Asset Retirement Obligation and Reclamation Liabilities

12 Months Ended

Dec. 31, 2021

Asset Retirement Obligation and Reclamation Liabilities

Asset Retirement and Reclamation Liabilities

11. Asset Retirement and Reclamation Liabilities

In 2012, the Company retained the services of a mining engineering firm to prepare a detailed closure plan for reclamation activity the Velardeña Properties. The plan was completed during the second quarter 2012 and indicated that the Company had an ARO and offsetting ARC of approximately $1.9 million. The original ARC had been fully amortized or written off by the end of December 31, 2015. The ARO has been adjusted since 2012 for changes in assumptions related to inflation factors and the timing of future expenditures used in the determination of future cash flows, which previously contemplated that reclamation activities could begin as early as 2023 following the completion of mining at the Rodeo property.

In the fourth quarter of 2021, due to the current operating success at Rodeo and the potential of a restart of operations at the Velardeña mine based on recent technical studies and an updated PEA that would further delay the start of any reclamation activity, the Company retained the services of an environmental consultant to review the closure plan to determine the appropriateness of the scope and cost estimates used in the calculation of the ARO.  The consultant confirmed the adequacy of the scope of the closure plan and provided certain adjustments to cost estimates.  In addition, the timing for the incurrence of reclamation activity was extended approximately 7 years to take into account the likelihood of a restart of operations at the Velardeña mine that would further delay the start of any reclamation activity.

The Company will continue to accrue additional estimated ARO amounts based on the closure plan and as activities requiring future reclamation and remediation occur. The following table summarizes activity in the Velardeña Properties ARO for the years ended December 31, 2021 and 2020:

	Year Ended
	December 31,
	2021		2020
	(in thousands)
Beginning balance	$	3,156	$	2,825
Changes in estimates, and other		143		82
Accretion expense		262		249
Ending balance	$	3,561	$	3,156

The change in estimate of the ARO recorded during the year ended December 31, 2021 is primarily the result of changes in assumptions related to the amount and timing of future expenditures used in the determination of future cash flows as a result of a review of the closure plan undertaken in the fourth quarter 2021, as noted above (also see Note 13).  The change in estimate of the ARO recorded during the year ended December 31, 2020 is primarily the result of changes in assumptions related to inflation factors used in the determination of future cash flows during that period.  

Accretion expense in the table noted above for each of the years ended December 31, 2021 and 2020 has been recorded as “Reclamation expense” on the Company’s Consolidated Statements of Operations. To the extent that a positive change in estimates, and other for the ARO is related to fixed plant and equipment, an offsetting ARC is capitalized as part of the carrying value of the assets with which it is associated and depreciated over the useful life of the asset, otherwise the increase is recorded as “Other operating expense, net” on the Company’s Consolidated Statements of Operations. A negative change in estimates, and other is recorded as a decrease to the ARC previously recorded or, as appropriate, to “Other operating income, net” on the Company’s Consolidated Statements of Operations.  

The ARO set forth on the accompanying Consolidated Balance Sheets at December 31, 2021 and December 31, 2020 includes a nominal amount of reclamation liability related to activities at the El Quevar project in Argentina.