- Part 4: For the preceding part double click ID:nRSD9577Uc
generated from operating activities
Profit for the period 76,368 137,083
Adjustments to reconcile profit for the period to net cash inflows from operating activities:
Depreciation and amortisation 159,733 132,929
Employee profit sharing 6,271 8,852
Deferred income tax 7 (1,799) (11,945)
Current income tax expense 7 61,571 83,104
Loss/(gain) on the sale of property, plant and equipment and other assets 804 (63)
Other losses 1,424 160
Write off of property, plant and equipment and other assets - 4,504
Impairment of available-for-sale financial assets 761 -
Net finance costs 22,633 23,735
Foreign exchange loss 8,200 4,412
Difference between pension contributions paid and amounts recognised in the income statement 420 462
Non cash movement on derivatives 6 (19,733) 751
Changes in fair value of Silverstream 10 (1,761) (47,298)
Working capital adjustments
Increase in trade and other receivables (2,182) (55,445)
Decrease in prepayments and other assets 2,608 3,895
Increase in inventories (16,077) (56,873)
(Decrease) increase in trade and other payables (2,369) 36,875
Cash generated from operations 296,872 265,138
Income tax paid (22,340) (90,176)
Employee profit sharing paid (11,117) (20,302)
Net cash from operating activities 263,415 154,660
263,415
154,660
18 Financial instruments
a. Fair value category
As at 30 June 2015
US$ thousands
Financial assets: At fair value through profit or loss Available-for-sale investments at fair value through OCI Loans and receivables At fair value through OCI (cash flow hedges)
Trade and other receivables1 - - 147,266 -
Short term investments (note 13) - - 220,000 -
Available-for-sale financial assets - 81,233 - -
Silverstream contract (note 10) 373,619 - - -
Derivative financial instruments 36 - - 27,647
Financial liabilities: At fair value through profit or loss At amortised Cost At fair value through OCI (cash flow hedges)
Interest-bearing loans - 796,507 -
Trade and other payables - 64,400 -
Embedded derivatives within sales contracts1 1,490 - -
Derivative financial instruments 193 - 16,834
1 Trade and other receivables and embedded derivatives within sales contracts are presented net in Trade and other
receivables in the balance sheet.
As at 31 December 2014
US$ thousands
Financial assets: At fair value through profit or loss Available-for-sale investments at fair value through OCI Loans and receivables At fair value through OCI (cash flow hedges)
Trade and other receivables1 -- -- 173,722 --
Short term investments (note 13) -- -- 295,000 --
Available-for-sale financial assets -- 86,078 --
Silverstream contract (note 10) 392,276 -- -- --
Derivative financial instruments 13,050 -- -- 1,501
Financial liabilities: At fair value through profit or loss At amortised Cost At fair value through OCI (cash flow hedges)
Interest-bearing loans -- 796,160 --
Trade and other payables -- 70,340 --
Embedded derivatives within sales contracts1 2,911 -- --
Derivative financial instruments 9,146 -- 17,887
1 Trade and other receivables and embedded derivatives within sales contracts are presented net in Trade and other
receivables in the balance sheet.
b. Fair value measurement
Fair value hierarchy
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: a) in the principal market for the asset or
liability, or b) 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 interim consolidated 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.
The fair value of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, other
than those with carrying amounts that are a reasonable approximation of their fair values, are as follows:
Carrying amount Fair value
30 June 2015 31 December 2014 30 June 2015 31 December 2014
US$ thousands
Financial liabilities:
Interest-bearing loans1 796,507 796,160 846,984 795,128
1 The fair value of interest-bearing loans is derived from quoted market prices in active markets (Level 1 of the fair
value hierarchy).
The carrying amounts of all other financial instruments are measured at fair value.
