REG - Fresnillo Plc - Full Year 2016 Preliminary Results <Origin Href="QuoteRef">FRES.L</Origin> - Part 4
28/02/2017 07:08
- Part 4: For the preceding part double click ID:nRSb0000Yc
transaction, affects neither
the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in
joint ventures, deferred income tax assets are recognised only to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable profit will be available against which the temporary
differences can be utilised.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it
is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax
asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it
has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the
asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively
enacted at the balance sheet date.
Deferred income tax relating to items recognised directly in other comprehensive income is recognised in equity and not in
the income statement.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off
current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity
and the same taxation authority.
Mining Rights
The Special Mining Right is considered an income tax under IFRS and states that the owners of mining titles and concessions
are subject to pay an annual mining right of 7.5% of the profit derived from the extractive activities. The Group
recognises deferred tax assets and liabilities on temporary differences arising in the determination of the Special Mining
Right. (See note 10).
Sales tax
Expenses and assets are recognised net of the amount of sales tax, except:
When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which
case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as
applicable;
When receivables and payables are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or
payables in the balance sheet.
(s) Derivative financial instruments and hedging
The Group uses derivatives to reduce certain market risks derived from changes in foreign exchange and commodities price
which impact its financial and business transactions. Hedges are designed to protect the value of expected production
against the dynamic market conditions.
Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is
entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is
positive and as liabilities when the fair value is negative. The full fair value of a derivative is classified as
non-current asset or liability if the remaining maturity of the item is more than 12 months.
Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge
accounting are taken directly to the income statement.
Derivatives are valued using valuation approaches and methodologies (such as Black Scholes and Net Present Value)
applicable to the specific type of derivative instrument. The fair value of forward currency and commodity contracts is
calculated by reference to current forward exchange rates for contracts with similar maturity profiles, European foreign
exchange options are valued using the Black Scholes model. The Silverstream contract is valued using a Net Present Value
valuation approach.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the
Group wishes to apply hedge accounting and the risk management objective and strategy for the undertaken hedge. The
documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk
being hedged and how the entity will assess the hedging instrument's effectiveness in offsetting the exposure to changes in
the hedged item's fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective
in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they
actually have been highly effective throughout the financial reporting periods for which they were designated.
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
Cash flow hedges
For derivatives that are designated and qualify as cash flow hedges, the effective portion of changes in the fair value of
derivative instruments are recorded as in other comprehensive income and are transferred to the income statement when the
hedged transaction affects profit or loss, such as when a forecast sale or purchase occurs. For gains or losses related to
the hedging of foreign exchange risk these are included, in the line item in which the hedged costs are reflected. Where
the hedged item is the cost of a non-financial asset or liability, the amounts recognised in other comprehensive income are
transferred to the initial carrying amount of the non-financial asset or liability. The ineffective portion of changes in
the fair value of cash flow hedges is recognised directly as finance costs, in the income statement of the related period.
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its
designation as a hedge is revoked, any cumulative gain or loss recognised directly in other comprehensive income from the
period that the hedge was effective remains separately in other comprehensive income until the forecast transaction occurs,
when it is recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative
gain or loss that was reported in other comprehensive income is immediately transferred to the income statement.
When hedging with options, the Group designates only the intrinsic value movement of the hedging option within the hedge
relationship. The time value of the option contracts is therefore excluded from the hedge designation. Changes in fair
value of time value is recognised in the income statement in finance costs.
Embedded derivatives
Contracts are assessed for the existence of embedded derivatives at the date that the Group first becomes party to the
contract, with reassessment only if there is a change to the contract that significantly modifies the cash flows. Embedded
derivatives which are not clearly and closely related to the underlying asset, liability or transaction are separated and
accounted for as stand-alone derivatives.
(t) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes 12
or more months to get ready for its intended use or sale (a qualifying asset) are capitalised as part of the cost of the
respective asset. Borrowing costs consist of interest and other costs that an entity incurs in connection with the
borrowing of funds.
