14,435,453 

 

Supplemental disclosure with respect to cash flows (note 20)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 5
 

SILVERCREST MINES INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY 

(Expressed in United States Dollars)

 

 

   Capital Stock   Reserves   Retained Earnings/   Total 
   Number   Amount   Share-Based   Currency   (Deficit)     
           Payments   translation         
                         
Balance at December 31, 2012   105,892,129   $103,246,773   $4,710,841   $(1,498,045)  $(2,555,408)  $103,904,161 
                               
Warrants exercised   510,300    987,612    (182,143)   -    -    805,469 
Stock options exercised   1,900,000    3,193,791    (1,015,160)   -    -    2,178,631 
Issuance of capital stock (note 9)   615,776    1,250,000    -    -    -    1,250,000 
Share issuance costs   -    (1,823)   -    -    -    (1,823)
Share-based compensation   -    -    2,507,893    -    -    2,507,893 
Net earnings for the year   -    -    -    -    8,479,263    8,479,263 
Currency translation adjustment   -    -    -    (1,989,460)   -    (1,989,460)
                               
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   980,000    767,676    (255,319)   -    -    512,357 
Issuance of capital stock (note 13)   8,855,000    20,822,001    -    -    -    20,822,001 
Share issuance costs   -    (1,489,408)   -    -    -    (1,489,408)
Share-based compensation   -    -    2,262,705    -    -    2,262,705 
Forfeited stock options   -    -    (192,855)   -    192,855    - 
Net and comprehensive loss for the year   -    -    -    -    (1,515,975)   (1,515,975)
                          
Balance at December 31, 2014   118,753,205   $128,776,622   $7,835,962   $(3,487,505)  $4,600,735   $137,725,814 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 6
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

1. NATURE OF OPERATIONS

 

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 3E8.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Preparation and Measurement

 

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). The policies applied in these consolidated financial statements are based on IFRSs in effect as at December 31, 2014.

 

These consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments which are measured at fair value. Additionally, these consolidated 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 year presentation.

 

These consolidated financial statements were approved for issuance by the Board of Directors on March 24, 2015.

 

Basis of Consolidation

 

These consolidated financial statements include the accounts of SilverCrest and its wholly-owned subsidiaries. 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.

 

      Place of   
      Incorporation and   
SilverCrest's Subsidaries  Ownership%  operatoin  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  Silver and Gold Mining Company
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

 

 7
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

2. SIGNIFICANT ACCOUNTING POLICIES   (continued)

 

Cash, cash equivalents and short term investments  

 

Cash and cash equivalents consist of cash on hand and highly liquid investments with maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.

 

Short term investments comprise highly liquid United States dollar denominated term deposits or Canadian dollar denominated guaranteed investment certificates with terms to maturity of greater than ninety days but no more than one year. Short term investments are carried at the lower of cost or recoverable amount.

 

Amounts receivable

 

Amounts receivable are recorded at face value less any provisions for uncollectable amounts considered necessary. Amounts receivable balance primarily relates to sales of gold and silver dore lot that are sold at the financial position reporting date and proceeds are collected subsequently.

 

Taxes receivable

 

Taxes receivable are comprised of taxes in Mexico that the Company has paid and due to be refunded or deducted from income taxes payable (note 6). The Company believes the balance is fully recoverable and has not provided an allowance.

 

Inventories

 

The Company produces two minerals, silver and gold. Inventories consist of silver and gold in process, leach pad ore, unprocessed ore in stockpile, finished goods and supplies. These inventories are valued at the lower of average cost and net realizable value after consideration of processing, refining and transportation costs. For all silver and gold inventories, net realizable value is calculated as with reference to relevant metal prices and estimated costs to complete production into a saleable form.

 

(i) Silver and gold in process inventory and leach pad ore inventory.

 

Prior to the commissioning of the mill at Santa Elena, the recovery of silver and gold was achieved through a heap leaching process. Costs are added to ore on leach pads based on current mining and processing costs, including applicable overhead, and depreciation relating to mining operations. Costs are removed from ore on leach pads as ounces are recovered, based on the lower of average cost per ounce of silver and gold and net realizable value.

 

The heap leaching process was wound down during Q2 2014. As a result management reclassified the remaining inventory value (note 7) from silver and gold in process to leach pad ore inventory. The leach pad ore 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, to the total tonnes remaining on the leach pad.

 

(ii) Unprocessed ore in stockpile.

 

Stockpiled ore inventory represents unprocessed ore that has been extracted from the mine and is available for further processing. Costs added to stockpiled ore inventory are valued based on current mining cost per tonne incurred up to the point of stockpiling the ore and are removed at average cost. Stockpiled ore tonnage is verified by periodic surveys and physical counts.

 

(iii) Finished goods inventory.

 

Finished goods inventory consist of silver and gold dore bars, and is valued at the lower of average cost and net realizable value.

 

(iv) Supplies inventory.

 

Supplies inventory consist of materials and supplies used in operations such as fuel, explosives, reagents and spare parts. These are valued at the lower of average cost and net realizable value.

 

The Company records provisions to reduce inventories to net realizable value to reflect changes in economic factors that impact inventory value and to reflect present intentions for the use of slow moving and obsolete supplies inventory. These provisions are recorded within cost of sales in the consolidated statement of operations and comprehensive earnings (loss). Provisions are reversed to reflect subsequent recoveries in net realizable value where the inventory is still on hand.

 

Property, plant and equipment

 

Property, plant and equipment (“PPE”) is stated at cost less accumulated depreciation, depletion and accumulated impairment losses. The cost of an item of PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

 

 8
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

2. SIGNIFICANT ACCOUNTING POLICIES   (continued)  

 

Carrying amounts of PPE are depreciated to their estimated residual value over the estimated useful lives of the assets or the estimated life of the related mine or plant, if shorter. Where components of an asset have different useful lives, depreciation is calculated on each separate component.

 

Certain items of PPE are depreciated on a unit-of-production (“UOP”) basis. The UOP method is based on ounces of probable ore reserves. There are numerous uncertainties inherent in estimating ore reserves, and assumptions that were valid at the reporting date and may change when new information becomes available. The actual volume of ore extracted and any changes in these assumptions could affect prospective depreciation rates and carrying values.

 

Depreciation and depletion is provided using the straight line method or UOP over the following terms:

 

Property, plant and equipment 8-10 years
Vehicles 4 years
Computer equipment and furniture 3-5 years
Computer software 1 year
Mining assets Unit of production

 

An item of PPE is derecognized upon disposal, when held for sale, or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss.

 

Commercial and pre-commercial production

 

Commercial production is deemed to have commenced when management determines that the operational commissioning of major mine and plant components is complete, operating results are being achieved consistently for a period of time, and that there are indicators that these operating results will continue. The following factors may indicate that commercial production has commenced:

 

·substantially all major capital expenditures have been completed to bring the mine or mill to the condition necessary for it to be capable of operating in the manner intended by management;

 

·the mine or mill has been transferred to operating personnel from internal development groups or external contractors;

 

·a significant portion of plant/mill capacity is achieved;

 

·all facilities are operating at a steady state of production;

 

·mineral recoveries are at or near the expected production levels; and

 

·a pre-determined, reasonable period of time has passed.

 

Prior to achieving commercial production, revenues and related expenses are recognized as reductions and increases, respectively, to mining asset carrying values included in PPE.

 

Expansion in Progress

 

Assets under construction at Santa Elena are capitalized as Expansion in Progress (“EIP”) and are presented as a separate asset within PPE. EIP includes deposits on long lead time items, any costs directly attributable to bringing assets under construction into working condition for its intended use, such as development costs to build new shafts, drifts and ramps that will enable the Company to physically access ore underground, exploration drilling, evaluation studies, mill/plant construction and commissioning costs and other related development costs. EIP assets are not depreciated until the asset is complete and available for use. At December 31, 2014, the Company had no EIP assets as management determined that the construction of the mill and CCD/MC processing facility and underground mine were complete and available for use (notes 3 and 8).

 

Underground Mine Development Costs

 

At Santa Elena’s underground mine, development costs are incurred to build new shafts, drifts and ramps that will enable SilverCrest to physically access ore underground. The time over which SilverCrest will continue to incur these costs depends on the mine life. These underground development costs are capitalized as incurred.

 

Capitalized underground development costs incurred to enable access to specific ore blocks or areas of the underground mine, and which only provide an economic benefit over the period of mining that ore block or area, are depreciated on a UOP basis, whereby the denominator is probable reserves within that ore block or area.

 

If capitalized underground development costs provide an economic benefit over the entire mine life, the costs are depreciated on a UOP basis, where the denominator is the estimated ounces of silver/gold in total accessible probable reserves that are considered probable for economic extraction.

 

 9
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

2. SIGNIFICANT ACCOUNTING POLICIES   (continued)  

 

Borrowing costs  

 

Interest and other financing costs relating to the acquisition, development and construction, and production of qualifying assets are capitalized as expansion in progress or in mineral properties until they are complete and available for use, at which time they are transferred to the appropriate category within property, plant and equipment. Borrowing costs incurred after the asset has been placed into service as well as all other borrowing costs are charged to the statement of operations and comprehensive earnings (loss).

 

Mineral properties and exploration and evaluation assets

 

Pre-exploration costs are expensed in the period in which they are incurred.

 

Once the legal right to explore a mineral property has been acquired, all costs related to the acquisition, exploration and evaluation of mineral properties are capitalized by property. These direct expenditures include such costs as materials used, surveying costs, geological studies, drilling costs, payments made to contractors and depreciation of plant and equipment during the exploration phase. Costs not directly attributable to exploration and evaluation activities, including general administrative overhead costs, are expensed in the period in which they occur.

 

Exploration and evaluation expenditures for each mineral property are carried forward as an asset provided that one of the following conditions is met:

 

·Such costs are expected to be recouped in full through successful development and exploration of the mineral property or alternatively, by sale; or

 

·Exploration and evaluation activities in the mineral property have not reached a stage which permits a reasonable assessment of the existence of economically recoverable reserves but active and significant operations in relation to the mineral property are continuing, or planned for the future.

 

The carrying values of capitalized amounts are reviewed annually, or when indicators of impairment are present. In the case of undeveloped properties, there may be only inferred resources to allow management to form a basis for the impairment review. The review is based on the Company’s intentions for the development of such a property. If a mineral property does not prove viable, all unrecoverable costs associated with the property are charged to the consolidated statement of operations and comprehensive earnings (loss) at the time the determination is made. Once the technical feasibility and commercial viability of extracting the mineral resource has been determined, the property is considered to be a mine under development and is classified as “mining assets”. Exploration and evaluation expenditures accumulated are also tested for impairment before the mineral property costs are transferred to development properties.

 

Impairment of tangible and intangible assets

 

At each financial position reporting date the carrying amounts of the Company’s assets are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. The recoverable amount is the higher of fair value less costs to dispose (“FVLCTD”) and value in use, which is the present value of future cash flows expected to be derived from the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in the statement of operations and comprehensive earnings (loss).

 

For the purposes of impairment testing, exploration and evaluation assets are allocated to cash-generating units to which the exploration activity relates. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in the statement of operations and comprehensive earnings (loss).

 

Revenue recognition

 

Revenue is earned from the sale of refined silver and gold metal, and is recognized when the following specific conditions have been met:

 

·the significant risks and rewards of ownership of the metal have been transferred to the purchaser;

 

·the Company does not retain continuing managerial involvement to the degree usually associated with ownership or effective control over the metal sold;

 

·the amount of revenue can be reliably measured;

 

·it is probable that the economic benefits associated with the sale will flow to the Company; and

 

·the costs incurred or to be incurred in respect of the sale can be reliably measured.

 

During the commissioning stage of the Santa Elena EIP, the Company capitalized proceeds from sales of silver and gold ounces and related expenses attributed to the underground mine, mill and processing facilities.

 

 10
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

2. SIGNIFICANT ACCOUNTING POLICIES   (continued)

    

Deferred revenue  

 

Deferred revenue relates to the initial Upfront Deposit received from Sandstorm Gold Ltd. (“Sandstorm”) in exchange for the future delivery of gold ounces at a specified contract price and to the value of Sandstorm Shares received for the guarantee of obligations under the Purchase Agreement (note 10). As deliveries of gold are made to Sandstorm, the Company recognizes a portion of the deferred revenue as operating revenue. The amount recognized is based on the proportion of gold ounces delivered to Sandstorm in the period, to 50,000 (2013 – 35,794) ounces deliverable to Sandstorm.

 

Asset retirement obligations

 

The Company recognizes a legal liability for obligations relating to the reclamation of mineral interests (exploration and evaluation assets) and property, plant, and equipment when those obligations arise from the acquisition, construction, development, or normal operation of those assets. Such asset retirement costs must be recognized at fair value, when a reliable estimate of fair value can be made, in the period in which it is incurred, added to the carrying value of the asset, and amortized into income on a systematic basis over its useful life. When the extent of disturbance increases over the life of an operation, the provision is increased accordingly. Provisions are measured at the present value of the expected future expenditures required to settle the obligation, using a risk-free pre-tax discount rate reflecting the time value of money and risks specific to the liability. The liability is increased for the passage of time, and adjusted for changes to the current market-based risk-free discount rate as well as changes in the estimated amount or timing of the expected future expenditures.

 

Foreign currency translation

 

The presentation currency of the Company is the United States dollar. Prior to January 1, 2014, the Company considered the functional currency of its Canadian operations to be the Canadian dollar and the functional currency of its Mexican mining operations to be the United States dollar. The functional currency of each entity is determined after consideration of the primary economic environment of the entity. Effective January 1, 2014, the functional currency of the Company’s Canadian operations changed on a prospective basis from the Canadian dollar to the United States dollar as management determined that the currency of the primary economic environment in which the entity operates changed after SilverCrest drew down United States dollar funds from the credit facility (note 11).

 

Transactions denominated in foreign currencies (currencies other than the functional currency of an operation) are translated at the exchange rates on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the reporting date exchange rates.

 

Prior to January 1, 2014, on translation of entities with functional currencies other than the United States dollar, revenue and expense items were translated at average rates of exchange where there was a reasonable approximation of the exchange rate at the dates of the transactions. Statement of financial position items were translated at closing exchange rates at the reporting date. Exchange differences on the re-translation of the foreign currency entities at closing rates together with differences between the revenue and expenses translated at average and closing rates, were recorded in the currency translation reserve in shareholders’ equity. Effective January 1, 2014, all entities have United States dollar as their functional currencies. As a result the Company does not record exchange differences in the currency translation reserve.

 

Share-based compensation and payments

 

The Company grants stock options to buy common shares of the Company to directors, officers, employees and consultants. The cost of stock options granted is recorded based on the estimated fair-value at the grant date and charged to the consolidated statement of operations and comprehensive earnings (loss) over the vesting period. Where stock options are subject to vesting, each vesting tranche is considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s vesting period by a charge to the statement of operations and comprehensive earnings (loss), with a corresponding increase to reserves based on the number of options expected to vest. Consideration paid for the shares on the exercise of stock options is credited to capital stock. When vested options are forfeited or are not exercised at the expiry date the amount previously recognized in share-based compensation is transferred to retained earnings. The number of options expected to vest is reviewed at least annually, with any impact being recognized immediately.

 

Earnings (loss) per share

 

Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the reporting period. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options were exercised and that proceeds from such exercises were used to acquire common stock at the average market price during the reporting periods.

 

 11
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

2. SIGNIFICANT ACCOUNTING POLICIES   (continued)

 

Taxation  

 

Income tax expense comprises current and deferred income taxes. Current and deferred income taxes are recognized in profit or loss except to the extent that they relate to items recognized directly in equity. Current income tax expense is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at year end, adjusted for amendments to tax payable with regards to previous years.

 

The Company follows the asset and liability method of accounting for income taxes whereby deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted or substantively enacted tax rates and laws expected to apply in the years in which temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in operations in the period of substantive enactment.

 

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred tax asset is not recorded. Deferred income tax assets and liabilities are presented as non-current in the financial statements.

 

Financial instruments

 

Financial assets

 

Financial assets are classified into one of the following categories based on the purpose for which the asset was acquired. All transactions related to financial instruments are recorded on a trade date basis. The Company’s accounting policy for each category is as follows:

 

Financial assets at fair value through profit or loss (“FVTPL”)

 

A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated as at FVTPL if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s risk management strategy. Attributable transaction costs are recognized in profit or loss when incurred. FVTPL are measured at fair value, and changes are recognized in profit or loss.

 

Held-to-maturity (“HTM”)

 

These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company’s management has the intention and ability to hold to maturity. These assets are measured at amortized cost using the effective interest method. If there is objective evidence that the asset is impaired, determined by reference to external credit ratings and other relevant indicators, the financial asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses, are recognized in profit or loss.

 

Loans and receivables

 

Loans and receivables are financial assets with fixed or determinable payments that are not quoted on an active market. Such assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.

 

Available-for-sale (“AFS”)

 

Non-derivative financial assets not included in the above categories are classified as available-for-sale. They are carried at fair value with changes in fair value recognized directly in equity. Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from equity and recognized in profit or loss.

 

The Company classified its financial assets as follows:

 

- Cash and cash equivalents are classified as FVTPL.

 

- Amounts receivable are classified as loans and receivables.

 

Financial liabilities

 

Financial liabilities are classified into one of two categories:

 

-Fair value through profit or loss; and

 

-Other financial liabilities.

 

 12
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

2. SIGNIFICANT ACCOUNTING POLICIES   (continued)

 

Fair value through profit or loss  

 

This category comprises derivatives, or liabilities, acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized in profit or loss.

 

Other financial liabilities

 

This category includes accounts payable and accrued liabilities and long-term debt, all of which are recognized at amortized cost.

 

The Company classified its financial liabilities as follows:

 

- Accounts payable, accrued liabilities, and the credit facility are classified as other financial liabilities.

 

Own Use Exemption

 

Contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Company’s expected purchase, sale or usage requirements fall within the exemption from IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement, which is known as the ‘own use’ exemption. The Company enters into physical commodity contracts in the normal course of business and accounts for them as executory contracts. The Company’s production is expected to be sufficient to deliver all required volumes under these contracts. No revenue is recognized in the consolidated financial statements related to these contracts until such time as the associated volumes are delivered. At December 31, 2014, the Company had no open contracts.

 

Impairment of financial assets

 

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the investments have been impacted.

 

For all financial assets, objective evidence of impairment could include:

 

-significant financial difficulty of the issuer or counterparty; or

 

-default or delinquency in interest or principal payments; or

 

-it becoming probable that the borrower will enter bankruptcy or financial re-organization.

 

For certain categories of financial assets, such as receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. The carrying amount of financial assets is reduced by the impairment loss directly for all financial assets with the exception of receivables, where the carrying amount is reduced through the use of an allowance account. When a receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

 

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

 

Related party transactions

 

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control, and related parties may be individuals, including immediate family members of the individual, or corporate entities, including the Company’s wholly-owned subsidiaries. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

 

3. CRITICAL JUDGMENTS AND ESTIMATES

 

The preparation of these consolidated 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 consolidated 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. Information about such judgments and estimates is contained in the description of accounting policies (note 2) and/or other notes to the financial statements. Management has made the following critical judgments and estimates:

 

 

 13
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

3. CRITICAL JUDGMENTS AND ESTIMATES   (continued)

 

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 consolidated 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. The results of operations of the Company during the years ended December 31, 2014 and 2013 presented in these consolidated financial statements have been impacted by management’s determination that commercial production was achieved for the following Santa Elena Mine assets (note 8):

 

-the mill and CCD/MC processing facilities achieved commercial production on August 1, 2014; and

 

-the underground mine achieved commercial production on October 1, 2014.

 

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 2013, the Company had determined the functional currency of its Canadian operations to be the Canadian dollar, and the functional currency of its Mexican mining 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. Effective January 1, 2014, the functional currency of the Company’s Canadian operations changed on a prospective basis from the Canadian dollar to the United States dollar as management determined that the currency of the primary economic environment in which the entity operates changed after SilverCrest drew down United States dollar funds from the credit facility (note 11).

 

Deferred revenue

 

The measurement of the Company’s Purchase Agreement with Sandstorm (note 10) 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 (note 8).

 

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:

 

 

 14
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

3. Critical Judgments, Estimates and Assumptions   (continued)

 

Reserves and Resources

 

Estimates of the quantities of probable reserves, which 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 National Instrument 43-

 

101, Standards of Disclosure for Mineral Projects (“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. The quantities of probable reserves used in the depletion calculations are based on the probable reserves disclosed in the NI 43-101 Technical Report titled “Santa Elena Expansion Pre-Feasibility Study and Open Pit Reserve Update” (“Technical Report”) filed July 25, 2013, on SEDAR at www.sedar.com.

