EX-99.1 2 a52077171ex99_1.htm EXHIBIT 99.1
 
 Exhibit 99.1







AMERICAS SILVER CORPORATION

Condensed Interim Consolidated Financial Statements

For the six months ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)






Americas Silver Corporation
Condensed interim consolidated statements of financial position
(In thousands of U.S. dollars, unaudited)

 
  
June 30,
    
December 31,
  
As at
  
2019
    
2018
  
Assets
            
Current assets
            
Cash and cash equivalents
  
$
6,325
    
$
3,464
  
Trade and other receivables (Note 6)
    
6,715
      
7,712
  
Inventories (Note 7)
    
8,739
      
8,136
  
Prepaid expenses
    
1,982
      
1,247
  
Derivative instruments (Note 19)
    
873
      
-
  
Asset held-for-sale (Note 8)
    
7,723
      
6,925
  
Convertible loan receivable (Note 9)
    
-
      
1,922
  
 
    
32,357
      
29,406
  
Non-current assets
                
Restricted cash
    
3,992
      
681
  
Property, plant and equipment (Note 8)
    
154,639
      
96,442
  
Deferred tax assets (Note 18)
    
626
      
626
  
Total assets
  
$
191,614
    
$
127,155
  
 
                
Liabilities
                
Current liabilities
                
Trade and other payables
  
$
17,173
    
$
14,345
  
Derivative instruments (Note 11)
    
5,034
      
35
  
Convertible loans payable (Note 9)
    
-
      
2,972
  
Pre-payment facility (Note 12)
    
5,500
      
5,610
  
 
    
27,707
      
22,962
  
Non-current liabilities
                
Other long-term liabilities
    
701
      
689
  
Convertible debenture (Note 11)
    
6,684
      
-
  
Pre-payment facility (Note 12)
    
2,737
      
5,500
  
Post-employment benefit obligations
    
8,350
      
8,174
  
Decommissioning provision
    
5,251
      
3,791
  
Derivative warrant liability (Note 9)
    
-
      
711
  
Deferred tax liabilities (Note 18)
    
5,777
      
1,132
  
Total liabilities
    
57,207
      
42,959
  
 
                
Equity
                
Share capital (Note 13)
    
273,445
      
212,943
  
Equity reserve
    
36,002
      
34,837
  
Foreign currency translation reserve
    
5,893
      
6,541
  
Deficit
    
(180,933
)
    
(170,125
)
Total equity
    
134,407
      
84,196
  
 
                
Total liabilities and equity
  
$
191,614
    
$
127,155
  


Contingencies (Note 21), Subsequent events (Note 22)

The accompanying notes are an integral part of the condensed interim consolidated financial statements.
Page | 1
Americas Silver Corporation
Condensed interim consolidated statements of income (loss) and comprehensive income (loss)
(In thousands of U.S. dollars, except share and per share amounts, unaudited)

 
  
For the three-month period ended
    
For the six-month period ended
  
 
  
June 30,
    
June 30,
    
June 30,
    
June 30,
  
 
  
2019
    
2018
    
2019
    
2018
  
 
                        
Revenue (Note 15)
  
$
14,936
    
$
17,351
    
$
32,762
    
$
37,734
  
 
                                
Cost of sales (Note 16)
    
(14,730
)
    
(11,991
)
    
(27,200
)
    
(25,134
)
Depletion and amortization (Note 8)
    
(3,430
)
    
(2,386
)
    
(6,892
)
    
(4,601
)
Care and maintenance costs
    
(101
)
    
(773
)
    
(197
)
    
(861
)
Corporate general and administrative (Note 17)
    
(2,667
)
    
(1,338
)
    
(3,897
)
    
(3,568
)
Transaction costs (Note 5)
    
(1,180
)
    
-
      
(2,157
)
    
-
  
Exploration costs
    
(364
)
    
(206
)
    
(966
)
    
(1,989
)
Accretion on decommissioning provision
    
(55
)
    
(49
)
    
(104
)
    
(96
)
Interest and financing expense
    
(979
)
    
(250
)
    
(1,680
)
    
(512
)
Foreign exchange gain (loss)
    
242
      
(38
)
    
283
      
(184
)
Gain on disposal of assets (Note 8)
    
-
      
855
      
-
      
855
  
Gain (loss) on derivative instruments (Note 11 and 19)
    
447
      
236
      
(579
)
    
603
  
Gain (loss) on derivative warrant liability
    
(13
)
    
-
      
46
      
-
  
Contingency on value added taxes (Note 21)
    
-
      
(125
)
    
-
      
(125
)
Income (loss) before income taxes
    
(7,894
)
    
1,286
      
(10,581
)
    
2,122
  
Income tax recovery (expense) (Note 18)
    
(101
)
    
104
      
(227
)
    
(209
)
Net income (loss)
    
(7,995
)
    
1,390
      
(10,808
)
    
1,913
  
 
                                
Other comprehensive income (loss)
                                
Items that may be reclassified subsequently
                                
to net income (loss)
                                
Foreign currency translation reserve
    
(223
)
    
(85
)
    
(648
)
    
171
  
Other comprehensive income (loss)
    
(223
)
    
(85
)
    
(648
)
    
171
  
Comprehensive income (loss)
  
$
(8,218
)
  
$
1,305
    
$
(11,456
)
  
$
2,084
  
 
                                
Income (loss) per share
                                
Basic
    
(0.11
)
    
0.03
      
(0.18
)
    
0.05
  
Diluted
    
(0.11
)
    
0.03
      
(0.18
)
    
0.04
  
 
                                
Weighted average number of common shares
                                
outstanding
                                
Basic (Note 14)
    
74,017,916
      
42,461,994
      
59,450,433
      
42,121,388
  
Diluted (Note 14)
    
74,017,916
      
44,449,810
      
59,450,433
      
44,178,091
  

The accompanying notes are an integral part of the condensed interim consolidated financial statements.
Page | 2
Americas Silver Corporation
Condensed interim consolidated statements of changes in equity
For the six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, except share amounts in thousands of units, unaudited)

 
                                
Foreign
              
 
  
Share capital
          
currency
              
 
  
Common
    
Preferred
    
Equity
    
translation
          
Total
  
 
  
Shares
    
Amount
    
Shares
    
Amount
    
reserve
    
reserve
    
Deficit
    
equity
  
 
                                                
Balance at January 1, 2019
    
43,402
    
$
212,943
      
-
    
$
-
    
$
34,837
    
$
6,541
    
$
(170,125
)
  
$
84,196
  
Net loss for the period
    
-
      
-
      
-
      
-
      
-
      
-
      
(10,808
)
    
(10,808
)
Other comprehensive loss for the period
    
-
      
-
      
-
      
-
      
-
      
(648
)
    
-
      
(648
)
San Felipe property option transaction costs
    
452
      
600
      
-
      
-
      
-
      
-
      
-
      
600
  
Acquisition of Pershing Gold Corporation (Note 5)
    
24,849
      
38,604
      
3,678
      
5,714
      
1
      
-
      
-
      
44,319
  
Subscription agreement with Sandstorm Gold Ltd. (Note 13)
    
4,785
      
7,371
      
-
      
-
      
-
      
-
      
-
      
7,371
  
Conversion of convertible loans payable (Note 10)
    
2,764
      
4,284
      
-
      
-
      
-
      
-
      
-
      
4,284
  
Warrants issued on acquisition transaction costs
    
-
      
-
      
-
      
-
      
471
      
-
      
-
      
471
  
Warrants issued on financing transaction costs
    
-
      
-
      
-
      
-
      
149
      
-
      
-
      
149
  
Reclassification of derivative warrant liability (Note 10)
    
-
      
-
      
-
      
-
      
680
      
-
      
-
      
680
  
Share-based payments
    
-
      
-
      
-
      
-
      
1,325
      
-
      
-
      
1,325
  
Exercise of options, warrants, and deferred share units
    
2,280
      
3,929
      
-
      
-
      
(1,461
)
    
-
      
-
      
2,468
  
Balance at June 30, 2019
    
78,532
    
$
267,731
      
3,678
    
$
5,714
    
$
36,002
    
$
5,893
    
$
(180,933
)
  
$
134,407
  
 
                                                                
Balance at January 1, 2018
    
41,497
    
$
207,012
      
-
    
$
-
    
$
34,760
    
$
6,284
    
$
(159,998
)
  
