Silver Standard Resources, Inc.
SILVER STANDARD RESOURCES INC (Form: 6-K, Received: 03/12/2012 17:20:50)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

For March 12, 2012

Commission File Number: 000-26424

SILVER STANDARD RESOURCES INC.
(Translation of registrant's name into English)

1400 - 999 West Hastings Street
Vancouver, British Columbia
Canada V6C 2W2

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

[ x ] Form 20-F   [             ] Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [             ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [             ]

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes [             ]   No [ x ]

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _________


SUBMITTED HEREWITH

Exhibits

  99.1 Annual Consolidated financial statements for the Year Ended December 31, 2011
     
  99.2 Management’s Discussion and Analysis for the Year Ended December 31, 2011
     
  99.3 Form 13-502F1 - Class 1 Reporting Issuers - Participation Fee
     
  99.4 News Release Dated March 12, 2012
     
  99.5 Material Change Dated March 9, 2012

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  Silver Standard Resources Inc.
  (Registrant)
     
Date: March 12, 2012 By: /s/ Kristen Riddell
    Kristen Riddell
  Title: Vice President, General Counsel and Corporate Secretary

 



Silver Standard Resources Inc.

Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010

 

 

 


Management’s Responsibility for the Financial Statements

The preparation and presentation of the accompanying consolidated financial statements and Management’s Discussion and Analysis (“MD&A”) are the responsibility of management and have been approved by the Board of Directors.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Financial statements, by nature, are not precise since they include certain amounts based upon estimates and judgements. When alternative methods exist, management has chosen those it deems to be the most appropriate in the circumstances.

Management, under the supervision of and the participation of the President and Chief Executive Officer and the Chief Financial Officer, has a process in place to evaluate disclosure controls and procedures and internal control over financial reporting as required by Canadian and U.S. securities regulations. We, as President and Chief Executive Officer and as Chief Financial Officer, will certify our annual filings with the CSA and SEC as required in Canada by National Instrument 52-109 and in the United States as required by the Sarbanes-Oxley Act of 2002.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements. The Board carries out this responsibility principally through its Audit Committee which is independent from management.

The Audit Committee is appointed by the Board of Directors and reviews the consolidated financial statements and MD&A; considers the report of the external auditors; assesses the adequacy of our internal controls, including management’s assessment described below; examines the fees and expenses for audit services; and recommends to the Board the independent auditors for appointment by the shareholders. The independent auditors have full and free access to the Audit Committee and meet with it to discuss their audit work, our internal control over financial reporting and financial reporting matters. The Audit Committee reports its findings to the Board for consideration when approving the consolidated financial statements for issuance to the shareholders and management’s assessment of the internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2011 using criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2011.

PricewaterhouseCoopers LLP, our auditor, has audited the effectiveness of our internal control over financial reporting as of December 31, 2011, as stated in their report which appears herein.

“John Smith” “Gregory Martin”
John Smith Gregory Martin
President and Chief Executive Officer Chief Financial Officer
   
March 11, 2012  

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March 11, 2012

Independent Auditor’s Report

To the Shareholders of Silver Standard Resources Inc.

We have completed an integrated audit of Silver Standard Resources Inc.’s and its subsidiaries (the “Company”) December 31, 2011 consolidated financial statements and their internal control over financial reporting as at December 31, 2011 and an audit of their December 31, 2010 consolidated financial statements. Our opinions, based on our audits, are presented below.

Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of Silver Standard Resources Inc. and its subsidiaries, which comprise the consolidated statement of financial position as at December 31, 2011, 2010 and January 1, 2010 and the consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows and for the years ended December 31, 2011 and 2010, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Canadian generally accepted auditing standards require that we comply with ethical requirements.

An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements.

Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Silver Standard Resources Inc. and its subsidiaries as at December 31, 2011, 2010 and January 1, 2010 and their financial performance and their cash flows for the years ended December 31, 2011 and 2010 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Report on internal control over financial reporting
We have also audited Silver Standard Resources Inc.’s and its subsidiaries’ internal control over financial reporting as at December 31, 2011, based on criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Management’s responsibility for internal control over financial reporting
Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Report on Internal Control over Financial Reporting.

Auditor’s responsibility
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances.

We believe that our audit provides a reasonable basis for our audit opinion on the Company’s internal control over financial reporting.

Definition of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Inherent limitations
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Opinion
In our opinion, Silver Standard Resources Inc. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as at December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by COSO.

Signed “PricewaterhouseCoopers LLP”

Chartered Accountants

Vancouver, Canada

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Silver Standard Resources Inc.
Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010

CONTENTS

  Primary financial statements
   
  Consolidated Statements of Financial Position
  Consolidated Statements of Income
  Consolidated Statements of Comprehensive Income
  Consolidated Statements of Changes in Shareholders’ Equity
  Consolidated Statements of Cash Flows
   
  Notes to consolidated financial statements
   
  Note 1 – Nature of operations
  Note 2 – Summary of significant accounting policies
   
  Statement of Financial Position
  Note 3 – Cash and cash equivalents
  Note 4 – Trade and other receivables
  Note 5 – Other assets
  Note 6 – Inventory
  Note 7 – Property, plant and equipment
  Note 8 – Investment in associate
  Note 9 – Current and deferred income tax
  Note 10 – Value added tax receivable
  Note 11 – Trade and other payables
  Note 12 – Warrant liability
  Note 13 – Close down and restoration provision
  Note 14 – Convertible notes
   
  Shareholders’ Equity
  Note 15 – Share capital and share-based payments
  Note 16 – Other reserves
   
  Statement of Income
  Note 17 – Operating costs by nature
  Note 18 – Finance income and expenses
  Note 19 – Other income (other expenses)
  Note 20 – Earnings per share
   
  Additional disclosures
  Note 21 – Operating segments
  Note 22 – Financial instruments
  Note 23 – Financial risk management
  Note 24 – Related party transactions
  Note 25 – Supplemental cash flow information
  Note 26 – Transition to International Financial Reporting Standards

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Silver Standard Resources Inc.
Consolidated Statements of Financial Position
As at December 31, 2011 and 2010 and January 1, 2010
(expressed in thousands of United States dollars)

      December 31     December 31     January 1  
  Note   2011     2010     2010  
          $     $  
Current assets                    
Cash and cash equivalents 3   329,055     232,311     26,659  
Trade and other receivables 4   19,401     35,916     8,251  
Other current assets 5   33,539     33,651     19,722  
Inventory 6   94,681     40,176     20,565  
      476,676     342,054     75,197  
Non-current assets                    
Property, plant and equipment 7   544,111     499,632     496,824  
Investment in associate 8   136,342     226,271     -  
Deferred income tax assets 9   21,591     -     -  
Value added tax receivable 10   89,160     70,782     54,094  
Other non-current assets 5   8,222     9,251     8,015  
Total assets     1,276,102     1,147,990     634,130  
                     