Where funds are borrowed specifically to finance a project, the amount capitalised represents the actual borrowing costs
incurred. Where surplus funds are available for a short term from funds borrowed specifically to finance a project, the
income generated from the temporary investment of such amounts is also capitalised and deducted from the total capitalised
borrowing cost. Where the funds used to finance a project form part of general borrowings, the amount capitalised is
calculated using a weighted average of rates applicable to relevant general borrowings of the Group during the period.
All other borrowing costs are recognised in the income statement in the period in which they are incurred.
(u) Fair value measurement
The Group measures financial instruments at fair value at each balance sheet date. Fair values of financial instruments
measured at amortised cost are disclosed in notes 30 and 31.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place either:
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the
asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available
to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within
the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value
measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is
directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines
whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level
input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Further information on fair values is described in note 30.
(v) Dividend distribution
Dividends payable to the Company's shareholders are recognised as a liability when these are approved by the Company's
shareholders or Board as appropriate. Dividends payable to minority shareholders are recognised as a liability when these
are approved by the Company's subsidiaries.
3. Segment reporting
For management purposes, the Group is organised into operating segments based on producing mines.
At 31 December 2016, the Group has six reportable operating segments1 as follows:
The Fresnillo mine, located in the state of Zacatecas, an underground silver mine;
The Saucito mine, located in the state of Zacatecas, an underground silver mine;
The Ciénega mine, located in the state of Durango, an underground gold mine; including the San Ramon satellite mine;
The Herradura mine, located in the state of Sonora, a surface gold mine;
The Soledad-Dipolos mine, located in the state of Sonora, a surface gold mine; and
The Noche Buena mine, located in state of Sonora, a surface gold mine.
1 Due to its size in the current year, the operations at San Julián located on the border between the states of Chihuahua
and Durango, are reported within Other segments.
The operating performance and financial results for each of these mines are reviewed by management. As the Group´s chief
operating decision maker does not review segment assets and liabilities, the Group has not disclosed this information.
Management monitors the results of its operating segments separately for the purpose of performance assessment and making
decisions about resource allocation. Segment performance is evaluated without taking into account certain adjustments
included in Revenue as reported in the consolidated income statement, and certain costs included within Cost of sales and
Gross profit which are considered to be outside of the control of the operating management of the mines. The table below
provides a reconciliation from segment profit to Gross profit as per the consolidated income statement. Other income and
expenses included in the consolidated income statement are not allocated to operating segments. Transactions between
reportable segments are accounted for on an arm's length basis similar to transactions with third parties.
In 2016 and 2015, substantially all revenue was derived from customers based in Mexico.
Operating segments
The following tables present revenue and profit information regarding the Group's operating segments for the year ended 31
December 2016 and 2015, respectively:
Year ended 31 December 2016
US$ thousands Fresnillo Herradura Cienega Soledad- Saucito Noche Buena Other5 Adjustments and eliminations Total
Dipolos4
Revenues:
Third party1 327,957 655,025 169,530 - 459,590 225,374 66,441 1,586 1,905,503
Inter-Segment 77,385 (77,385) -
Segment revenues 327,957 655,025 169,530 - 459,590 225,374 143,826 (75,799) 1,905,503
Segment Profit2 224,163 369,896 100,105 12,977 363,780 83,852 109,212 (17,854) 1,246,131
Foreign exchange hedging losses (2,770)
Depreciation and amortisation (346,502)
Employee profit sharing (14,744)
Gross profit as per the income statement 882,115
Capital expenditure3 52,794 78,825 32,745 - 102,398 8,620 158,668 - 434,050
1 Total third party revenues include treatment and refining charges amounting US$141.1 million.
2 Segment profit excluding foreign exchange hedging losses, depreciation and amortisation and employee profit sharing.
3 Capital expenditure represents the cash outflow in respect of additions to property, plant and equipment, including mine
development, construction of leaching pads, purchase of mine equipment and capitalised stripping activity, excluding
additions relating to changes in the mine closure provision. Significant additions include the construction of second
beneficiation plant (Merrill Crowe) at Herradura and the expansion of the flotation plant and the construction of the
pyrites plant at Saucito.