$
88,058
  
Net income for the period
    
-
      
-
      
-
      
-
      
-
      
-
      
1,913
      
1,913
  
Other comprehensive income for the period
    
-
      
-
      
-
      
-
      
-
      
171
      
-
      
171
  
Share-based payments
    
-
      
-
      
-
      
-
      
1,449
      
-
      
-
      
1,449
  
Exercise of options and warrants
    
1,471
      
5,173
      
-
      
-
      
(1,844
)
    
-
      
-
      
3,329
  
Balance at June 30, 2018
    
42,968
    
$
212,185
      
-
    
$
-
    
$
34,365
    
$
6,455
    
$
(158,085
)
  
$
94,920
  

The accompanying notes are an integral part of the condensed interim consolidated financial statements.
Page | 3

Americas Silver Corporation
Condensed interim consolidated statements of cash flows
For the six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unaudited)

 
  
June 30,
    
June 30,
  
 
  
2019
    
2018
  
Cash flow generated from (used in)
            
 
            
Operating activities
            
Net income (loss) for the period
  
$
(10,808
)
  
$
1,913
  
Adjustments for the following items:
                
Depletion and amortization
    
6,892
      
4,601
  
Income tax expense
    
227
      
209
  
Accretion and decommissioning costs
    
104
      
23
  
Share-based payments
    
1,389
      
1,431
  
Provision on other long-term liabilities
    
52
      
17
  
Deferred costs on convertible loans
    
745
      
-
  
Deferred costs on convertible debenture
    
198
      
-
  
Net charges on post-employment benefit obligations
    
176
      
(33
)
Loss (gain) on derivative instruments
    
902
      
(251
)
Gain on derivative warranty liability
    
(46
)
    
-
  
Contingency on value added taxes
    
-
      
125
  
 
    
(169
)
    
8,035
  
Changes in non-cash working capital items:
                
Trade and other receivables
    
997
      
(1,144
)
Inventories
    
(603
)
    
864
  
Prepaid expenses
    
(126
)
    
(376
)
Forward contracts
    
-
      
(186
)
Trade and other payables
    
(2,158
)
    
(2,041
)
Net cash generated from (used in) operating activities
    
(2,059
)
    
5,152
  
 
                
Investing activities
                
Expenditures on property, plant and equipment
    
(4,870
)
    
(7,125
)
Development costs on Relief Canyon Mine
    
(5,548
)
    
-
  
San Felipe property option payments
    
(750
)
    
(1,000
)
Cash received from (payments to) bond on decommissioning costs
    
485
      
(370
)
Investment in convertible loan receivable
    
(800
)
    
-
  
Cash from acquisition of Pershing Gold Corporation
    
241
      
-
  
Net cash used in investing activities
    
(11,242
)
    
(8,495
)
 
                
Financing activities
                
Repayments to pre-payment facility
    
(2,873
)
    
(1,670
)
Payments to lease liabilities
    
(132
)
    
-
  
Financing from convertible debenture
    
10,000
      
-
  
Share issuance from subscription agreement
    
7,371
      
-
  
Proceeds from exercise of options and warrants
    
2,448
      
3,329
  
Net cash generated from financing activities
    
16,814
      
1,659
  
 
                
Effect of foreign exchange rate changes on cash
    
(652
)
    
171
  
Increase (decrease) in cash and cash equivalents
    
2,861
      
(1,513
)
Cash and cash equivalents, beginning of period
    
3,464
      
9,325
  
Cash and cash equivalents, end of period
  
$
6,325
    
$
7,812
  
 
                
Cash and cash equivalents consist of:
                
Cash
  
$
6,325
    
$
7,812
  
Term deposits
    
-
      
-
  
 
  
$
6,325
    
$
7,812
  
 
                
Interest paid during the period
  
$
624
    
$
585
  

The accompanying notes are an integral part of the condensed interim consolidated financial statements.
Page | 4
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


1.   Corporate information
 
Americas Silver Corporation (the “Company" or "Americas Silver") was incorporated under the Canada Business Corporations Act on May 12, 1998 and conducts mining exploration, development and production in the Americas. The address of the Company’s registered office is 145 King Street West, Suite 2870, Toronto, Ontario, Canada, M5H 1J8. The Company’s common shares are listed on the Toronto Stock Exchange under the symbol “USA” and on the New York Stock Exchange American under the symbol “USAS”.

The condensed interim consolidated financial statements of the Company for the three and six months ended June 30, 2019 were approved and authorized for issue by the Board of Directors of the Company on August 12, 2019.
 
2.   Basis of presentation
 
These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”) which the Canadian Accounting Standards Board has approved for incorporation into Part 1 of the Handbook of Chartered Professional Accountants of Canada applicable to the preparation of interim financial statements, including International Accounting Standard (“IAS”) 34, Interim Financial Reporting. These condensed interim consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Company’s annual consolidated financial statements as at and for the year ended December 31, 2018. In particular, the Company’s significant accounting policies were summarized in Note 3 of the consolidated financial statements for the year ended December 31, 2018 and have been consistently applied in the preparation of these condensed interim consolidated financial statements with the exception of “Leases”, which has been replaced by recent changes in accounting policies under Note 3 below. These unaudited condensed interim consolidated financial statements were prepared on a going concern basis.
 
3.   Changes in accounting policies and recent accounting pronouncements
 
The Company has adopted the following new accounting standard effective for annual periods beginning on or after January 1, 2019:

(i)            Leases

IFRS 16 - Leases - The standard on leases was issued in January 2016 and is effective for annual reporting periods beginning on or after January 1, 2019 for public entities with early adoption permitted, provided IFRS 15 has been applied or is applied at the same date as IFRS 16. The standard requires lessees to recognize assets and liabilities for most leases. The Company adopted IFRS 16 using the modified retrospective approach resulting in the recognition of additional assets and liabilities from right-of-use assets identified on the consolidated statement of financial position at January 1, 2019 with no restatement of prior year comparatives. Effective January 1, 2019, the adoption of IFRS 16 increased assets, liabilities, depreciation, interest and financing expense, and decreased corporate general and administrative expenses. The Company applied practical expedients to not recognize short-term leases or leases of low-value items on transition under IFRS 16 and will continue to expense such lease payments to the consolidated statements of income (loss) and comprehensive income (loss).
 
4.   Significant accounting judgments and estimates
 
 
The preparation of the condensed interim consolidated financial statements in conformity with IFRS requires management to make judgments and estimates that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.
 
In preparing these condensed interim consolidated financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Company’s annual consolidated financial statements as at and for the year ended December 31, 2018.
Page | 5
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


5. Acquisition of Pershing Gold Corporation

On April 3, 2019, the Company obtained control and completed the acquisition of Pershing Gold Corporation (“Pershing Gold”) via an agreement and plan of merger dated September 28, 2018. The merger was completed by the Company acquiring all the outstanding common and preferred shares of Pershing Gold through exchanging each outstanding Pershing Gold common share for 0.715 common shares of the Company and exchanging each outstanding Pershing Gold preferred share for 461.44 common or preferred shares of the Company. Outstanding Pershing Gold options and restricted share units were exchanged for the Company’s common share considerations and outstanding Pershing Gold warrants became exercisable for the Company’s common shares under the same exchange ratio.

The merger has been accounted for as a business combination with the Company identified as the acquirer for accounting purposes.

The consideration paid is calculated as follows:

Non-diluted Pershing Gold common shares outstanding, April 3, 2019
    
33,686,921
  
Implicit share exchange ratio
    
0.715
  
Americas Silver common shares exchanged for Pershing Gold common shares
    
24,085,928
  
Americas Sliver common share price, April 3, 2019 (USD)
    
1.55
  
Total common share consideration
  
$
37,418
  
Consideration on the exchange of Pershing Gold for Americas Silver equity instruments:
        
     Preferred shares exchanged for common shares
    
383
  
     Preferred shares exchanged for preferred shares
    
5,714
  
     Restricted share units exchanged for common shares
    
803
  
     Warrants exchanged for warrants
    
1
  
Total equity consideration
    
44,319
  
Pre-existing convertible loan from Americas Silver to Pershing Gold
    
2,913
  
Total consideration
  
$
47,232
  

For the purpose of these financial statements, the purchase consideration has been allocated on a preliminary basis to the fair value of assets acquired and liabilities assumed based on management’s best estimates and taking into account all available information at the time of the acquisition as well as applicable information at the time these consolidated financial statements were prepared. Due to the underlying assumptions made in the valuation process, the determination of those fair values requires estimations of the effects of uncertain future events at the acquisition date and as a result the carrying amounts of some assets, particularly, property, plant and equipment, acquired through a business combination could therefore differ significantly in the future. As prescribed by IFRS 3 - Business Combinations, if the initial accounting for a business combination can be determined only provisionally by the end of the reporting period in which the combination is effected, the acquirer must account for the business combination using those provisional values and has a period, not to exceed twelve months, to complete the purchase price allocation. Any adjustment of the provisional amount of an identifiable asset acquired or liability assumed made as a result of completing the final accounting will be accounted for retrospectively to the original acquisition date.