Current liabilities                    
Trade and other payables 11   48,023     35,163     50,682  
Taxes payable     22,498     -     -  
Warrant liability 12   7,067     -     -  
      77,588     35,163     50,682  
Non-current liabilities                    
Deferred income tax liabilities 9   41,331     26,765     1,949  
Non-current taxes payable     -     3,671     3,373  
Close down and restoration provision 13   46,653     12,671     10,340  
Convertible notes 14   125,313     116,125     107,895  
Derivative liability 14   1,242     21,735     20,728  
Total liabilities     292,127     216,130     194,967  
                     
Shareholders' equity                    
Share capital 15   705,876     676,651     538,700  
Other reserves 16   6,515     63,257     46,966  
Retained earnings (accumulated deficit)     271,584     191,456     (146,999 )
Total shareholders' equity attributable to shareholders of the Company     983,975     931,364     438,667  
                     
Non-controlling interest 7   -     496     496  
                     
Total liabilities and equity     1,276,102     1,147,990     634,130  
Events after the reporting date (note 8)                    
Commitments (note 23 (c))                    

The accompanying notes are an integral part of the consolidated financial statements

Approved by the Board of Directors and authorized for issue on March 11, 2012

“John R. Brodie”   “John Smith”
John R. Brodie, FCA, Director   John Smith, Director

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Silver Standard Resources Inc.
Consolidated Statements of Income
For the years ended December 31, 2011 and 2010
(expressed in thousands of United States dollars, except per share amounts)

  Note   2011     2010  
      $     $  
               
Revenue     147,845     112,256  
Cost of sales 17   (95,926 )   (98,122 )
Income from mine operations     51,919     14,134  
               
General and administrative expenses 17   (23,651 )   (28,896 )
Exploration and evaluation expenses     (5,703 )   (2,400 )
Operating income (loss)     22,565     (17,162 )
               
Gain on sale of mineral property 7   49,856     402,009  
Gain on partial disposal of associate 8   38,776     -  
Interest earned and other finance income 18   2,291     1,400  
Interest expense and other finance costs 18   (17,392 )   (16,363 )
Other income (other expenses) 19   18,080     1,706  
Foreign exchange loss     (2,651 )   (942 )
Income before tax     111,525     370,648  
               
Income tax expense 9   (31,397 )   (32,193 )
               
Net income and net income attributable to shareholders     80,128     338,455  
               
Weighted average shares outstanding (thousands)              
 Basic 20   80,324     77,972  
 Diluted 20   80,660     78,356  
               
Earnings per share              
 Basic 20 $  1.00   $  4.34  
 Diluted 20 $  0.99   $  4.32  

The accompanying notes are an integral part of the consolidated financial statements

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Silver Standard Resources Inc.
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2011 and 2010
(expressed in thousands of United States dollars)

Note   2011     2010  
      $     $  
               
               
Net income for the period attributable to shareholders     80,128     338,455  
Other comprehensive income (loss):              
     Unrealized gain (loss) on marketable securities, net of tax     (13,820 )   15,907  
     Realized gain on the disposal of marketable securities
     recycled to net income, net of tax
    (4,731 )   (2,645 )
     Share of other comprehensive loss of associate 8   (3,516 )   -  
     Cumulative translation adjustment     (2,163 )   1,832  
Other comprehensive income (loss)     (24,230 )   15,094  
               
Total comprehensive income attributable to shareholders     55,898     353,549  
Non-controlling interests     -     -  
Total comprehensive income     55,898     353,549  

The accompanying notes are an integral part of the consolidated financial statements

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Silver Standard Resources Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2011 and 2010
(expressed in thousands of United States dollars)

  Note   Common Shares     Other     Retained earnings     Total     Non-     Total  
      Shares     Amount     reserves     (accumulated     attributable to     controlling     equity  
                  (note 16 )   deficit)     shareholders     Interest        
      000's     $     $     $     $     $     $  
Balance, January 1, 2010     71,965     538,700     46,966     (146,999 )   438,667     496     439,163  
                                             
     Issue of ordinary shares, net of costs     6,729     114,677     -     -     114,677     -     114,677  
     Exercise of stock options     971     23,274     (6,956 )   -     16,318     -     16,318  
     Share-based compensation     -     -     8,153     -     8,153     -     8,153  
     Total comprehensive income for the
      year
    -     -     15,094     338,455     353,549     -     353,549  
Balance, December 31, 2010     79,665     676,651     63,257     191,456     931,364     496     931,860  
                                             
                                             
Balance, January 1, 2011     79,665     676,651     63,257     191,456     931,364     496     931,860  
     Exercise of stock options     1,028     29,225     (8,990 )   -     20,235     -     20,235  
     Share-based compensation     -     -     4,676     -     4,676     -     4,676  
     Transactions with non-controlling
     interests
7   -     -     (28,198 )   -     (28,198 )   (496 )   (28,694 )
     Total comprehensive income (loss) for
     the period
    -     -     (24,230 )   80,128     55,898     -     55,898  
Balance, December 31, 2011     80,693     705,876     6,515     271,584     983,975     -     983,975  

The accompanying notes are an integral part of the consolidated financial statements

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Silver Standard Resources Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2011 and 2010
(expressed in thousands of United States dollars)

  Note   2011     2010  
      $     $  
Cash flows from operating activities              
Net income for the year     80,128     338,455  
Adjustments for:              
   Depletion, depreciation and amortization     16,832     22,436  
   Share-based payments     4,754     7,877  
   Close down and restoration provision     1,596     1,798  
   Gain on sale of mineral property and property plant and equipment     (49,856 )   (402,009 )
   Write-down of inventory to net realizable value     1,625     6,700  
   Accretion expense on convertible notes     9,188     8,230  
   Accretion income on convertible debenture     (691 )   (865 )
   Other income     (19,136 )   (1,690 )
   Gain on partial disposal of associate     (38,776 )   -  
   Deferred income tax expense (recovery)     (4,950 )   29,594  
   Foreign exchange loss (gain)     6,618     4,309  
Net changes in non-cash working capital items 25   (1,653 )   (25,944 )
               
Cash used in operating activities     5,679     (11,110 )
               
Cash flows from investing activities              
Purchase of property, plant and equipment     (29,055 )   (50,564 )
Mineral property expenditures     (36,379 )   (52,912 )
Value added tax recoverable     (24,302 )   (19,344 )
Proceeds from sale of marketable securities     -     11,015  
Acquisition of non-controlling interest     (18,172 )   -  
Proceeds from repayment of convertible debenture receivable     10,060     -  
Net proceeds from partial disposal of associate     112,381     -  
Net proceeds from sale of mineral properties     56,447     204,491  
               
Cash generated by investing activities     70,980     92,686  
               
Cash flows from financing activities              
Proceeds from issuance of common shares (net of costs)     -     107,758  
Proceeds from exercise of stock options     20,085     16,318  
               
Cash generated by financing activities     20,085     124,076  
               
Increase in cash and cash equivalents     96,744     205,652  
Cash and cash equivalents, beginning of period     232,311     26,659  
Cash and cash equivalents, end of period     329,055     232,311  
               
Supplemental cash flow information (note 25)              

The accompanying notes are an integral part of the consolidated financial statements

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

1.