4 During 2016, this segment did not operate due to the Bajio conflict (note 26). Segment profit is derived from the changes
in the net realisable value allowance against inventory (note 15).
5 Other includes San Julián, the Juanicipio project and inter-segment leasing services provided by Minera Bermejal, S.A. de
C.V.
Year ended 31 December 2015
US$ thousands Fresnillo Herradura Cienega Soledad-Dipolos4 Saucito Noche Other5 Adjustments and eliminations Total
Buena
Revenues:
Third party1 265,347 459,904 154,334 - 395,417 165,518 3,866 1,444,386
Inter-Segment 78,622 (78,622) -
Segment revenues 265,347 459,904 154,334 - 395,417 165,518 78,622 (74,756) 1,444,386
Segment Profit2 149,986 219,045 71,094 (7,995) 295,219 26,706 65,925 (14,322) 805,659
Foreign exchange hedging losses (28,589)
Depreciation and amortisation (331,209)
Employee profit sharing (12,791)
Gross profit as per the income statement 433,070
Capital expenditure3 50,610 119,743 24,632 - 108,276 2,649 168,782 - 474,692
1 Total third party revenues include treatment and refining charges amounting US$142.8 million.
2 Segment profit excluding foreign exchange hedging losses, depreciation and amortisation and employee profit sharing.
3 Capital expenditure represents the cash outflow in respect of additions to property, plant and equipment-including mine
development, construction of leaching pads, purchase of mine equipment and stripping activity asset-excluding additions
relating to changes in the mine closure provision. Significant additions include construction of finalisation of the
dynamic leaching plant and purchase of land at Herradura, construction of employees' facilities at Ciénega, expansion of
the flotation plant at Saucito and the purchase of land at Noche Buena.
4 During 2015 this segment did not operate due to the Bajio conflict (note 26).
5 Other includes San Julián, the Juanicipio project and inter-segment leasing services provided by Minera Bermejal, S.A. de
C.V. The operations of San Julián have been reclassified from the Fresnillo segment to Other to align to the presentation
in the current year.
4. Revenues
Revenues reflect the sale of goods, being concentrates doré, slag, and precipitates of which the primary contents are
silver, gold, lead and zinc.
(a) Revenues by product sold
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Lead concentrates (containing silver, gold, lead and by-products) 792,770 691,096
Doré and slag (containing gold, silver and by-products) 880,447 626,446
Zinc concentrates (containing zinc, silver and by-products) 120,889 81,184
Precipitates (containing gold and silver) 111,397 45,660
1,905,503 1,444,386
Substantially all lead concentrates, precipitates, doré and slag, were sold to Peñoles' metallurgical complex, Met-Mex, for
smelting and refining.
(b) Value of metal content in products sold
For products other than refined silver and gold, invoiced revenues are derived from the value of metal content adjusted by
treatment and refining charges incurred by the metallurgical complex of the customer. The value of the metal content of the
products sold, before treatment and refining charges is as follows:
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Silver 724,024 617,434
Gold 1,133,067 828,476
Zinc 106,461 73,018
Lead 83,070 68,277
Value of metal content in products sold 2,046,622 1,587,205
Adjustment for treatment and refining charges (141,119) (142,819)
Total revenues1, 1,905,503 1,444,386
1 Include provisional price adjustments which represent changes in the fair value of embedded derivatives resulting in a
gain of US$2.2 million (2015: gain of US$2.3 million) and hedging gain of US$1.6 million (2015: gain of US$ 3.9 million).
For further detail, refer to note 2(p).