 

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 (note 8, 9).

 

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 and depreciation rates differ from the initial estimate, the change in estimate would be made prospectively in the consolidated statements of operations and comprehensive earnings (loss).

 

Inventories and cost of sales

 

Silver and gold in process, leach pad ore and unprocessed ore in stockpiles are valued at the lower of average 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 (loss) 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.

 

 15
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

4. CHANGES IN ACCOUNTING POLICIES

 

Accounting Policies Adopted Effective January 1, 2014  

 

The Company has adopted the following new standards, along with any consequential amendments, effective January 1, 2014. These changes were made in accordance with the applicable transitional provisions.

 

IFRS 8 – Operating Segments:

 

Amended to require disclosure of the judgments made by management in aggregating operating segments, including a description of the segments which have been aggregated and the economic indicators which have been assessed in determining that the aggregated segments share similar economic characteristics. IFRS 8 was early adopted effective January 1, 2014 and had no significant impact on the Company’s consolidated financial statements. Refer to note 23 for disclosure of the Company’s operating segments.

 

IAS 32 – Financial Instruments: Presentation (“IAS 32”)

 

The IASB amended IAS 32, “Financial Instruments: Presentation” to clarify certain aspects because of diversity in application of the requirements on offsetting, focused on four main areas:

 

·the meaning of ‘currently has a legally enforceable right of set-off’;

 

·the application of simultaneous realization and settlement;

 

·the offsetting of collateral amounts; and

 

·the unit of account for applying the offsetting requirements.

 

IAS 32 was adopted effective January 1, 2014 and had no significant impact on the Company’s consolidated financial statements.

 

IAS 36 – Impairment of Assets (“IAS 36”)

 

The amendments to IAS 36 restrict the requirement to disclose the recoverable amount of an asset or CGU to periods in which an impairment loss has been recognized or reversed. The amendments also expand and clarify the disclosure requirements applicable when an asset or CGU’s recoverable amount has been determined on the basis of fair value less cost of disposal. IAS 36 was adopted effective January 1, 2014 and had no significant impact on the Company’s consolidated financial statements.

 

IFRIC 21 – Levies (“IFRIC 21”)

 

An interpretation of IAS 37 – Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”), on the accounting for levies imposed by governments. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (“obligating event”). IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. IFRIC 21 was adopted effective January 1,

 

2014 and had no significant impact on the Company’s consolidated financial statements.

 

Future Changes in Accounting Policies Not Yet Effective

 

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, 2017, 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.

 

 16
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

5. MANAGEMENT OF CAPITAL

 

The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern in order to support normal operating requirements at the Santa Elena Mine, continue the exploration and evaluation of its mineral properties and support any expansionary plans. The capital of the Company consists of items included in shareholders’ equity and the credit facility.

 

The Company manages and adjusts its capital structure when changes to the risk characteristics of the underlying assets or changes in economic conditions occur. To maintain or adjust the capital structure, the Company may attempt to issue new equity, dispose of certain assets or obtain new credit terms.

 

In order to facilitate the management of its capital requirements, the Company prepares semi-annual expenditure budgets which are revised periodically based on the results of its operations at the Santa Elena Mine, exploration programs, availability of financing and industry conditions. The semi-annual and updated budgets are approved by the Board of Directors. There are no external restrictions on management of capital except for the debt covenants with respect to the credit facility, as disclosed in note 11.

 

The Company’s investment policy is to invest any excess cash in liquid short-term interest-bearing instruments. When utilized, these instruments are selected with regard to the expected timing of expenditures from continuing operations. The Company expects to have sufficient capital resources to meet its planned operational expenses, capital expenditures, administrative overhead expenses and exploration plans for 2015. Actual funding requirements may vary from those planned due to a number of factors, including the progress of operations at the Santa Elena Mine and other exploration and development activities. The Company believes it will be able to raise capital as required in the long term, but recognizes there will be risks involved that may be beyond its control.

 

6. TAXES RECEIVABLE

 

   2014   2013 
Value added taxes receivable  $3,603,901   $6,415,814 
Income taxes receivable   4,683,697    - 
   $8,287,598   $6,415,814 

 

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 monthly income tax payments paid in Mexico in 2014. The Company has estimated there is no outstanding income taxes payable for fiscal 2014. The ITR balance will applied against 2015 tax installments.

 

7. INVENTORIES

 

   2014   2013 
Supplies  $2,487,764   $1,000,164 
Finished goods - dore bars   1,357,630    2,183,398 
Unprocessed ore in stockpile   207,742    - 
Silver and gold in process   -    9,712,803 
Leach pad ore   7,374,476    - 
    11,427,612    12,896,365 
Less non-current portion   (6,261,185)   - 
   $5,166,427   $12,896,365 

 

The heap leaching process was wound down during Q2 2014. As a result management reclassified $8,182,373 at June 30, 2014, from silver and gold in process to leach pad ore inventory. 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 leach pad ore tonnes processed in the period, to the total tonnes remaining on the leach pad. For the year ended December 31, 2014, the Company recognized $807,898 (2013 - $Nil), in cost of sales related to leach pad ore tonnes processed through the mill (note 15).

 

For the year ended December 31, 2014, inventories of $23,596,973 (2013 - $19,895,374) were expensed as direct production costs in cost of sales, and $5,868,396 (2013 - $2,103,931) of inventories were expensed as depreciation in depletion, depreciation and amortization on the consolidated statement of operations and comprehensive earnings (loss). The Company recorded a write-down of $148,076 (2013 - $19,793) against supplies inventories which is included in cost of sales on the consolidated statement of operations and comprehensive earnings (loss).

 

 17
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

8. PROPERTY, PLANT AND EQUIPMENT                      

 

   Santa Elena Mine   Santa Elena Mine   Corporate   Total 
   Equipment   Mining Assets   EIP   Office     
Cost                         
Balance at December 31, 2012  $20,644,467   $15,390,006   $18,479,457   $108,817   $54,622,747 
Additions   788,093    -    55,667,599    12,925    56,468,617 
Sales of silver and gold 1   -    -    (748,654)   -    (748,654)
Direct production costs capitalized 1   -    -    168,995    -    168,995 
Disposals   (36,760)   (1,590)   -    -    (38,350)
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   -    -    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 
                          
Accumulated depreciation and depletion                         
Balance at December 31, 2012  $5,421,253   $5,668,218   $-   $87,323   $11,176,794 
Charge for the year   2,158,448    4,020,689    -    9,912    6,189,049 
Disposals   (35,058)   -    -    -    (35,058)
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 
                          
Carrying amounts                         
At December 31, 2013  $13,851,157   $5,699,509   $73,567,397   $24,507   $93,142,570 
                          
At December 31, 2014  $77,141,730   $29,166,296   $-   $24,245   $106,332,271 

 

(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 (2013 - $748,654) related to pre-commercial production from Santa Elena’s underground mine and $4,948,662 (2013 - $Nil) from production during the commissioning period from Santa Elena’s new mill and processing facilities.

 

Mill and CCD/MC Processing Facilities Commissioning:

 

In determining commissioning completion of the mill and CCD/MC processing facilities, management considered the following criteria;

·Achieving greater than 80% of nameplate capacity (3,000 tonne-per-day) over a reasonable period of continuous production.

·Achieving average startup recovery rates of 82% gold and 65% silver.
·Dore production from the new mill exceeding budget estimates.

·All major components of the mill and facilities completed and operating to the satisfaction of management and independent commissioning team.

·Completion of budgeted capital expenditures.

·Achieving positive operating cash flows from expanded operations including milling but excluding underground operations.

 

All of the commissioning criteria were met to the satisfaction of management on August 1, 2014, and 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, stopped capitalizing sales of silver and gold ounces and related expenses to the carrying value of the asset, and started to record depreciation in the consolidated statements of operations and comprehensive earnings (loss).

 

 

 18
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

  

8. PROPERTY, PLANT AND EQUIPMENT   (continued)

 

Santa Elena Underground Mine Commissioning:

 

In determining commissioning completion of the underground mine, management considered the following criteria;

 

·Substantially all major capital expenditures have been completed to bring the underground mine to the condition necessary for it to be capable of operating in the manner intended by management.

·Commencement of stope production, with the ability to continue to produce underground ore at a steady or increasing level.

·Completion of budgeted capital expenditures.
·All necessary operating personnel and production equipment were on site and capable of operating in the manner intended by management.

 

All of the commissioning criteria were met to the satisfaction of management on October 1, 2014, and 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 Mine EIP to Santa Elena Mining Assets and Santa Elena Equipment, respectively. As of October 1, 2014, the Company also stopped capitalizing sales of silver and gold ounces and related direct production expenses to the carrying value of the underground asset, and started to record depletion and depreciation in the consolidated statements of operations and comprehensive earnings (loss).

 

(2) In March 2014, in accordance with the terms of the Purchase Agreement (note 10), 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.

 

(3) At December 31, 2014, the Company recorded an impairment charge of $1,911,198 (2013 - $Nil) 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.

 

Impairment of non-current assets

 

As at December 31, 2014, the Company determined there were indicators of potential impairment of the Santa Elena Equipment and Mining Assets. The primary indicator was metal price volatility, with silver and gold experiencing significant declines throughout fiscal 2014 and 2013.

 

In 2013, management had assessed the decline in commodity prices as short term fluctuations and did not identify other indicators of impairment for Santa Elena. As a result, an impairment test was not required for the year ended December 31, 2013.

 

As at December 31, 2014, SilverCrest determined that the estimated recoverable value of Santa Elena’s assets is above its carrying value. As a result, no impairment charge is required.

 

In the impairment assessment, the recoverable amount was determined to be the fair value less cost to dispose (“FVLCTD”), which is based upon the estimated future after-tax cash flows. The internal life-of-mine after-tax cash flows incorporates management’s best estimates of metal prices, production based on current internally estimated recoverable mineral reserves, future operating costs, future capital expenditures, inflation, and foreign exchange rates. Metal prices included in the cash flow projection were based on market consensus forecasts. Projected cash flows are discounted using an estimated weighted average cost of capital of a market participant adjusted for asset specific risks.

 

Key assumptions used for the FVLCTD calculation for fiscal 2014 are as follows:

 

2014 Key Assumptions   
    
Gold price ($/oz)  $1,287 (average life of mine)
    
Silver price ($/oz)  $20 (average life of mine)
    
Discount rate  7%
    
Foreign exchange Mexican Peso to United States dollar  14.50
    

 

The Company has validated the results of the FVLCTD calculation by performing sensitivity tests on its key assumptions. Holding all other variables constant, the changes in recoverable amount created by marginal changes in each of the key assumptions are as follows:

 

Key Assumptions  Change in Assumption  Change in Recoverable Amount
       
Gold and Silver Prices  1%  $2.8 million
       
Discount rate  1% point  $3.1 million
       
Foreign exchange Mexican Peso to United States dollar  1%  $0.9 million
       

 

  

 19
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

  

9. 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.

 

2014                  2014 
   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 
                          
                          
2013                       2013 
    Ermitaño    La Joya    Cruz de Mayo    Other    Total 
Balance at December 31, 2012  $-   $8,186,679   $2,872,383   $-   $11,059,062 
Additions                         
Acquisition and option payments  $-   $2,670,000   $50,000   $100,000   $2,820,000 
Deferred exploration costs   -    1,712,226    58,817    25,193    1,796,236 
Subtotal, 2013 additions   -    4,382,226    108,817    125,193    4,616,236 
                          
Balance at December 31, 2013  $-   $12,568,905   $2,981,200   $125,193   $15,675,298 

 

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.

 

La Joya Project, Durango, 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 due May 6, 2014 (paid) and the second and final payment due May 6, 2015. 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.

 

 20
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

9. EXPLORATION AND EVALUATION ASSETS   (continued)

 

Cruz de Mayo Project, Sonora, Mexico  

 

The Company purchased a 100% interest in certain mineral concessions, located in Sonora State, Mexico, in 2004, and on November 19, 2010, finalized an assignment agreement to acquire a 100% interest in the El Guereguito concession in the same state. The Company has the right to acquire the 100% interest in the El Guereguito concession by making staged option payments totaling $1,000,000. From November 2010 to November 2014, the Company has made staged option payments totalling $195,000. The Company has the right to make early payment with no additional consideration. There is a 2.5% NSR on revenues from production of minerals which ceases on cumulative payments of $1,000,000.

 

For the year ended December 31, 2014, an impairment charge of $2,875,168 was recognized in respect of the Cruz de Mayo Project, representing all expenditures and acquisition costs incurred to date. The Company is currently focusing its efforts on properties other than Cruz de Mayo and does not anticipate incurring significant exploration and evaluation expenditures on this project. The Company intends to maintain the Cruz de Mayo Project on a care and maintenance. All future expenditures will be reflected directly in the consolidated statements of operations and comprehensive earnings (loss).

 

10. DEFERRED REVENUE

 

On May 14, 2009, the Company entered into a purchase agreement with Sandstorm (“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 an Upfront Deposit of $12,000,000 and 3,500,000 common shares of Sandstorm. The Purchase Agreement also provided for 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 was 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 fiscal 2014, is based on the proportion of gold ounces delivered to Sandstorm in the period, to 50,000 (2013 – 35,794) ounces of gold deliverable to Sandstorm.

 

In February 2014, the Company received notice of Sandstorm’s election to participate in the Underground Mine Option. In accordance with the terms of the exercise of the option, Sandstorm paid an additional upfront deposit of $10 million to the Company, and will continue to make ongoing per ounce payments of $350 until 50,000 ounces of gold have been delivered to Sandstorm, inclusive of ounces already delivered from open-pit production, at which time the payments will increase to $450 per ounce of gold. The Company recorded the additional $10 million deposit as a reduction to the carrying value of the Santa Elena EIP asset (note 8) as there are no requirements to return any portion of the deposit to Sandstorm.

 

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 year ended December 31, 2014, the Company recorded revenue of $2,634,526 (2013 – $4,362,982) from the delivery of 4,697 gold ounces (2013 – 6,015) to Sandstorm, which consisted of $1,655,399 (2013 – $2,105,419) in cash and $979,127 (2013 – $2,257,563) from amortization of deferred revenue. During the year ended December 31, 2014, the Company recorded $459,948 (2013 – $59,315) to the Santa Elena Mine EIP related to the delivery of 819 gold ounces (2013 – 82 gold ounces) to Sandstorm, which consisted of $289,183 (2013 – $28,635) in cash and $170,764 (2013 – $30,680) from amortization of deferred revenue

 

Details of changes in the balance are as follows:

 

   Upfront Deposit   Sandstorm   Total Deferred 
       Shares   Revenue 
As at December 31, 2012  $7,995,181   $954,844   $8,950,025 
Delivery of gold   (2,044,119)   (244,124)   (2,288,243)
As at December 31, 2013   5,951,062    710,720    6,661,782 
Less current portion   (2,346,749)   (280,266)   (2,627,015)
Deferred revenue  $3,604,313   $430,454   $4,034,767 
                
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 

  

 

 21
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

11. CREDIT FACILITY

 

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 available credit limit of the Facility reduced by $10 million to $30 million leaving $15 million available for drawdown. The credit limit will reduce by a further $10 million on July 11, 2015, and then 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 3.23% 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. As at December 31, 2014, the Company is in compliance with all such covenants. During the year ended December 31, 2014, the Company incurred $421,081 (2013 - $Nil) in interest expense under the Facility, of which $214,660 (2013 - $Nil) was capitalized to Santa Elena Mine EIP and $206,421 (2013 - $Nil) was included in “Finance costs” in the consolidated statements of operations and comprehensive earnings (loss). During the year ended December 31, 2014, standby fees on the Facility amounted to $166,899 (2013 - $108,062) 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 year ended December 31, 2014, the Company amortized $171,586 (2013 - $81,327), which is included in Finance costs. As at December 31, 2014, the unamortized portion, amounting to $261,845 (2013 - $433,431), is included in “Deferred finance costs” on the consolidated statement of financial position.

 

12. ASSET RETIREMENT OBLIGATIONS

 

Asset retirement obligations relate to the operation of the Santa Elena Mine and La Joya Project.

 

Details are as follows:

 

   2014   2013 
Balance, beginning of year  $4,238,270   $4,015,862 
Change in obligations   (52,235)   995,545 
Accretion expense   303,062    224,000 
Change in estimates   (462,590)   (997,137)
Balance, end of year  $4,026,507   $4,238,270 

 

The present value of asset retirement obligations is currently estimated at $4,026,507 (2013 – $4,238,270), reflecting anticipated cash flows to be incurred over approximately the next 7 years. Significant reclamation and closure activities include land rehabilitation, demolition of buildings and mine facilities, and other costs.

 

The total provision for asset retirement obligations at December 31, 2014 is $4,026,507 (2013 – $4,238,270) and has been calculated using an effective discount rate of 10% (2013 – 8.0%). The undiscounted value of these obligations is $5,579,309 (2013 – $5,585,309), calculated using a long-term inflation rate assumption of 4.1% (2013 – 4.0%).

 

In view of uncertainties concerning asset retirement obligations, the ultimate costs could be materially different from the amounts estimated. The estimate of future asset retirement obligations is subject to change based on amendments to applicable laws and legislation. Future changes in asset retirement obligations, if any, could have a significant impact.

 

13. CAPITAL STOCK AND SHARE BASED PAYMENTS RESERVE

 

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 December 31, 2014, the Company had 118,753,205 (2013 – 108,918,205) common shares outstanding and no preferred shares outstanding.

 

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.

 

For the year ended December 31, 2014, the Company issued 980,000 (2013 – 1,900,000) common shares between CAD$0.45 and CAD$1.60 (2013 – CAD$0.80 and CAD$1.60), for gross proceeds of $512,357 (2013 – $2,178,631), related to the exercise of stock options. Accordingly, $255,319 (2013 – $1,015,160) was transferred from share-based payments reserve to capital stock. 

 

 22
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

13. CAPITAL STOCK AND SHARE BASED PAYMENTS RESERVE   (continued)

 

For the year ended December 31, 2013, 510,300 warrants were exercised at CAD$1.60 for gross proceeds of $805,469. Accordingly $182,143 was transferred from share-based payments reserve to capital stock. As at December 31, 2014, and 2013, the Company had no outstanding warrants.

 

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 calculated on 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
Options		   Weighted Average
Exercise Price - CAD$		 
As at December 31, 2012   7,800,000   $1.53 
Issued   3,085,000   $1.78 
Exercised   (1,900,000)  $1.15 
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 

 

 

       Options Outstanding       Options Exercisable 
Exercise Price   Expiry Date  Number of           Number of     
CAD$      Shares
Issuable		   Weighted
Average		   Weighted
Average		   Shares
Issuable		   Weighted
Average		 
       on Exercise   Remaining Life   Exercise Price -   on Exercise   Exercise Price - 
           (Years)   CAD$       CAD$ 
$1.05   September 10, 2015   950,000    0.69    1.05    950,000   $1.05 
$1.60   November 7, 2015   240,000    0.85    1.60    240,000   $1.60 
$1.94   February 15, 2016   175,000    1.13    1.94    175,000   $1.94 
$1.17   June 17, 2016   200,000    1.46    1.17    200,000   $1.17 
$1.65   August 2, 2016   1,450,000    1.59    1.65    1,450,000   $1.65 
$1.60   November 7, 2016   45,000    1.85    1.60    45,000   $1.60 
$2.60   December 5, 2017   1,620,000    2.93    2.60    1,620,000   $2.60 
$2.60   January 31, 2018   350,000    3.09    2.60    350,000   $2.60 
$1.68   December 13, 2018   2,665,000    3.95    1.68    1,998,750   $1.68 
$2.00   January 15, 2019   100,000    4.04    2.00    50,000   $2.00 
$1.95   June 11, 2019   150,000    4.45    1.95    75,000   $1.95 
$1.55   December 10, 2019   2,800,000    4.95    1.55    700,000   $1.55 
         10,745,000    3.26    1.75    7,853,750   $1.81 

 

Share-based compensation

 

During the year ended December 31, 2014, the Company granted 3,050,000 (2013 – 3,085,000) incentive stock options with a weighted average fair value per option granted of CAD$0.71 (2013 – CAD$0.83) for a total fair value of $1,964,122 (2013 – $2,490,613).

 

The following weighted average assumptions were used for the Black-Scholes valuation of stock options.