NATURE OF OPERATIONS

   

Silver Standard Resources Inc. (the “Company”) is a limited liability company incorporated under the laws of the Province of British Columbia, Canada and its shares are publicly listed on the Toronto Stock Exchange in Canada and the NASDAQ in the United States. The Company together with its subsidiaries (the “Group”) are principally engaged in the acquisition, exploration, development and operation of silver-dominant resource properties located in the Americas. The Company is the ultimate parent of the Group.

   

The Company’s address is Suite 1400, 999 West Hastings Street, Vancouver, British Columbia, V6C 2W2.

   

The Company’s strategic focus is to optimize the production of silver from its Pirquitas mine in Argentina, and to advance other principal development and exploration projects including San Luis in Peru, Diablillos in Argentina, and Pitarrilla and San Agustin in Mexico. In addition to its principal projects, the Company holds a geologically-diverse portfolio of other predominantly silver projects in various stages of exploration.

   
2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.

a)     Basis of preparation and first time adoption of International Financial Reporting Standards

The Company prepares its financial statements in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) as set out in the Handbook of the Canadian Institute of Chartered Accountants (“CICA Handbook”). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards (“IFRS”), and to require publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly, these are the Company’s first annual consolidated financial statements prepared in accordance with IFRS. In the financial statements, the term ‘Canadian GAAP’ refers to Canadian GAAP before the adoption of IFRS.

These consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”). The comparative information has also been prepared on this basis, with the exception of certain items, details of which are given below, for which comparative information has not been restated.

The basis of preparation of these annual consolidated financial statements is different to that of the most recent comparative year’s annual consolidated financial statements due to the first time adoption of IFRS. An explanation of how the transition to IFRS has affected the reported statement of income and statement of financial position is provided in note 26. This note includes reconciliations of equity and of income for the period ended December 31, 2010 previously reported under Canadian GAAP to those amounts reported under IFRS.

The policies applied in these consolidated financial statements are based on IFRS issued and outstanding as of March 11, 2012, the date the statements were issued.

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

   

The Company’s transition date to IFRS is January 1, 2010. The rules for first-time adoption of IFRS are set out in IFRS 1, “First-time adoption of International Financial Reporting Standards”. In preparing the Company’s first IFRS financial statements these transition rules have been applied to the amounts previously reported under Canadian GAAP. In general IFRS 1 requires accounting policies to be applied retrospectively, however it allows certain exemptions in order to assist companies with the transition process. The Company has applied the following optional exemptions:


  -

IFRS 3 “Business combinations” has not been applied to business combinations that occurred before the date of transition.

   

 

  -

The Company has deemed cumulative translation differences for foreign operations to be zero at the date of transition, transferring any balances to the opening accumulated deficit at that date. Any gains or losses on subsequent disposals of foreign operations will not therefore include translation differences arising prior to the transition date.

   

 

  -

IFRS 2 “Share-based payment” has only been applied to share-based payments which had not vested at January 1, 2010.

   

 

  -

Full retrospective application of IFRIC 1, “Changes in existing decommissioning, restoration and similar liabilities” has not been applied to the Company’s close down and restoration provision that existed prior to the transition to IFRS.

   

 

  -

The Company has elected to deem the fair value of the Pirquitas mine at the date of transition to IFRS to be its cost as of that date.

IFRS 1 also requires that estimates made under IFRS must be consistent with estimates made for the same date under Canadian GAAP except where adjustments are required to reflect any differences in accounting policies.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving judgement or complexity, or areas where assumptions and estimates are significant and could affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period, are discussed in note 2 (u).

b)     Accounting convention

These consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments, which are measured at fair value as described in note 2 (r).

c)     Basis of consolidation

These consolidated financial statements incorporate the financial statements of the Company, its associate (note 8), and its controlled subsidiaries (note 24(c)).

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

   

Subsidiaries

   

Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity.

   

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

   

All inter-company transactions and balances have been eliminated on consolidation.

   

Where the Company’s interest is less than 100%, the interest attributable to outside shareholders is reflected in non- controlling interest. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Company’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interests’ share of changes in equity since the date of the combination.

   

Associates

   

An associate is an entity over whose operating and financial policies the Company exercises significant influence. Significant influence is presumed to exist where the Company has between 20 per cent and 50 per cent of the voting rights, but can also arise where the Company holds less than 20 per cent of the voting rights, but it has power to be actively involved and influential in policy decisions affecting the entity. The Company’s share of the net assets, post tax results and reserves of the associate are included in the financial statements using the equity accounting method. This involves recording the investment initially at cost to the Company, and then, in subsequent periods, adjusting the carrying amount of the investment to reflect the Company’s share of the associate’s results. Unrealized gains on transactions between the Company and its associate are eliminated to the extent of the Company’s interest in the associate.

d)     Foreign currency translation

   (i)     Functional and presentation currency

Items included in the financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”).

The consolidated financial statements are presented in United States dollars.

   (ii)    Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of income.

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

   (iii)   Subsidiaries

The results and financial position of subsidiaries and of the associate that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

  -

Assets and liabilities are translated at the period-end exchange rate;

  -

Income and expenses for each statement of income are translated at average exchange rates for the period; and

  -

All resulting exchange differences are recognized in other comprehensive income as cumulative translation adjustments.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to the foreign currency translation reserve. When a foreign operation is sold, such exchange differences are recognized in the statement of income as part of the gain or loss on sale.

e)     Revenue recognition

The Company’s primary source of revenue is from the sale of metal-bearing concentrate. Revenue from the sale of concentrate is recognized in the financial statements when the following criteria have been met:

  -

the significant risks and rewards of ownership have passed to the customer;

  -

neither continuing managerial involvement, to the degree usually associated with ownership, nor effective control over the good sold, has been retained;

  -

the amount of revenue can be measured reliably;

  -

it is probable that economic benefits associated with the sale will flow to the Company; and

  -

the costs incurred or to be incurred in respect of the sale can be measured reliably.