The average realised prices for the gold and silver content of products sold, prior to the deduction of treatment and
refining charges, were:
Year ended 31 December
2016 2015
US$ per ounce US$ per ounce
Gold2 1,246.5 1,126.5
Silver2 17.2 15.6
2 Reported revenue does not include the results of hedging.
5. Cost of sales
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Depreciation and amortisation (notes 2 (e) and 12) 346,502 331,209
Personnel expenses (note 7) 80,360 80,567
Maintenance and repairs 90,650 94,837
Operating materials 131,786 135,059
Energy 117,995 117,908
Contractors 174,167 175,898
Freight 7,921 9,821
Insurance 4,990 5,042
Mining concession rights and contributions 10,347 10,853
Other 14,721 15,211
Cost of production 979,439 976,405
Losses on foreign currency hedges 2,770 28,589
Change in work in progress and finished goods (ore inventories) 61,488 1,309
Change in net realisable value allowance against inventory (note 15) (20,309) 5,013
1,023,388 1,011,316
6. Exploration expenses
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Contractors 88,822 105,161
Administrative services 6,243 6,907
Mining concession rights and contributions 14,027 15,684
Personnel expenses (note 7) 5,521 5,748
Assays 2,982 2,788
Maintenance and repairs 329 384
Operating materials 449 416
Rentals 1,524 1,874
Energy 407 454
Other 878 830
121,182 140,246
These exploration expenses were mainly incurred in areas of the Fresnillo, Herradura, La Ciénega, Saucito and San Julian
mines, the San Ramon satellite mine and Orysivo, Rodeo, Guanajuato and Centauro Deep projects. In addition, exploration
expenses of US$7.9 million (2015: US$8.4 million) were incurred in the year on projects located in Peru.
The following table sets forth liabilities (generally trade payables) incurred in the exploration activities of the Group
companies engaged only in exploration, principally Exploraciones Mineras Parreña, S.A. de C.V.
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Liabilities related to exploration activities 1,643 917
Liabilities related to exploration activities incurred by the Group operating companies are not included since it is not
possible to separate the liabilities related to exploration activities of these companies from their operating
liabilities.
Cash flows relating to exploration activities are as follows:
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Operating cash out flows related to exploration activities 120,457 142,874
7. Personnel expenses
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Employees' profit sharing 15,145 12,791
Salaries and wages 36,296 36,544
Bonuses 10,233 10,713
Legal contributions 12,979 12,644
Other benefits 8,035 8,084
Vacations and vacations bonus 1,634 2,464
Social security 4,459 5,310
Post-employment benefits1 3,567 4,572
Other 8,686 8,262
101,034 101,384
1 Post- employment benefits include US$1.5 million associated to benefits corresponding to the defined contribution plan
(2015: US$1.6 million).
(a) Personnel expenses are reflected in the following line items:
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Cost of sales (note 5) 80,360 80,567
Administrative expenses 15,153 15,069
Exploration expenses (note 6) 5,521 5,748
101,034 101,384
(b) The monthly average number of employees during the year was as follows:
Year ended 31 December
2016 2015
No. No.
Mining 1,881 1,812
Plant concentration 550 552
Exploration 454 519
Maintenance 894 755
Administration and other 791 725
Total 4,570 4,362
8. Other operating income and expenses
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Other income:
Rentals 3 166
Selling of scrap 610 5
Other 785 607
1,398 778
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Other expenses:
Maintenance1 926 1,098
Donations 317 714
Environmental activities 1,005 4,022
Loss on sale of property, plant and equipment 1,103 3,757
Impairment on available-for-sale financial assets - 2,896
Engineering and design studies - 974
Consumption tax expensed 940 635
Write-off of property, plant and equipment 3,005 -
Other 3,146 2,554
10,442 16,650
1 Costs relating to Compañía Minera las Torres, S.A. de C.V.
9. Finance income and finance costs
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Finance income:
Interest on short-term deposits and investments 4,542 1,779
Fair value movement on derivatives1 - 61,224
Other 2,416 2,835
6,958 65,838
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Finance costs:
Interest on interest-bearing loans 29,006 35,969
Fair value movement on derivatives1 40,294 -
Unwinding of discount on provisions 10,476 8,586
Other 547 908
80,323 45,463
1 Principally relates to the time value associated with gold commodity options see note 30 for further detail.
10. Income tax expense
a) Major components of income tax expense:
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Consolidated income statement:
Corporate income tax
Current:
Income tax charge 167,873 118,410
Amounts over provided in previous years1 (1,646) (29,093)
166,227 89,317
Deferred:
Origination and reversal of temporary differences 53,581 31,373
Revaluation effects of Silverstream contract 40,058 8,316
93,639 39,689
Corporate income tax 259,866 129,006
Special mining right
Current:
Special mining right charge2 24,502 6,384
24,502 6,384
Deferred:
Origination and reversal of temporary differences 8,910 7,574
Special mining right 33,412 13,958
Income tax expense reported in the income statement 293,278 142,964
1 During 2015, the Group clarified the treatment applied in the computation of the 2014 tax provision regarding the
deduction of certain mining-related expenditures. This resulted in an adjustment of US$29.9 million to the 2015 current tax
expense with an equal and opposite effect to the deferred tax expense.
2. The special mining right "SMR" allows the deduction of payments of mining concessions rights up to the amount of SMR
payable within the same legal entity. During the fiscal year ended 31 December 2016, the Group credited US$12.4 million
(2015: US$8.2 million) of mining concession rights against the SMR. Total mining concessions rights paid during the year
were US$15.4 million (2015: US$17 million) and have been recognised in the income statement within cost of sales and
exploration expenses. Mining concessions rights paid in excess of the SMR cannot be credited to SMR in future fiscal
periods, and therefore no deferred tax asset has been recognised in relation to the excess. Without regards to credits
permitted under the special mining right (SMR) regime, the current special mining right charge would have been US$36.9
million (2015: US$14.6 million).
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Consolidated statement of comprehensive income:
Deferred income tax credit/(charge) related to items recognised directly in other comprehensive income:
Losses on cash flow hedges recycled to income statement (355) (7,927)
Changes in fair value of cash flow hedges 15,875 (11,856)
Changes in fair value of available-for-sale financial assets (13,418) 3,522
Remeasurement losses on defined benefit plans (388) 361
Income tax effect reported in other comprehensive income 1,714 (15,900)
(b) Reconciliation of the income tax expense at the Group's statutory income rate to income tax expense at the Group's
effective income tax rate:
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Accounting profit before income tax 718,240 212,354
Tax at the Group's statutory corporate income tax rate 30.0% 215,472 63,706
Expenses not deductible for tax purposes 2,016 2,983
Inflationary uplift of the tax base of assets and liabilities (8,933) (2,626)
Current income tax (over)/underprovided in previous years (1,303) (1,142)
Exchange rate effect on tax value of assets and liabilities1 90,035 77,473
Non-taxable/non-deductible foreign exchange losses (2,157) (5,437)
Inflationary uplift of tax losses (2,891) (3,250)
IEPS tax credit (note 10 (e)) (24,020) -
Deferred tax asset not recognised 3,360 3,025
Special mining right deductible for corporate income tax (10,024) (4,187)
Other (1,689) (1,539)
Corporate income tax at the effective tax rate of 36.2% (2015: 60.7%) 259,866 129,006