The financial assets and liabilities measured at fair value are categorised into the fair value hierarchy as follows:
As of 30 June 2015
Fair value measure using
Quoted prices in active markets Level 1 Significant observable Level 2 Significant unobservable Level 3 Total
US$ thousands
Financial assets:
Derivative financial instruments:
Option commodity contracts - 27,335 - 27,335
Option and forward foreign exchange contracts - 579 - 579
Silverstream contract (note 10) - - 373,619 373,619
Financial assets available-for-sale:
Quoted investments 81,233 - - 81,233
81,233 27,914 373,619 482,766
Financial liabilities:
Derivative financial instruments:
Embedded derivatives within sales contracts - - 1,490 1,490
Option commodity contracts - 2,235 - 2,235
Option and forward foreign exchange contracts - 14,844 - 14,844
- 17,079 1,490 18,569
As of 31 December 2014
Fair value measure using
Quoted prices in active markets Level 1 Significant observable Level 2 Significant unobservable Level 3 Total
US$ thousands
Financial assets:
Derivative financial instruments:
Option commodity contracts -- 14,229 -- 14,229
Option and forward foreign exchange contracts -- 322 -- 322
Silverstream contract (note 10) -- -- 392,276 392,276
Financial assets available-for-sale:
Quoted investments 86,078 -- -- 86,078
86,078 14,451 392,276 406,827
Financial liabilities:
Derivative financial instruments:
Embedded derivatives within sales contracts -- -- 2,911 2,911
Option commodity contracts -- 8,704 -- 8,704
Options and forward foreign exchange contracts -- 18,329 -- 18,329
-- 27,033 2,911 29,994
There have been no significant transfers between Level 1 and Level 2 of the fair value hierarchy, and no transfers into and
out of Level 3 fair value measurements.
A reconciliation of the opening balance to the closing balance for Level 3 financial instruments other than Silverstream
(which is disclosed in note 10) is shown below:
2015 2014
US$ thousands
Balance at 1 January (2,911) (1,154)
Changes in fair value (2,250) (3,835)
Realised embedded derivatives during the year 3,671 9,622
Balance at 30 June (1,490) (4,633)
Valuation techniques
The following valuation techniques were used to estimate the fair values:
Option commodity contracts
The Group enters into derivative financial instruments with various counterparties, principally financial institutions with
investment grade credit ratings. The option commodity (Level 2) contracts are measured based on observable spot commodity
prices, the yield curves of the respective commodity as well as the commodity basis spreads between the respective
commodities. The option contracts are valued using the Black-Scholes model, the significant inputs to which include
observable spot commodities price, interest rates and the volatility of the commodity.
Option and forward foreign exchange contracts
The Group enters into derivative financial instruments with various counterparties, principally financial institutions with
investment grade credit ratings. The foreign currency forward (Level 2) contracts are measured based on observable spot
exchange rates, the yield curves of the respective currencies as well as the currency basis spreads between the respective
currencies. The foreign currency option contracts are valued using the Black-Sholes model, the significant inputs to which
include observable spot exchange rates, interest rates and the volatility of the currency.
Silverstream contract
The fair value of the Silverstream contract is determined using a valuation model (for further information relating to the
Silverstream contract see note 10). This derivative has a term of over 20 years and the valuation model utilises a number
of inputs that are not based on observable market data due to the nature of these inputs and/or the duration of the
contract. Inputs that have a significant effect on the recorded fair value are the volume of silver that will be produced
and sold from the Sabinas mine over the contract life, the future price of silver, future foreign exchange rates between
the Mexican peso and US dollar, future inflation and the discount rate used to discount future cash flows.
The estimate of the volume of silver that will be produced and sold from the Sabinas mine requires estimates of the
recoverable silver reserves and resources, the related production profile based on the Sabinas mine plan and the expected
recovery of silver from ore mined. The estimation of these inputs is subject to a range of operating assumptions and may
change over time. Estimates of reserves and resources are updated annually by Peñoles, the operator and sole interest
holder in the Sabinas mine and provided to the Company. The production profile and estimated payable silver that will be
recovered from ore mined is based on the latest plan and estimates, also provided to the Company by Peñoles. The inputs
assume no interruption in production over the life of the Silverstream contract and production levels which are consistent
with those achieved in recent years.
Management regularly assesses a range of reasonably possible alternatives for those significant unobservable inputs
described above, and determines their impact on the total fair value. The significant unobservable inputs are not
interrelated. The fair value of the Silverstream contract is not significantly sensitive to a reasonable change in future
inflation, however, it is to a reasonable change in future silver price, future exchange rate and the discount rate used to
discount future cash flows as explained in note 10.