Revenue from the sale of concentrate is recorded in the statement of income net of charges for shipping, refining and smelting. Revenues from the sale of significant by-products are included within revenue. Where a by-product is not regarded as significant, sales proceeds may be credited against cost of sales.

Concentrate sales typically are provisionally valued upon shipment, with the final value of the concentrate sale determined after receipt of final weights and assays and after the contractually-agreed metal pricing period, which typically occurs two to six months after shipment. Once the recognition criteria are met, fair value is estimated and revenues are recorded, based on metal spot prices at that date, provisionally-estimated amounts of metals contained, and processing charges. As a result of this process, the value of concentrate receivables changes during the period between initial recognition and final pricing. This component of the contract is an embedded derivative, which is recognized at fair value based on the forward sales price at the end of the reporting period with changes in value recorded in revenue. Such adjustments to revenue for metal prices are recorded at each reporting date, until the final sales price has been determined.

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

f)     Cash and cash equivalents

Cash and cash equivalents include cash on hand and held at banks and short-term investments with an original maturity of three months or less. Short-term investments consist of treasury bills issued by the governments of Canada and the United States of America.

g)     Inventory

Stockpiled ore, work in process and finished goods inventory are valued at the lower of cost and estimated net realizable value (“NRV”). Cost includes all direct costs incurred in production including direct labour and materials, freight, depreciation and amortization and directly attributable overhead costs. Production stripping costs are included in inventory as incurred. NRV is calculated using the estimated price at the time of sale based on prevailing and future metal prices less estimated future production costs to convert the inventory into saleable form and all associated selling costs.

Any write-downs of inventory to NRV are recorded as cost of sales in the statement of income. If there is a subsequent increase in the value of inventory, the previous write-downs to NRV are reversed up to cost to the extent that the related inventory has not been sold.

Stockpiled ore inventory represents ore that has been extracted from the mine and is available for further processing. Low-grade resources which are not scheduled for processing within the next twelve months are classified as long-term inventory. Costs added to stockpiled ore inventory are derived from the current mining costs incurred up to the point of stockpiling the ore and are removed at average cost. Quantities of stockpiled ore are verified by periodic surveys.

Work in process inventory includes the fine ore stockpile and in-circuit inventories in the milling process. Finished goods inventory includes metal concentrates at our operations and in transit.

Materials and supplies inventories are valued at the lower of average cost and NRV. Costs include acquisition, freight and other directly attributable costs.

h)     Exploration and evaluation expenditure

Exploration and evaluation activity involves the search for mineral resources, the determination of technical feasibility and the assessment of commercial viability of an identified mineral resource. Exploration and evaluation activity includes:

  - acquiring the rights to explore;
  - researching and analyzing historical exploration data;
  - gathering exploration data through topographical, geochemical and geophysical studies;
  - exploratory drilling, trenching and sampling;
  - determining and examining the volume and grade of the resource;
  - surveying transportation and infrastructure requirements; and
  - compiling pre-feasibility and feasibility studies.

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

   

General exploration costs are expensed in the period incurred.

   

Exploration and evaluation expenditures on identifiable non-operating properties are capitalized. Capitalized costs are considered to be tangible assets as they form part of the underlying mineral property and are recorded within ‘exploration and development expenditure’, a separate component of property, plant and equipment, at cost less impairment charges, if applicable. No amortization is charged during the exploration and evaluation phase as the asset is not available for use.

   

All exploration costs at operating properties are expensed as incurred until a proven economically recoverable reserve is identified.

   

Once a mining project has been established as commercially viable, expenditures other than those on land, buildings, plant and equipment are capitalized as ‘mineral properties’ together with any amount transferred from ‘exploration and development expenditure’.

i)     Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses.

The cost of an item of property, plant and equipment includes the purchase price or construction cost, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use, an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, and for qualifying assets, the associated borrowing costs.

Where an item of property, plant and equipment is comprised of major components with different useful lives, the components are accounted for as separate items of property, plant and equipment.

Costs incurred for new construction, mine development, the major overhaul of existing equipment, and sustaining capital are capitalized as property, plant and equipment on the statement of financial position and are subject to depreciation once they are put into use. The costs of routine maintenance and repairs are expensed as incurred.

j)     Depreciation of property, plant and equipment

The carrying amounts of property, plant and equipment are depreciated to their estimated residual value over the estimated useful lives of the specific assets concerned, or the estimated life of mine or lease, if shorter. Depreciation starts on the date of commissioning. The major categories of property, plant and equipment are depreciated on a units-of-production or straight-line basis using the estimated lives indicated below:

Computer equipment 3 - 5 years
Furniture and fixtures 7 years
Vehicles 3 years
Mining equipment 3 - 10 years
Mine plant equipment 11 years
Leasehold improvements Lease term

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

   

Land is not depreciated.

   

‘Mineral properties’ are depreciated using the units-of-production method. In applying the units-of-production method depreciation is calculated using the quantity of material extracted from the mine in the period as a percentage of the total quantity of material expected to be extracted in current and future periods based on proven and probable mineral reserves.

   

The Company conducts an annual review of residual values, useful lives and depreciation methods employed for property, plant and equipment. Any changes in estimate that arise from this review are accounted for prospectively.

k)     Stripping costs

Stripping costs comprise the removal of overburden and other waste material from the mine. Stripping costs incurred during the development of a mine are capitalized and recorded within mineral properties and subsequently amortized over the life of the mine on a units-of-production basis.

Stripping costs incurred during the production phase are variable production costs that are included in the costs of inventory produced during the period that the stripping costs are incurred. Stripping costs resulting in a future benefit of the mineral property by providing access to additional sources of ore are capitalized and amortized over the relevant mineral reserves.

l)     Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalized as part of the cost of the asset until the asset is substantially ready for its intended use. Other borrowing costs are recognized as an expense in the period incurred.

m)     Impairment of long-lived assets

Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment or at any time if an indicator of impairment is considered to exist. Assets that are subject to amortization or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

The Company conducts internal reviews of asset values which are used to assess for any indications of impairment. External factors such as changes in expected future prices, costs and other market factors are also monitored to assess for indications of impairment.

