Income Taxes

3 Months Ended

Mar. 31, 2012

Income Taxes

Income Taxes

13.  Income Taxes

The Company accounts for income taxes in accordance with the provisions of ASC 740, “Income Taxes” (“ASC 740”), on a tax jurisdictional basis.  For the quarter ended March 31, 2012, the Company recorded a $1.8 million deferred tax benefit related primarily to Mexico net operating losses.  For the quarter ended March 31, 2011, the Company recorded income tax of $0.1 million for the reversal of the tax effects of other comprehensive income reported as of December 31, 2010.  Based on the limited history that the Company has with its Velardeña Operations, an estimated effective tax rate is not used to report the year-to-date results.

In accordance with ASC 740, the Company presents deferred tax assets net of its deferred tax liabilities on a tax jurisdictional basis on its Consolidated Balance Sheets.  The net deferred tax liability of $53.0 million as of March 31, 2012 consists primarily of a $65.1 million deferred tax liability related to the basis differences of the properties, plant and equipment of our Velardeña, Mexico operation, and a $12.3 million deferred tax asset related to Mexico net operating losses.  The net deferred tax liability of $2.1 million as of December 31, 2011 relates to the basis differences of certain other mineral properties.

The Company, a Delaware corporation, and its subsidiaries file tax returns in the United States and in various foreign jurisdictions.  The tax rules and regulations in these countries are highly complex and subject to interpretation. The Company’s income tax returns are subject to examination by the relevant taxing authorities and in connection with such examinations, disputes can arise with the taxing authorities over the interpretation or application of certain tax rules within the country involved.  In accordance with ASC 740, the Company identifies and evaluates uncertain tax positions, and recognizes the impact of uncertain tax positions for which there is less than a more-likely-than-not probability of the position being upheld upon review by the relevant taxing authority.  Such positions are deemed to be “unrecognized tax benefits” which require additional disclosure and recognition of a liability within the financial statements.  The Company had unrecognized tax benefits of $2.8 million as of March 31, 2012, and no unrecognized tax benefits existed as of March 31, 2011.