The preliminary purchase price allocation, which is subject to final adjustments, is as follows:

Cash and cash equivalents
  
$
241
  
Prepaid expenses
    
609
  
Restricted cash
    
3,787
  
Property, plant and equipment
    
54,059
  
Trade and other payables
    
(5,454
)
Decommission provision
    
(1,223
)
Deferred tax liabilities
    
(4,787
)
Net assets acquired
  
$
47,232
  


Page | 6
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


The acquisition of Pershing Gold by the Company was completed on April 3, 2019. As of the date of these consolidated financial statements, the determination of fair value of assets and liabilities acquired is based on preliminary estimates and has not been finalized. In particular, the fair values of the mining interests, property, plant and equipment, and related tax consequences and exposures have been determined provisionally. The actual fair values of these assets and liabilities may differ materially from the amounts disclosed in the preliminary fair value above and are subject to change. Management will complete its review of the fair values within twelve months of the acquisition date, in particular, the fair values of the mining interests, and property, plant and equipment with consideration to any resulting tax impact.

Acquisition related expenses of $2.2 million have been charged to transaction costs in the consolidated statements of income (loss) and comprehensive income (loss) for the three and six-month periods ended June 30, 2019.

These consolidated financial statements include Pershing Gold results from April 3, 2019 to June 30, 2019. The revenue from the sale of precious metals and net loss before income taxes included in the consolidated statements of income (loss) and comprehensive income (loss) since April 3, 2019 contributed by Pershing Gold was nil and $0.4 million, respectively.

If Pershing Gold had been consolidated from January 1, 2019, on a pro forma basis, the consolidated statements of income (loss) and comprehensive income (loss) would have included revenue of nil and net loss before income taxes of $2.2 million. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on January 1, 2019.
 
6.  Trade and other receivables
 
 
June 30,
  
December 31,
  
 
2019
  
2018
  
 
        
Trade receivables
  
$
5,645
    
$
6,126
  
Value added taxes receivable
    
701
      
1,465
  
Other receivables
    
369
      
121
  
 
  
$
6,715
    
$
7,712
  
 
7.   Inventories
 
 
June 30,
  
December 31,
  
 
2019
  
2018
  
 
        
Concentrates
  
$
1,339
    
$
941
  
Ore stockpiles
    
2,001
      
1,602
  
Spare parts and supplies
    
5,399
      
5,593
  
 
  
$
8,739
    
$
8,136
  

The amount of inventories recognized as an expense was $14.7 million during the three-month period ended June 30, 2019 (2018: $12.0 million) and $27.2 million during the six-month period ended June 30, 2019 (2018: $25.1 million). The concentrates and ore stockpiles, and spare parts and supplies write-down to net realizable value included in cost of sales was $0.2 million and nil, respectively, during the three-month period ended June 30, 2019 (2018: nil, and nil, respectively) and $0.6 million and nil, respectively, during the six-month period ended June 30, 2019 (2018: nil, and nil, respectively).
Page | 7
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


8.   Property, plant and equipment
 
                          
Corporate
        
 
  
Mining
    
Non-producing
    
Plant and
    
Right-of-use
    
office
        
 
  
interests
    
properties
    
equipment
    
lease assets
    
equipment
    
Total
  
 
                                    
Cost
                                    
Balance at January 1, 2018
  
$
104,362
    
$
58,467
    
$
48,808
    
$
-
    
$
84
    
$
211,721
  
Asset additions
    
9,420
      
-
      
5,734
      
-
      
11
      
15,165
  
Property purchase option acquired
    
-
      
2,633
      
-
      
-
      
-
      
2,633
  
Change in decommissioning provision
    
(354
)
    
-
      
-
      
-
      
-
      
(354
)
Reclassification
    
-
      
(61,100
)
    
-
      
-
      
-
      
(61,100
)
Balance at December 31, 2018
    
113,428
      
-
      
54,542
      
-
      
95
      
168,065
  
Acquisition of Pershing Gold
    
-
      
34,786
      
19,262
      
-
      
10
      
54,058
  
Asset additions
    
3,540
      
1,146
      
5,688
      
527
      
-
      
10,901
  
Change in decommissioning provision
    
130
      
-
      
-
      
-
      
-
      
130
  
Reclassification
    
-
      
-
      
(343
)
    
343
      
-
      
-
  
Balance at June 30, 2019
  
$
117,098
    
$
35,932
    
$
79,149
    
$
870
    
$
105
    
$
233,154
  
 
                                                
Accumulated depreciation
                                                
   and depletion
                                                
Balance at January 1, 2018
  
$
34,848
    
$
50,502
    
$
26,031
    
$
-
    
$
39
    
$
111,420
  
Depreciation/depletion for the year
    
6,762
      
-
      
3,800
      
-
      
10
      
10,572
  
Write-down of equipment
    
-
      
-
      
133
      
-
      
-
      
133
  
Reclassification
    
-
      
(50,502
)
    
-
      
-
      
-
      
(50,502
)
Balance at December 31, 2018
    
41,610
      
-
      
29,964
      
-
      
49
      
71,623
  
Depreciation/depletion for the period
    
4,506
      
-
      
2,241
      
138
      
7
      
6,892
  
Balance at June 30, 2019
  
$
46,116
    
$
-
    
$
32,205
    
$
138
    
$
56
    
$
78,515
  
 
                                                
Carrying value
                                                
   at December 31, 2018
  
$
71,818
    
$
-
    
$
24,578
    
$
-
    
$
46
    
$
96,442
  
   at June 30, 2019
  
$
70,982
    
$
35,932
    
$
46,944
    
$
732
    
$
49
    
$
154,639
  

As at January 1, 2019, the Company recognized $0.9 million of right-of-use assets from leases upon adoption of IFRS 16 using the modified retrospective approach, where $0.1 million were from the Cosalá Operations, $0.3 million were from the Galena Complex, and $0.5 million were from Corporate and Other. The associated lease liabilities were classified into trade and other payables and other long-term liabilities in the consolidated statement of financial position.

On March 2, 2017, the Company entered into an option acquisition agreement with Impulsora Minera Santacruz S.A. de C.V., a wholly-owned subsidiary of Santacruz Silver Mining Ltd. (“Santacruz”), to acquire an existing option with Minera Hochschild Mexico S.A. de C.V. (“Hochschild”) for the right to acquire a 100% interest of the San Felipe property located in Sonora, Mexico. As at December 31, 2018, the property purchase option was reclassified as an asset held-for-sale as its carrying amount will be recovered principally through sale. A write-down of $3.7 million was recorded for the year-ended December 31, 2018 to measure the asset held-for-sale at the lower of its carrying amount of $10.6 million and fair value less estimated costs to sell of $6.9 million. The Company made one of the remaining eight contractual quarterly option payments of $0.75 million to Hochschild during the second quarter of 2019. Further details of the option are disclosed in Note 8 of the consolidated financial statements for the year ended December 31, 2018.

Non-current assets are tested for impairment or impairment reversals when events or changes in circumstances suggest that the carrying amount may not be recoverable. A write-down of $0.1 million was recorded for the year ended December 31, 2018 as a result of writing down carrying amounts of equipment to recoverable amounts. No other impairment or impairment reversal indicators were identified for the six-month period ended June 30, 2019.

The Company recognized a gain of $0.8 million in the second quarter of 2018 related to proceeds received through
an insurance claim for equipment damaged from mining operations during fiscal 2017.