If any such indication exists an estimate of the recoverable amount is undertaken, being the higher of an asset’s fair value less costs to sell and value in use. If the asset’s carrying amount exceeds its recoverable amount then an impairment loss is recognized in the statement of income.

17 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

   

Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. Fair value of mineral assets is generally determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset, including any expansion prospects.

   

Value in use is determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset in its present form and from its ultimate disposal.

   

Impairment is normally assessed at the level of cash-generating units (“CGUs”), which are identified as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets.

   

Non-financial assets other than goodwill that have suffered impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed. When a reversal of a previous impairment is recorded, the reversal amount is adjusted for depreciation that would have been recorded had the impairment not taken place.

n)     Share capital

Common shares issued by the Company are recorded at the net proceeds received which is the fair value of the consideration received less costs incurred in connection with the issue.

o)     Share-based payments

Equity-settled share-based payment arrangements such as the Company’s stock option plan are initially measured at fair value at the date of grant and recorded within shareholders’ equity. Cash-settled arrangements such as the Non-employee Directors’ Deferred Share Unit plan (“DSU Plan”), the Restricted Share Unit Plan (“RSU Plan”) and the Performance Share Unit Plan (“PSU Plan”) are initially recorded at fair value and classified as accrued liabilities and subsequently remeasured at fair value at each reporting date.

The fair value at grant date of all share-based payments is recognized as compensation expense over the period for which benefits of services are expected to be derived, with a corresponding credit to shareholders’ equity or other payables depending on whether they are share-settled or cash-settled. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model and estimates the expected forfeiture rate at the date of grant. The fair value of DSU’s and RSU’s is based on the quoted market price of the Company’s common shares, and the PSU’s are valued using a Monte Carlo simulation. When awards are forfeited because non-market based vesting conditions are not satisfied, the expense previously recognized is proportionately reversed.

Where share-based payments are granted in exchange for services directly related to specific exploration, development or producing properties, the expense is capitalized against that asset.

p)     Taxation

The tax expense for the period is comprised of current and deferred tax. Taxation is recognized in the statement of income except to the extent that it relates to items recognized directly in shareholders’ equity, in which case the tax is recognized in equity.

18 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

(i)     Current income tax

Current tax for each taxable entity in the Company is based on the local taxable profit for the period at the local statutory tax rates enacted or substantively enacted at the date of the statement of financial position.

(ii)    Deferred tax

Deferred tax is recognized, using the liability method, on temporary differences between the carrying value of assets and liabilities in the statement of financial position and the corresponding tax bases used in the computation of taxable profit. Deferred tax is determined using tax rates and tax laws that are enacted or substantively enacted at the date of the statement of financial position and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.

Deferred tax assets and liabilities are not recognized if the temporary difference arises on the initial recognition of assets and liabilities in a transaction other than a business combination, that at the time of the transaction, affects neither the taxable nor the accounting profit or loss.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and amended to the extent that it is no longer probable that the related tax benefit will be realized. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off the current tax assets against the current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

(iii)  Royalties and other tax arrangements

Royalties and other arrangements are treated as taxation arrangements when they have the characteristics of tax. This is considered to be the case when they are imposed under government authority and the amount payable is calculated by reference to an income measure. Obligations arising from royalty arrangements that do not satisfy these criteria are recognized as current provisions and included within the cost of sales.

q)     Earnings per share

Basic earnings per share for the year is calculated by dividing the profit attributable to shareholders of the Company by the weighted average number of shares outstanding during the reporting period.

Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all potentially dilutive share equivalents, such as stock options and convertible notes. The “treasury stock method” is used for the assumed proceeds upon exercise of the dilutive instruments to determine the number of shares assumed to be purchased at the average market price during the period.

A portion of the convertible notes may be converted into common shares and hence the maximum dilution impact of these is determined.

19 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

   

When a loss is incurred during the year, basic and diluted loss per share are the same because the exercise of options and convertible notes are considered to be anti-dilutive.

r)     Financial instruments

(i)     Financial assets and liabilities

The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), loans and receivables, available-for-sale, held to maturity, and other financial liabilities. The classification depends on the purpose for which the financial assets or liabilities were obtained. Management determines the classification of financial assets and liabilities at initial recognition.

The Company has not classified any financial instruments as held to maturity. The accounting policy for each of the other categories is as follows:

Financial assets and liabilities at FVTPL Financial assets and liabilities carried at FVTPL are recorded at fair value and transaction costs are expensed in the statement of income. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets or liabilities held at FVTPL are included in the statement of income in the period in which they arise. Derivatives are included in this category unless they are designated as hedges. Generally, the Company does not acquire financial assets for the purpose of selling in the short term.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as current assets or non-current assets based on their maturity date. Loans and receivables are initially recognized at fair value and subsequently carried at amortized cost less any impairment.

Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated as available for sale or not classified in any of the other categories.

Available-for-sale assets are initially recorded at fair value plus transaction costs, and are subsequently carried at fair value. All unrealized gains and losses arising from changes in the fair value of assets classified as available-for-sale are recognized directly in other comprehensive income, except for unrealized foreign exchange gains or losses on monetary financial assets and impairment losses which are recognized in the statement of income. Any reversal of a previously recognized impairment loss on a non-monetary asset is recognized directly in other comprehensive income. Realized gains and losses from the derecognition of available for sale assets are recognized in the statement of income in the period derecognized with any unrealized gains or losses being recycled from other comprehensive income.

Other financial liabilities Other financial liabilities are recognized initially at fair value, net of transaction costs incurred and are subsequently stated at amortized cost. Any difference between the initial cost and the redemption value is recognized in the statement of income over the period to maturity using the effective interest method.

Derivative financial instruments The Company’s policy with regard to ‘Financial Risk Management’ is set out in note 23. When the Company enters into derivative contracts these are designed to reduce the exposures related to assets and liabilities, or anticipated transactions.

20 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

   

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to their host contracts. Commodity-based embedded derivatives resulting from provisional sales prices of metals in concentrate are recognized in revenue as described in note 2 (e). Embedded derivatives in the convertible debenture receivable and the convertible notes are described in notes 5 and 14 respectively.

(ii)    Fair value of financial instruments

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Company establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances.

(iii)   Impairment of financial assets

The Company assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. An evaluation is made as to whether a decline in fair value is ‘significant’ or ‘prolonged’ based on indicators such as significant adverse changes in the market, economic or legal environment.

Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized.