Special mining right 33,412 13,958
Tax at the effective income tax rate of 40.8% (2015: 67.3%) 293,278 142,964
1 Mainly derived from the tax value of property, plant and equipment.
(c) Movements in deferred income tax liabilities and assets:
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Opening net liability (342,195) (279,046)
Income statement charge arising on corporate income tax (93,639) (39,689)
Income statement charge arising on special mining right (8,910) (7,574)
Exchange difference 3 14
Net credit/(charge) related to items directly charged to other comprehensive income 1,714 (15,900)
Closing net liability (443,027) (342,195)
The amounts of deferred income tax assets and liabilities as at 31 December 2016 and 2015, considering the nature of the
related temporary differences, are as follows:
Consolidated balance sheet Consolidated income statement
2016 2015US$ thousands 2016 2015
US$ thousands US$ thousands US$ thousands
Related party receivables (199,181) (124,719) 72,799 (23,393)
Other receivables (3,725) (469) 3,256 (2,245)
Inventories 163,113 121,668 (43,868) 21,602
Prepayments (1,803) (830) (10,727) (17,551)
Derivative financial instruments including Silverstream contract (134,984) (137,396) 4,469 44,468
Property, plant and equipment arising from corporate income tax (351,325) (330,939) 36,358 38,313
Operating liabilities 24,303 19,871 4,083 35,674
Other payables and provisions 44,733 58,643 13,910 (12,502)
Losses carried forward 66,343 88,593 22,250 (37,857)
Post-employment benefits 1,685 2,049 364 (98)
Deductible profit sharing 3,905 3,740 (226) (312)
Special mining right deductible for corporate income tax 29,100 21,065 (8,034) (1,965)
Available-for-sale financial assets (14,175) (756) 13,419 (4,391)
Other (3,581) (4,192) (14,414) (365)
Net deferred tax liability related to corporate income tax (375,592) (283,672)
Deferred tax credit related to corporate income tax - - 93,639 39,378
Related party receivables arising from special mining right (18,764) (15,207) 3,557 (1,571)
Inventories arising from special mining right 8,274 9,616 1,341 2,280
Property plant and equipment arising from special mining right (56,945) (52,932) 4,012 6,865
Net deferred tax liability (443,027) (342,195)
Deferred tax credit 102,549 46,952
Reflected in the statement of financial position as follows:
Deferred tax assets 20,023 30,814
Deferred tax liabilities-continuing operations (463,050) (373,009)
Net deferred tax liability (443,027) (342,195)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred income tax assets and liabilities relate to the same fiscal
authority.
On the basis of management's internal forecast, a deferred tax asset has been recognised in respect of tax losses amounting
to US$221.1 million (2015: US$295.3 million). If not unutilised, US$10.7 million will expire within five years and US$210.4
million will expire between six and ten years.
The Group has further tax losses and other similar attributes carried forward of US$29.1 million (2015: US$23.0 million) on
which no deferred tax is recognised due to insufficient certainty regarding the availability of appropriate future taxable
profits.
(d) Unrecognised deferred tax on investments in subsidiaries
The Group has not recognised all of the deferred tax liability in respect of distributable reserves of its subsidiaries
because it controls them and only part of the temporary differences are expected to reverse in the foreseeable future. The
temporary differences for which a deferred tax liability has not been recognised aggregate to US$1,949 million (2015:
US$1,449 million).
(e) Corporate Income Tax ('Impuesto Sobre la Renta' or 'ISR') and Special Mining Right ("SMR")
The Group's principal operating subsidiaries are Mexican residents for taxation purposes. The rate of current corporate
income tax is 30%.
During 2016 the Mexican Internal Revenue Law granted to taxpayers a credit in respect of an excise tax (Special Tax on
Production and Services, or IEPS for its acronym in Spanish) paid when purchasing diesel used for general machinery and
certain mining vehicles. The credit can be applied against either the company's own corporate income tax or the income tax
withheld from third parties. The credit is calculated on an entity-by-entity basis and expires one year after the purchase
of the diesel. In the year ended 31 December 2016, the Group applied a credit of US$19.1 in respect of the year and
recognised a deferred tax asset of US$4.8 in respect of the IEPS incurred in 2016 and expected to be applied during 2017.
As the IEPS deduction is itself taxable, the deferred tax asset is recognised at 70% of the IEPS carried forward. The net
amount applied by the Group is presented in the reconciliation of the effective tax rate in note 10(b).
