NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
86
FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
a) Tlacolula Property
Pursuant to an agreement dated September 14, 2009, as amended December 18, 2012 and November 10, 2014, the
Company, through its wholly owned subsidiary, Cuzcatlan, holds an option (the “Option”) to acquire a 60% interest (the
“Interest”) in the Tlacolula silver project (“property”) located in the State of Oaxaca, Mexico, from Radius Gold Inc.’s
wholly owned subsidiary, Radius (Cayman) Inc. (“Radius”) (a related party by way of directors in common with the Company
described further in Note 9. a)).
The Company can earn the Interest by spending $2,000 on exploration of the property, which includes a commitment to
drill 1,500 meters within 12 months after Cuzcatlan has received a permit to drill the property, and by making staged
payments totalling $300 cash and providing $250 in common shares of the Company to Radius according to the following
schedule:
•
$20 cash and $20 cash equivalent in shares upon stock exchange approval;
•
$30 cash and $30 cash equivalent in shares by January 15, 2011;
•
$50 cash and $50 cash equivalent in shares by January 15, 2012;
•
$50 cash and $50 cash equivalent in shares by January 15, 2013;
•
$50 cash by January 19, 2015; and,
•
$100 cash and $100 cash equivalent in shares within 90 days after Cuzcatlan has completed the first 1,500
meters of drilling on the property.
Upon completion of the cash payments and share issuances and incurring the exploration expenditures as set forth
above, the Company will be deemed to have exercised the Option and to have acquired a 60% interest in the property,
whereupon a joint venture will be formed to further develop the property on the basis of the Company owning 60% and
Radius 40%. Radius has the right to terminate the agreement if the option is not exercised by January 31, 2017.
As at December 31, 2014, the Company had issued an aggregate of 34,589 (2013: 34,589) common shares of the
Company, with a fair market value of $150 (2013: $150), and paid $150 (2013: $150) cash according to the terms of
the option agreement. Subsequent to December 31, 2014, the Company paid $50 under the option agreement. Refer
to Note 9. a).
b) San Luisito Concessions
On February 26, 2013, the Company through its wholly owned subsidiary, Cuzcatlan, was granted an option with a third
party on concessions in the San Luisito Project, Sonora, Mexico and made a cash payment of $50. During the second
quarter of 2013, upon completion of the exploration program and given the current economic environment, the Company
abandoned its interest in the option agreement resulting in a write-off of $376. Additional costs of $125 and $69 were
written off in Q3 2013 and Q4 2013, respectively for a total write-off of $570.
c) Taviche Oeste Concession
On February 4, 2013, the Company, through its wholly owned subsidiary, Cuzcatlan, acquired, through an option agreement
with Plata Pan American S.A. de C.V. (“Plata”, a wholly owned subsidiary of Pan American Silver Corp.), a 55% undivided
interest in the 6,254-hectare Taviche Oeste Concession (“concession”) immediately surrounding the San Jose Mine in
Oaxaca, Mexico. The Company made a cash payment of $4.0 million. On June 19, 2013, the Company made the final
$6.0 million cash payment to purchase the remaining 45% undivided interest in the concession. This property is included
in the San Jose depletable pool.
The concession is subject to a 2.5% net smelter royalty on ore production from this property.
d) Impairment of Mineral Properties, Plant and Equipment
Assets are reviewed and tested for impairment when events or changes in circumstances suggest that the carrying
amount exceeds the recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value
in use. Assets are grouped at the lowest level for which there are separately identifiable cash flows or cash generating
units. The Company’s cash generating units (“CGU”) have been identified as follows:
i.
Cuzcatlan CGU
includes the assets at San Jose, Taviche, Taviche Oeste, and Tlacolula properties in Mexico.
ii.
Bateas CGU
includes the assets at the Caylloma property in Peru. Bateas is considered as separate CGU within
the Peru geographical area.
The Company has determined that the Caylloma property represents a cash generating unit within the Peru geographic
region.
7. Mineral Properties, Plant and Equipment (Continued)