(iv)   Derecognition of financial assets and liabilities

Financial assets are derecognized when the investments mature or are sold, and substantially all the risks and rewards of ownership have been transferred. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. Gains and losses on derecognition are recognized within other income and finance costs respectively.

s)     Provisions for close down and restoration and for environmental clean-up costs

Close down and restoration costs include dismantling and demolition of infrastructure and the removal of residual materials and remediation of disturbed areas. Estimated close down and restoration costs are provided for in the accounting period when the obligation arising from the related disturbance occurs, based on the net present value of estimated future costs. The cost estimates are updated during the life of the operation to reflect known development, e.g. revisions to cost estimates and to the estimated lives of the operations, and are subject to formal reviews at regular intervals.

The initial closure provision together with changes resulting from changes in estimated cash flows or discount rates are capitalized within property, plant and equipment. These costs are then depreciated over the lives of the asset to which they relate, typically using the units-of-production method. The amortization or unwinding of the discount applied in establishing the net present value of provisions is charged to the statement of income as a financing cost.

Provision is made for the estimated present value of the costs of environmental clean-up obligations outstanding at the statement of financial position date. These costs are charged to the statement of income as an operating cost.

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

t)     Leases

Leases which transfer substantially all of the benefits and risks incidental to the ownership of property are accounted for as finance leases. Finance leases are capitalized at the lease commencement at the lower of the fair market value of the leased property and the net present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charge. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term.

All other leases are accounted for as operating leases wherein rental payments are expensed as incurred.

u)     Significant accounting judgements and estimates

The preparation of financial statements in conformity with IFRS requires the use of judgements and/or estimates that affect the amounts reported and disclosed in the consolidated financial statements and related notes. These judgments and estimates are based on management’s best knowledge of the relevant facts and circumstances, having regard to previous experience, but actual results may differ materially from the amounts included in the financial statements. Information about such judgements and estimation is contained in the accounting policies and/or notes to the financial statements, and the key areas are summarized below.

Areas of judgement that have the most significant effect on the amounts recognized in these consolidated financial statements are:

  - Review of asset carrying values and impairment assessment;
     
  - Mineral reserve and mineral resource estimates;
     
  - Determination of useful lives of property, plant and equipment;
     
  - Valuation of inventory;
     
  - Close down and restoration provision;
     
  - Deferred tax assets and liabilities; and
     
  - Functional currency.

Key sources of estimation uncertainty that have the most significant effect on the amounts recognized in these consolidated financial statements are:

  - Review of asset carrying values and impairment assessment;
     
  - Mineral reserve and mineral resource estimates;
     
  - Valuation of inventory;
     
  - Close down and restoration provision;
     
  - Determination of the fair values of share-based compensation and of financial instruments; and
     
  - Deferred tax assets and liabilities.

Each of these judgements and estimates is considered in more detail below.

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

   

Review of asset carrying values and impairment assessment In accordance with the Company’s accounting policy (note 2 (m)), each asset or cash generating unit is evaluated every reporting period to determine whether there are any indications of impairment. If any such indication exists, which is often judgmental, a formal estimate of recoverable amount is performed and an impairment loss is recognized to the extent that the carrying amount exceeds the recoverable amount. The recoverable amount of an asset or cash generating group of assets is measured at the higher of fair value less costs to sell and value in use.

   

The evaluation of asset carrying values for indications of impairment includes consideration of both external and internal sources of information, including such factors as market and economic conditions, production budgets and forecasts, and life-of-mine estimates.

   

The determination of fair value and value in use requires management to make estimates and assumptions about expected production, sales volumes, commodity prices, mineral reserves, operating costs, closure and rehabilitation costs and future capital expenditures. The estimates and assumptions are subject to risk and uncertainty; hence, there is the possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances some or all of the carrying value of the assets may be further impaired or the impairment charge reduced with the impact recorded in the statement of income.

   

Mineral reserve and mineral resource estimates The Company estimates its mineral reserves and mineral resources based on information compiled by qualified persons as defined by National Instrument (“NI”) 43-101. Mineral reserves determined in this way are used in the calculation of depreciation, amortization and impairment charges, and for forecasting the timing of the payment of close down and restoration costs. In assessing the life of a mine for accounting purposes, mineral resources are only taken into account where there is a high degree of confidence of economic extraction. There are numerous uncertainties inherent in estimating mineral reserves, and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of mineral reserves and may, ultimately, result in mineral reserve estimates being revised. Such changes in mineral reserves could impact on depreciation and amortization rates, asset carrying values and the provision for close down and restoration costs.

   

Determination of useful lives of property, plant and equipment The Company uses the units-of-production method to depreciate mineral property expenditures, whereby depreciation is calculated using the tonnage of ore extracted from the mine in the period as a percentage of the total tonnage of ore expected to be extracted in current and future periods based on proven and probable mineral reserves. As noted above there are numerous uncertainties inherent in estimating ore reserves which are fundamental to this calculation. Other assets are depreciated using the straight-line method, which includes significant management judgement to determine useful lives.

   

Valuation of inventory Stockpiled ore, work in process and finished goods are valued at the lower of cost and NRV. NRV is calculated as the estimated price at the time of sale based on prevailing and future metal prices less estimated future production costs to convert the inventory into saleable form and associated selling costs. The determination of estimated future sales price, production and selling costs requires significant assumptions that may significantly impact the stated value of the Company’s inventory.


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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

   

Close down and restoration provision Close down and restoration costs are a normal consequence of mining, and the majority of close down and restoration expenditures are incurred near the end of the life of the mine. The Company’s accounting policy requires the recognition of such provisions when the obligation occurs. The initial provisions are periodically reviewed during the life of the operation to reflect known developments, e.g. updated cost estimates and revisions to the estimated lives of operations. Although the ultimate cost to be incurred is uncertain, the Company estimates its costs based on studies using current restoration standards and techniques. The initial closure provisions together with changes, other than those arising from the unwinding of the discount applied in establishing the net present value of the provision, are capitalized within property plant and equipment and depreciated over the lives of the assets to which they relate.

   

The ultimate magnitude of these costs is uncertain, and cost estimates can vary in response to many factors including changes to the relevant legal requirements, the emergence of new restoration techniques or experience at other mine sites, local inflation rates and exchange rates when liabilities are anticipated to be settled in a currency other than the United States dollar. The expected timing of expenditure can also change, for example, in response to changes in mineral reserves or production rates or economic conditions. As a result there could be significant adjustments to the provision for close down and restoration, which would affect future financial results.

   

Determination of the fair value of share-based compensation The fair value of share options and other forms of share-based compensation granted is computed to determine the relevant charge to the statement of income. In order to compute this fair value the Company uses option pricing models that require management to make various estimates and assumptions in relation to the expected life of the awards, volatility, risk-free interest rates, and forfeiture rates.

