Fair Value Measurements

12 Months Ended

Dec. 31, 2014

Fair Value Measurements

Fair Value Measurements

13.Fair Value Measurements

Financial assets and liabilities and nonfinancial assets and liabilities are measured at fair value on a recurring (annual) basis under a framework of a fair value hierarchy which prioritizes the inputs into valuation techniques used to measure fair value into three broad levels.  This hierarchy gives the highest priority to quoted prices (unadjusted) in active markets and the lowest priority to unobservable inputs.  Further, financial assets and liabilities should be classified by level in their entirety based upon the lowest level of input that was significant to the fair value measurement.  The three levels of the fair value hierarchy per ASC 820 are as follows:

Level 1:  Unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.

Level 2:  Quoted prices in inactive markets for identical assets or liabilities, quoted prices for similar assets or liabilities in active markets, or other observable inputs either directly related to the asset or liability or derived principally from corroborated observable market data.

Level 3:  Unobservable inputs due to the fact that there is little or no market activity. This entails using assumptions in models which estimate what market participants would use in pricing the asset or liability.

The Company has consistently applied the valuation techniques discussed in Notes 8 and 9 in all periods presented.

The following table summarizes the Company’s financial assets at fair value at December 31, 2014 and 2013 by respective level of the fair value hierarchy: 

	Level 1		Level 2		Level 3		Total
	(in thousands)
At December 31, 2014
Assets:
Cash and cash equivalents	$	8,579	$	—	$	—	$	8,579
Trade accounts receivable	—		—		—		—
	$	8,579	$	—	$	—	$	8,579
Liabilities:
Warrant liability	$	—	$	—	$	1,442	$	1,442
	$	—	$	—	$	1,442	$	1,442
At December 31, 2013
Assets:
Cash and cash equivalents	$	19,146	$	—	$	—	$	19,146
Trade accounts receivable	25		—		—		25
	$	19,171	$	—	$	—	$	19,171

The Company’s cash equivalents, comprised principally of U.S. treasury securities, are classified within Level 1 of the fair value hierarchy.

The Company’s trade accounts receivable is classified within Level 1 of the fair value hierarchy and is related to the sale of metals at our Velardeña Properties and is valued at published metals prices per the terms of the refining and smelting agreements.

At December 31, 2014 the Company has recorded a liability for warrants to acquire the Company’s stock as a result of anti-dilution clauses in the warrant agreements that could result in a resetting of the warrant exercise price in the event the Company were to issue additional shares of its common stock in a future transaction at a an offering price lower than the current exercise price of the warrants (see Note 15). The Company assesses the fair value of its warrant liability at the end of each reporting period, with changes in the value recorded as a separate line item on the Company’s Consolidated Statements of Operations and Comprehensive Income.  The valuation policies are approved by the Chief Financial Officer who reviews and approves the inputs used in the fair value calculations and the changes in fair value measurements from period to period for reasonableness. Fair value measurements are discussed with the Company’s Chief Executive Officer, as deemed appropriate.    The warrant liability has been recorded at fair value as of December 31, 2014 based primarily on a valuation performed by a third party expert using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy.  The valuation model takes into account the probability that the Company could issue additional shares in a future transaction at a lower price than the current exercise price of the warrants.  Significant inputs to the valuation model included the Company’s closing stock price at December 31, 2014 of $0.54, the exercise prices for the warrants disclosed above, the company’s stock volatility of 90%, the applicable risk free interest rate of 1.6%, and the probability of an additional issuance of the Company’s common stock at a lower price than the current warrant exercise price.  An increase or decrease in the Company’s stock price, in isolation, would result in a relatively lower or higher fair value measurement respectively.  A decrease in the probability of the issuance of additional common stock at a lower price than the current warrant exercise price would result in a lower value for the warrants.  The table below highlights the change in fair value of the warrant liability.

	Fait Value Measurements
	Using SignificantUnobservable
	Inputs (level 3)
	Warrant Liabilities
	(in thousands)
Beginning balance at January 1, 2014	$	—
Adjustment to record 2012 warrants as a liability (Note 15)	163
Issuance of warrants	3,084
Change in estimated fair value	(1,693		)
Ending balance at December 31, 2014	$	1,554

The Company did not have any Level 2 or Level 3 financial assets at December 31, 2013.

Non-recurring Fair Value Measurements

There were no non-recurring fair value measurements at December 31, 2014.

The following table summarizes the Company’s non-recurring fair value measurements at December 31, 2013 by respective level of the fair value hierarchy:

	Level 1		Level 2		Level 3		Total
	(in thousands)
At December 31, 2013
Assets:
Mineral properties	$	—	$	—	$	22,397	$	22,397
Exploration properties	—		—		2,993		2,993
	$	—	$	—	$	25,390	$	25,390

The Company assesses the fair value of its long lived assets, including goodwill, at least annually or more frequently if circumstances indicate a change in the fair value has occurred.  The valuation policies are approved by the Chief Financial Officer who reviews and approves the inputs used in the fair value calculations and the changes in fair value measurements from period to period for reasonableness. Fair value measurements are discussed with the Company’s Chief Executive Officer, as deemed appropriate.

To determine the fair value of mineral properties and exploration properties the Company uses a market valuation approach which falls within Level 3 of the fair value hierarchy. The market valuation approach relies upon assumptions related to the condition and location of the properties in comparison to other corroborated observable market data for similar properties. In arriving at a fair value for the Velardeña mineral deposit and exploration properties and the San Diego exploration property, the Company considered recently published market data reflecting an average in the ground mineral resource value for a representative group of junior silver mining companies primarily located in Mexico and South America. See Note 8 for details related to the unobservable inputs.