The amount of borrowing costs capitalized as property, plant and equipment was $0.1 million during the three-month period ended June 30, 2019 (2018: nil) and $0.1 million during the six-month period ended June 30, 2019 (2018: nil).
Page | 8
 
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


9.   Convertible loans receivable and payable
 
On October 1, 2018, in connection with the acquisition with Pershing Gold (see Note 5), the Company entered into short-term secured convertible loan agreements with Mr. Pierre Lassonde and two other lenders (the “Lenders”) for $5.5 million CAD due July 1, 2019 with interest payable at 15% per annum (the “Convertible Loans Payable”). The Convertible Loans Payable had an extension option to mature on October 1, 2019 with interest payable at 18% per annum upon election by the Company.

The Company recorded a derivative asset of $0.2 million on initial recognition based on the estimated fair value of the extension option and recognized a loss of $0.2 million in the consolidated statements of income (loss) and comprehensive income (loss) for the three-month and six-month periods ended June 30, 2019 as a result of the change in estimated fair value of the extension option (for the year ended December 31, 2018: $0.1 million loss).

The Convertible Loans Payable had an option to convert into common shares of the Company upon mutual election at a conversion price determined as the lower of $3.1231 CAD or the volume-weighted average price of the Company’s common shares for five trading days immediately preceding the date of exercise. On initial recognition and as at December 31, 2018, the fair value of the conversion option was nil. Interest expense of $0.1 million and $0.3 million was recorded in the consolidated statements of income (loss) and comprehensive income (loss) for the three-month and six-month periods ended June 30, 2019, respectively, in connection with the Convertible Loans Payable (for the year ended December 31, 2018: $0.2 million).

On April 3, 2019, the Company along with the Lenders have mutually elected to convert the Company’s outstanding Convertible Loans Payable into common shares of the Company in accordance with the Convertible Loans Payable agreement terms, resulting in the issuance of 2,763,518 of the Company’s common shares priced at approximately $2.09 CAD per share.

Under the terms of the Convertible Loans Payable, the Company issued 1,074,999 warrants to the Lenders where each warrant is exercisable for one common share at an exercise price of $3.1231 CAD for a period of 5 years. The holders of the warrants had a cashless exercise option to receive common shares of the Company equal to the fair value of the warrants, in lieu of exercising the warrants for cash. If so elected, the fair value of the warrants was determined by multiplying the number of warrants to be exercised by the market price of a common share less the warrants exercise price with the difference divided by the market price of the common share. There would be variability in the number of shares issued per warrant if a warrant holder exercises this option.

The Company recorded a derivative warrant liability on initial recognition of $1.3 million based on the estimated fair value of the warrants determined using the Black-Scholes warrant pricing model and recognized nil and a $0.1 million gain in the consolidated statements of income (loss) and comprehensive income (loss) for the three-month and six-month periods ended June 30, 2019, respectively, as a result of the change in estimated fair value of the derivative warrant liability (for the year ended December 31, 2018: $0.6 million gain). The derivative warrant liability was reclassified to equity reserve at fair value of $0.7 million during the second quarter of 2019 as the terms of the warrants were amended to remove the cashless exercise option available to the holders.

The net proceeds of the Convertible Loans Payable were used by the Company to fund a short-term secured first lien convertible loan to Pershing Gold due June 1, 2019 with interest payable at 16% per annum (the “Convertible Loan Receivable”) to address Pershing Gold’s near-term working capital requirements. The Company had funded $2.8 million of the Convertible Loan Receivable to Pershing Gold prior to acquisition on April 3, 2019. Subsequent to the acquisition, the Convertible Loan Receivable was consolidated on presentation with Pershing Gold’s respective convertible loan payable to the Company.

Further details of the Convertible Loans Payable and Convertible Loan Receivable are disclosed in Note 9 of the consolidated financial statements for the year ended December 31, 2018.
Page | 9
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


10. Advance on precious metals delivery

On April 3, 2019, the Company entered into a $25 million precious metals delivery and purchase agreement (the “Purchase Agreement”) with Sandstorm Gold Ltd. (“Sandstorm”) for the construction and development of Pershing Gold’s Relief Canyon Mine. The Purchase Agreement consists of a combination of fixed and variable deliveries from the Relief Canyon Mine. The $25 million advance is conditional upon, among other things, commencement of construction of the Relief Canyon Mine and the associated development plan and operational contracts.  As at June 30, 2019, the Company has not obtain advances from Sandstorm through the Purchase Agreement.
 
11.   Convertible debenture
 
On April 3, 2019, the Company issued a $10 million convertible debenture (the “Convertible Debenture”) to Sandstorm due April 3, 2023 with interest payable at 6% per annum and repayable at the Company’s option prior to maturity. The funds available under the Convertible Debenture included the principal amount of the $3 million unsecured, promissory note previously issued to Sandstorm by the Company.

The Convertible Debenture may be converted into common shares of the Company at Sandstorm’s option at a conversion price of $2.14. The Company recorded a derivative liability of $3.4 million on initial recognition based on the estimated fair value of the conversion option and recognized a loss of $1.6 million in the consolidated statements of income (loss) and comprehensive income (loss) for the three-month and six-month periods ended June 30, 2019 as a result of the change in the estimated fair value of the conversion option.

Interest expense of $0.1 million was capitalized as borrowing costs to property, plant and equipment for the three-month and six-month periods ended June 30, 2019 in connection with the Convertible Debenture.

The initial fair value of the principal portion of the Convertible Debenture was determined using a market interest rate for an equivalent non-convertible instrument at the issue date. The principal portion is subsequently recognized on an amortized cost basis until extinguished on conversion or maturity. The remainder of the proceeds are allocated to the conversion option.
 
12.   Pre-payment facility
 
On January 29, 2017, the Company entered into a pre-payment facility for $15.0 million with Metagri S.A. de C.V., a subsidiary of Glencore PLC (“Glencore”), to fund a portion of the development costs for the San Rafael project within the Cosalá district of Sinaloa, Mexico (the “Pre-Payment Facility”). The Pre-Payment Facility was drawn in full on March 30, 2017, has a term of four years at an interest of U.S. LIBOR rate plus 5% per annum, and is secured by a promissory note in the amount of up to $15.0 million issued by the Company, a corporate guarantee in favour of Glencore, and limited asset level security on the San Rafael project. The Company has also entered into four-year offtake agreements with Glencore for the zinc and lead concentrates produced from the San Rafael Mine where Glencore will pay for the concentrates at the prevailing market prices for silver, zinc and lead, less customary treatment, refining and penalty charges. Repayment of principal on the Pre-Payment Facility began in January 2018 as an additional tonnage charge on shipments of concentrate where $3.9 million was paid during the year ended December 31, 2018. Minimum annual principal repayments of $5.5 million are due during 2019 and $5.5 million are due during 2020. The Company paid $2.9 million during the six-month period ended June 30, 2019.
 
13.   Share capital
 
On April 3, 2019, the Company entered into a subscription agreement with Sandstorm to issue $10 million CAD of the Company’s common shares based on the 5-day volume weighted average price at approximately $2.09 CAD per share, resulting in the issuance of 4,784,689 of the Company’s common shares.
Page | 10
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


a.   Authorized
Authorized share capital consists of an unlimited number of common and preferred shares.

 
June 30,
  
December 31,
  
 
2019
  
2018
  
 
        
Issued
        
78,532,179 (2018: 43,402,434) common shares
  
$
267,731
    
$
212,943
  
3,678,135 (2018: nil) preferred shares
    
5,714
      
-
  
 
  
$
273,445
    
$
212,943
  

Each non-voting preferred share is convertible, at the holder’s option, without payment of any additional consideration by the holder thereof, initially on a one-to-one basis into common shares, subject to adjustment, and in accordance with the terms of the non-voting preferred shares.

b.   Stock option plan
The number of shares reserved for issuance under the Company’s stock option plan is limited to 10% of the number of common shares which are issued and outstanding on the date of a particular grant of options. Under the plan, the Board of Directors determines the term of a stock option to a maximum of 10 years, the period of time during which the options may vest and become exercisable as well as the option exercise price which shall not be less than the closing price of the Company’s share on the Toronto Stock Exchange on the date immediately preceding the date of grant. The Compensation Committee determines and makes recommendations to the Board of Directors as to the recipients of, and nature and size of, share-based compensation awards in compliance with applicable securities law, stock exchange and other regulatory requirements.