The following table demonstrates the sensitivity of the Silverstream contract valuation to reasonably possible change in
those inputs:
30 June 2015 Increase/ Effect on fair value: increase/
(decrease) (decrease)
US$ thousands
Future silver price 20% 99,008
(20%) (99,008)
Future exchange rate: strengthening/(weakening) of the US dollaragainst Mexican peso 15% (2,926)
(15%) 3,958
Interest rate 100 basis point (27,166)
(100 basis point) 30,520
31 December 2014 Increase/ Effect on fair value: increase/
(decrease) (decrease)
US$ thousands
Future silver price 20% 103,125
(20%) (103,125)
Future exchange rate: strengthening/(weakening) of the US dollaragainst Mexican peso 15% (3,482)
(15%) 4,711
Interest rate 100 basis point (29,266)
(100 basis point) 33,001
Quoted investments
Fair value of available-for-sale financial assets is derived from quoted market prices in active markets.
Embedded derivatives within sales contracts:
Sales of concentrates, precipitates and doré bars are 'provisionally priced' and revenue is initially recognised using this
provisional price and the Group's best estimate of the contained metal. Revenue is subject to final price and metal content
adjustments subsequent to the date of delivery. This price exposure is considered to be an embedded derivative and is
separated from the sales contract.
At each reporting date the provisionally priced metal content is revalued based on the forward selling price for the
quotational period stipulated in the relevant sales contract. The selling price of metals can be reliably measured as these
metals are actively traded on international exchanges but the estimated metal content is a non-observable input to this
valuation.
At 30 June 2015 the fair value of embedded derivatives within sales contracts was US$1.4 million (31 December 2014: US$2.9
million). The revaluation effects of embedded derivatives arising from these sales contracts are recorded as an adjustment
to revenue.
c. Derivative financial instruments
The Group enters into certain forward and option contracts in order to manage its exposure to foreign exchange risk
associated with costs incurred in Mexican pesos and other currencies. The Group also enters into option contracts to manage
its exposure to commodity price risk.
Foreign exchange hedging
The Group has entered into a number of forward derivative contracts to hedge its exposure to fluctuations in foreign
exchange rates. The outstanding forward derivative contracts as at 30 June 2015 are as follows:
As at 30 June 2015
Term Currency Contract value Contract 2015 Fair value
(thousands) exchange rate (US$ thousands)
US dollar denominated forward contracts 2015 USD 13,000 US$1:MX$15.50 to US1:MX$15.71 (118)
Euro denominated forward contracts 2015 EUR 1,166 EUR1.09:US$1 to EUR1.10:US$1 24
Swedish krona denominated forward contracts 2015 SEK 50,428 SKD$7.82:US$1 to SKD$8.25:US$1 (180)
The Group's US dollar- denominated forward derivative instruments matured on 17 July 2015 at a weighted average rate of
US$1: MX$15.58. Euro-denominated forward derivative instruments mature on 11 December 2015 at a weighted average rate of
US$1.10: E1. SEK-US dollar forward contracts mature over a period from 11 September 2015 to 11 December 2015 with a
weighted average rate of SKD$8.02:US$1.
The Group has also entered into Mexican peso-US dollar collars to hedge its exposure to fluctuations in foreign exchange
rates. Collar derivative instruments mature over the period from 15 July 2015 to 13 July 2016. The collar instruments hedge
costs denominated in Mexican peso amounting to US$327 million with a range of floor prices from MX$13.25 to MX$15.30:US$1
and a range of capped prices from MX$13.70 to MX$18.86:US$1. The fair value of the put options at 30 June 2015 was an asset
of US$1.6 million, and the fair value of the call options at 30 June 2015 was a liability of US$15.5 million.
Forward derivative contracts that were outstanding as at 31 December 2014 were as follows:
As at 31 December 2014
Term Currency Contract value Contract 2014 Fair value
(thousands) exchange rate (US$ thousands)
Euro denominated forward contracts 2015 EUR 869 EUR1:US$1.25 to EUR1:US$1.35 (121)
Swedish krona denominated forward contracts 2015 SEK 41,597 SKD$7.19:US$1 to SKD$7.62:US$1 (359)
The Group's euro-denominated forward derivative instruments matured on 13 March 2015 at a weighted average rate of US$1.35:
E1. The Group also entered into a number of SEK-US dollar forward contracts to hedge its exposure to fluctuations in
foreign exchange rates. These derivative instruments mature over a period from 13 March 2015 to 12 June 2015 with a
weighted average rate of SKD$7.27:US$1.
