NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
74
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
i.
Exploration and Evaluation Assets
Significant payments related to the acquisition of land and mineral rights are capitalized as incurred. Prior to acquiring
such land or mineral rights, the Company makes a preliminary evaluation to determine that the property has significant
potential to develop an economic ore body. The time between initial acquisition and full evaluation of a property’s potential
is dependent on many factors including: location relative to existing infrastructure, the property’s stage of development,
geological controls and metal prices.
The Company defers the cost of acquiring, maintaining its interest, exploring and developing mineral properties as
exploration and evaluation assets when future inflow of economic benefits from the properties is probable and until such
time as the properties are placed into development, abandoned, sold or considered to be impaired in value.
If a mineable ore body is discovered, exploration and evaluation costs are reclassified to mining properties. If no mineable
ore body is discovered, such costs are expensed in the period in which it is determined the property has no future
economic value.
Proceeds received from the sale of interests in evaluation and exploration assets are credited to the carrying value of
the mineral properties, with any excess included in income as gain or loss on disposal of mineral properties, plant and
equipment.
Write-downs due to impairment in value are charged to income. The cash-generating unit for assessing impairment is a
geographic region and shall be no larger than the operating segment.
Exploration costs that do not relate to any specific property are expensed as incurred.
ii.
Operational Mining Properties and Mine Development
For operating mines, all exploration within the mineral deposit is capitalized and amortized on a unit-of-production basis
over proven and probable reserves and the portion of resources expected to be extracted economically as part of the
production cost.
Costs of producing properties are amortized on a unit-of-production basis over proven and probable reserves and the
portion of resources expected to be extracted economically, and costs of abandoned properties are written-off.
iii. Commercial Production
Capital work in progress consists of expenditures for the construction of future mines and includes pre-production
revenues and expenses prior to achieving commercial production. Commercial production is a convention for determining
the point in time in which a mine and plant has completed the operational commissioning and has operational results
that are expected to remain at a sustainable commercial level over a period of time, after which production costs are no
longer capitalized and are reported as operating costs. The determination of when commercial production commences
is based on several qualitative and quantitative factors including but not limited to the following:
• all major capital expenditures to bring the mine to the condition necessary for it to be capable of operating in the
manner intended by management have been completed;
• the mine or mill is operating within eighty percent of design capacity;
• metallurgical recoveries are achieved within eighty percent of projections; and,
• the ability to sustain ongoing production of ore at a steady or increasing level.
On the commencement of commercial production, depletion of each mining property will be provided on a unit-of-
production basis. Any costs incurred after the commencement of production are capitalized to the extent they give rise
to a future economic benefit.
f) Asset Impairment
Assets are reviewed and tested for impairment when an indicator of impairment is considered to exist. An assessment
of impairment indicators is performed at each reporting period or whenever indicators arise. Even with no indicators
present, the Company will test an intangible asset with an indefinite useful life or an intangible asset not yet available
for use for impairment at least annually. An impairment loss is recognized for the amount by which the asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell
(“FVLCTS”) and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which
there are separately identifiable cash inflows or cash generating units. These are typically individual mines or development
projects. Brownfields exploration projects, located close to existing mine infrastructure, are assessed for impairment as
part of the associated mine cash generating unit.
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
e) Mineral Properties, Plant and Equipment (Continued)