A summary of changes in the Company’s outstanding stock options is presented below:

 
    
June 30,
      
December 31,
  
 
    
2019
      
2018
  
 
    
Weighted
      
Weighted
  
 
    
average
      
average
  
 
    
exercise
      
exercise
  
 
Number
  
price
  
Number
  
price
  
 
(thousands)
  
CAD
  
(thousands)
  
CAD
  
 
                
Balance, beginning of period
    
3,160
    
$
3.77
      
2,316
    
$
3.06
  
Granted
    
3,480
      
2.39
      
1,435
      
4.54
  
Exercised
    
(691
)
    
2.04
      
(471
)
    
2.29
  
Expired
    
-
      
-
      
(120
)
    
5.14
  
Balance, end of period
    
5,949
    
$
3.16
      
3,160
    
$
3.77
  

Page | 11
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


The following table summarizes information on stock options outstanding and exercisable as at June 30, 2019:

 
Weighted
                  
 
average
      
Weighted
      
Weighted
  
 
remaining
      
average
      
average
  
 Exercise
contractual
      
exercise
      
exercise
  
 price
life
  
Outstanding
  
price
  
Exercisable
  
price
  
 CAD
(years)
  
(thousands)
  
CAD
  
(thousands)
  
CAD
  
 
                    
 2.00 to 3.00
    
2.77
      
3,520
    
$
2.38
      
1,190
    
$
2.38
  
 3.01 to 4.00
    
0.57
      
1,025
      
3.85
      
1,005
      
3.85
  
 4.01 to 5.00
    
1.51
      
1,364
      
4.58
      
920
      
4.58
  
 5.01 to 6.00
    
1.57
      
40
      
5.55
      
27
      
5.55
  
 
            
5,949
    
$
3.16
      
3,142
    
$
3.52
  

c.   Share-based payments
The weighted average fair value at grant date of the Company’s stock options granted during the six-month period ended June 30, 2019 was $0.72 (2018: $1.50).

The Company used the Black-Scholes Option Pricing Model to estimate fair value using the following weighted-average assumptions for the three-month and six-month periods ended June 30, 2019 and 2018:

 
Three-month
  
Three-month
  
Six-month
  
Six-month
  
 
period ended
  
period ended
  
period ended
  
period ended
  
 
June 30,
  
June 30,
  
June 30,
  
June 30,
  
 
2019
  
2018
  
2019
  
2018
  
 
                
Expected stock price volatility (1)
    
58
%
    
57
%
    
58
%
    
59
%
Risk free interest rate
    
1.60
%
    
2.13
%
    
1.60
%
    
1.74
%
Expected life
3 years
  
3 years
  
3 years
  
3 years
  
Expected forfeiture rate
    
2.72
%
    
3.07
%
    
2.72
%
    
3.36
%
Expected dividend yield
    
0
%
    
0
%
    
0
%
    
0
%
 
                                
Share-based payments included in cost of sales
  
$
-
    
$
-
    
$
-
    
$
-
  
Share-based payments included in general and
                                
   administrative expenses
    
1,190
      
339
      
1,289
      
1,377
  
Total share-based payments
  
$
1,190
    
$
339
    
$
1,289
    
$
1,377
  

(1)
Expected volatility has been based on historical volatility of the Company’s publicly traded shares.

d.   Warrants
The warrants that are issued and outstanding as at June 30, 2019 are as follows:

Number of
  
Exercise
  
 Issuance
 Expiry
 warrants
  
price (CAD)
  
 date
 date
                             1,447,426
    
4.68
  
 Jun 2016
 Jun 9, 2021
                               799,065
    
4.68
  
 Jul 2016
 Jun 14, 2021
                             1,074,999
    
3.12
  
 Oct 2018
 Oct 1, 2023
                                 15,889
    
11.32
  
 Apr 2019
 May 6, 2022
                               389,771
    
2.40
  
 May 2019
 May 13, 2022
                             1,241,200
    
2.40
  
 May 2019
 May 29, 2022
                             4,968,350
        
 
   


Page | 12
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


e.   Restricted Share Units:
The Company has a Restricted Share Unit Plan under which eligible directors, officers and key employees of the Company are entitled to receive awards of restricted share units. Each restricted share unit is equivalent in value to the fair market value of a common share of the Company on the date of grant with the value of each cash settled award charged to compensation expense over the period of vesting. At each reporting date, the compensation expense and associated liability (which is included in trade and other long-term liabilities in the consolidated statement of financial position) are adjusted to reflect changes in market value. As at June 30, 2019, 89,196 (December 31, 2018: 86,692) restricted share units are outstanding at an aggregate value of $0.2 million (December 31, 2018: $0.1 million).

f.   Deferred Share Units:
The Company has a Deferred Share Unit Plan under which eligible directors of the Company receive awards of deferred share units on a quarterly basis as payment for 20% of their director fees earned. Deferred share units are settled in either cash or common shares at the Company’s discretion when the director leaves the Company’s Board of Directors. The Company recognizes a cost in director fees and a corresponding increase in equity reserve upon issuance of deferred share units. As at June 30, 2019, 308,972 (December 31, 2018: 337,137) deferred share units are issued and outstanding.
 
14.   Weighted average basic and diluted number of common shares outstanding
 
 
 Three-month
 
 Three-month
 
 Six-month
 
 Six-month
 
 period ended
 
 period ended
 
 period ended
 
 period ended
 
 June 30,
 
 June 30,
 
 June 30,
 
 June 30,
 
 2019
 
 2018
 
 2019
 
 2018
 
 
 
 
 
 
 
 
Basic weighted average number of shares
                         74,017,916
 
                         42,461,994
 
                         59,450,433
 
                         42,121,388
Effect of dilutive stock options and warrants
                                      -
 
                          1,987,816
 
                                      -
 
                          2,056,703
Diluted weighted average number of shares
                         74,017,916
 
                         44,449,810
 
                         59,450,433
 
                         44,178,091

Diluted weighted average number of common shares for the three-month period ended June 30, 2019 excludes 3,678,135 anti-dilutive preferred shares (2018: nil), 5,948,500 anti-dilutive stock options (2018: 1,414,999) and 4,968,350 anti-dilutive warrants (2018: 2,246,491).and for the six-month period ended June 30, 2019 excludes 3,678,135 anti-dilutive preferred shares (2018: nil), 5,948,500 anti-dilutive stock options (2018: 84,999) and 4,968,350 anti-dilutive warrants (2018: 2,246,491).
Page | 13
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)

 
15.   Revenue
 
The following is a disaggregation of revenue categorized by commodities sold for the three-month and six-month periods ended June 30, 2019 and 2018:

 
  
June 30,
    
June 30,
    
June 30,
    
June 30,
  
 
  
2019
    
2018
    
2019
    
2018
  
 
                        
Silver
                        
Provisional sales revenue
  
$
5,282
    
$
5,107
    
$
11,229
    
$
11,938
  
Derivative pricing adjustments
    
103
      
(238
)
    
5
      
(45
)
 
    
5,385
      
4,869
      
11,234
      
11,893
  
Zinc
                                
Provisional sales revenue
  
$
13,562
    
$
11,999
    
$
26,905
    
$
23,163
  
Derivative pricing adjustments
    
(1,226
)
    
(282
)
    
(909
)
    
(232
)
 
    
12,336
      
11,717
      
25,996
      
22,931
  
Lead
                                
Provisional sales revenue
  
$
6,412
    
$
6,878
    
$
13,798
    
$
15,856
  
Derivative pricing adjustments
    
(183
)
    
41
      
(126
)
    
49
  
 
    
6,229
      
6,919
      
13,672
      
15,905
  
Other by-products
                                
Provisional sales revenue
  
$
166
    
$
99
    
$
348
    
$
227
  
Derivative pricing adjustments
    
(47
)
    
51
      
(80
)
    
15
  
 
    
119
      
150
      
268
      
242
  
 
                                
Total provisional sales revenue
  
$
25,422
    
$
24,083
    
$
52,280
    
$
51,184
  
Total derivative pricing adjustments
    
(1,353
)
    
(428
)
    
(1,110
)
    
(213
)
Gross revenue
  
$
24,069
    
$
23,655
    
$
51,170
    
$
50,971
  
Treatment and selling costs
    
(9,133
)
    
(6,304
)
    
(18,408
)
    
(13,237
)
 
  
$
14,936
    
$
17,351
    
$
32,762
    
$
37,734
  

Derivative pricing adjustments represent subsequent variations in revenue recognized as an embedded derivative from contracts with customers and are accounted for as financial instruments (see Note 19). Revenue from contracts with customers is recognized net of treatment and selling costs if payment of those amounts is enforced at the time of sale.
 