The Group also entered into Mexican peso-US dollar collars to hedge its exposure to fluctuations in foreign exchange rates.
Collar derivative instruments mature over the period from 12 January 2015 to 14 December 2015. The collar instruments hedge
costs denominated in Mexican peso amounting to US$259.5 million with a range of floor prices from MX$13.09 to MX$14.00:US$1
and weighted average rate of US$13.45 and a range of capped prices from MX$13.50 to MX$18.13:US$1 and weighted average rate
of US$14.19. The fair value of the put options at 31 December 2014 was an asset of US$1.2 million, and the fair value of
the call options at 31 December 2014 was a liability of US$18.7 million.
Commodity price hedging
The Group has entered into collars to hedge its exposure to fluctuations in commodity price in gold, lead and zinc.
Gold
The gold collar derivative instruments outstanding at 30 June 2015 mature over the period from 31 July 2015 to 30 December
2019 (31 December 2014: 30 January 2015 to 30 December 2019) and hedge cash proceeds from the sales of gold production
amounting to 1,390,896 ounces (31 December 2014: 1,524,276 ounces) with a floor price of US$1,100 per ounce (31 December
2014: US$1,100 per ounce) and a range of capped prices from US$1,375 to US$1,495 per ounce (31 December 2014:US$1,375 to
US$1,495 per ounce). The weighted average call price was US$1,427 per ounce (31 December 2014: US$1,427 per ounce).
The fair value of the put options as at 30 June 2015 was an asset of US$110.4 million (31 December 2014: US$111.8 million),
and the fair value of the call options at 30 June 2015 was a liability of US$89.1 million (31 December 2014: US$107.4
million). As at 30 June 2015 and 31 December 2014 the option contracts fair value corresponds entirely to time value,
therefore the full change in fair value was recorded in the income statement.
Lead
The lead collar derivative instruments outstanding at 30 June 2015 mature over the period from 31 July 2015 to 30 December
2016 (31 December 2014: 30 January 2015 to 31 July 2015) and hedge cash proceeds from the sales of lead production
amounting to 6,731 tonnes (31 December 2014: 2,261 tonnes) with a range of floor prices of US$1,984 to US$2,100 per tonne
(31 December 2014:US$2,100 per tonne) and a range of capped prices from US$2,220 to US$2,550 per tonne (31 December 2014:
US$2,450 to US$2,550 per tonne). The weighted average put price was US$1,990 per tonne (31 December 2014: US$2,100per
tonne) and the weighted average call price was US$2,270 per tonne (31 December 2014: US$2,496 per tonne).
The fair value of the put options at 30 June 2015 was an asset of US$1.8 million (31 December 2014 US$0.6million), and the
fair value of the call options at 30 June 2015 was a liability of US$0.1 million (31 December 2014: US$0.001 million).
Zinc
The zinc collar derivate instruments outstanding at 30 June 2015 mature over the period from 31 July 2015 to 30 December
2016 (31 December 2014: 30 January 2015 to 28 August 2015) and hedge zinc production amounting 7,753 tonnes (31 December
2014: 8,911 tonnes) with a range of floor prices of US$2,200 to US$2,205 per tonne (31 December 2014: US$1,900 to US$2,200
per tonne) and a range of capped prices from US$2,520 to US$2,650 per tonne (31 December 2014: US$2,400 to US$2,650 per
tonne). The weighted average put price was US$2,204 tonne (31 December 2014: US$2,100 per tonne) and the weighted average
call price was US$2,548 tonne (31 December 2014:US$2,534:1).
The fair value of the put options at 30 June 2015 was an asset of US1.9 million (31 December 2014: US$0.5 million), and the
fair value of the call options at 30 June 2015 was a liability of US$0.1 million (31 December 2014: US$0.1 million).
This information is provided by RNS
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