 

   2014   2013 
Risk-free interest rate   1.32%   1.65%
Expected dividend yield   -    - 
Expected stock price volatility   54.61%   56.01%
Expected forfeiture rate   1.2%   1.3%
Expected option lives   4.57 years    4.57 years 

 

 

 23
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

13. CAPITAL STOCK AND SHARE BASED PAYMENTS RESERVE   (continued)

 

The risk-free rate of return is the yield on a zero-coupon Canadian Treasury Bill with a remaining term equal to the stock options’ expected life. The expected stock price volatility is based on the historical and implied volatility of SilverCrest’s Canadian dollar common share price. The expected average option term is the average expected period to exercise, based on historical activity patterns.

 

The total share-based compensation recognized during year ended December 31, 2014, under the fair value method, was $2,262,705 (2013 – $2,507,893). Included in share-based compensation is $77,579 relating to the fair value calculated on 240,000 incentive stock options priced at CAD $1.60, that were granted a one year extension and will now expire on November 7, 2015

 

For the year ended December 31, 2014, 310,000 (2013 – Nil) incentive stock options priced between CAD $1.60 and CAD$2.60 were forfeited. As a result, $192,855 (2013 – Nil) was reclassified from share-based payments reserve to retained earnings.

 

14. REVENUES        

 

   2014   2013 
Gold revenue - spot prices  $29,084,165   $33,957,730 
Gold revenue - Sandstorm (1)   3,094,474    4,422,297 
Silver revenue   21,474,310    17,262,278 
    53,652,949    55,642,305 
Capitalized to Santa Elena Mine EIP(2)   (8,520,350)   (748,654)
   $45,132,599   $54,893,651 

 

(1) The Company recorded $3,094,474 (2013 – $4,422,297) from the delivery of 5,516 (2013 – 6,097) gold ounces to Sandstorm, which consisted of $1,944,583 (2013 – $2,134,054) in cash and $1,149,891 (2013 – $2,288,243) from amortization of deferred revenue (note 10).

 

(2) Prior to completing the commissioning of Santa Elena’s EIP, the Company capitalized proceeds from sales of silver and gold ounces and related direct production expenses attributed to the underground mine, mill and processing facilities (note 8).

 

15. COST OF SALES

 

   2014   2013 
Mining  $3,618,380   $9,624,359 
Crushing and processing   13,185,911    6,541,678 
General and administrative   5,088,765    3,982,196 
Refining and transport   530,916    487,781 
Direct production costs   22,423,972    20,636,014 
Amortization of leach pad ore inventory (1)   807,898    - 
Environmental mining duty (2)   275,171    - 
Capitalized to Santa Elena Mine EIP (3)   (1,477,358)   (168,995)
Inventory adjustment   1,567,290    (571,645)
Cost of sales  $23,596,973   $19,895,374 

 

(1)Effective July 1, 2014, 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 through the mill in the period, to the total tonnes remaining on the leach pad (note 7).

 

(2)Effective January 1, 2014, the new Mexican Environmental Mining Duty, based on 0.5% of gross revenues, is included as part of cost of sales.

 

(3)Prior to completing the commissioning of Santa Elena’s EIP, the Company capitalized proceeds from sales of silver and gold ounces and related direct production expenses attributed to the underground mine, mill and processing facilities (note 8).

 

 

 24
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

16. GENERAL AND ADMINISTRATIVE          

 

   2014   2013 
Remuneration (note 19)  $2,319,854   $3,009,469 
Professional fees (note 19)   626,060    667,074 
General exploration   51,939    113,470 
Regulatory   319,314    220,281 
Shareholder and investor relations   283,538    468,551 
Trade shows and travel   686,760    835,386 
Other corporate expenses   582,934    530,975 
Witholding taxes on interest on intercompany loans   554,192    283,823 
Mexico corporate expenses   1,079,456    822,863 
   $6,504,047   $6,951,892 

 

17. OTHER INCOME

 

Other income of $539,714 (2013 - $Nil) relates to net proceeds received from an insurance claim.

 

18. EARNINGS (LOSS) PER COMMON SHARE

 

The following table sets forth the computation of basic and diluted earnings (loss) per share:

 

   2014   2013 
Numerator          
Net earnings (loss) for the year  $(1,515,975)  $8,479,263 
           
Denominator          
For basic - weighted average number of common shares outstanding   116,911,616    108,272,675 
Effect of dilutive stock options (1)   -    2,014,158 
For diluted - adjusted weighted average number of common shares outstanding   116,911,616    110,286,833 
           
Earnings (loss) per common share          
Basic  $(0.01)  $0.08 
Diluted  $(0.01)  $0.08 

 

(1) Diluted weighted average number of shares for the year ended December 31, 2014, excludes all stock options as they are anti-dilutive.

 

19. RELATED PARTY TRANSACTIONS

 

During the year ended December 31, 2014, the Company entered into the following transactions with related parties:

 

Legal Fees

 

Legal fees of $110,640 (2013 - $204,860), which were included in professional fees, $130,599 (2013 - $Nil) for share issuance costs, and $Nil (2013 - $91,796) in costs associated with the set-up of the Facility (note 11) were paid or accrued to Koffman Kalef LLP, a law firm in which the Company’s Corporate Secretary is partner. The Company recognized $14,054 (2013 - $29,519) in share-based payments to this partner.

 

Key Management Compensation (1)

 

   2014   2013 
Salaries and short-term benefits (2)  $1,254,242   $1,482,848 
Directors' fees   169,725    139,600 
Share-based payments   1,408,210    1,378,504 
   $2,832,177   $3,000,952 

 

(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 President and Chief Operating Officer, the Chief Executive Officer and the Chief Financial Officer of SilverCrest.

  

25

 25
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

19. RELATED PARTY TRANSACTIONS   (continued)

 

Other transactions  

 

Paid $201,801 (2013 - $227,046) for technical and administrative services and recognized $43,907 (2013 - $54,809) 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 fiscal 2014, the Company incurred $142,255 (2013 - $83,532) on behalf of Goldsource for these services, of which $15,347 (2013 - $23,217) is receivable at December 31, 2014.

 

20. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

 

Supplemental disclosure of significant non-cash transactions is provided in the table:

   2014   2013 
Non-cash investing and financing activities          
Capitalized to property, plant and equipment          
Asset retirement obligation  $(364,823)  $- 
Deferred revenue  $170,764   $30,680 
Accounts payable and accrued liabilities  $640,414   $1,173,754 
           
Capitalized to exploration and evaluation assets          
Asset retirement obligation  $(150,000)  $- 
Accounts payable and accrued liabilities  $26,572   $1,259,636 
Capital stock  $-   $1,250,000 
           
Capitalized to equity reserves          

Transfer of share-based payments reserve

upon exercise of options

  $255,319   $1,015,160 

 

21. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

 

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.

 

a. Liquidity Risk

 

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 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.

 

As at December 31, 2014, the Company’s remaining contractual maturities of its financial liabilities and operating and capital commitments are as follows:

 

Payments due by period (in thousands of dollars and denominated in U.S. dollars) 

         Less than                 More than 
Contractual Obligations  Total     1 year      1 – 3 years      3 – 5 years   5 years 
Operating lease obligations  $199     $199      $Nil      $Nil   $Nil 
Accounts payable  $2,880     $2,880      $Nil      $Nil   $Nil 
Taxes payable  $1,180     $1,180      $Nil      $Nil   $Nil 
Credit facility  $15,000     $Nil      $15,000      $Nil   $Nil 
Asset retirement obligations  $4,027     $Nil      $Nil      $Nil   $4,027 
Deferred revenue  $5,512     $1,456      $2,912      $1,144   $Nil 
Total  $28,798     $5,715      $17,912      $1,144   $4,027 

 

 

 

 26
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

21. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS   (continued)

 

b. Credit Risk  

 

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. Amounts receivables are primarily generated on sales of gold and silver to a limited number of financial institutions specializing in the precious metal markets. 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. At December 31, 2014, the amounts receivable balance of $2,396,509 (2013 - $121,308) is due primarily from a gold and silver dore lot which was sold at the end of December, 2014, but cash receipts were received in early January, 2015.

 

The carrying amount of financial assets, as stated in the consolidated statement of financial position, represents the Company’s maximum credit exposure.

 

c. Foreign Currency Risk

 

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.

 

At December 31, 2014, the Company is exposed to foreign currency risk through the following financial assets and liabilities held in the following United States dollar equivalents:

 

   Canadian Dollar   US Dollar   Mexican Peso   Total 
Cash and cash equivalents  $415,123   $25,601,038   $5,234,982   $31,251,143 
Amounts receivable   169,303    2,210,485    16,721    2,396,509 
Taxes receivable   -    -    8,287,598    8,287,598 
Total Assets   584,426    27,811,523    13,539,301    41,935,250 
                     
Accounts payable and accrued liabilities   363,828    1,179,870    2,723,559    4,267,257 
Taxes payable   -    -    1,180,155    1,180,155 
Total Liabilities   363,828    1,179,870    3,903,714    5,447,412 
                     
Net Assets  $220,598   $26,631,653   $9,635,587   $36,487,838 

 

Based on the above net exposures at December 31, 2014, a 10% appreciation (depreciation) of the United States dollar against the Canadian dollar and Mexican Peso, with all other variables held constant, would result in approximately a $1,000,000 decrease (increase) in the Company’s net earnings (loss) for the year.

 

At December 31, 2013, the Company was exposed to foreign currency risk through the following financial assets and liabilities held in the following United States dollar equivalents:

 

   Canadian Dollar   US Dollar   Mexican Peso   Total 
Cash and cash equivalents  $323,457   $13,701,340   $410,656   $14,435,453 
Amounts receivable   114,215    -    7,093    121,308 
Taxes receivable   -    -    6,415,814    6,415,814 
Total Assets   437,672    13,701,340    6,833,563    20,972,575 
                     
Accounts payable and accrued liabilities   543,103    2,211,029    2,521,021    5,275,153 
Taxes payable   -    -    1,155,314    1,155,314 
Total Liabilities   543,103    2,211,029    3,676,335    6,430,467 
                     
Net (Liabilities) Assets  $(105,431)  $11,490,311   $3,157,228   $14,542,108 

 

 

 27
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

21. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS   (continued)

 

d. Interest Rate Risk  

 

The Company’s exposure to interest rate risk arises from the interest rate impact on its cash and cash equivalents and corporate credit facility. The Company’s practice has been to invest cash at floating rates of interest, in cash equivalents, 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, 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 December 31, 2014, 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 (loss) for the year.

 

e. Commodity Price Risk

 

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.

 

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.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of amounts receivable and accounts payable and accrued liabilities 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.

 

22. INCOME TAXES

 

A reconciliation of income taxes calculated at the combined statutory tax rate to the income tax expense is as follows:

 

    2014    2013 
Net earnings (loss) before taxes  $(739,975)  $21,347,263 
Combined statutory tax rate   26.00%   25.75%
Expected income tax   (192,400)   5,496,900 
Impact of initial recognition of 7.5% mining royalty in Mexico   -    5,758,000 
Effect of different foreign statutory rates on earnings of subsidiaries   (414,000)   884,000 
Impact of inflation adjustments   853,000    495,000 
Permanent differences   1,026,000    501,000 
Share issue costs   369,000    - 
Utilization of non-capital losses   (650,000)   - 
Impact of foreign exchange on deferred income tax assets and liabilities   760,000    (172,000)
Adjustment to prior years provision versus statutory and others   10,000    161,100 
Change in unrecognized deductible temporary differences   (985,600)   (256,000)
Total income tax expense  $776,000   $12,868,000 
Effective tax rate   -105%   60%
           
Current income tax expense (1)  $262,000    5,450,000 
Deferred tax (recovery) expense - Mexican mining royalty  $(620,000)   5,758,000 
Deferred tax expense  $1,134,000    1,660,000 

 

(1) The Company has paid a total of $4.6 million related to 2014 income taxes by offset of Mexican value added taxes receivable (note 6).

 

 28
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

22. INCOME TAXES   (continued)

 

The Canadian combined statutory tax rate increased from 25.75% to 26.0% in 2014 due to an increase in the provincial tax rate for British Columbia from 10.0% to 11.0%.

 

For the year ended December 31, 2013, the effective tax rate of 60% was significantly higher than the combined corporate statutory tax rate primarily due to the initial recognition impact of major tax reforms enacted in Mexico. On December 11, 2013, the Mexican government enacted a tax reform to introduce a mining royalty effective January 2014. This royalty is deductible for tax purposes and is calculated as 7.5% of a royalty base which is computed as taxable revenues for income tax purposes (except interest and inflationary adjustment), less allowable deductions for income tax purposes (except interest, inflationary adjustment, depreciation and mining fees), less prospecting and exploration expenses of the year. This new mining royalty was the significant item impacting the 2013 effective tax rate.

 

In fiscal 2013, the Company took the position that the 7.5% mining royalty was an income tax in accordance with IFRS for financial reporting purpose, as it is based on a measure of revenue less certain specified costs. On substantial enactment, a taxable temporary difference arose, as property, plant and equipment and exploration and evaluation assets had book basis but no tax basis for purposes of the royalty. The Company recognized a deferred tax liability of $5,758,000 at December 31, 2013 in respect of this royalty. This deferred tax liability will be drawn down to $nil as a reduction to tax expense over the life of mine as the mine and its related assets are depleted or depreciated.

 

The composition of the Company’s deferred tax assets and liabilities are as follows:

   2014   2013 
Mexico operations        
Deferred tax assets:          
Non-Capital losses  $4,833,000   $229,000 
Asset retirement obligations   1,305,000    1,376,000 
Deferred tax liabilities:          
Property, plant and equipment   (10,451,000)   (7,589,000)
Exploration and evaluation assets   (2,208,000)   (2,594,000)
Deferred revenue   (2,742,000)   - 
Inventories   (294,000)   (465,000)
Deferred tax liabilities, net  $(9,557,000)  $(9,043,000)

 

The significant components of the Company’s unrecorded deferred tax assets and liabilities are as follows:

   2014   2013 
Deferred Tax Assets (Liabilities)        
Exploration and evaluation assets  $71,000   $86,000 
Property, plant and equipment   36,000    40,000 
Canadian eligible capital   181,000    198,000 
Allowable capital losses   311,000    339,000 
Share issue costs   583,000    521,000 
Deferred revenue   171,000    171,000 
Non-capital losses available for future periods   2,135,000    3,089,000 
Unused deferred tax assets  $3,488,000   $4,444,000 

 

The significant components of the Company’s temporary differences and unused tax losses are as follows:

 

   2014   2013   Expiry Date Range 
Exploration and evaluation assets  $273,000   $-      
Property, plant and equipment   72,000    152,000    No expiry 
Canadian eligible capital   697,000    760,000    No expiry 
Share issue costs   2,242,000    2,004,000    2015-2018 
Deferred revenue   625,000    656,000    No expiry 
Allowable capital losses   1,195,000    1,304,000    No expiry 
Non-capital losses available for future periods               
Canada   8,175,000    12,377,000    2017-2034 
Mexico   3,000    11,000    2020-2024 
Unused temporary differences  $13,282,000   $17,264,000      

 

 

 29
SILVERCREST MINES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
YEARS ENDED DECEMBER 31, 2014 and 2013


NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

23. SEGMENTED INFORMATION

 

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     
2014  Santa Elena   Other Projects   Corporate   Total 
Revenue  $45,009,921   $-   $122,678   $45,132,599 
Cost of sales   (23,596,973)   -    -    (23,596,973)
Depletion, depreciation and amortization   (8,155,788)   -    (11,698)   (8,167,486)
Mine operating earnings   13,257,160    -    110,980    13,368,140 
Other net expenses   (2,005,107)        (7,146,590)   (9,151,697)
Impairment charges   (1,761,197)   (3,195,221)   -    (4,956,418)
Current income tax expense   (262,000)   -    -    (262,000)
Deferred tax expense   (514,000)   -    -    (514,000)
Net earnings (loss) for the year  $8,714,856   $(3,195,221)  $(7,035,610)  $(1,515,975)
                     
Asset Information                    
Property, Plant and Equipment  $106,308,026   $-   $24,245   $106,332,271 
Exploration and evaluation assets  $-   $16,421,345   $-   $16,421,345 

 

   Mexico   Mexico   Canada     
2013  Santa Elena   Other Projects   Corporate   Total 
Revenue  $54,649,527   $-   $244,124   $54,893,651 
Cost of sales   (19,895,374)   -    -    (19,895,374)
Depletion, depreciation and amortization   (6,124,621)   -    (9,911)   (6,134,532)
Mine operating earnings   28,629,532    -    234,213    28,863,745 
Other net expenses   (1,330,686)   -    (6,185,796)   (7,516,482)
Current income tax expense   (5,450,000)   -    -    (5,450,000)
Deferred tax expense   (7,418,000)   -    -    (7,418,000)
Net earnings (loss) for the year  $14,430,846   $-   $(5,951,583)  $8,479,263 
                     
Asset Information                    
Property, Plant and Equipment  $93,118,063   $-   $24,507   $93,142,570 
Exploration and evaluation assets  $-   $15,675,298   $-   $15,675,298 

 

24. CONTINGENCIES

 

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.

 

25. SUBSEQUENT EVENT

 

Subsequent to December 31, 2014, 10,000 incentive stock options priced at CAD$1.68 were forfeited.

 

 30

 



Exhibit 99.3

 

 

 

 

 

 

 

 

 

 

 

 

 

MANAGEMENT DISCUSSION & ANALYSIS OF

 

 

FINANCIAL CONDITIONS & RESULTS OF OPERATIONS

 

 

 

FOR THE YEAR ENDED DECEMBER 31, 2014

 

 

 
 

 

SILVERCREST MINES INC.

 

 

 

Table of Contents Page
   
HIGHLIGHTS OF FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2014 2
OVERVIEW OF THE BUSINESS 4
OUTLOOK 4
KEY FINANCIAL PERFORMANCE INDICATORS 4
RESULTS OF OPERATIONS 5
NON-IFRS PERFORMANCE MEASURES 7
ADDITIONAL IFRS MEASURES 8
SELECTED ANNUAL INFORMATION 8
SUMMARY OF QUARTERLY RESULTS 9
CASHFLOWS 10
LIQUIDTY AND CAPITAL RESOURCES 11
SANTA ELENA MINE 12
EXPLORATION PROPERTIES 13
OUTSTANDING SHARE CAPITAL 14
SUBSEQUENT EVENT 14
OFF BALANCE SHEET ARRANGEMENTS 14
PROPOSED TRANSACTIONS 14
COMMITMENTS 15
RELATED PARTY TRANSACTIONS 15
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT 16
CRITICAL JUDGMENTS AND ESTIMATES 17
CHANGES IN ACCOUNTING STANDARDS 19
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

 

 1
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

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 twelve months ended December 31, 2014. 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 audited consolidated financial statements for the years ended December 31, 2014 and 2013, and the related notes contained therein which have been prepared under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. All amounts are stated in United States dollars 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 March 24, 2015. This MD&A contains forward looking information. Reference to the risk factors described in the “Cautionary Statement” 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 unit measures. 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 FOURTH QUARTER (“Q4”) AND YEAR ENDED DECEMBER 31, 2014


Financial and Operating Highlights:  Q4 2014   Q4 2013   2014   2013 
Cash flow from operations (1) (3)  $1,791,041   $4,608,427   $13,768,201   $26,090,978 
Cash flow from operations (1) (3) per share  $0.02   $0.04   $0.12   $0.24 
Cash cost per AgEq ounce sold (2) (3)  $11.90   $7.68   $9.64   $7.78 
All -in sustaining cash cost per AgEq ounce sold (2) (3)  $17.98   $12.77   $14.35   $13.05 
                     
Revenues  $16,406,592   $12,866,617   $45,132,599   $54,893,651 
Net earnings (loss)  $(5,539,328)  $(4,094,410)  $(1,515,975)  $8,479,263 
Adjusted earnings (loss) (3)  $(2,035,929)  $1,621,246   $5,238,021   $16,147,593 
Net earnings (loss) per share  $(0.05)  $(0.04)  $(0.01)  $0.08 
Adjusted earnings (loss) per share (3)  $(0.02)  $0.01   $0.04   $0.15 
                     
Silver ounces produced   397,509    228,787    1,157,021    779,026 
Gold ounces produced   8,983    9,218    27,609    31,099 
Silver equivalent ounces produced (2)   936,472    796,751    2,813,559    2,661,979 
                     
Silver ounces sold   422,250    208,200    1,177,936    751,633 
Gold ounces sold   8,968    8,220    28,678    30,487 
Silver equivalent ounces sold (2)   960,330    714,678    2,898,643    2,595,716 

 

(1)Cash flow from operations before changes in working capital items.