Valuation of financial instruments The Company is required to determine the valuation of its convertible debenture receivable, convertible notes (at inception), and the embedded derivatives within sales contracts. The convertible debenture and notes required discounted cash flow analyses and option pricing models that involved various estimates and assumptions, whilst the valuation of the revenue derivatives requires estimates of settlement dates.

   

Deferred tax assets and liabilities The determination of the Company’s tax expense for the period and deferred tax assets and liabilities involves significant estimation and judgement by management. In determining these amounts, management interprets tax legislation in a variety of jurisdictions and makes estimates of the expected timing of the reversal of deferred tax assets and liabilities. Management also makes estimates of future earnings which affect the extent to which potential future tax benefits may be used. The Company is subject to assessments by various taxation authorities, which may interpret legislation differently. These differences may affect the final amount or the timing of the payment of taxes. The Company provides for such differences where known based on management’s best estimate of the probable outcome of these matters.

   

Functional currency The determination of a subsidiary’s functional currency often requires significant judgement where the primary economic environment in which they operate may not be clear. This can have a significant impact on the consolidated results of the Company based on the foreign currency translation methods described in note 2(d).


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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

v)     Future accounting changes

IFRS 9, Financial Instruments (“IFRS 9”) was issued in November 2009 and contained requirements for financial assets. This standard addresses classification and measurement of financial assets and replaces multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and FVTPL. IFRS 9 also replaces the models for measuring equity instruments, and such investments are either recognized at FVTPL or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss to the extent not clearly representing a return of investment; however, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely.

Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, Financial Instruments – Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in other comprehensive income.

This standard is required to be applied for accounting periods beginning on or after January 1, 2015, with earlier adoption permitted. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.

On May 12, 2011, the IASB issued the following statements:

  i.

IFRS 10, Consolidated Financial Statements (“IFRS 10”) (see further details below)

     
  ii.

IFRS 11, Joint Arrangements (“IFRS 11”) ( see further details below)

     
  iii.

IFRS 12, Disclosure of Interests in Other Entities (“IFRS 12”) (see further details below)

     
  iv.

IAS 27, Separate Financial Statements (revised 2011) (“IAS 27”), has been amended for issuance of IFRS 10 while maintaining the current guidance for separate financial statements

     
  v.

IAS 28, Investments in Associates (revised 2011) (“IAS 28”), has been amended for conforming changes based on the issuance of IFRS 10 and IFRS 11.

Each of these standards has an effective date for annual periods beginning on or after January 1, 2013. Early adoption of any of these standards is permitted only if the other standards are also adopted early.

  i.

IFRS 10 establishes control as the single basis for consolidation of entities, regardless of the nature of the investee. An entity has control over an investee when it has power over it; it is exposed, or has the rights, to variable returns from its involvement with the investee; and has the ability to use its power over the investee to affect those returns. IFRS 10 replaces IAS 27’s guidance that addresses when and how an investor should prepare consolidated financial statements and replaces all of SIC-12. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.


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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)


  ii.

IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and the obligations for the liabilities. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. The determination whether a joint arrangement constitutes a joint operation or a joint venture is based on the parties’ rights and responsibilities under the arrangement and thus the existence of a separate legal vehicle is no longer the main factor in making such determination. Joint ventures will be accounted for using the equity method of accounting thereby eliminating the option available under existing IFRS to use either the proportionate consolidation method or the equity method. Joint operations are accounted for by a venturer by recognizing its share of the assets, liabilities, revenues and expenses of the joint operation. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.

     
  iii.

IFRS 12 sets out the required disclosures relating to an entity’s interest in subsidiaries, joint arrangements, associates and unconsolidated structured entities. An entity is required to disclose information that enable users of its financial statements to assess the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial statements. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.

IFRS 13 Fair Value Measurement (“IFRS 13”) was issued on May 12, 2011 and establishes a single framework for measuring fair value where it is required by other standards. IFRS 13 applies to all transactions (whether financial or non-financial) for which IFRS requires or permits fair value measurements, with the exception of share-based payment transactions accounted for under IFRS 2 Share-based Payment and leasing transactions within the scope of IAS 12 Leases , and measurements that have some similarities to fair value but are not fair value such as net realisable value under IAS 2 Inventories or value in use under IAS 36 Impairment of assets . Fair value is defined as 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 (i.e. an exit price).

This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.

On June 16, 2011, the IASB issued Presentation of Items of Other Comprehensive Income (amendments to IAS 1, Presentation of Financial Statements ). The amendments require the grouping of items presented in other comprehensive income into items that might be reclassified to profit or loss in subsequent periods and items that will not be reclassified to profit or loss in subsequent periods. The amendments are effective for annual periods beginning on or after July 1, 2012, with full retrospective application. The adoption of this standard will impact the presentation of the statement of other comprehensive income from the date of adoption; the Company has not determined whether it will adopt the standard early.

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

   

In October 2011 the IASB issued IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (“IFRIC 20”). This interpretation provides guidance on the accounting for the costs of stripping activity in the production phase when two benefits accrue to the entity: usable ore that can be used to produce inventory and improved access to further quantities of material that will be mined in future periods. IFRIC 20 is applicable for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.

   
3.

CASH AND CASH EQUIVALENTS


      December 31,     December 31,     January 1,  
      2011     2010     2010  
      $     $     $  
  Cash and bank balances   94,711     61,663     21,659  
  Short-term investments   234,344     170,648     5,000  
      329,055     232,311     26,659  

4.

TRADE AND OTHER RECEIVABLES


      December 31,     December 31,     January 1,  
      2011     2010     2010  
      $     $     $  
  Trade receivables   -     15,409     3,335  
  Tax receivables   7,040     10,989     1,018  
  Prepayments and deposits   6,656     5,779     2,013  
  Other receivables   5,705     3,739     1,885  
      19,401     35,916     8,251  

The Company expects full recovery of the amounts outstanding and therefore no allowance has been recorded against these receivables. No receivables are past due and all are expected to be settled within twelve months.

Credit risk has been further discussed in note 23(b). The Company did not hold any collateral for any receivable amounts outstanding at December 31, 2011, December 31, 2010, or January 1, 2010.

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

5.

