Revenue, Management Service Fees and Related Costs

9 Months Ended

Sep. 30, 2011

Revenue, Management Service Fees and Related Costs

Revenue, Management Service Fees and Related Costs

16.   Revenue, Management Service Fees and Related Costs

Sale of metals

The Company did not sell any metal from the Velardeña mine between the September 2, 2011 acquisition date and September 30, 2011.  Under the terms of the Company’s agreement for the sale of doré, title does not pass to the purchaser until the doré is received by the refinery. At September 30, 2011 the doré inventory was written down to its estimated net realizable value and a $1.1 million charge was recorded and reflected as an inventory write down included in cost of sales and depreciation on the Consolidated Statements of Operations (see Note 6).

Management service fees

The Company was party to a Management Services Agreement with Sumitomo Corporation under which it provided certain management services with respect to the San Cristóbal mine in Bolivia.  For the nine months ended September 30, 2010 the Company recorded $6.2 million as revenue related to the Management Services Agreement, comprised of $5.4 million of fees and $0.8 million for reimbursed withholding taxes. The Company also recorded corresponding charges of $2.5 million to cost of services and $0.8 million to income taxes for the actual administrative costs and withholding taxes reimbursable under the Management Agreement.

The Company and Sumitomo agreed to terminate the Management Agreement effective June 30, 2010, six months earlier than provided by the terms of the agreement.  As a result of the termination the Company received a $4.3 million termination fee comprised of $2.8 million in lieu of the performance of services by the Company for the final two quarters of 2010 and waiver of Sumitomo’s 6-month notice requirement, $1.0 million for a termination payment (as provided in the Management Agreement) and approximately $0.5 million for a performance bonus for the first two quarters of 2010.  The termination fee proceeds were partially offset by the return of prepaid administration fees for services not performed through June 30, 2010 of approximately $1.1 million resulting in a net payment from Sumitomo of $3.2 million received on June 30, 2010. As a result of the termination we recognized additional revenue of $4.9 million for the nine months ended September 30, 2010 comprised of the $4.3 million of termination fees as discussed above and $0.6 million for reimbursed withholding taxes.

For the quarter ended September 30, 2010 the Company recorded approximately $0.1 million of additional revenue and minimal amounts to cost of services and income taxes related to certain final services completed under the agreement.