 

(2) Silver equivalent (“AgEq”) ounces consist of the number of ounces of silver production/sold plus the number of ounces of gold production/sold multiplied by a 60:1 gold price to silver price ratio, as determined in the 2014 budget. Prior to Q1 2014, the AgEq ratio was based on the spot gold price to the spot silver price at the quarter end dates for financial reporting. For fiscal 2013 and Q4 2013, the gold price to silver price ratio was 60.5:1 and 61.6:1, respectively. All numbers are rounded.

 

(3) The Company uses performance indicators that are not defined according to IFRS. The Company presents these Non-IFRS performance 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 “Results of Operations” section for a detailed comparison with the same period of the prior fiscal year.

 

 2
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

HIGHLIGHTS OF FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2014 (continued)

 

Santa Elena

 

·The Santa Elena Mine reported record Q4 2014 AgEq production of 936,472 AgEq ounces, an 18% increase compared to Q4 2013; and record annual AgEq production of 2.81 million AgEq ounces, a 6% increase compared to 2013. SilverCrest achieved 93% of its 2014 metal production guidance, which was expected to range between 3.0 – 3.3 million AgEq ounces, in spite of the early closure of the open pit and short-term delays related to the first underground stope.

 

·Silver production set a quarterly record of 397,509 ounces in Q4 2014, a 74% increase compared to Q4 2013; and record annual silver production of 1.16 million ounces, a 49% increase compared to 2013.

 

·Gold production for the fourth quarter was 8,983 ounces, a 3% decrease compared to Q4 2013; and annual for 2014 was 27,609 ounces, an 11% decrease compared to 2013.

 

·On October 1, 2014, Santa Elena’s Underground Mine was successfully commissioned. Completion of a ventilation raise in Q4 2014 increased operating efficiencies and improved advancement rates for both underground development and mine production.

 

·On August 1, 2014, SilverCrest’s new 3,000 tonnes per day (“tpd”) mill and Counter Current Decantation / Merrill Crowe (“CCD/MC”) processing facility at the Santa Elena Mine was successfully commissioned.

 

·Average mill throughput during Q4 was 2,916 tpd (268,287 tonnes processed) with average recovery rates of 89% for gold and 62% for silver. For 2014, 526,525 tonnes were put through the mill which represents approximately seven months of production, including pre-commissioning milling. The 2014 average recovery rates were 90% for gold and 66% for silver. The 2014 mill metal recoveries were slightly below design criteria of 92% gold and 67.5% silver. Mill recoveries are still being optimized (grinding size and cyanide rates) with 2015 targets of 92% gold and 70% silver.

 

·Exploration drilling continued in Q3 and Q4 2014 with the drilling program targeting expansion of gold and silver mineralization at depth, to the west and east to investigate possible extension of main mineralized zone. Additional exploration and infill drilling was completed at the Tortuga and Cholugo mineralized zones. The drill results will be incorporated in the update resource estimation for the Santa Elena Mine in 2015.

 

Sonora Properties, Mexico

 

·In November 2014, SilverCrest strengthened its land position in the vicinity of the Santa Elena Mine by signing a five year option agreement with Evrim Resources Corp. (TSX.V: EVM) (“Evrim”) whereby SilverCrest can acquire a 100% interest in Evrim’s Cumobabi Property (“Cumobabi”) in the State of Sonora, Mexico. The Cumobabi Property is the general vicinity of the Santa Elena mine and adjacent to the Ermitaño Property (“Ermitaño”) which SilverCrest optioned in January, 2014 (refer to “Exploration Properties – Sonora Properties – Mexico” section for further discussion).

 

·SilverCrest’s acquisition of the Cumobabi Property significantly consolidates SilverCrest’s land position in the vicinity of the Santa Elena Mine. When combined with the Ermitaño Property, SilverCrest now controls over 51,172 hectares of mineral rights, prospective for gold and silver resources, adjacent to or in the near vicinity of the Santa Elena mine. The lands are considered to be highly prospective and are expected to play a strategic role in the organic growth of SilverCrest’s resources.

 

La Joya Project, Mexico

 

·SilverCrest completed a 17 hole in-fill drilling program (2,698 metres). The program provides valuable information that will enable SilverCrest to advance towards an updated resource model in the first half (“H1”) of 2015.

 

Corporate

 

·During Q4, the Company granted stock options to directors, officers, employees and consultants to purchase an aggregate of 2,800,000 common shares of the Company at an exercise price of CAD$1.55 per share for a term of five years.

 

·Subsequent to December 31, 2014, SilverCrest announced that;

 

oN. Eric Fier, President and Chief Operating Officer, has taken a partial leave of absence to deal with certain matters of personal health. Dunham L. Craig, Director, has been appointed Interim President and will assume the President’s responsibilities on a temporary basis until further stages of a succession plan developed by the Board of Directors can be implemented. Mr. Fier will remain as Chief Operating Officer and Director of SilverCrest until such time as he is able to return to his duties on a full time basis. In his absence, SilverCrest will rely on the depth and experience of its management to professionally execute its stated business objectives.

 

The Board’s succession plan has Mr. Fier stepping into the CEO position upon J. Scott Drever’s anticipated retirement as CEO in the coming year which is now expected to coincide with Mr. Fier’s return.

 

oMichael Rapsch was appointed Vice President, Corporate Communications. Michael has been instrumental to SilverCrest’s marketing success by expanding investor relations programs and building the shareholder network.

 

 

 3
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

OVERVIEW OF THE BUSINESS

 

SilverCrest Mines Inc. (NYSE MKT: SVLC; TSX: SVL) is a Canadian precious metals producer headquartered in Vancouver, BC. SilverCrest’s flagship property is the 100%-owned Santa Elena Mine, located 150 km northeast of Hermosillo, near Banamichi in the State of Sonora, México. The mine is a high-grade, epithermal silver and gold producer, with a current reserve estimated life of mine of eight years. Exploration programs continue to result in discoveries at Santa Elena and have advanced the definition of a large polymetallic deposit at the La Joya Project in Durango State, Mexico.

 

OUTLOOK

 

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 from current average rates of 1,200 tpd to average rates of 1,500 tpd by the end of 2015 to achieve an average rate of 1,320 tpd for fiscal 2015, (iii) SEDAR file a Technical Report by March 31, 2015 to update the Santa Elena Reserves, Resource estimates, and life of mine plan, (iv) expand resources and associated reserves at Santa Elena by continued systematic exploration of the deposit, (v) continue to evaluate and acquire low cost exploration properties in proximity to Santa Elena, (vi) update the La Joya resource model for a new resource estimate in 2015, and (vii) manage a strong cash position to support growth while sustaining existing operations.

 

Santa Elena Mine 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).

 

·Achieve estimated cash operating cost of $10 - $11 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).

 

·Achieve budgeted mill recovery rates of 92% for gold and 70% for silver.

 

·Achieve annual average underground ore production rates of 1,320 tpd.

 

·Target 1,100 metres of ramp development, 2,100 metres of lateral development and 200 metres of vertical development.

 

Sonora Property Targets - 30/60 km radius from Santa Elena Operations

 

·Exploration budget for 2015 is an aggregate of $2.8 million. Exploration expenditures may be adjusted or reallocated to other targets throughout the year depending on success and cash availability.

 

·Complete approximately 6,000 metres of drilling and advance surface exploration program at Ermitaño I & II and Cumobabi concessions to delineate additional targets.

 

·Continued focus on low cost acquisitions, targeting opportunities of epithermal deposit within the developing regional Santa Elena trend.

 

La Joya Project Targets

 

·Release an updated resource model incorporating 17 in-fill core hole drill program completed in 2014.

 

·Complete or renegotiate final La Joya East staged acquisition payment of $0.6 million.

 

·Negotiate access agreements for continued exploration and potential development.

 

·Advance additional metallurgical and economic studies.

 

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.

 

·Adequate financing.

 

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, the amount of metals produced, realized prices for silver and gold ounces sold, currency exchange rates, 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 exploration projects, current operations and the financial position of the Company.

 

 4
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

KEY FINANCIAL PERFORMANCE INDICATORS (continued)

 

Adequate financing

 

Historically, the major sources of liquidity have been the capital markets and project financing. The Santa Elena Expansion Project has been successfully completed, 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 and the current cash position, SilverCrest expects to meet its financial commitments and pursue other corporate opportunities for growth going forward.

 

RESULTS OF OPERATIONS

 

   Three months ended December 31,   Year ended December 31, 
   2014   2013   2014   2013 
Revenues                    
Silver revenue  $6,756,386   $4,204,643   $21,474,310   $17,262,278 
Gold revenue - cash basis   9,322,088    8,793,655    31,028,748    36,091,784 
    16,078,474    12,998,298    52,503,058    53,354,062 
Gold revenue - non cash                    
- amortization of deferred revenue   328,118    616,973    1,149,891    2,288,243 
                     
- capitalized to Santa Elena Mine EIP (1)   -    (748,654)   (8,520,350)   (748,654)
Revenues reported   16,406,592    12,866,617    45,132,599    54,893,651 
Cost of sales   11,427,777    5,185,211    23,596,973    19,895,374 
Depletion, depreciation and amortization   3,150,393    1,618,884    8,167,486    6,134,532 
                     
Mine operating earnings   1,828,422    6,062,522    13,368,140    28,863,745 
General and administrative expenses   (2,321,740)   (2,885,989)   (6,504,047)   (6,951,892)
Share-based compensation   (922,099)   (881,949)   (2,262,705)   (2,507,893)
Foreign exchange gain (loss)   (395,025)   793,276    (462,889)   2,079,678 
Impairment charges   (4,956,418)   -    (4,956,418)   - 
Other income   -    -    539,714    - 
                     
Operating earnings (loss)   (6,766,860)   3,087,860    (278,205)   21,483,638 
                     
Interest income   83,791    50,990    386,198    277,014 
Accretion expense   (75,765)   (105,095)   (303,062)   (224,000)
Finance costs   (195,494)   (128,165)   (544,906)   (189,389)
                     
Earnings (loss) before taxes   (6,954,328)   2,905,590    (739,975)   21,347,263 
                     
Taxes                    
Current income tax expense   (632,000)   (1,580,000)   (262,000)   (5,450,000)
Deferred tax recovery (expense)   2,047,000    (5,420,000)   (514,000)   (7,418,000)
Net earnings (loss)   (5,539,328)   (4,094,410)   (1,515,975)   8,479,263 
                     
Other comprehensive loss                    
Exchange loss on translation to US Dollars   -    (444,318)   -    (1,989,460)
                     
Comprehensive earnings (loss) for the period  $(5,539,328)  $(4,538,728)  $(1,515,975)  $6,489,803 
                     
Weighted average number of common shares outstanding   118,753,205    108,901,085    116,911,616    108,272,675 
Earnings (loss) per common share - basic  $(0.05)  $(0.04)  $(0.01)  $0.08 
Earnings (loss) per common share - diluted  $(0.05)  $(0.04)  $(0.01)  $0.08 

 

Comparison of the three months ended December 31, 2014, to December 31, 2013

Net loss was $5,539,328 ($0.05 per share, basic and diluted) for the fourth quarter compared with $4,094,410 ($0.04 per share, basic and diluted) in 2013. The net loss in Q4 2014 was primarily attributed to lower mine operating earnings generated at Santa Elena and non-cash impairment charges totalling $4.96 million. In Q4 2013, the Company recorded a one-time non-cash deferred tax charge of $5.8 million as a result of the enactment of the Mexican Tax Reform.

 

Silver and gold revenues totalled $16,406,592 (2013 – $12,866,617) in the fourth quarter. Silver sales of 422,250 ounces (2013 – 208,200), were a quarterly record and a 103% increase over the same period in 2013. The foregoing, combined with a 21% lower average realized price of $16.00 (2013 – $20.20) per ounce, resulted in only 61% higher silver revenue.

 

 

 5
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

RESULTS OF OPERATIONS (continued)

 

Total gold revenue reported in the fourth quarter increased 3% compared to the same period in 2013. Total gold sales were 8,968 ounces (2013 – 8,220), or 9% higher than in the same period in 2013. The Company sold 7,394 (2013 – 6,576) ounces of gold at an average realized price of $1,185 (2013 – $1,250) per ounce, a 5% decline. The Company delivered 1,574 gold ounces (2013 – 1,644) under the Sandstorm Purchase Agreement at $354 cash (2013 – $350) per ounce.

 

Cost of sales amounted to $11,427,777 (2013 – $5,185,211). Cash operating cost(2) and all-in sustaining cash cost(2) per AgEq ounce sold in Q4 2014 were $11.90 and $17.98 (Ag:Au 60.0:1) per ounce, respectively, compared to $7.68 and $12.71 (Ag:Au 61.6:1) per ounce in Q4 2013. The increase in cash operating cost per AgEq ounce for Q4 2014 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. The increase in all-in sustaining cash operating cost per AgEq ounce for Q4 is a result of higher production costs and the inclusion of Santa Elena’s sustaining underground development, infrastructure and equipment costs. The Company anticipates operating cash cost to average $10-$11 per AgEq ounce and all-in sustaining cash cost to average $14-$15 per AgEq ounce for 2015 as underground production ramps up and reaches average budgeted levels of 1,320 tpd.

 

Depletion, depreciation and amortization increased to $3,150,393 (2013 – $1,618,884) with the incorporation of the quarterly deprecation charge for Santa Elena’s new mill and CCD/MC processing facilities.

 

General and administrative expenses decreased by 20% to $2,321,740 (2013 – $2,885,989) primarily due to a decrease in remuneration expense. Remuneration expense decreased by 41% to $933,501 (2013 – $1,581,482) primarily from the reduction in annual bonuses paid in Q4 to management and employees.

 

During Q4 2014, the Company recorded impairment charges totalling $4,956,418 (2013 – $Nil) related to write downs of property, plant and equipment and mineral properties. The Company recorded an impairment charge of $1,911,198 against crushing equipment no longer in use at Santa Elena and wrote-off the book value of the Cruz de Mayo Project ($2,875,168) and other exploration properties ($170,052).

 

Current income tax expense amounted to $632,000 (2013 – $1,580,000). The decrease in tax expense in Q4 is primarily attributable to the Company taking a 100% tax deduction for 2014 development costs incurred at Santa Elena. The foregoing, combined with lower operating margins, resulted in a lower current income tax charge compared with Q4 2013.

 

Deferred tax recovery was $2,047,000 (2013 – expense of $5,420,000) primarily as a result of the 2014 non capital loss the Company generated which will be available to utilize against taxable income in future periods. The 2014 Mexican non capital loss was partially offset by additional temporary differences recognized for financial statement carrying amounts and their respective Mexican tax book bases. Recognized within the Q4 recovery is $374,000 (2013 – $nil) drawn down from the $5.8 million deferred taxes recognized in Q4 2013 due to the enactment of the Mexican Tax Reform.

 

Comparison of the year ended December 31, 2014, to December 31, 2013

 

Net loss was $1,515,975 ($0.01 loss per share, basic and diluted) for fiscal 2014, compared with earnings of $8,479,263 ($0.08 per share, basic and diluted) in 2013. The loss recognized in fiscal 2014 was primarily driven by 1) a decrease in revenues from lower realized prices, 2) an increase in direct production costs as Santa Elena transitioned during 2014 from an open pit heap leach operation to an underground mining and milling operation, and 3) Q4 non-cash impairment charges totalling $4.96 million.

 

Silver and gold revenues totalled $45,132,599 (2013 – $54,893,651) for fiscal 2014. Silver sales amounted to 1,177,936 ounces (2013 – 751,633), which includes 206,323 (2013 – 13,881) capitalized ounces, 57% higher when compared to 2013. The foregoing, combined with a 21% lower average realized price of $18.23 (2013 – $22.97) per ounce, resulted in only 24% higher silver revenue. Total gold revenue reported during fiscal 2014 decreased 16% compared to the same period in 2013. Total gold sales were 28,678 ounces (2013 – 30,487), which includes 4,096 (2013 – 409) capitalized ounces, or 6% below the same period in 2013. The Company sold 23,162 (2013 – 24,389) ounces of gold at an average realized price of $1,256 (2013 – $1,392) per ounce, a 10% decline. The Company delivered 5,516 gold ounces (2013 – 6,097) under the Sandstorm Purchase Agreement at $353 cash (2013 – $350) per ounce.

 

Cost of sales amounted to $23,596,973 (2013 - $19,895,374). Cash operating cost per AgEq ounce sold during the year was $9.64 (Ag:Au 60.0:1) per ounce compared to $7.78 (Ag:Au 60.5:1) per ounce in 2013. All-in sustaining cash cost per AgEq ounce sold in fiscal 2014 was $14.35 (Ag:Au 60.0:1) per ounce compared to $13.04 (Ag:Au 60.5:1) per ounce in 2013. The primary drivers for the increase in cash operating cost per AgEq ounce and all-in sustaining cash cost per AgEq ounce are the same as those outlined above in the fourth quarter comparison (refer to “Non-IFRS Performance Measures” section for details to cash operating cost per AgEq ounce and all-in sustaining cash cost per AgEq ounce).

 

General and administrative expenses decreased by 6% to $6,504,047 (2013 – $6,951,892). The decrease is primarily from a reduction in remuneration as lower annual bonuses were paid in Q4 to management and employees.

 

Share-based compensation decreased to $2,262,705 (2013 - $2,507,893) with the vesting of a fewer number of stock options. In fiscal 2014, the Company granted 3,050,000 (2013 – 3,085,000) incentive stock options with a weighted average fair value per option granted of CAD$0.71 (2013 – CAD$0.83).

 

Impairment charges totalled $4,956,418 (2013 – $Nil) and current and deferred tax expense totalled $262,000 (2013 – $5,450,000) and $514,000 (2013 – $7,418,000) respectively. Refer to the fourth quarter comparison for explanations of the primary drivers.

 

 6
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

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 consolidated financial statements to cash flows from operations before working capital items and cash flows per common share:

 

   Three months ended December 31,   Year ended December 31, 
   2014   2013   2014   2013 
Cash provided by (used in) operating activities  $(608,211)  $6,376,143   $10,820,994   $22,031,551 
                     
Income taxes paid   100,000    509,800    7,400,000    3,090,000 
                
Change in non-cash working capital items   2,299,252    (2,277,516)   (4,452,793)   969,427 
Cash flows before changes in working capital items  $1,791,041   $4,608,427   $13,768,201   $26,090,978 
Weighted average number of common shares outstanding   118,753,205    108,901,085    116,911,616    108,272,675 
                
Cash flows per common share  $0.02   $0.04   $0.12   $0.24 

 

The following table provides a reconciliation of cost of sales per the consolidated financial statements to cash cost per AgEq ounce sold:

 

   Three months ended December 31,   Year ended December 31, 
   2014   2013   2014   2013 
Direct production costs  $10,638,737   $5,330,998   $22,423,972   $20,636,014 
Amortization of leach pad ore inventory   417,254    -    807,898    - 
Capitalized to Santa Elena Mine EIP (1)   -    (168,995)   (1,477,358)   (168,995)
Mining environmental duty (2)   85,171    -    275,171    - 
Inventory adjustment   286,615    23,208    1,567,290    (571,645)
Cost of sales  $11,427,777   $5,185,211   $23,596,973   $19,895,374 
                     
Total AgEq ounces sold (3)   960,330    714,678    2,898,643    2,595,716 
AgEq ounces capitalized to Santa Elena Mine EIP (3)   -    (39,081)   (452,067)   (39,081)
AgEq ounces sold, reported in the statement of operations (3)   960,330    675,597    2,446,576    2,556,635 
                     
Cash cost per AgEq ounce sold  $11.90   $7.68   $9.64   $7.78 

 

The following table provides a reconciliation of cost of sales per the consolidated financial statements to all-in sustaining cash cost per

AgEq ounce sold:

 

   Three months ended December 31,   Year ended December 31, 
   2014   2013   2014   2013 
Direct production costs  $10,638,737   $5,330,998   $22,423,972   $20,636,014 
Amortization of leach pad ore inventory   417,254    -    807,898    - 
Capitalized to Santa Elena Mine EIP (1)   -    (168,995)   (1,477,358)   (168,995)
Mining environmental duty (2)   85,171    -    275,171    - 
Inventory adjustment   286,615    23,208    1,567,290    (571,645)
Cost of sales  $11,427,777   $5,185,211   $23,596,973   $19,895,374 
General and administrative expenses   2,321,740    2,885,989    6,504,047    6,951,892 
Sustaining capital expenditures   161,446    104,606    677,781    788,093 
Sustaining underground development and infrastructure   2,555,137    -    2,555,137    - 
Exploration costs (4)   799,972    450,810    1,778,482    5,733,115 
Total all-in sustaining cash costs  $17,266,072   $8,626,616   $35,112,420   $33,368,474 
                     
Total AgEq ounces sold (3)   960,330    714,678    2,898,643    2,595,716 
                     
AgEq ounces capitalized to Santa Elena Mine EIP (3)   -    (39,081)   (452,067)   (39,081)
AgEq ounces sold, reported in the statement of operations (3)   960,330    675,597    2,446,576    2,556,635 
All-in sustaining cash cost per AgEq ounce sold  $17.98   $12.77   $14.35   $13.05 

 

 

 

 7
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

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 consolidated financial statements to adjusted earnings (loss) and adjusted earnings (loss) per share:

 

   Three months ended December 31,   Year ended December 31, 
   2014   2013   2014   2013 
Net earnings (loss) reported  $(5,539,328)  $(4,094,410)  $(1,515,975)  $8,479,263 
Adjustments for non-cash or non-recurring items                    
                     
Deferred revenue   (328,118)   (586,293)   (979,127)   (2,257,563)
Deferred income tax expense   (2,047,000)   5,420,000    514,000    7,418,000 
Share-based compensation   922,099    881,949    2,262,705    2,507,893 
Impairment charges   4,956,418    -    4,956,418    - 
Adjusted earnings (loss)  $(2,035,929)  $1,621,246   $5,238,021   $16,147,593 
Weighted average number of common shares outstanding   118,753,205    108,901,085    116,911,616    108,272,675 
                     
Adjusted earnings (loss) per common share  $(0.02)  $0.01   $0.04   $0.15 

 

(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 processing facilities. Santa Elena’s underground mine, mill and processing facilities were successfully commissioned on October 1, 2014 and August 1, 2014, respectively. The production totals have been reduced by 206,323 ounces of silver and 4,096 ounces of gold for the year ended December 31, 2014, that were capitalized to Santa Elena Mine EIP.