16.   Cost of sales
 
Cost of sales is costs that directly relate to production at the mine operating segments and excludes depletion and amortization. The following are components of cost of sales for the three-month and six- month periods ended June 30, 2019 and 2018:

 
  
Three-month
    
Three-month
    
Six-month
    
Six-month
  
 
  
period ended
    
period ended
    
period ended
    
period ended
  
 
  
June 30,
    
June 30,
    
June 30,
    
June 30,
  
 
  
2019
    
2018
    
2019
    
2018
  
 
                        
Salaries and employee benefits
  
$
6,863
    
$
5,458
    
$
13,453
    
$
11,480
  
Raw materials and consumables
    
5,658
      
4,509
      
10,901
      
9,280
  
Utilities
    
1,315
      
981
      
2,649
      
2,009
  
Other costs
    
570
      
584
      
800
      
1,501
  
Changes in inventories
    
324
      
459
      
(603
)
    
864
  
 
  
$
14,730
    
$
11,991
    
$
27,200
    
$
25,134
  


Page | 14
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


17.   Corporate general and administrative expenses

Corporate general and administrative expenses are costs incurred at corporate and other segments that do not directly relate to production. The following are components of corporate general and administrative expenses for the three-month and six-month periods ended June 30, 2019 and 2018:

 
Three-month
  
Three-month
  
Six-month
  
Six-month
  
 
period ended
  
period ended
  
period ended
  
period ended
  
 
June 30,
  
June 30,
  
June 30,
  
June 30,
  
 
2019
  
2018
  
2019
  
2018
  
 
                
Salaries and employee benefits
  
$
576
    
$
441
    
$
1,090
    
$
887
  
Directors’ fees
    
97
      
72
      
191
      
146
  
Share-based payments
    
1,254
      
310
      
1,354
      
1,338
  
Professional fees
    
229
      
176
      
338
      
372
  
Office and general
    
511
      
339
      
924
      
825
  
 
  
$
2,667
    
$
1,338
    
$
3,897
    
$
3,568
  

18.   Income taxes

Income tax expense is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rate used for the six-month period ended June 30, 2019 was 26.5% and for the year ended December 31, 2018 was 26.5%.

The Company’s net deferred tax asset relates to the U.S. alternative minimum tax credits available:

 
  
June 30,
    
December 31,
  
 
  
2019
    
2018
  
 
            
Alternative minimum tax credits
  
$
626
    
$
626
  
Other
    
742
      
742
  
Total deferred tax assets
    
1,368
      
1,368
  
Property, plant and equipment
    
(742
)
    
(742
)
Net deferred tax assets
  
$
626
    
$
626
  

The Company’s net deferred tax liability relates to the acquisition of Pershing Gold and Mexican mining royalty arising principally from the following:

 
  
June 30,
    
December 31,
  
 
  
2019
    
2018
  
 
            
Property, plant and equipment
  
$
5,654
    
$
878
  
Other
    
487
      
607
  
Total deferred tax liabilities
    
6,141
      
1,485
  
Provisions and reserves
    
(364
)
    
(353
)
Net deferred tax liabilities
  
$
5,777
    
$
1,132
  

Page | 15
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


19.   Financial risk management
 
a.   Financial risk factors
The Company’s risk exposures and the impact on its financial instruments are summarized below:

(i)            Credit Risk

Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash and cash equivalents and trade and other receivables. The credit risk on cash and cash equivalents is limited because the Company invests its cash in deposits with well-capitalized financial institutions with strong credit ratings in Canada and the United States. Under current concentrate offtake agreements, risk on trade receivables related to concentrate sales is managed by receiving payments for 85% to 100% of the estimated value of the concentrate within one month following the time of shipment.

As of June 30, 2019, the Company’s exposure to credit risk with respect to trade receivables amounts to $5.6 million (December 31, 2018: $6.1 million). The Company believes credit risk for Mexican Value Added Taxes of $0.7 million (December 31, 2018: $1.5 million) is not significant as they relate to current amounts receivable from Mexican taxation authorities. There is no significant provision recorded for expected credit losses at June 30, 2019 and December 31, 2018.

(ii)            Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they arise. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Company’s liquidity requirements are met through a variety of sources, including cash, cash generated from operations, existing credit facilities and debt and equity capital markets. The Company’s trade payables have contractual maturities of less than 30 days and are subject to normal trade terms.

The following table presents the contractual maturities of the Company’s financial liabilities on an undiscounted basis:
 
  
June 30, 2019
  
 
        
Less than
                
Over 5
  
 
  
Total
    
1 year
    
2-3 years
    
4-5 years
    
years
  
 
                              
Trade and other payables
  
$
17,173
    
$
17,173
    
$
-
    
$
-
    
$
-
  
Pre-payment facility
    
8,237
      
5,500
      
2,737
      
-
      
-
  
Interest on pre-payment facility
    
463
      
406
      
57
      
-
      
-
  
Convertible debenture
    
10,000
      
-
      
-
      
10,000
      
-
  
Interest on convertible debenture
    
2,257
      
602
      
1,200
      
455
      
-
  
Projected pension contributions
    
4,193
      
861
      
1,653
      
1,391
      
288
  
Decommissioning provision
    
6,047
      
50
      
616
      
-
      
5,381
  
Other long-term liabilities
    
701
      
-
      
103
      
89
      
509
  
 
  
$
49,071
    
$
24,592
    
$
6,366
    
$
11,935
    
$
6,178
  


Minimum lease payments in respect to lease liabilities are included in trade and other payables and other long-term liabilities as follows:
 
June 30, 2019
  
 
    
Less than
          
Over 5
  
 
Total
  
1 year
  
2-3 years
  
4-5 years
  
years
  
 
                    
Trade and other payables
  
$
292
    
$
292
    
$
-
    
$
-
    
$
-
  
Other long-term liabilities
    
453
      
-
      
364
      
89
      
-
  
 
  
$
745
    
$
292
    
$
364
    
$
89
    
$
-
  
 
Page | 16
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


The following table summarizes the continuity of the Company’s total lease liabilities discounted using an incremental borrowing rate of 8% applied during the period:

Balance as January 1, 2019
  
$
270
  
IFRS16 adoption
    
527
  
Lease principal payments
    
(109
)
Lease interest payments
    
(24
)
Accretion on lease liabilities
    
18
  
Balance as June 30, 2019
  
$
682
  

(iii)            Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and price risk.

(1)
Interest rate risk

The Company is subject to the interest rate risk of U.S. LIBOR rate plus 5% per annum from the existing pre-payment facility. Interest rates of other financial instruments are fixed.

(2)
Currency risk

As at June 30, 2019, the Company is exposed to foreign currency risk through financial assets and liabilities denominated in CAD and Mexican pesos (“MXP”):

Financial instruments that may impact the Company’s net earnings or other comprehensive income due to currency fluctuations include CAD and MXP denominated assets and liabilities which are included in the following table:

 
As at June 30, 2019
  
 
CAD
  
MXP
  
 
        
Cash and cash equivalents
  
$
2,098
    
$
349
  
Trade and other receivables
    
227
      
830
  
Trade and other payables
    
2,016
      
6,178
  


As at June 30, 2019, the CAD/USD and MXP/USD exchange rates were 1.31 and 19.17, respectively. The sensitivity of the Company’s net income (loss) and comprehensive income (loss) due to changes in the exchange rates for the six-month period ended June 30, 2019 is included in the following table:

 
  
CAD/USD
    
MXP/USD
  
 
  
Exchange rate
    
Exchange rate
  
 
    
+/- 10
%
    
+/- 10
%
 
                
Approximate impact on:
                
Net income
  
$
725
    
$
909
  
Other comprehensive income
    
(39
)
    
103
  

The Company may, from time to time, employ derivative financial instruments to manage exposure to fluctuations in foreign currency exchange rates.

At June 30, 2019, the Company had non-hedge foreign exchange forward contracts to buy approximately 96.0 million MXP at average exchange rate of 20.00 MXP/USD to be settled within the next year valued at approximately $4.8 million. The average forward exchange rate on settlement as at June 30, 2019 was approximately 19.50 MXP/USD with the currencies having a fair value of approximately $4.9 million.