The SMR is considered as income tax under IFRS, and states that the owners of mining titles and concessions are subject to
pay an annual mining right of 7.5% of the profit derived from the extractive activities. The SMR allows as a credit the
payment of mining concessions rights up to the amount of SMR payable The 7.5% tax apply to a base of income before
interest, annual inflation adjustment, taxes paid on the regular activity, depreciation and amortization, as defined by the
new ISR. This SMR can be credited against the corporate income tax of the same fiscal year and its payment must be remitted
no later than the last business day of March of the following year.
11. Earnings per share
Earnings per share ('EPS') is calculated by dividing profit for the year attributable to equity shareholders of the Company
by the weighted average number of Ordinary Shares in issue during the period.
The Company has no dilutive potential Ordinary Shares.
As of 31 December 2016 and 2015, earnings per share have been calculated as follows:
Year ended 31 December
2016 2015
US$ thousands US$ thousands
Earnings:
Profit from continuing operations attributable to equity holders of the Company 426,986 70,523
Adjusted profit from continuing operations attributable to equity holders of the Company 333,516 51,119
Adjusted profit is profit as disclosed in the Consolidated Income Statement adjusted to exclude revaluation effects of the
Silverstream contract of US$133.5 million gain (US$93.5 million net of tax) (2015: US$27.7 million loss (US$19.4 million
net of tax)).
Adjusted earnings per share have been provided in order to provide a measure of the underlying performance of the Group,
prior to the revaluation effects of the Silverstream contract, a derivative financial instrument.
2016 2015
thousands thousands
Number of shares:
Weighted average number of Ordinary Shares in issue 736,894 736,894
2016 2015
US$ US$
Earnings per share:
Basic and diluted earnings per share 0.579 0.096
Adjusted basic and diluted earnings per Ordinary Share from continuing operations 0.453 0.069
12. Property, plant and equipment
Year ended 31 December 2015
Land and Plant and Equipment Mining properties and development costs Other assets Construction in Progress Total
buildings
US$ thousands
Cost
At 1 January 2015 153,346 1,343,062 1,094,124 179,031 432,319 3,201,882
Additions 2,432 10,518 33,236 36,290 442,384 524,860
Disposals (518) (23,028) (11,493) (1,555) - (36,594)
Transfers and other movements 17,941 117,387 173,539 4,213 (313,080) -
At 31 December 2015 173,201 1,447,939 1,289,406 217,979 561,623 3,690,148
Accumulated depreciation
At 1 January 2015 (60,988) (551,707) (558,883) (60,886) - (1,232,464)
Depreciation for the year1 (13,347) (188,647) (129,586) (13,693) - (345,273)
Disposals 165 14,592 10,052 1,368 - 26,177
At 31 December 2015 (74,170) (725,762) (678,417) (73,211) - (1,551,560)
Net Book amount at 31 December 2015 99,031 722,177 610,989 144,768 561,623 2,138,588
Year ended 31 December 2016
Land and Plant and Equipment Mining properties and development costs Other assets Construction in Progress Total
buildings
US$ thousands
Cost
At 1 January 2016 173,201 1,447,939 1,289,406 217,979 561,623 3,690,148
Additions 459 11,423 4,168 (50,304) 441,649 407,395
Disposals - (12,409) (4,206) (161) - (16,776)
Transfers and other movements 70,315 188,633 218,648 26,391 (503,987) -
At 31 December 2016 243,975 1,635,586 1,508,016 193,905 499,285 4,080,767
Accumulated depreciation
At 1 January 2016 (74,170) (725,762) (678,417) (73,211) - (1,551,560)
Depreciation for the year1 (16,412) (177,744) (148,223) (18,961) - (361,340)
Write-off of property, plant and equipment (4) (2,909) - (92) - (3,005)
Disposals - 11,048 4,206 101 - 15,355
At 31 December 2016 (90,586) (895,367) (822,434) (92,163) - (1,900,550)
Net Book amount at 31 December 2016 153,389 740,219 685,582 101,742 499,285 2,180,217
1 Depreciation for the year includes US$346.5 million (2015: US$331.2 million) recognised as an expense in the cost of
sales in the income statement and US$14.8 million (2015: US$14 million),
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