 

(2)Effective January 1, 2014, the new Mexican Environmental Mining Duty, based on 0.5% of gross revenues, is included as part of cost of sales.

 

(3)Silver equivalent (“AgEq”) ounces consist of the number of ounces of silver production/sold plus the number of ounces of gold production/sold multiplied by 60:1 gold price to silver price ratio, as determined in the 2014 budget. Prior to Q1 2014, the AgEq ratio was based on the spot gold price to the spot silver price at the quarter end dates for financial reporting. For fiscal 2013 and Q4 2013, the gold price to silver price ratio was 60.5:1 and 61.6:1 respectively. All numbers are rounded.

 

(4)Exploration costs are expenditures incurred only at the Santa Elena Mine.

 

ADDITIONAL IFRS MEASURES

 

The Company has included additional IFRS measures which include mine operating earnings and operating earnings throughout this document and the consolidated statements of operations and comprehensive earnings (loss). 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 prepared 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, corporate and administrative expenses and impairment charges. 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.

 

SELECTED ANNUAL INFORMATION

 

The following financial data has been prepared in accordance with IFRS:

 

   2014   2013   2012 
Revenues  $45,132,599   $54,893,651   $70,520,085 
Net earnings (loss) (1)  $(1,515,975)  $8,479,263   $30,475,744 
Comprehensive earnings (loss) (1)  $(1,515,975)  $6,489,803   $31,037,267 
Earnings (loss) per share - Basic (2)  $(0.01)  $0.08   $0.33 
Earnings (loss) per share - Fully diluted (2)  $(0.01)  $0.08   $0.32 
Total assets (3)  $177,268,624   $143,507,653   $122,071,089 
Total long term debt  $15,000,000   $Nil   $Nil 
Other non-current liabilities (4)  $17,326,200   $17,316,037   $12,113,986 
Cash dividends declared per share (5)  $Nil    Nil   $Nil 

 

(1)Fiscal 2012 earnings were positively impacted by a low income tax expense as the $23.3 million Hedge Facility cash settlement was deductible for Mexican income taxes. Fiscal 2013 earnings were significantly impacted from lower revenue generated resulting from significantly lower realized prices but more taxes as the Company recorded a one-time non-cash deferred tax accounting adjustment of $5.8 million as a result of the enactment of the Mexican Tax Reform. As explained in the results of operation section, the Company generated a 2014 loss primarily from lower revenue resulting from lower realized prices, more direction production costs and non-cash impairment charges totaling $5.0 million.

(2)All per share amounts are calculated on a weighted average basis.

 

 8
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

SELECTED ANNUAL INFORMATION (continued)

 

(3)Total assets have increased significantly since 2012 primarily from operating cash flows, expansion expenditures at the Santa Elena Mine and exploration and evaluation programs carried out at the La Joya and other properties.

(4)The increase in other non-current liabilities from fiscal 2012 to fiscal 2014, primarily relates to recording a deferred tax liability of $5.8 million in relation to the Mexican Tax Reform.
(5)The Company has not paid any dividends since incorporation, and currently does not plan to pay dividends in the short term.

 

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:

 

   Q4   Q3   Q2   Q1   Q4   Q3   Q2   Q1 
   December 31,   September 30,   June 30,   March 31,   December 31,   September 30,   June 30,   March 31, 
   2014   2014   2014   2014   2013   2013   2013   2013 
Revenues   16,406,592    8,001,423    7,719,057    13,005,527    12,866,617    13,669,134    13,028,258    15,329,642 
Mine operating earnings (1)   1,828,422    1,847,918    3,094,202    6,597,598    6,062,522    6,924,458    6,294,586    9,582,179 
Net earnings (loss) for the period (2)   (5,539,328)   241,014    1,314,350    2,467,989    (4,094,410)   3,705,317    2,866,080    6,002,276 
Comprehensive earnings (loss) for the period (2)   (5,539,328)   241,014    1,314,350    2,467,989    (4,538,728)   4,164,565    1,739,890    5,124,076 
EPS (LPS)                                        
Basic   (0.05)   0.01    0.01    0.02    (0.04)   0.03    0.03    0.06 
Diluted   (0.05)   0.01    0.01    0.02    (0.04)   0.03    0.03    0.05 
Cash divdends declared per share (3)   -    -    -    -    -    -    -    - 
Total assets (4)   177,268,624    185,813,151    180,537,473    179,507,383    143,507,653    139,899,279    134,155,949    130,504,099 
Total debt (5)   15,000,000    15,000,000    15,000,000    15,000,000    -    -    -    - 
Tax liabilities (6)   10,737,155    12,353,339    9,294,353    9,813,684    10,198,314    3,623,000    2,960,000    1,517,000 
Other liabilities   13,805,655    16,116,768    14,387,098    14,628,203    16,175,205    15,543,639    15,188,742    16,556,388 

 

(1)Mine operating earnings have decreased significantly since Q1 2014 primarily from less revenue from declining metal prices and higher production and depreciation costs 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 adjustment of $5.8 million as a result of the enactment of the Mexican Tax Reform. The loss for Q4 2014 resulted primarily from the non-cash impairment charges totalling $5.0 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 have increased significantly over the last number of quarters, 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 Facility is currently $30 million. The credit limit will reduce by $10 million on July 11, 2015 and then matures 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.

  

 9
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

CASHFLOWS

 

   Three months ended December 31,   Year ended December 31, 
   2014   2013   2014   2013 
Net earnings (loss)  $(5,539,328)  $(4,094,410)  $(1,515,975)  $8,479,263 
Items not affecting cash   7,330,369    8,702,837    15,284,176    17,611,715 
Cash flows from operations before changes in working capital items and income taxes   1,791,041    4,608,427    13,768,201    26,090,978 
Working capital items   (2,299,252)   2,277,516    4,452,793    (969,427)
Income taxes paid   (100,000)   (509,800)   (7,400,000)   (3,090,000)
Operating Activities   (608,211)   6,376,143    10,820,994    22,031,551 
Financing Activities   -    (12,212)   34,844,950    2,467,519 
Investing Activities   (5,798,049)   (15,881,031)   (28,787,196)   (37,917,949)
Impact of exchange rate changes   (45,770)   (145,689)   (63,058)   (292,717)
                     
Net increase (decrease) in cash and cash equivalents   (6,452,030)   (9,662,789)   16,815,690    (13,711,596)
Cash beginning of period   37,703,173    24,098,242    14,435,453    28,147,049 
                     
Cash end of period  $31,251,143   $14,435,453   $31,251,143   $14,435,453 

 

Operating Activities

 

The cash flow used in operating activities was $608,211 (2013 – provided by $6,376,143) for the fourth quarter and the cash flow provided by operating activities was $10,820,994 (2013 - $22,031,551) for fiscal 2014. The decrease in cash provided by operating activities for the fourth quarter and fiscal 2014, compared to the same period in 2013, is primarily attributed to less revenue generated from lower realized metal prices, higher operating costs and the accounting requirement to capitalize sales of silver and gold ounces and related expenses while SilverCrest’s expansion assets were being commissioned. The Company capitalized $Nil (2013 - $0.7 million) during the fourth quarter and $8.3 million (2013 - $0.7 million) during fiscal 2014, which are included in the “Investing Activities” section, discussed below.

 

Financing Activities

 

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. The proceeds are being used for general working capital purposes.

 

In February 2014, SilverCrest drew down $15 million from the currently available $30 million Facility with Scotiabank. The proceeds were primarily used to fund Santa Elena expansion expenditures. During fiscal 2013, the Company incurred $514,758 in finance expenses related to the Facility with Scotiabank.

 

During the year ended December 31, 2014, SilverCrest received $512,357 (2013 - $2,178,631) from the exercise of 980,000 (2013 – 1,900,000) incentive stock options and received $Nil (2013 - $805,469) from the exercise of Nil (2013 - 510,300) warrants.

 

Investing Activities

 

SilverCrest spent $4,449,248 (2013 - $16,166,868) during the fourth quarter and $42,348,646 (2013 - $56,492,122) during fiscal 2014, primarily on Santa Elena expansion costs included within property, plant and equipment.

 

In accordance with IFRS, the Company capitalizes sales of silver and gold ounces and related expenses while SilverCrest’s expansion assets are being commissioned. For the year ended December 31, 2014, SilverCrest capitalized $3,497,188 (2013 - $717,974), related to production from Santa Elena’s underground mine and $4,852,397 (2013 - $Nil) related to production from Santa Elena’s new mill and CCD/MC processing facilities.

 

In March 2014, the Company received a $10 million contribution from Sandstorm for their share of Santa Elena’s Expansion capital costs.

 

SilverCrest spent $1,432,593 (2013 - $489,928) during the fourth quarter and $5,174,333 (2013 - $2,473,610) during fiscal 2014, on exploration and evaluation expenditures at the Ermitaño, La Joya and other properties. During fiscal 2014, the Company released the final $1.25 million cash payment on the La Joya West concessions, made a $0.6 million cash payment on the La Joya East concessions and incurred a total of $3.3 million in exploration costs primarily at the La Joya Project and Ermitaño Property.

 

SilverCrest received interest income of $83,791 (2013 - $57,791) during the fourth quarter and $386,198 (2013 - $329,809) during fiscal 2014. In fiscal 2013, SilverCrest held a $20 million short term investment that matured in June 2013.

 

Impact of exchange rate changes

 

As at December 31, 2014, the Company held $31.3 million (2013 - $14.4 million) in cash and cash equivalents, of which $25.6 million (2013 - $13.7 million) were dominated in United States dollars, $0.4 million (2013 - $0.3 million) in Canadian dollars, and $5.3 million (2013 - $0.4 million) in Mexican pesos. During the fiscal 2014, the Company’s cash and cash equivalents were negatively impacted by $63,058 (2013 - $292,717) on translation to United States dollars due to the weakening of the Canadian dollar against the United States dollar. The Company has not entered into any agreements or purchased any instruments to hedge currency risks at this time.

 

 10
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

LIQUIDTY AND CAPITAL RESOURCES

 

      2014   2013 
Assets             
Current assets             
Cash and cash equivalents  (i)  $31,251,143   $14,435,453 
Taxes receivable  (i)   8,287,598    6,415,814 
Inventory  (i)   5,166,427    12,896,365 
Other current assets  (i)   3,458,396    680,308 
Non-current assets      129,105,060    109,079,713 
Total Assets     $177,268,624   $143,507,653 
Liabilities             
Current liabilities             
Deferred revenue  (ii)  $1,769,198   $2,627,015 
Accounts payable and accrued liabilities  (ii)   4,267,257    5,275,153 
Taxes payable  (ii)   1,180,155    1,155,314 
Non-current liabilities             
Deferred tax liabilities      9,557,000    9,043,000 
Credit facility obligation      15,000,000    - 
Other non-current liabilities      7,769,200    8,273,037 
Total Liabilities     $39,542,810   $26,373,519 
Working Capital  (i -ii)  $40,946,954   $25,370,458 

 

ASSETS

As at December 31, 2014, SilverCrest held cash and cash equivalents of $31.3 million. The Company’s cash position has strengthened since the start of the year, primarily due to the $20.8 million prospectus offering, the $10 million additional upfront deposit from Sandstorm and the $15 million draw down on the Facility with Scotiabank. SilverCrest continues to monitor cash resources against expenditure forecasts associated with implementation of the Company’s growth strategies.

 

Taxes receivable at December 31, 2014, were $8,287,598 (2013 - $6,415,814), which consisted of value added taxes receivable (“VAT”) of $3,603,901 (2013 - $6,415,814) and income tax receivable (“ITR”) of $4,683,697 (2013 - $Nil). 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 Company has estimated there is no outstanding income taxes payable for fiscal 2014. The ITR balance will be used by the Company to make monthly income tax installments in Mexico during 2015.

 

The inventory balance primarily relates to supplies and leach pad ore at Santa Elena. The leach pad ore carrying balance at December 31, 2014, including the non-current amount was $7.4 million (2013 - $Nil). The heap leaching process was wound down during Q2 2014. As a result management reclassified $8,182,373 at June 30, 2014 from silver and gold in process to leach pad ore inventory. 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 leach pad ore tonnes processed in the period, to the total tonnes remaining on the leach pad. For the fourth quarter and twelve months ended December 31, 2014, the Company recognized $417,254 (2013 - $Nil) and $807,398 (2013 - $Nil), respectively, in cost of sales related to leach pad ore tonnes processed through the mill.

 

Amounts receivable of $2,396,509 (2013 - $121,308) is comprised primarily from a gold and silver dore lot which was sold in December, 2014, but cash receipts were received in January, 2015.

 

Property, plant and equipment increased to $106.3 million (2013 - $93.1 million). During fiscal 2014, SilverCrest added approximately $40.3 million in capital costs at Santa Elena that was reduced by recording the $10 million expansion contribution from Sandstorm, depreciation and depletion charge totalling $7.8 million, sales from pre-commissioning revenues of $8.5 million and an impairment charge of $1.9 million related to crushing equipment no longer in use at Santa Elena. Exploration and evaluation assets increased to $16.4 million (2013 - $15.7 million) from acquisition and exploration expenditures incurred at the La Joya Project ($1.9 million) and the Ermitaño Property ($1.6 million) offset by the write-off of the Cruz de Mayo Project ($3.0 million).

 

LIABILITIES

Deferred revenue decreased to $5.5 million (2013 - $6.7 million), resulting from the delivery of 5,516 (2013 – 6,097) 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 fiscal 2014, is based on the proportion of gold ounces sold to Sandstorm in the period, to 50,000 (2013 – 35,794) ounces of gold deliverable to Sandstorm.

 

Accounts payable and accrued liabilities decreased to $4.3 million (2013 - $5.3 million) with the completion of Santa Elena’s Expansion capital costs. 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 available $30 million Facility with Scotiabank.

 

 11
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

LIQUIDITY OUTLOOK

 

At current precious metals prices, SilverCrest is confident that its $31.3 million (December 31, 2014) cash and cash equivalents balance, the cash flow expected to be generated from the operation of the Santa Elena Mine, and the $30 million Facility with Scotiabank ($15 million drawn down at December 31, 2014), 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 2015 include the following:

 

Santa Elena Sustaining Capital ($12.5 million):

 

·Sustaining Development Costs – $6.4 million.

 

·Sustaining Plant, Property and Equipment Costs – $4.1 million.

 

·Sustaining Exploration Costs – $2.0 million.

 

Exploration Expenditures ($3.9 million):

 

·Sonora – Exploration Properties 30/60 km radius from Santa Elena Operations – $2.8 million.

 

·La Joya Project – Acquisition Payments – $0.6 million.

 

·La Joya Project – Exploration Program – $0.5 million.

 

Note: Exploration expenditures may be adjusted throughout the year depending on success.

 

SANTA ELENA MINE

 

Operating Statistics  12 MONTHS 2014   Q4 2014   Q3 2014   Q2 2014   Q1 2014   12 MONTHS 2013 
                         
Tonnes processed on leach pad (t)   213,017    -    -    12,035    200,982    1,081,159 
Average silver grade processed on leach pad (g/t)   89.65    -    -    68.29    90.92    72.90 
Average gold grade processed on leach pad (g/t)   1.79    -    -    1.00    1.84    1.61 
Tonnes milled (t)   526,525    268,287    218,116    40,122    -    - 
Average tpd milled   2,460    2,916    2,371    1,337    -    - 
Average silver grade processed through mill (g/t)   68.23    73.83    63.94    54.15    -    - 
Average gold grade processed through mill (g/t)   1.03    1.17    0.91    0.79    -    - 
Silver recovery per mill   66%   62%   72%   62%   -    - 
Gold recovery per mill   90%   89%   92%   78%   -    - 
Silver ounces produced   1,157,021    397,509    385,251    173,000    201,261    779,026 
Silver ounces sold   1,177,936    422,250    393,860    163,026    198,800    751,633 
                               
Gold ounces produced   27,609    8,983    7,085    3,995    7,547    31,099 
Gold ounces sold   28,678    8,968    7,317    4,743    7,650    30,487 
Ounces delivered to spot market   23,162    7,394    5,854    3,794    6,120    24,390 
Ounces delivered to Sandstorm   5,516    1,574    1,463    949    1,530    6,097 
                               
Silver equivalent ounces produced (1)   2,813,559    936,472    810,334    412,700    654,053    2,661,979 
Silver equivalent ounces sold (1)   2,898,643    960,330    832,907    447,606    657,800    2,595,716 
Ag: Au ratio (1)   60.0:1    60.0:1    60.0:1    60.0:1    60.0:1    60.5:1 

 

(1)Silver equivalent (“AgEq”) ounces consist of the number of ounces of silver production/sold plus the number of ounces of gold production/sold multiplied by a 60:1 gold price to silver price ratio, as determined in the 2014 budget. Prior to Q1 2014, the AgEq ratio was based on the spot gold price to the spot silver price at the quarter end dates for financial reporting. For fiscal 2013, the gold price to silver price ratio was 60.5:1. All numbers are rounded.

 

OPERATIONS UPDATE

 

Metal production for the fourth quarter was up 3% and 27% for silver and gold, respectively, compared to Q3, 2014. During Q4, the mill processed 268,287 tonnes, a daily average of 2,916 tpd. The new CCD/MC processing facility is currently running at or above nameplate capacity of 3,000 tpd.

 

The plant processed 71% ore material from leach pad reserve (“pad ore”) and 29% ore material from underground ore. The expectation, for the first half of 2015, is that higher grade underground and open pit ore will be approximately 60 to 70% of the mill feed versus the lower grade leach pad ore.

 

The average blended grades processed during Q4 2014, were 73.83 grams per tonne (“gpt”) for silver and 1.17 gpt for gold. Current underground ore grades are averaging 127.1 gpt for silver and 2.21 gpt for gold, which is at or above than reserve estimates. Current pad ore grades are in line with budget rates, averaging 52.47 gpt for silver and 0.75 gpt for gold.

 

Mill recovery rates for Q4 averaged 89% for gold and 62% for silver. Mill recoveries are still being optimized (grinding size and cyanide rates) with 2015 targets of 70% for silver and 92% for gold.

 

The open pit at Santa Elena was reopened in January 2015 to provide approximately 4/6 months of low cost production. Current open pit ore grades are averaging 145.25 gpt for silver and 2.71 gpt for gold.

 

The current operational focus continues to be improving underground stope production. The first stope has been mined with production ramping up from additional stopes. Current development and stope production is approximately 1,200 tpd. The mine remains focused on costs and further operational efficiencies that will sustain cash flows in a lower silver and gold price environment.