Page | 17
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


Accordingly, the Company recorded an unrealized gain of nil through profit or loss during the six-month period ended June 30, 2019 (2018: unrealized gain of $0.1 million). During the three-month period ended June 30, 2019, the Company settled non-hedge foreign exchange forward contracts to buy approximately 60.0 million MXP (2018: nil) and recorded a realized gain of $0.2 million through profit or loss (2018: nil). During the six-month period ended June 30, 2019, the Company settled non-hedge foreign exchange forward contracts to buy approximately 120.0 million MXP (2018: 24.8 million MXP) and recorded a realized gain of $0.4 million through profit or loss (2018: realized loss of $0.1 million).

(3)
Price risk

Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments in the market. As at June 30, 2019, the Company had certain amounts related to the sales of concentrates that have only been provisionally priced. A ±10% fluctuation in silver, zinc, lead, copper and gold prices would affect trade receivables by approximately $0.6 million.

As June 30, 2019, the Company had non-hedge commodity forward contracts for approximately 10.9 million pounds of zinc at average price of $1.22 per pound to be settled within the next year valued at approximately $13.3 million. The average forward prices on settlement as at June 30, 2019 was approximately $1.15 per pound with the commodities having a fair value of approximately $12.5 million. Accordingly, the Company recorded an unrealized gain of $0.8 million through profit or loss during the six-month period ended June 30, 2019 (2018: unrealized gain of $0.1 million). During the three-month and six-month periods ended June 30, 2019, the Company settled non-hedge commodity forward contracts for approximately 1.4 million pounds of zinc (2018: 0.7 million pounds of zinc and 2.6 million pounds of lead) and recorded a realized loss of $0.1 million through profit or loss (2018: realized gain of $0.4 million).

Net amount of gain or loss on derivative instruments from non-hedge foreign exchange and commodity forward contracts recognized through profit or loss during the six-month period ended June 30, 2019 was gain of $1.1 million (2018: gain of $0.5 million). Total amount of gain or loss on derivative instruments including those recognized through profit or loss from the Company’s Convertible Debenture during the six-month period ended June 30, 2019 was loss of $0.6 million (2018: gain of $0.5 million).

b.   Fair values
The fair value of cash, restricted cash, trade and other payables, and other long-term liabilities approximate their carrying amounts. The methods and assumptions used in estimating the fair value of other financial assets and liabilities are as follows:

●
Cash and cash equivalents: The fair value of cash equivalents is valued using quoted market prices in active markets. The Company’s cash equivalents consist of money market accounts held at financial institutions which have original maturities of less than 90 days.
●
Trade and other receivables: The fair value of trade receivables from silver sales contracts that contain provisional pricing terms is determined using the appropriate quoted forward price from the exchange that is the principal active market for the particular metal. As such, there is an embedded derivative feature within trade receivables.
●
Convertible debenture:  The principal portion of the convertible debenture is carried at amortized cost.
●
Embedded derivatives: Revenues from the sale of metals produced since the commencement of commercial production are based on provisional prices at the time of shipment. Variations between the price recorded at the time of sale and the actual final price received from the customer are caused by changes in market prices for metals sold and result in an embedded derivative in revenues and accounts receivable.
●
Derivatives: The Company uses derivative and non-derivative instruments to manage financial risks, including commodity, interest rate, and foreign exchange risks. The use of derivative contracts is governed by documented risk management policies and approved limits. The Company does not use derivatives for speculative purposes. The fair value of the Company’s derivative instruments is based on quoted market prices for similar instruments and at market prices at the valuation date.

Page | 18
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value:

●
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
●
Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means.
●
Level 3 inputs are unobservable (supported by little or no market activity).

 
  
June 30.
    
December 31,
  
 
  
2019
    
2018
  
 
            
Level 1
            
   Cash and cash equivalents
  
$
6,325
    
$
3,464
  
   Restricted cash
    
3,992
      
681
  
 
                
Level 2
                
   Trade and other receivables
    
6,715
      
7,712
  
   Derivative instruments
    
5,034
      
35
  
   Convertible loan receivable
    
-
      
1,977
  
   Convertible loans payable
    
-
      
4,032
  
   Convertible debenture
    
6,684
      
-
  
   Pre-payment facility
    
8,237
      
11,110
  
   Derivative warrant liability
    
-
      
711
  

 
20.   Segmented and geographic information, and major customers
 
a.   Segmented information
The Company’s operations comprise of four reporting segments engaged in acquisition, exploration, development and exploration of mineral resource properties in Mexico and the United States, including a recently acquired Pershing Gold segment (see Note 5). Management has determined the operating segments based on the reports reviewed by the chief operating decision makers that are used to make strategic decisions.

b.   Geographic information
All revenues from sales of concentrates for the three-month and six-month periods ended June 30, 2019, and 2018 were earned in Mexico and the United States. The following segmented information is presented as at June 30, 2019 and December 31, 2018, and for the three-month and six-month periods ended June 30, 2019 and 2018.

 
  
As at June 30, 2019
    
As at December 31, 2018
  
 
  
Cosalá Operations
    
Galena Complex
    
Relief Canyon
    
Corporate and Other
    
Total
    
Cosalá Operations
    
Galena Complex
    
Corporate and Other
    
Total
  
 
                                                      
Cash and cash equivalents
  
$
3,552
    
$
485
    
$
23
    
$
2,265
    
$
6,325
    
$
3,305
    
$
(2
)
  
$
161
    
$
3,464
  
Trade and other receivables
    
5,021
      
1,467
      
-
      
227
      
6,715
      
6,353
      
1,274
      
85
      
7,712
  
Inventories
    
6,365
      
2,374
      
-
      
-
      
8,739
      
5,844
      
2,292
      
-
      
8,136
  
Prepaid expenses
    
595
      
431
      
308
      
648
      
1,982
      
506
      
535
      
206
      
1,247
  
Derivative instruments
    
-
      
-
      
-
      
873
      
873
      
-
      
-
      
-
      
-
  
Asset held-for-sale
    
7,723
      
-
      
-
      
-
      
7,723
      
6,925
      
-
      
-
      
6,925
  
Convertible loan receivable
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
1,922
      
1,922
  
Restricted cash
    
143
      
53
      
3,741
      
55
      
3,992
      
139
      
541
      
1
      
681
  
Property, plant and equipment
    
49,269
      
45,359
      
59,544
      
467
      
154,639
      
52,540
      
43,856
      
46
      
96,442
  
Deferred tax assets
    
-
      
626
      
-
      
-
      
626
      
-
      
626
      
-
      
626
  
Total assets
  
$
72,668
    
$
50,795
    
$
63,616
    
$
4,535
    
$
191,614
    
$
75,612
    
$
49,122
    
$
2,421
    
$
127,155
  

Page | 19
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)



 
                                                                        
Trade and other payables
  
$
7,530
    
$
3,322
    
$
2,880
    
$
3,441
    
$
17,173
    
$
8,094
    
$
3,614
    
$
2,637
    
$
14,345
  
Derivative instruments
    
-
      
-
      
-
      
5,034
      
5,034
      
-
      
-
      
35
      
35
  
Convertible loans payable
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
2,972
      
2,972
  
Other long-term liabilities
    
-
      
605
      
-
      
96
      
701
      
-
      
632
      
57
      
689
  
Convertible debenture
    
-
      
-
      
-
      
6,684
      
6,684
      
-
      
-
      
-
      
-
  
Pre-payment facility
    
8,237
      
-
      
-
      
-
      
8,237
      
11,110
      
-
      
-
      
11,110
  
Post-employment benefit obligations
    
-
      
8,350
      
-
      
-
      
8,350
      
-
      
8,174
      
-
      
8,174
  
Decommissioning provision
    
1,837
      
2,183
      
1,231
      
-
      
5,251
      
1,760
      
2,031
      
-
      
3,791
  
Derivative warrant liability
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
711
      
711
  
Deferred tax liabilities
    
990
      
-
      
4,787
      
-
      
5,777
      
1,132
      
-
      
-
      
1,132
  
Total liabilities
  
$
18,594
    
$
14,460
    
$
8,898
    
$
15,255
    
$
57,207
    
$
22,096
    
$
14,451
    
$
6,412
    
$
42,959
  
 
                                                                        
 
  
Three-month period ended June 30, 2019
    
Three-month period ended June 30, 2018
  
 
  
Cosalá Operations
  
Galena Complex
    
Relief Canyon
    
Corporate and Other
    
Total
    
Cosalá Operations
    
Galena Complex
    
Corporate and Other
    
Total
  
 
                                                                        