 

 12
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

EXPLORATION PROPERTIES

 

SONORA PROPERTIES – MEXICO

 

During fiscal 2014, the Company signed option agreements with Evrim whereby SilverCrest can acquire a 100% interest in properties located in the general vicinity of the Santa Elena mine.

 

In January 2014, SilverCrest signed a five year option agreement with Evrim to acquire a 100% interest in the Ermitaño Property. The Ermitaño Property consists of two concessions (I and II) totalling 165 square km of mineral tenure 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 (completed) in exploration expenditures in the first year, and delivering a Production Notice specifying that SilverCrest intends to commence commercial production in the Ermitaño Property with accompanying permits. Upon delivery of the Production Notice, the annual payments will cease and Evrim will retain a 2% NSR on revenues from production of minerals, which SilverCrest was granted a right of first refusal to acquire.

 

In November 2014, SilverCrest signed a five year option agreement with Evrim to acquire a 100% interest in Cumobabi by paying $75,000 upon signing the agreement (paid) and $50,000 each anniversary thereafter, completing a minimum of $500,000 in exploration expenditures by the second anniversary, and delivering a Production Notice specifying that SilverCrest intends to commence commercial production in the Cumobabi Property with accompanying permits. Upon vesting, SilverCrest will no longer be required to make the annual payments and Evrim will retain a 1.5% NSR on the Cumobabi Property, which SilverCrest was granted a right of first refusal to acquire.

 

Outlook

 

In February 2015, SilverCrest announced the results of nine shallow drill holes (2,656 metres) completed at the El Durazno Target within the Ermitaño I concession. The program resulted in the discovery of near surface gold and silver mineralization which SilverCrest believes confirms a potential low grade oxide open pit target. SilverCrest expects to carry out additional exploratory work in 2015 at El Durazno and will concurrently advance the exploration program in nearby target areas within the Ermitaño and Cumobabi concessions. SilverCrest is confident further attractive targets will be discovered within this developing regional trend.

 

LA JOYA PROJECT, DURANGO – MEXICO

 

The La Joya Project is a silver copper gold project, located approximately 75 km southeast of the city of Durango, Mexico, in a prolific mineralized region which currently supports several large scale mining operations including Grupo Mexico’s San Martin Mine, Industrias Peñoles’ Sabinas Mine, Pan American Silver’s La Colorada Mine, and First Majestic Silver’s La Parrilla Silver Mine. The La Joya Project is comprised of 15 mineral concessions with a total area of approximately 4,647 hectares. Nine of the 15 mineral concessions comprising the La Joya Project are known as the La Joya West concessions, which the Company acquired on May 24, 2013, at a total cost of $2.68 million. Three of the 15 mineral concessions comprising the La Joya Project are known as the La Joya East concessions, for which the Company still maintains an option to purchase from the original owners. 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 totalling $1.5 million over a three year period commencing January 2011 (at December 31, 2014, $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 due May 6, 2014, and the second and final payment due May 6, 2015. The La Joya West and La Joya East concessions together encompass a total of approximately 1,642 hectares. The remaining three contiguous mineral concessions comprising the La Joya Project encompass a total area of approximately 3,004 hectares and were acquired directly by the Company.

 

In December, 2013, SilverCrest released the Preliminary Economic Assessment (“PEA”) for La Joya dated effective October 21, 2013, as amended March 4, 2014. The PEA, which is available on the Company’s website (www.silvercrestmines.com) or on SEDAR (www.sedar.com), replaces the technical report titled “Updated Resources Estimate for the La Joya Project” dated March 27, 2013. The PEA focuses on the first stage of La Joya development (“Starter Pit”) as a low strip ratio open pit with an initial nine year life of mine plan using the high grade case 60gpt AgEq cut off inferred resource (100.8 million ounces) for Manto and Structure Zones representing mineralized zones near surface. Silver equivalency includes silver, gold and copper, but excludes lead, zinc, molybdenum and tungsten values. Ag:Au is 50:1, Ag:Cu is 86:1, based on five year historic metal price trends of $24 per ounce silver, $1,200 per ounce gold, $3 per pound copper. 100% metallurgical recovery is incorporated until further information is available.

 

The PEA is preliminary in nature and includes Inferred Mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the PEA will be realized.

 

Outlook

 

The recently completed 17 hole in-fill drilling program has provided valuable information that SilverCrest will use towards an updated resource model in H1 2015. Low cost desktop Pre-Feasibility work is ongoing and will continue during H1 2015. During the year ended December 31, 2014, the Company’s two year surface rights contract with local Ejidos had expired. The Company aims to renew surface rights in 2015.

 

 13
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

OTHER PROPERTIES

 

Exploration is an integral part of SilverCrest's growth strategy. The Company has a portfolio of other mineral properties, which comprise the Cruz de Mayo Project (Mexico), the Silver Angel Property (Mexico) and the El Zapote Property (El Salvador). These properties are under care and maintenance as the Company is currently focusing on evaluating and acquiring exploration properties in proximity to Santa Elena (refer to “Exploration Properties – Sonora Properties” section).

 

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 December 31, 2014, SilverCrest had 118,753,205 common shares outstanding. In addition, SilverCrest had 10,745,000 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 129,498,205.

 

As at the date hereof, SilverCrest had 118,753,205 common shares outstanding. In addition, SilverCrest had 10,735,000 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 129,488,205, refer to “Subsequent Event” section below.

 

More information on these instruments and the terms of their conversion is set out in note 13 of the audited consolidated financial statements.

 

SUBSEQUENT EVENT

 

Subsequent to December 31, 2014, 10,000 incentive stock options priced at CAD$1.68 were forfeited.

 

OFF BALANCE SHEET ARRANGEMENTS

 

As at December 31, 2014, the Company had no off balance sheet arrangements.

 

PROPOSED TRANSACTIONS

 

In the normal course of business, the Company evaluates property acquisition transactions and, in some cases, makes proposals to acquire such properties. These proposals, which are usually subject to Board, regulatory and, sometimes, shareholder approvals, may involve future payments, share issuances and property work commitments. These future obligations are usually contingent in nature, and generally the Company is only required to incur the obligation if it wishes to continue with the transaction. As of this date, the Company has a number of possible transactions that it is examining.

 

 

 14
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

COMMITMENTS

 

The following table lists as of December 31, 2014 information with respect to the Company’s known contractual obligations. 

 

Payments due by period (in thousands of dollars and denominated in U.S. dollars)  
                  Less than                     More than  
Contractual Obligations       Total         1 year         1 – 3 years     3 – 5 years     5 years  
Operating lease obligations       $ 199         $ 199         $ Nil     $ Nil     $ Nil  
Accounts payable       $ 2,880         $ 2,880         $ Nil     $ Nil     $ Nil  
Taxes payable       $ 1,180         $ 1,180         $ Nil     $ Nil     $ Nil  
Credit facility(1)       $ 15,000         $ Nil         $ 15,000     $ Nil     $ Nil  
Asset retirement obligations(2)       $ 4,027         $ Nil         $ Nil     $ Nil     $ 4,027  
Deferred revenue(3)       $ 5,512         $ 1,456         $ 2,912     $ 1,144     $ Nil  
Total       $ 28,798         $ 5,715         $ 17,912     $ 1,144     $ 4,027  

 

1)In February 2014, SilverCrest drew down $15 million from the available $30 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 December 31, 2014, has been estimated to be $4.0 million, using a long-term inflation rate of 4.1%, a discount rate of 10.0% and remaining projected mine life of seven years.

 

3) Deferred revenue relates to an 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 (2013 – 35,794) ounces of gold deliverable to Sandstorm.

 

 

RELATED PARTY TRANSACTIONS

 

During the year ended December 31, 2014, the Company entered into the following transactions with related parties:

 

Legal Fees

 

Legal fees of $110,640 (2013 - $204,860), which were included in professional fees, $130,599 (2013 - $Nil) for share issuance costs, and $Nil (2013 - $91,796) in costs associated with the set-up of the Facility were paid or accrued to Koffman Kalef LLP, a law firm in which the Company’s Corporate Secretary is partner. The Company recognized $14,054 (2013 - $29,519) in share-based payments to this partner.

 

Key Management Compensation (1)

 

   2014   2013 
Salaries and short-term benefits (2)  $1,254,242   $1,482,848 
Directors' fees   169,725    139,600 
Share-based payments   1,408,210    1,378,504 
   $2,832,177   $3,000,952 

 

(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 President and Chief Operating Officer, the Chief Executive Officer and the Chief Financial Officer of SilverCrest.

 

Other transactions

 

Paid $201,801 (2013 - $227,046) for technical and administrative services and recognized $43,907 (2013 - $54,809) 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 fiscal 2014, the Company incurred $142,255 (2013 - $83,532) on behalf of Goldsource for these services, of which $15,347 (2013 - $23,217) is receivable at December 31, 2014.

 

 15
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

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.

 

a. Liquidity Risk

 

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.

 

b. Credit Risk

 

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. Amounts receivables are primarily generated on sales of gold and silver to a limited number of financial institutions specializing in the precious metal markets. 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. At December 31, 2014, the amounts receivable balance of $2,396,509 (2013 - $121,308) is due primarily from a gold and silver dore lot which was sold at the end of December, 2014, but cash receipts were received in early January, 2015.

 

The carrying amount of financial assets, as stated in the consolidated statement of financial position, represents the Company’s maximum credit exposure.

 

c. Foreign Currency Risk

 

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.

 

d. Interest Rate Risk

 

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 December 31, 2014, 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 (loss) for the year.

 

e. Commodity Price Risk

 

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.

 

 

 16
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

CRITICAL JUDGMENTS AND ESTIMATES

 

The preparation of SilverCrest’s consolidated 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 consolidated 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. Information about such judgments and estimates is contained in the description of accounting policies (note 2 in the audited consolidated financial statements) and/or other notes in the consolidated financial statements. 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 consolidated 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. The results of operations of the Company during the years ended December 31, 2014 and 2013 presented in the consolidated financial statements have been impacted by management’s determination that commercial production was achieved for the following assets:

 

-the mill and CCD/MC processing facilities achieved commercial production on August 1, 2014; and

 

-the underground mine achieved commercial production on October 1, 2014.

 

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 2013, the Company had determined the functional currency of its Canadian operations to be the Canadian dollar, and the functional currency of its Mexican mining 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. Effective January 1, 2014, the functional currency of the Company’s Canadian operations changed on a prospective basis from the Canadian dollar to the United States dollar as management determined that the currency of the primary economic environment in which the entity operates changed after SilverCrest drew down United States dollar funds from the credit facility.

 

Deferred revenue

The measurement of the Company’s Purchase Agreement with Sandstorm (note 10) 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.

 

 

 17
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

CRITICAL JUDGMENTS AND ESTIMATES (continued)

 

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. The quantities of probable reserves used in the depletion calculations are based on the probable reserves disclosed in the NI 43-101 Technical Report titled “Santa Elena Expansion Pre-Feasibility Study and Open Pit Reserve Update” (“Technical Report”) filed July 25, 2013, on SEDAR at www.sedar.com.

 

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 December 31, 2014, management identified indications of impairment for the Cruz de Mayo Project. The primary indicator of impairment for the Cruz de Mayo Project includes management’s decision to reduce and curtail exploration expenditures for this property. As at December 31, 2014, the Company determined the recoverable amount of the Cruz de Mayo Project to be $Nil and recognized an impairment charge of $2,875,168 in the consolidated statements of operations and comprehensive earnings (loss).

 

As at December 31, 2014, the Company determined there were indicators of potential impairment of the Santa Elena Equipment and Mining Assets. The primary indicator was metal price volatility, with silver and gold experiencing significant declines throughout fiscal 2014 and 2013.

 

In 2013, management had assessed the decline in commodity prices as short term fluctuations and did not identify other indicators of impairment for Santa Elena. As a result, an impairment test was not required for the year ended December 31, 2013.

 

As at December 31, 2014, SilverCrest determined that the estimated recoverable value of Santa Elena’s assets is above its carrying value. As a result, no impairment charge is required.

 

In the impairment assessment, the recoverable amount was determined to be the fair value less cost to dispose (“FVLCTD”), which is based upon the estimated future after-tax cash flows. The internal life-of-mine after-tax cash flows incorporates management’s best estimates of metal prices, production based on current internally estimated recoverable mineral reserves, future operating costs, future capital expenditures, inflation, and foreign exchange rates. Metal prices included in the cash flow projection were based on market consensus forecasts. Projected cash flows are discounted using an estimated weighted average cost of capital of a market participant adjusted for asset specific risks.

 

 

 18
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

CRITICAL JUDGMENTS AND ESTIMATES (continued)

 

Key assumptions used for the FVLCTD calculation for fiscal 2014 are as follows:

 

2014 Key Assumptions   
    
Gold price ($/oz)  $1,287 (average life of mine)
    
Silver price ($/oz)  $20 (average life of mine)
    
Discount rate  7%
    
Foreign exchange Mexican Peso to United States dollar  14.50
    

 

The Company has validated the results of the FVLCTD calculation by performing sensitivity tests on its key assumptions. Holding all other variables constant, the changes in recoverable amount created by marginal changes in each of the key assumptions are as follows:

 

Key Assumptions  Change in Assumption  Change in Recoverable Amount
       
Gold and Silver Prices  1%  $2.8 million
       
Discount rate  1% point  $3.1 million
       
Foreign exchange Mexican Peso to United States dollar  1%  $0.9 million
       

 

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 consolidated statements of operations and comprehensive earnings (loss).

 

Inventories and cost of sales 

Silver and gold in process, leach 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.

 

CHANGES IN ACCOUNTING STANDARDS

 

The Company has adopted the following new standards, along with any consequential amendments, effective January 1, 2014. These changes were made in accordance with the applicable transitional provisions.

 

·IFRS 8 – Operating Segments;
·IAS 32 – Financial Instruments: Presentation;

·IAS 36 – Impairment of Assets; and
·IFRIC 21 – Levies.

 

The adoption of these new accounting standards had no material impact on the Company’s consolidated financial statements.

 

 19
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

NEW STANDARDS NOT YET ADOPTED

 

The International Accounting Standards Board 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”) for the year ended December 31, 2013, dated March 28, 2014. 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;
·Mining capital and operation costs variances;

·Calculation of reserves and resources and precious metal recoveries;

·Commercial viability of exploration and development programs and properties; and
·Substantial volatility of share price.

 

The AIF is available on the SEDAR website under the Company’s profile at www.sedar.com. The Company’s AIF for the year ended December 31, 2014, will be filed on SEDAR on or before March 31, 2015.

 

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 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 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: 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.

 

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.

 

 20
SILVERCREST MINES INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2014

NYSE MKT: SVLC    TSX: SVL    FSE: CW5

 

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

 

Management of the Company, under the supervision of the Chairman and Chief Executive Officer and the Chief Financial Officer, 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 Chief Executive Officer and Chief Financial Officer 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. During 2014, the Company adopted 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.

 

As at December 31, 2014, management assessed the design and operation of our internal control over financial reporting and disclosure controls and procedures and concluded that such internal control over financial reporting and disclosure controls and procedures were effective and that there were no material weaknesses in our internal control over financial reporting.

 

There has been no change in the Company’s internal control over the financial reporting during fiscal 2014 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 consolidated 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 and Director of SilverCrest who is a ‘Qualified Person’ for the purpose of NI 43-101.

 

 

 

 21



 

Exhibit 99.4

CERTIFICATION

I, J. Scott Drever, certify that:

 

1 I have reviewed this annual report on Form 40-F of SilverCrest Mines Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

 

4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

 

5. The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

 

Date:   March 31, 2015 By:   “ J. Scott Drever”
    Name: J. Scott Drever
Title:   Chief Executive Officer

 

 



 

Exhibit 99.5

CERTIFICATION

I, Barney Magnusson, certify that:

 

1 I have reviewed this annual report on Form 40-F of SilverCrest Mines Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

 

4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

 

5. The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

 

Date:  March  31, 2015 By:  “Barney Magnusson”
    Name: Barney Magnusson
Title:   Chief Financial Officer

 

 



 

Exhibit 99.6

 

CERTIFICATION PURSUANT TO

 

18 U.S.C. §1350,

 

AS ADOPTED PURSUANT TO

 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the annual report of SilverCrest Mines Inc. (the “Company”) on Form 40-F for the period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Scott Drever, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

  

 

March 31, 2015 ”J. Scott Drever”
  J. Scott Drever
  Chief Executive Officer

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 



 

Exhibit 99.7

 

CERTIFICATION PURSUANT TO

 

18 U.S.C. §1350,

 

AS ADOPTED PURSUANT TO

 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the annual report of SilverCrest Mines Inc. (the “Company”) on Form 40-F for the period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barney Magnusson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

  

 

March 31, 2015 “Barney Magnusson”
  Barney Magnusson
  Chief Financial Officer

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 



Exhibit 99.8

 

  CODE OF CONDUCT
SilverCrest Mines  

  

Leadership Message

 

SilverCrest’s Core Values of Respect, Integrity, Responsibility, Commitment and Leadership are the foundation of our organization. The policies in this Code of Conduct are the pillars that ensure a good relation with our stakeholders and the sustainability of our operations. As members of SilverCrest, you are expected to uphold these values at all times.

 

Our Code of Conduct and Core Values were defined through an internal consultation process, based on inclusion and dialogue across our organization. Our aim was to create a Code that represents our team and the reality of our operations, as a call for collaboration to mitigate risks.

 

We are strongly committed to protecting the dignity and well-being of our people. We strive to continually enhance confidence and trust amongst our employees, communities and stakeholders. We believe this can be achieved through a culture of honesty and open dialogue.

 

This Code provides clear guidelines for the standard of ethics and behaviour we require from everyone who works with us. It is a foundation upon which we evaluate our performance. As a member of SilverCrest, it is important for us that you understand our Code, its policies, and how they apply to your role. We expect you to refer to it to guide your daily working practices.

 

It is everyone’s responsibility to report violations of the Code. It is our responsibility to ensure that no one who speaks up is subject to retaliation. Any issue brought to our attention will be taken seriously and addressed appropriately with discretion, fairness and respect. If you are ever unsure about the right course of action in a given situation, we encourage you to seek guidance as explained in the Code of Conduct.

 

We invite you to adopt the SilverCrest Code of Conduct and act in accordance with our Core Values.

 

J. Scott Drever N. Eric Fier
Chairman of the Board & President &
Chief Executive Officer Chief Operating Officer

 

 
 

 

  CODE OF CONDUCT
SilverCrest Mines  

 

About the Code of Conduct

 

SilverCrest Mines has established this Code of Conduct as a guide for all directors, officers, employees and any individuals working on behalf of SilverCrest and any of its subsidiaries, affiliates or joint ventures (“SilverCrest”). It describes the expected conduct and standard of business and workplace ethics by which we should all base our decisions and actions.

 

This Code reflects our commitment to a culture of honesty, integrity and accountability and outlines the basic principles and policies with which everyone at SilverCrest is expected to comply.

 

All new directors, officers and employees are required to undergo a training program about the matters contemplated by this Code and, on an ongoing basis, SilverCrest ensures that all directors, officers and employees are aware of their obligations to comply with it.

 

All of the principles and values outlined in this Code have been established through a process of collective consultation within the SilverCrest community. The fundamental values that identify all of us at SilverCrest are:

 

Respect

Integrity

Responsibility

Commitment

Leadership

 

Each chapter in the Code represents one of SilverCrest’s corporate values. We define what each value means for us at SilverCrest, and then outline policies and commitments that exemplify these values in the context of our organization. Toward the end of this document, you will find an additional chapter titled “Reporting”. It describes the options available for submitting an inquiry or complaint and the procedure that must be followed. Finally, a Glossary of Terms provides you with definitions of key words used throughout the Code.

 

To Whom Does this Code Apply?

The Code is universal and applies to each individual working for SilverCrest, regardless of rank, position or title. It is our intention that our third-party contractors, suppliers, consultants, agents, and any other individual who works on behalf of SilverCrest adopt the policies defined in the Code. In addition, the SilverCrest Code of Conduct for Third Parties and Suppliers1 has been developed to define the standard of business ethics and conduct expected from each of our suppliers and contractors. Principles and policies defined in this document are aligned to ours at SilverCrest.

 

We invite you to read the Code of Conduct and adopt the policies and principles here described. If while reading the Code, any questions or concerns arise, please email us at:

codequestions@silvercrestmines.com

preguntascodigo@silvercrestmines.com

 

 

1 The SilverCrest Code of Conduct for Third Parties and Suppliers is available at www.silvercrestmines.com/corporate/governance/

 

 2
 

 

  CODE OF CONDUCT
SilverCrest Mines  

 

Chapter 1: Respect

 

Respect is the foundational value that guides SilverCrest’s practices and behaviour. It is an uncompromising commitment to our employees, communities, governments, and the environment that enables us to build a positive, long-term relationship with our stakeholders.

 

Respect for People

At SilverCrest, our people are the most valued resource. We are committed to the respect of all individuals impacted by our operations.

 

Respect for Human Rights:

·Respect the rights of all individuals, directly or indirectly involved in our operations, including the rights of people living in communities in the areas of influence of our operations
·Collaborate with local governments and regulatory agencies to integrate human rights principles across our operations
·Build awareness amongst our employees and communities within the SilverCrest area of influence about Human Rights
·Respect the rights, traditions and heritage of Indigenous peoples and acknowledge their presence when they reside within a SilverCrest project area of influence

 

Respect for Fundamental Principles and Rights at Work:

·Honour the rights of employees to be treated with dignity, be free from abuse, and protected from forced labour
·Protect the psychological and physical safety of employees
·Build awareness among employees about their rights at work
·Guarantee there is no child labour at SilverCrest
·Respect employees’ legal rights to freedom of association
·Provide open lines of communication for our employees to express themselves freely

 

Work Environment Free of Abuse

SilverCrest works to provide an environment free of harassment and abuse.

 

·ZERO tolerance of actions or behaviour that may result in humiliation, hostility, intimidation or degradation
·ZERO tolerance of sexual harassment and/or physical abuse
·Never misuse the authority granted within a rank or position, or use this power to intimidate, humiliate, bully or abuse an individual

 

Respect for the Environment

Respect of the environment is a priority at each phase of SilverCrest’s exploration, development and mining operations. We encourage all of our employees to be mindful of the impact that their actions may have on the environment.

 

Environmental Preservation and Protection

SilverCrest is accountable for conducting business in an environmentally responsible manner at each stage of its mining operations.

 

 3
 

 

  CODE OF CONDUCT
SilverCrest Mines  

 

·Conduct operations in compliance with environmental laws and regulations applicable in the jurisdictions in which SilverCrest operates, and undertake to comply with international standards and best practices
·Fulsome and accurate disclosure related to SilverCrest natural resource management
·Maintain ongoing dialogue with stakeholders to identify the needs, challenges and opportunities that exist for environmental preservation
·Collaborate with local governments, regulatory agencies and communities to identify and implement solutions for environmental protection
·Report any suspected adverse impacts to the environment caused by any SilverCrest employee, supplier or contractor (refer to “Chapter 6. Reporting”)

 

Respect for our Assets and Information

Employees, supplier and contractors must respect SilverCrest’s assets and all information shared with them in the course of working with us.

 

Protection, Use and Management of Assets

The respect of resources owned by SilverCrest, both tangible (land, buildings, equipment, machinery etc.) and intangible (data, confidential information, know-how, etc.), is a mandate to employees and contractors working with us.

 

·All assets, tangible and intangible, should be used only for the completion of work for SilverCrest
·Protect and safeguard SilverCrest assets to prevent loss, theft, misuse and the unnecessary waste of these assets
·Do not use SilverCrest assets for fraudulent purposes or the benefit of third parties
·Suppliers and contractors are held accountable for the proper use and management of SilverCrest assets

 

Privileged and Confidential Information

The respect for and proper use of privileged or confidential information is expected of all individuals working with SilverCrest.

 

·Do not use privileged or confidential information for personal gain or the benefit of a third party

·         If asked by an internal colleague or external third party to disclose privileged or confidential information, consult your supervisor or manager

·Individuals or organizations using SilverCrest information for the purpose of their work must be made aware of confidentiality policies and sign confidentiality agreements if necessary
·Employees, officers and directors must respect information received by SilverCrest under an obligation of confidentiality from third parties.

 

Use of E-Mail and Internet

The respect of e-mail and Internet services is expected from SilverCrest employees and contractors using its networks.

 

·Do not access, send or download any information that could be insulting or offensive to another person or organization, such as sexually explicit messages, ethnic or racial slurs, or messages that could be viewed as harassment
·Messages (including voice mail and e-mail) and computer information are considered property of SilverCrest. SilverCrest has the right to access and disclose this information as it considers necessary. Employees should not send or receive messages, or store personal information that they wish to keep private.
·Though occasional personal use is permitted, it should not interfere with an individual's employment duties nor used for downloading offensive or illegal content.

 

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  CODE OF CONDUCT
SilverCrest Mines  

 

Respect for Knowledge

Knowledge is the cornerstone of innovation and competitive advantage, allowing the sustainable development of SilverCrest operations.

 

Intellectual Property (IP)

The respect for intellectual property (“IP”) allows us to build trusting relationships, and remain competitive.

 

·Respect the IP rights of SilverCrest, suppliers and contractors involved in creating value and sharing knowledge; this includes trademarks, patents, technical and practice knowledge, trade secrets, and copyright
·Acts against intellectual property such as fraud, theft or plagiarism are prohibited
·Employees, suppliers and contractors should be informed when they are working with SilverCrest IP assets
·Do not use the IP of SilverCrest for personal benefit or the benefit of a third party
·Receive consent from suppliers, contractors and external organizations before using their IP assets
·IP created during an employee’s tenure with SilverCrest is exclusively owned by SilverCrest
·Consult your direct Manager if the rights of an IP asset have been or may be compromised.

 

Respect Freedom of Speech

SilverCrest strives to foster open communication and an environment in which stakeholders feel comfortable presenting their ideas and raising questions or concerns.

 

·Encourage employees, suppliers, contractors and stakeholders to exchange ideas and concerns in an open and transparent process
·Respect all individuals who freely communicate their ideas or concerns and protect them from any retaliation or persecution (refer to “Chapter 6. Reporting”)

 

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  CODE OF CONDUCT
SilverCrest Mines  

 

Chapter 2: Integrity

 

Integrity is the quality of distinguishing between right and wrong and the ability to act fairly. At SilverCrest, we require the highest standards of professional and ethical conduct from our employees, officers and directors. Our reputation for honesty and integrity is important for the success of our business and ensuring long-term relationships with our stakeholders.

 

Integrity in Business Practices

Integrity is a core value for SilverCrest and one that must be consistently reflected in all of our business activities. No one at SilverCrest will be permitted to achieve results through violations of laws or regulations, or through unscrupulous dealings.

 

Compliance with Laws

SilverCrest has the responsibility to comply with all applicable laws, rules and regulations in all of our activities worldwide. Compliance with the letter of the law, and also with the intentions behind these laws, reflects SilverCrest’s commitment to respecting the places where we operate.

 

·Respect and obey the laws of the cities, provinces, states and countries in which we operate and avoid even the appearance of impropriety
·Individuals who fail to comply with applicable laws may be subject to disciplinary measures, up to and including discharge from the Company

 

Anti-Corruption and Anti-Bribery

Acts of corruption and bribery go against our corporate values. SilverCrest has ZERO tolerance for bribery and corruption by employees, officers, directors, agents, suppliers and contractors of the Company.

 

·Comply with all laws, rules and regulations governing bribery and corruption, including the Canadian Corruption of Foreign Public Officials Act, the United States Foreign Corrupt Practices Act, and the laws, rules and regulations of countries where SilverCrest operates.
·Do not offer, solicit, promise, give or accept a bribe, kickback, gifts, loans, cash, benefits or anything of value with the expectation of receiving an advantage in business, to reward a business advantage already received, or to influence SilverCrest’s internal decisions
·Do not offer, promise or give a Facilitating Payment to a Government Official or Politician
·Do not offer, solicit, promise, give or accept a Gift or Hospitality that goes against the SilverCrest Gift and Hospitality Standard (see below)
·Do not engage in any act of extortion

 

Caption:

For further information, see SilverCrest’s Anti-Corruption and Anti-Bribery Policy: http://www.silvercrestmines.com/corporate/governance/

 

Money Laundering

SilverCrest denounces money laundering as the practice of concealing money or assets generated from criminal activity, and presenting them as legitimate sources of revenue.

 

·Understand the history and business practices of our internal and external agents, consultants, suppliers and contractors by conducting adequate due diligence of their business activities
·Do not accept financial gifts or personal benefits from criminals or criminal organizations
·Do not accept or agree to conceal or misrepresent money, property or other assets that are the product of or the suspected result of criminal activity
·Report, inform and cooperate with internal auditors and external authorities in investigations related to money laundering.

 

 6
 

 

  CODE OF CONDUCT
SilverCrest Mines  

 

Insider Trading

Insider trading means trading in securities of any company while in possession of material non-public information regarding that company.  This includes SilverCrest or any other company.  Insider trading is illegal and prohibited, and thus considered an unacceptable practice at SilverCrest.

 

·It is prohibited to trade, purchase, sell, or engage in any other dealings in SilverCrest securities, (such as stock, options, bonds, etc.) while in possession of, or with knowledge on material non-public information regarding SilverCrest
·It is illegal to to “tip” or pass on inside information to any other person who might make an investment decision based on that information, or pass the information on further

 

Caption:

For further information, see the SilverCrest Disclosure Policy: http://www.silvercrestmines.com/_resources/1_DisclosurePolicy.pdf

 

Integrity in Our Relationships

SilverCrest stakeholder relationships are based on trust. We achieve this trust by adhering to good practices and by respecting the legal, regulatory and institutional frameworks in the countries and communities in which we operate.

 

Business Relationships

SilverCrest recognizes that by building trust, we are able to ensure lasting business relationships that support the sustainability of our operations.

 

·Respect and honour all agreements
·Deal fairly with the Company’s customers, suppliers, competitors and the other employees of the Company
·Do not take unfair advantage of anyone through illegal conduct, concealment, manipulation, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice
·Respect transparency, confidentiality and the fair treatment of all parties involved in the bidding and procurement process

 

Relationship with Government Officials

SilverCrest honours and respects its relationships with Government Officials and expects its employees, officers and directors to manage these within a framework of honesty and transparency.

 

·Do not provide monetary compensation to any Government Official for any work-related activities
·Do not provide money or gifts to any Government Official that may be used for their personal gain and/or with the intention of influencing their decision-making process
·Events or meals sponsored by SilverCrest must respect the Gifts and Hospitality Standard (see below) and must not sponsored with the intention of receiving any commitment or favourable treatment from any Government Official
·Do not pay or authorize the payment of, travel and/or travel-related expenses for any Government Official or his/her family member(s)
·Do not accept personal gifts, special favours, loans, cash or any other benefits from any Government Official
·Do not perform or agree to any business transaction or favour that serves the personal interest or gain of any Government Official

 

 7
 

 

  CODE OF CONDUCT
SilverCrest Mines  

 

For further information, see SilverCrest’s Anti-Corruption and Anti-Bribery Policy.

 

Relationships with Suppliers and Contractors

SilverCrest suppliers and contractors are key partners for our operations. They are expected to comply with this Code of Conduct and the SilverCrest Code of Conduct for Third Parties and Suppliers.

 

·All business transactions and dealings with suppliers and contractors must be transparent, fair and justifiable
·Require SilverCrest suppliers and contractors to comply with the policies defined in this Code of Conduct
·Employees, officers or directors at SilverCrest should report any acts or behaviour by suppliers or contractors working with SilverCrest that violate the policies in the Code.

 

Conflict of Interest

Conflict of interest is a situation in which personal or private interests appear to influence or conflict with the purpose and duties of an individual at work.

 

·Business decisions should not be influenced by personal or third party considerations
·Inform SilverCrest Human Resources when any of your personal activities (e.g. volunteering for charities or participation with political parties) poses, or may pose, a conflict of interest
·Refer to your Manager if you feel that your participation in the decision-making process may represent a conflict of interest

 

Corporate Opportunities

Employees, officers and directors of SilverCrest have a duty to provide to SilverCrest any business opportunities which arise through use of their position, information or in the course of their work.

 

·Directors, officers and employees are prohibited from taking, for themselves personally, opportunities that arise for SilverCrest through the use of corporate property, information or position
·An exception to this exists where the Board has, after receiving the necessary information concerning such opportunity and receiving advice of legal counsel, elected not to avail itself of the opportunity
·If an employee has any doubt as to whether any activity they are contemplating violates this requirement, they must refer the issue to a member of senior management who will assess the issue with, if necessary, the advice of legal counsel

 

Political Contributions

We respect the right of all individuals to participate in the political and democratic process. At SilverCrest, we do not support political parties or make any political commitments or contributions.

 

·It is not acceptable for employees, officers or directors of SilverCrest to use their position within the Company to influence or support a political candidate, political campaign, political party or other political gain
·Do not use SilverCrest’s financial resources to contribute to political campaigns, political parties or political candidates
·Do not make any charitable donations on behalf of SilverCrest that will directly or indirectly benefit any political campaign, political party or political candidate

 

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  CODE OF CONDUCT
SilverCrest Mines  

 

Gifts and Hospitality Standard

In the process of building relationships, we understand that it is sometimes customary to give or accept gifts and hospitality.

 

·The gift or hospitality must not violate applicable laws
·The gift or hospitality must not be used for purposes of influencing an individual’s decision
·Any gift or hospitality given must be in the name of SilverCrest and not in the name of any individual
·The gift or hospitality must be given and accepted openly and not secretly
·The gift or hospitality should not be given or accepted with the intention or expectation of influencing a party to obtain a business advantage or retain business
·The gift or hospitality should relate directly to the promotion, demonstration, or explanation of SilverCrest’s business activity.

 

 9
 

 

  CODE OF CONDUCT
SilverCrest Mines  

 

Chapter 3: Responsibility

 

Responsibility is to be accountable for our decisions and actions. At all levels of the Company, SilverCrest has a strong sense of responsibility for the outcomes of its actions and whom they might impact.

 

Responsibility in Management

SilverCrest’s commitment to implement best practices from the planning stages to the execution of all business activities reflects our responsibility in management.

 

Responsible Management

Regardless of rank, all employees are responsible for executing their mandated role in a responsible and ethical manner, managing resources appropriately, adding value and contributing to achieve SilverCrest’s long-term objectives.

 

·The power, authority and level of responsibility associated with a position does NOT allow someone to obtain personal benefit, take advantage of, abuse or disrespect another person
·Each employee recognizes the role and responsibilities associated with their position and how their work impacts SilverCrest as an organization, its relationships, and the environment
·Employees must act responsibly when exercising their authority in decision-making, recognize the extent of their authority and be accountable to the outcomes of their decisions

 

Responsibility for Health and Safety

Safeguarding the health, safety and well-being of its personnel is the highest priority at SilverCrest.

 

Health, Safety and Environment (“HSE”)

SilverCrest is responsible for guaranteeing a safe environment for our employees in which their dignity, psychological sense of security and physical safety are protected.

 

·Foster a workplace culture across SilverCrest operations that promotes best practices in health and safety
·Respect the applicable laws governing working conditions and safety requirements in the countries where SilverCrest operates
·Comply with SilverCrest’s HSE procedures, titled Security Regulations, to help prevent the occurrence of any workplace injury or accident
·Employees must be trained on health and safety standards and procedures applicable to the job they do, considering identified risks in the environment where they work
·ZERO tolerance of behaviour that will or has the potential to harm individuals in the workplace
·ZERO tolerance for the use of alcohol or drugs in the workplace
·Report all hazards, incidents, accidents and any unsafe working conditions or that do not comply with SilverCrest HSE policies and procedures, titled Security Regulations
·Decisions about HSE requiring contextual judgment, and any changes that could impact HSE conditions must be made with the authorization of the designated Industrial Security Department Manager
·Supplier and contractors must adhere to SilverCrest HSE policies and procedures when working at our operation sites, this includes protecting the dignity, psychological sense of security and physical safety of their personnel

 

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  CODE OF CONDUCT
SilverCrest Mines  

 

Responsibility for Equal Opportunity

SilverCrest provides to all employees equal access to opportunities for growth and development.

 

Equal Opportunities

SilverCrest is committed to providing a work environment in which transparency, open dialogue and fairness ensure that all employees have equal access to opportunities.

 

·Professional development and opportunities for growth are equally available to all employees of SilverCrest
·Transparency must apply to all processes, including recruitment, hiring, training, appraisal, promotion, disciplinary action and termination of employment

 

Responsibility for Diversity in the Workplace

SilverCrest values all races, religions, cultures and genders within our team, as well as the unique ideas, talents, and experiences that each individual brings to the organization.

 

Diversity in the Workplace

SilverCrest is committed to providing a work environment where respect and tolerance assures the inclusion of all individuals regardless of their physical condition, colour, sexual orientation, religious beliefs, political views, or cultural background.

 

·All individuals working directly or indirectly for SilverCrest must be respected regardless their ethnic origin, religious beliefs and political views
·ZERO tolerance to actions that may result in humiliation, bullying, intimidation or degradation due to an individual’s ethnic origin, skin colour, religious beliefs, political views, social condition or sexual orientation

 

Responsibility for Transparency in Communication and Information

SilverCrest supports open dialogue and transparent communication with internal and external stakeholders.

 

Accuracy of Information

The credibility of SilverCrest is established through the truthfulness of the information shared with all stakeholders. Therefore, all internal and external information distributed should respond to the highest standard of transparency, responsibility and accuracy.

 

·All internal and external information disclosures must be clear, accurate and consistent
·Communicate transparently and honestly with our stakeholders about decisions and actions that may impact them
·Provide honest and responsible answers to all stakeholders’ questions
·Disclosure of information, public statements and all communication must be clear in their objective and based on facts that are verifiable
·Only authorized individuals within SilverCrest, and through authorized channels, have the ability to make statements to media or disclose information to the public
·It is not acceptable to make statements or share facts about SilverCrest that are not truthful, verifiable or objective.

 

 11
 

 

  CODE OF CONDUCT
SilverCrest Mines  

 

Responsibility for Financial and Business Disclosure and Accuracy of SilverCrest Records and Reporting

All records and reports, such as financial, technical and environmental reports, and any disclosure requirements under applicable securities and stock exchange regulators or regulatory authorities in the countries where we operate, must reflect our commitment to honesty, transparency and accuracy.

 

·All accounting records, and the reports produced from such records, must be in accordance with applicable laws of the countries where SilverCrest operates
·All accounting records must fairly and accurately reflect the transactions or occurrences to which they relate
·All accounting records must fairly and accurately reflect in reasonable detail SilverCrest’s assets, liabilities, revenues and expenses
·All records and reports must be free of any false or intentionally misleading entries
·No transactions should be intentionally misclassified as to accounts, departments or accounting periods
·All transactions must be supported by accurate documentation in reasonable detail and recorded in the proper account and in the proper accounting period
·No information should be concealed from the internal auditors or the independent auditors; and compliance with the SilverCrest’s system of internal controls is required
·No accounting records shall be intentionally destroyed earlier than permitted by law

 

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  CODE OF CONDUCT
SilverCrest Mines  

Chapter 4: Commitment

 

Commitment is to dedicate our best efforts to reach an objective and work hard in support of our cause and beliefs.

 

Quality

At SilverCrest, we believe that quality leads to excellence in our operations and the success of our people.

 

·Create value for our stakeholders through ongoing improvement in our operation and management
·Foster open communication that allows for continuous improvement in the way we conduct operations and of our processes and practices
·Improve the quality of life of our employees and the communities in our areas of influence

 

Sustainability

At SilverCrest, we demonstrate excellence by considering the economic, social and environmental impacts in every decision we make.

 

·Ensure SilverCrest’s exploration and mining activities operate within a framework of best practices in ESG (Environment, Social and Governance)
·Collaborate with local governments and civil society to design solutions for sustainable development in the regions where we operate

 

Commitment to our stakeholders

From investors to communities, SilverCrest’s stakeholders are key contributors in building operations that serve communities and local economies.

 

·Respect our stakeholders by acting with integrity and in accordance with our corporate values
·Early engagement of our local stakeholders in an open dialogue to inform and educate about SilverCrest’s project plans and results, and learn from their input
·Understand the challenges facing our stakeholders and strive to create beneficial opportunities that are consistent with local values and priorities
·Consult our stakeholders on all matters directly or indirectly affecting them, and develop solutions that work for all

 

Chapter 5: Leadership

 

Leadership is to translate vision to reality through the ability to inspire others to work towards a common goal. At SilverCrest, we exemplify leadership in our commitment to quality, adherence to good practices, and continued support of the professional development of our employees.

 

Leadership in our Decisions and Actions

At SilverCrest, we demonstrate leadership by taking responsibility for our actions, and creating and maintaining trust in our relationships.