Revenue
  
$
10,098
    
$
4,838
    
$
-
    
$
-
    
$
14,936
    
$
11,275
    
$
6,076
    
$
-
    
$
17,351
  
Cost of sales
    
(7,160
)
    
(7,570
)
    
-
      
-
      
(14,730
)
    
(5,577
)
    
(6,414
)
    
-
      
(11,991
)
Depletion and amortization
    
(2,483
)
    
(863
)
    
(52
)
    
(32
)
    
(3,430
)
    
(1,603
)
    
(780
)
    
(3
)
    
(2,386
)
Care and maintenance costs
    
(9
)
    
(92
)
    
-
      
-
      
(101
)
    
(22
)
    
(751
)
    
-
      
(773
)
Corporate general and administrative
    
-
      
-
      
-
      
(2,667
)
    
(2,667
)
    
-
      
-
      
(1,338
)
    
(1,338
)
Transaction costs
    
-
      
-
      
-
      
(1,180
)
    
(1,180
)
    
-
      
-
      
-
      
-
  
Exploration costs
    
(102
)
    
(98
)
    
(164
)
    
-
      
(364
)
    
(189
)
    
(17
)
    
-
      
(206
)
Accretion on decommissioning provision
    
(37
)
    
(11
)
    
(7
)
    
-
      
(55
)
    
(36
)
    
(13
)
    
-
      
(49
)
Interest and financing income (expense)
    
(170
)
    
15
      
7
      
(831
)
    
(979
)
    
(251
)
    
-
      
1
      
(250
)
Foreign exchange gain (loss)
    
(20
)
    
-
      
-
      
262
      
242
      
(49
)
    
-
      
11
      
(38
)
Gain on disposal of assets
    
-
      
-
      
-
      
-
      
-
      
855
      
-
      
-
      
855
  
Gain on derivative instruments
    
-
      
-
      
-
      
447
      
447
      
63
      
22
      
151
      
236
  
Loss on derivative warrant liability
    
-
      
-
      
-
      
(13
)
    
(13
)
    
-
      
-
      
-
      
-
  
Contingency on value added taxes
    
-
      
-
      
-
      
-
      
-
      
(125
)
    
-
      
-
      
(125
)
Income (loss) before income taxes
    
117
      
(3,781
)
    
(216
)
    
(4,014
)
    
(7,894
)
    
4,341
      
(1,877
)
    
(1,178
)
    
1,286
  
Income tax recovery (expense)
    
(101
)
    
-
      
-
      
-
      
(101
)
    
104
      
-
      
-
      
104
  
Net income (loss) for the period
  
$
16
    
$
(3,781
)
  
$
(216
)
  
$
(4,014
)
  
$
(7,995
)
  
$
4,445
    
$
(1,877
)
  
$
(1,178
)
  
$
1,390
  
 
                                                                        

 
  
Six-month period ended June 30, 2019
    
Six-month period ended June 30, 2018
  
 
  
Cosalá Operations
    
Galena Complex
    
Relief Canyon
    
Corporate and Other
    
Total
    
Cosalá Operations
    
Galena Complex
    
Corporate and Other
    
Total
  
 
                                                                        
Revenue
  
$
22,935
    
$
9,827
    
$
-
    
$
-
    
$
32,762
    
$
22,683
    
$
15,051
    
$
-
    
$
37,734
  
Cost of sales
    
(12,899
)
    
(14,301
)
    
-
      
-
      
(27,200
)
    
(11,193
)
    
(13,941
)
    
-
      
(25,134
)
Depletion and amortization
    
(5,002
)
    
(1,775
)
    
(52
)
    
(63
)
    
(6,892
)
    
(2,946
)
    
(1,650
)
    
(5
)
    
(4,601
)
Care and maintenance costs
    
(20
)
    
(177
)
    
-
      
-
      
(197
)
    
(22
)
    
(839
)
    
-
      
(861
)
Corporate general and administrative
    
-
      
-
      
-
      
(3,897
)
    
(3,897
)
    
-
      
-
      
(3,568
)
    
(3,568
)
Transaction costs
    
-
      
-
      
-
      
(2,157
)
    
(2,157
)
    
-
      
-
      
-
      
-
  
Exploration costs
    
(633
)
    
(169
)
    
(164
)
    
-
      
(966
)
    
(1,900
)
    
(89
)
    
-
      
(1,989
)
Accretion on decommissioning provision
    
(74
)
    
(23
)
    
(7
)
    
-
      
(104
)
    
(73
)
    
(23
)
    
-
      
(96
)
Interest and financing income (expense)
    
(370
)
    
15
      
7
      
(1,332
)
    
(1,680
)
    
(512
)
    
-
      
-
      
(512
)
Foreign exchange gain (loss)
    
70
      
-
      
-
      
213
      
283
      
(193
)
    
-
      
9
      
(184
)
Gain on disposal of assets
    
-
      
-
      
-
      
-
      
-
      
855
      
-
      
-
      
855
  
Gain (loss) on derivative instruments
    
-
      
-
      
-
      
(579
)
    
(579
)
    
63
      
165
      
375
      
603
  
Gain on derivative warrant liability
    
-
      
-
      
-
      
46
      
46
      
-
      
-
      
-
      
-
  
Contingency on value added taxes
    
-
      
-
      
-
      
-
      
-
      
(125
)
    
-
      
-
      
(125
)
Income (loss) before income taxes
    
4,007
      
(6,603
)
    
(216
)
    
(7,769
)
    
(10,581
)
    
6,637
      
(1,326
)
    
(3,189
)
    
2,122
  
Income tax expense
    
(227
)
    
-
      
-
      
-
      
(227
)
    
(209
)
    
-
      
-
      
(209
)
Net income (loss) for the period
  
$
3,780
    
$
(6,603
)
  
$
(216
)
  
$
(7,769
)
  
$
(10,808
)
  
$
6,428
    
$
(1,326
)
  
$
(3,189
)
  
$
1,913
  

Page | 20
Americas Silver Corporation
Notes to the condensed interim consolidated financial statements
For the three-month and six-month periods ended June 30, 2019 and 2018
(In thousands of U.S. dollars, unless otherwise stated, unaudited)


c.   Major customers

The Company sold concentrates to one customer during the three-month period ended June 30, 2019 (2018: two customers), with one customer accounting for 100% (2018: 65% and 35%) of revenues, respectively. For the six-month period ended June 30, 2019, the Company sold concentrated to one customer (2018: two customers), with one customer accounting for 100% (2018: 60% and 40%) of revenues, respectively.
 
21.   Contingencies
 
Due to the size, complexity and nature of the Company’s operations, various legal and tax matters arise in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated.

In November 2010, the Company received a reassessment from the Mexican tax authorities related to its Mexican subsidiary, Minera Cosalá, for the year ended December 31, 2007. The tax authorities disallowed the deduction of transactions with certain suppliers for an amount of approximately $10.3 million (MXP 196.8 million), of which $4.4 million (MXP 84.4 million) would be applied against available tax losses. The Company appealed this reassessment and the Mexican tax authorities subsequently reversed $4.9 million (MXP 94.6 million) of their original reassessment. The remaining $5.3 million (MXP 102.2 million) consists of $4.4 million (MXP 84.4 million) related to transactions with certain suppliers and $0.9 million (MXP 17.8 million) of value added taxes thereon. The Company appealed the remaining reassessment with the Mexican Tax Court in December 2011. The Company may be required to post a bond of approximately $0.9 million (MXP 17.8 million) to secure the value added tax portion of the reassessment. The deductions of $4.4 million (MXP 84.4 million), if denied, would be offset by available tax losses. The Company accrued $1.0 million (MXP 19.9 million) in the consolidated financial statements as at December 31, 2018 as a probable obligation for the disallowance of value added taxes related to the Mexican tax reassessment.
 
22.   Subsequent events
 
On July 19, 2019, the Company’s previously announced agreement to sell its option for the right to acquire a 100% interest of the San Felipe property with Hochschild to Premier Gold Mines Ltd. (“Premier”) for total consideration of $10.8 million was terminated by Premier in accordance with the agreement terms.

On July 26, 2019, the Company closed a non-brokered private placement with Mr. Eric Sprott for gross proceeds of $10 million through issuance of 3,955,454 of the Company’s common shares priced at approximately $3.30 CAD per share.


Page | 21