 

·Prior to any decision, consider how actions will impact SilverCrest as an organization, its stakeholders and the environment
·Encourage interdisciplinary dialogue in the decision-making process that favours teamwork, innovation, creativity and effective communication
·Respect the knowledge, experience, talent and abilities of colleagues when working together on developing plans and implementing solutions
·Be accountable for our actions and the impact they have on SilverCrest stakeholders, the environment and our operations

 

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  CODE OF CONDUCT
SilverCrest Mines  

 

Chapter 6. Reporting

Annual Statement of Support

To ensure compliance with this Code, all employees, officers and directors must reaffirm their commitment to the policies set forth in this document on an annual basis. The Code is part of the employment contract of every SilverCrest employee and any violation of the Code could lead to disciplinary sanctions.

 

Confidential Reporting

We ask employees of SilverCrest, as well as third party suppliers, contractors, agents and all external stakeholders, to inform us of any event resulting in a violation of the policies set forth in the Code.

 

In order to support our employees and stakeholders, SilverCrest has established confidential channels through which any individual can communicate with us. Individuals who wish to make a report are thus expected to do so in a responsible, verifiable and objective manner. Please provide the greatest amount of detail possible (names, dates, relevant documents, etc.). This way, the investigation and analysis of the reported situation is effective and timely responses provided to the parties involved.

 

You may choose from the following options to submit a report or inquiry:

 

By Phone:

Toll-free number where you may leave a voice message in English or Spanish:

 

Canada & US: 1-888-778-6343
Mexico: 1-800-099-0667

 

By Email:

Send an email in Spanish to: conducta@silvercrestmines.com

Send an email in English to: conduct@silvercrestmines.com

 

If you are unsure whether the actions of a fellow employee, third party supplier or contractor constitute a violation of the Code, you are encouraged to use these confidential channels to communicate your question or concern in order to receive further guidance.

 

Management of Inquiries and Reports

All submitted reports and inquiries will be maintained confidential. An investigation will be conducted for each individual case, with regard to the ethical standards of SilverCrest and applicable legal framework. Depending on the nature of the report, internal experts within SilverCrest may be tasked with performing the investigation. When necessary, an external expert may be used to assist. In order to ensure a transparent process, all parties will be contacted during the investigation and informed of the resolution.

 

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  CODE OF CONDUCT
SilverCrest Mines  

 

No Retaliation

SilverCrest will not allow retaliation against any person for reporting in good faith any concern regarding compliance with this Code or any other potential illegal or unethical conduct. Retaliation will result in discipline up to and including termination.

 

Reporting to the Audit Committee

You may also choose to submit a report directly to the SilverCrest Audit Committee about corporate or accounting irregularities. For further instructions, refer to the SilverCrest Whistleblower Policy2.

 

Phone:

 

Canada & US: 1-888-778-6343
Mexico: 1-800-099-0667

 

By Email:

Send an email in Spanish to: comitedeauditoria@silvercrestmines.com

Send an email in English to: auditcommittee@silvercrestmines.com

 

Disciplinary Actions

The successful implementation of the Code can only be achieved through a SilverCrest-wide commitment to utilize the communication channels provided to submit reports, inquiries or concerns about Code violations.

 

Any disciplinary actions will be determined by the Audit Committee on a case-by-case basis, and will depend on the severity of the violation. Examples of disciplinary actions include, but are not limited to:

 

·Notification of Supervisor
·A formal write-up to be included in the Employee’s record
·Suspension
·Termination of Contract
·Criminal Charges

 

The Audit Committee will work with SilverCrest’s officers and directors to ensure that all measures taken are fair and that sanctions respect the rights of employees and of SilverCrest as an employer.

 

 

2 The SilverCrest Whistleblower Policy is available at www.silvercrestmines.com/corporate/governance/

 

 15
 

 

  CODE OF CONDUCT
SilverCrest Mines  

 

Glossary of Terms

 

Abuse

Act that results in, or is likely to result in, physical, sexual or psychological harm, suffering or embarrassment, including behaviour such as use of harsh, offensive or insulting language, threats and humiliation.

 

Area of influence

Geographical region wherein the Company’s activities are directly capable of influencing or impacting the population or environment.

 

Board of Directors

Board of Directors means the Board of Directors of SilverCrest Mines Inc.

 

Bribe

A Bribe is an inducement or reward offered, promised or provided in order to gain any commercial, contractual, regulatory or business or personal advantage. An inducement is something, which helps to bring about an action, or desired result. A business advantage means that the Company or other person is placed in a better position than it would otherwise have been had the bribe not been made.

 

Bullying

Bullying is an aggressive behavior that involves a real or perceived power imbalance. This behaviour is repeated, or has the potential to be repeated, over time. Bullying includes actions such as intimidating, threatening, humiliating, spreading rumors, attacking someone physically or verbally.

 

Confidential Information

All forms and types of financial, business, scientific, technical, economic, or engineering information that is owned by SilverCrest or to which SilverCrest has access by virtue of a confidentiality agreement with third parties and which is not generally known to, and not being ascertainable through proper means by, the public.

 

Conflict of Interest

Conflict of interest occurs when an individual’s personal interests conflict or interfere with the Company’s interests or that individual’s duties to SilverCrest.

 

Corruption

The abuse of governmental or legal power for private gain.

 

Discrimination

Any distinction, exclusion, restriction or preference which is based on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status, and which has the purpose or effect of nullifying or impairing the recognition, enjoyment or exercise by all persons, on an equal footing, of all rights and freedoms.

 

Extortion

Extortion means to directly or indirectly demand or accept a bribe, facilitating payment or kickback or other payment by threat of force, intimidation or exercise of authority.

 

 16
 

 

  CODE OF CONDUCT
SilverCrest Mines  

 

Facilitating Payment

A facilitating payment is a small, unofficial payment made to expedite routine governmental action that does not involve obtaining, retaining or directing business. Examples include payments to (a) secure processing of visas, permits or papers such as work orders or customs documents to process legally transmitted goods and (b) induce minor government functionaries (government employees without discretionary authority over a project or transaction) to complete their jobs in the manner required and where the situation does not involve the securing of business.

 

Gifts or Hospitality

A gift or hospitality includes, but is not limited to, gifts of low value and hospitalities such as transportation, accommodations, meals, and entertainment.

 

Government Official

A Government Official is any official of a governmental entity, leader of indigenous community, a public international organization, a regional development bank or any other multilateral organization or a person who performs public duties or functions of a legislative, administrative or judicial nature. For the purposes of this Policy, government-owned companies are considered to be governmental entities.

 

HSE

Health, Safety and the Environment.

 

Indigenous

Indigenous is a term broadly applied to any individual or group who was born and raised in the territory which they currently inhabit and has a cultural heritage associated to a certain ethnic group. Finally, that groups’ presence precedes the settlement of new communities or immigrants in that area.

 

Intimidation

Intimidation includes physical or verbal abuse; behaviour directed at isolating or humiliating an individual or a group, or at preventing them from engaging in normal activities. Behaviours that might constitute intimidation include: degrading public tirades by a supervisor or colleague; deliberate insults related to a person's personal or professional competence; threatening or insulting comments, whether oral or written--including by e-mail; deliberate desecration of religious and/or national symbols; and malicious and unsubstantiated complaints of misconduct, including harassment, against other employees.

 

Kickback

A kickback is a payment of any part of a contract amount made to an employee or agent of a contracting party by another contracting party, directly or by use of other techniques such as subcontracts, purchase orders or consulting agreements, to channel payments to a Government Official, Politician, contracting party or its employees or agents, or their relatives or business associates.

 

Political Contribution

A Political Contribution is a contribution of money, goods or services to support a Politician or a political campaign or initiative.

 

 17
 

 

  CODE OF CONDUCT
SilverCrest Mines  

 

Politician

A Politician is a political candidate, a political party, any official of a political party, any employee or agent of any politician, and any person acting on behalf of a political campaign or initiative.

 

Property

Assets of every kind, whether corporal or incorporeal, movable or immovable, tangible or intangible, and legal documents or instruments evidencing title to, or interest in, such assets.

 

Public Disclosure

The act of making information or data readily accessible and available to all interested individuals and institutions.

 

Sexual Harassment

Any behavior of a sexual nature that is unwelcome, offensive, or embarrassing to the individuals exposed to the behavior, or that creates a hostile or intimidating work environment. Sexual harassment includes sexual assault, unsolicited requests for sexual favours, requests for sexual favours linked to implied threats or promises about career prospects.

 

Stakeholder

An individual, group, organization, member or system who has an interest in or affects or can be affected by an organization’s actions.

 

Suppliers

Includes contractors, sub-contractors, vendors, developers, and sellers.

 

 18



Exhibit 99.11

 

CONSENT OF EXPERT

 

United States Securities and Exchange Commission

Washington, D.C. 20549

 

Ladies and Gentlemen:

 

Re: SilverCrest Mines Inc. – Form 40-F

 

I, Nathan Eric Fier, do hereby consent to: (i) the filing of (A) the technical information in the Management Discussion and Analysis (the “MD&A”) for the year ended December 31, 2014 of SilverCrest Mines Inc. (the “Company”), (B) the scientific and technical information relating to the Company's mineral properties disclosed in this Annual Information Form (the “AIF”) for the year ended December 31, 2014, and (C) the written disclosure regarding the technical report entitled the “Update to Santa Elena Pre-Feasibility Study, Sonora, Mexico” effective December 31, 2014 (the “Technical Report”), in the AIF; (ii) the incorporation by reference of the AIF, the MD&A and the Technical Report into the Form 40-F Annual Report of the Company for the year ended December 31, 2014, being filed with the United States Securities and Exchange Commission, and any amendments thereto (the “Form 40-F”); and (iii) the use of my name in the AIF, the MD&A, and Form 40-F.

 

DATED the 31st day of March, 2015

 

  By:    “Nathan Eric Fier”
    Name: Nathan Eric Fier
    Company: SilverCrest Mines Inc.
    Title: Chief Operating Officer

  

 



 

Exhibit 99.12

 

CONSENT OF EXPERT

  

United States Securities and Exchange Commission

Washington, D.C. 20549

 

Ladies and Gentlemen:

 

Re: SilverCrest Mines Inc. (the “Company”) – Form 40-F

 

I, Sabry Abdel-Hafez, do hereby consent to: (i) the filing of the written disclosure regarding the technical report entitled the “Preliminary Economic Assessment for the La Joya Property, Durango, Mexico NI 43-101 Technical Report” with an effective date of October 21, 2013, and amended on March 4, 2014 (the “Technical Report”), in the Annual Information Form (the “AIF”) of the Company for the year ended December 31, 2014; (ii) the incorporation by reference of the Technical Report into the Form 40-F Annual Report of the Company for the year ended December 31, 2014, being filed with the United States Securities and Exchange Commission, and any amendments thereto (the “Form 40-F”); and (iii) the use of my name in the AIF, and the Form 40-F.

 

DATED the 31st day of March, 2015

 

  By:   “Sabry Abdel-Hafez, P. Eng”
    Name: Sabry Abdel-Hafez, P. Eng
    Company: Tetra Tech WEI Inc.
    Title: Senior Mining Engineer

  

 



 

Exhibit 99.13

 

CONSENT OF EXPERT

 

 

United States Securities and Exchange Commission

Washington, D.C. 20549

 

Ladies and Gentlemen:

 

Re: SilverCrest Mines Inc. (the “Company”) – Form 40-F

 

I, P. James Barr, do hereby consent to: (i) the filing of the written disclosure regarding the technical report entitled the “Preliminary Economic Assessment for the La Joya Property, Durango, Mexico NI 43-101 Technical Report” with an effective date of October 21, 2013, and amended on March 4, 2014 (the “Technical Report”), in the Annual Information Form (the “AIF”) of the Company for the year ended December 31, 2014; (ii) the incorporation by reference of the Technical Report into the Form 40-F Annual Report of the Company for the year ended December 31, 2014, being filed with the United States Securities and Exchange Commission, and any amendments thereto (the “Form 40-F”); and (iii) the use of my name in the AIF, and the Form 40-F.

 

DATED the 31st day of March, 2015

  

  By: “P. James F. Barr, P. Geo”
    Name: P. James Barr, P. Geo
    Company: Tetra Tech EBA
    Title: Team Lead - Geology
     

 

 

 

 



 

Exhibit 99.14

 

CONSENT OF EXPERT

  

United States Securities and Exchange Commission

Washington, D.C. 20549

 

Ladies and Gentlemen:

 

Re: SilverCrest Mines Inc. (the “Company”) – Form 40-F

 

I, Carlos Chaparro, do hereby consent to: (i) the filing of the written disclosure regarding the technical report entitled the “Preliminary Economic Assessment for the La Joya Property, Durango, Mexico NI 43-101 Technical Report” with an effective date of October 21, 2013, and amended on March 4, 2014 (the “Technical Report”), in the Annual Information Form (the “AIF”) of the Company for the year ended December 31, 2014; (ii) the incorporation by reference of the Technical Report into the Form 40-F Annual Report of the Company for the year ended December 31, 2014, being filed with the United States Securities and Exchange Commission, and any amendments thereto (the “Form 40-F”); and (iii) the use of my name in the AIF, and the Form 40-F.

 

DATED the 31st day of March, 2015

 

  By:  “Carlos Chaparro”
    Name: Carlos Chaparro
    Company: Tetra Tech EBA Inc.

  

 



 

Exhibit 99.15

 

CONSENT OF EXPERT

  

United States Securities and Exchange Commission

Washington, D.C. 20549

 

Ladies and Gentlemen:

 

Re: SilverCrest Mines Inc. (the “Company”) – Form 40-F

 

I, Hassan Ghaffari, do hereby consent to: (i) the filing of the written disclosure regarding the technical report entitled the “Preliminary Economic Assessment for the La Joya Property, Durango, Mexico NI 43-101 Technical Report” with an effective date of October 21, 2013, and amended on March 4, 2014 (the “Technical Report”), in the Annual Information Form (the “AIF”) of the Company for the year ended December 31, 2014; (ii) the incorporation by reference of the Technical Report into the Form 40-F Annual Report of the Company for the year ended December 31, 2014, being filed with the United States Securities and Exchange Commission, and any amendments thereto (the “Form 40-F”); and (iii) the use of my name in the AIF, and the Form 40-F.

 

DATED the 31st day of March, 2015

 

  By:  “Hassan Ghaffari, P. Eng., M Sc.”
    Name: Hassan Ghaffari, P. Eng., M Sc.
    Company: Tetra Tech WEI Inc.
    Title: Director, Metallurgy, CMP Mining and Minerals

 

 

 

 



 

Exhibit 99.16

 

CONSENT OF EXPERT

 

 

United States Securities and Exchange Commission

Washington, D.C. 20549

 

Ladies and Gentlemen:

 

Re: SilverCrest Mines Inc. (the “Company”) – Form 40-F

 

I, Mark Horan, do hereby consent to: (i) the filing of the written disclosure regarding the technical report entitled the “Preliminary Economic Assessment for the La Joya Property, Durango, Mexico NI 43-101 Technical Report” with an effective date of October 21, 2013, and amended on March 4, 2014 (the “Technical Report”), in the Annual Information Form (the “AIF”) of the Company for the year ended December 31, 2014; (ii) the incorporation by reference of the Technical Report into the Form 40-F Annual Report of the Company for the year ended December 31, 2014, being filed with the United States Securities and Exchange Commission, and any amendments thereto (the “Form 40-F”); and (iii) the use of my name in the AIF, and the Form 40-F.

 

DATED the 31st day of March, 2015

 

 

  By:   “Mark Horan, P.Eng.”
    Name: Mark Horan, P. Eng.
    Company: Tetra Tech WEI Inc.
    Title: Senior Mining Engineer

  

 



 

Exhibit 99.17

 

CONSENT OF EXPERT

 

United States Securities and Exchange Commission

Washington, D.C. 20549

 

Ladies and Gentlemen:

 

Re: SilverCrest Mines Inc. (the “Company”) – Form 40-F

 

I, Ting Lu, do hereby consent to: (i) the filing of the written disclosure regarding the technical report entitled the “Preliminary Economic Assessment for the La Joya Property, Durango, Mexico NI 43-101 Technical Report” with an effective date of October 21, 2013, and amended on March 4, 2014 (the “Technical Report”), in the Annual Information Form (the “AIF”) of the Company for the year ended December 31, 2014; (ii) the incorporation by reference of the Technical Report into the Form 40-F Annual Report of the Company for the year ended December 31, 2014, being filed with the United States Securities and Exchange Commission, and any amendments thereto (the “Form 40-F”); and (iii) the use of my name in the AIF, and the Form 40-F.

 

DATED the 31st day of March, 2015

 

  By:  “Ting Lu, P. Geo.”
    Name: Ting Lu, P. Geo.
    Company: Tetra Tech WEI Inc.

  

 



 

Exhibit 99.18

 

CONSENT OF EXPERT

  

United States Securities and Exchange Commission

Washington, D.C. 20549

 

Ladies and Gentlemen:

 

Re: SilverCrest Mines Inc. (the “Company”) – Form 40-F

 

I, Scott Martin, do hereby consent to: (i) the filing of the written disclosure regarding the technical report entitled the “Preliminary Economic Assessment for the La Joya Property, Durango, Mexico NI 43-101 Technical Report” with an effective date of October 21, 2013, and amended on March 4, 2014 (the “Technical Report”), in the Annual Information Form (the “AIF”) of the Company for the year ended December 31, 2014; (ii) the incorporation by reference of the Technical Report into the Form 40-F Annual Report of the Company for the year ended December 31, 2014, being filed with the United States Securities and Exchange Commission, and any amendments thereto (the “Form 40-F”); and (iii) the use of my name in the AIF, and the Form 40-F.

 

DATED the 31st day of March, 2015 

 

  By:  “Scott Martin, P.Eng.”
    Name: Scott Martin, P. Eng.
    Company: Tetra Tech EBA Inc.
    Title: Senior Project Director Engineering Practice

  

 



 

Exhibit 99.19

 

CONSENT OF EXPERT

 

United States Securities and Exchange Commission

Washington, D.C. 20549

 

Ladies and Gentlemen:

 

Re: SilverCrest Mines Inc. (the “Company”) – Form 40-F

 

I, Nick Michael, do hereby consent to: (i) the filing of the written disclosure regarding the technical report entitled the “Preliminary Economic Assessment for the La Joya Property, Durango, Mexico NI 43-101 Technical Report” with an effective date of October 21, 2013, and amended on March 4, 2014 (the “Technical Report”), in the Annual Information Form (the “AIF”) of the Company for the year ended December 31, 2014; (ii) the incorporation by reference of the Technical Report into the Form 40-F Annual Report of the Company for the year ended December 31, 2014, being filed with the United States Securities and Exchange Commission, and any amendments thereto (the “Form 40-F”); and (iii) the use of my name in the AIF, and the Form 40-F.

 

DATED the 31st day of March, 2015

 

  By:   “Nick Michael”
    Name: Nick Michael
    Company: Tetra Tech Inc.

  

 



 

Exhibit 99.20

 

CONSENT OF EXPERT

 

United States Securities and Exchange Commission

Washington, D.C. 20549

 

Ladies and Gentlemen:

 

Re: SilverCrest Mines Inc. (the “Company”) – Form 40-F

 

I, Graham Wilkins, do hereby consent to: (i) the filing of the written disclosure regarding the technical report entitled the “Preliminary Economic Assessment for the La Joya Property, Durango, Mexico NI 43-101 Technical Report” with an effective date of October 21, 2013, and amended on March 4, 2014 (the “Technical Report”), in the Annual Information Form (the “AIF”) of the Company for the year ended December 31, 2014; (ii) the incorporation by reference of the Technical Report into the Form 40-F Annual Report of the Company for the year ended December 31, 2014, being filed with the United States Securities and Exchange Commission, and any amendments thereto (the “Form 40-F”); and (iii) the use of my name in the AIF, and the Form 40-F.

 

DATED the 31st day of March, 2015

 

  By:  “Graham Wilkins, P. Eng.”
    Name: Graham Wilkins, P. Eng.
    Company: Tetra Tech EBA Inc.
    Title: Project Director Northern and Pacific Transportation

  

 



Exhibit 99.21

 

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

We consent to the incorporation by reference and the inclusion in SilverCrest Mines Inc.’s (the “Company”) Annual Report on Form 40-F for the year ended December 31, 2014 of our Report of Independent Registered Public Accounting Firm dated March 24, 2015 and to the reference to us under the heading “Interests of Experts” in the Company’s Annual Information Form for the year ended December 31, 2014, dated March 31, 2015.

 

 

"DAVIDSON & COMPANY LLP"

 

Vancouver, Canada Chartered Accountants
   
March 31, 2015  

 

 

 

 

 

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