OTHER ASSETS


      December 31, 2011     December 31, 2010     January 1, 2010  
      Non-current     Current     Non-current     Current     Non-current     Current  
      $     $     $     $     $     $  
  Financial assets:                                    
  Restricted cash (a)   1,768     -     2,071     -     1,934     -  
  Marketable securities (b)   -     33,539     -     33,465     -     17,863  
  Convertible debenture receivable (c)   -     -     7,180     186     6,081     1,859  
      1,768     33,539     9,251     33,651     8,015     19,722  
  Other assets:                                    
  Long-term inventory (note 6)   6,454     -     -     -     -     -  
      8,222     33,539     9,251     33,651     8,015     19,722  

  (a)

The Company has security deposits with various government agencies in relation to its close down and restoration provisions. $25,000 (December 31, 2010 - $328,000; January 1, 2010 - $191,000) is in the form of cash deposits and $1,743,000 (December 31, 2010 - $1,743,000; January 1, 2010 - $1,743,000) is security for a reclamation bond.

     
  (b)

Marketable securities’ cost at December 31, 2011 was $29,793,000 (December 31, 2010 - $8,604,000; January 1, 2010 - $7,732,000).

     
  (c)

The Company received a $10,060,000 (C$10,000,000) convertible debenture with a coupon rate of 3% per annum from Aurcana Corporation (“Aurcana”) as part of the consideration received for the sale of the Shafter Silver property in 2008. The convertible debenture was repayable on July 15, 2011, and the Company had the option to convert any portion of the principal amount into Aurcana common shares at a deemed conversion price of C$1.52 per share (up to 6,600,000 shares) until that date. In 2009, the coupon rate on the debenture was revised from 3% per year to 1.5% in the first year and 4% per year thereafter, which resulted in an impairment of $2,002,000 for the year ended December 31, 2009.

     
 

On March 25, 2011, the terms of the convertible debenture receivable were renegotiated so that Aurcana was required to pay C$7,000,000 on July 15, 2011 and the remaining C$3,000,000 in quarterly instalments until July 15, 2012. The interest rate for the remainder of the arrangement was increased to 9%. This resulted in a recovery of the previous impairment of $2,400,000, recorded within other income (note 19). The Company retained the option to convert any portion of the remaining principal amount into Aurcana common shares at the deemed conversion price of C$1.52 per share (up to 1,980,000 shares) until July 15, 2012.

     
 

The Company settled the debenture receivable in full on December 22, 2011.

     
 

Prior to being settled the Company presented the note receivable separately from the conversion feature. The Company estimated the carrying value of the note receivable component using a discounted cash flow model, and estimated the fair value of the conversion feature using the Black-Scholes model. The value of the conversion feature was remeasured at each reporting date until settlement, with changes in the fair value recorded in other income (other expenses) (note 19).


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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

5.

OTHER ASSETS (Cont’d)

Movement in the convertible debenture receivable was as follows:

    December 31,     December 31,  
    2011     2010  
    $     $  
Balance, beginning of year   7,366     6,258  
Interest accrued   1,158     1,253  
Interest received   (658 )   (412 )
Principal received   (10,060 )   -  
Fair value of conversion feature adjustment   (386 )   (102 )
Impairment reversal   2,400     -  
Foreign exchange impact   180     369  
Balance, end of year   -     7,366  

The components of the convertible debenture receivable were as follows:

      December 31,     December 31,     January 1,  
      2011     2010     2010  
      $     $     $  
  Accrued interest   -     186     177  
  Fair value of conversion feature   -     386     475  
  Debt portion   -     6,794     5,606  
  Total   -     7,366     6,258  

For the year ended December 31, 2010 and as at January 1, 2010, the fair value of the conversion feature was determined using the Black-Scholes valuation model under the following assumptions:

    December 31,     January 1,  
    2010     2010  
             
Expected dividend yield (%)   -     -  
Average risk-free interest rate (%)   1.68     1.43  
Expected life (years)   0.5     1.5  
Expected volatility (%)   89.7     119.8  

29 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

6.

INVENTORY


      December 31,     December 31,     January 1,  
      2011     2010     2010  
          $     $  
  Current:                  
  Finished goods   44,524     6,919     6,141  
  Stockpiled ore   36,414     26,327     9,310  
  Materials and supplies   13,743     6,930     5,114  
      94,681     40,176     20,565  
  Non-current:                  
  Stockpiled ore   6,454     -     -  
      101,135     40,176     20,565  

The Company holds low grade stockpiled ore that will be processed at the end of the life of the mine. The NRV is computed using long term metal prices and in 2011 this resulted in the write down in value noted below. Inventory held at NRV at December 31, 2011 was $6,454,000 (December 31, 2010 - nil; January 1, 2010 - $9,115,000).

For the year ended December 31, 2011, a NRV write-down of inventory of $1,625,000 (2010 - $6,700,000) was included in the statement of income as a cost of sale.

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

7.

PROPERTY, PLANT AND EQUIPMENT

   

Property, plant and equipment comprise the following:


      December 31, 2011  
      Plant and     Mineral     Assets     Exploration and     Total  
      equipment     properties     under     development        
                  construction     expenditure        
                        (note 7(a))      
                                 
  Cost                              
  Balance, January 1, 2011   263,305     76,209     8,695     190,909     539,118  
  Additions   3,611     33,827     27,751     33,494     98,683  
  Disposals   (4,569 )   (256 )   -     (19,623 )   (24,448 )
  Costs written off   -     -     -     (4,624 )   (4,624 )
  Transfers   18,333     -     (18,333 )   -     -  
  Balance, end of period   280,680     109,780     18,113     200,156     608,729  
                                 
                                 
  Accumulated depreciation                              
  Balance, January 1, 2011   (35,450 )   (4,036 )   -     -     (39,486 )
  Charge for the year   (25,869 )   (3,513 )   -     -     (29,382 )
  Disposals   4,250     -     -     -     4,250  
  Balance, end of period   (57,069 )   (7,549 )   -     -     (64,618 )
                                 
  Net book value at December 31, 2011   223,611     102,231     18,113     200,156     544,111  

      December 31, 2010  
      Plant and     Mineral     Assets     Exploration and     Total  
      equipment     properties     under     development        
                  construction     expenditure        
                        (note 7(a))      
                                 
  Cost                              
  Balance, January 1, 2010   250,085     76,841     8,015     179,445     514,386  
  Additions   7,644     5,017     15,806     55,942     84,409  
  Disposals   (8,455 )   (5,649 )   (1,095 )   (44,478 )   (59,677 )
  Transfers   14,031     -     (14,031 )   -     -  
  Balance, end of period   263,305     76,209     8,695     190,909     539,118  
                                 
  Accumulated depreciation                              
  Balance, January 1, 2010   (16,944 )   (618 )   -     -     (17,562 )
  Charge for the year   (19,370 )   (3,418 )   -     -     (22,788 )
  Disposals   864     -     -     -     864  
  Balance, end of period   (35,450 )   (4,036 )   -     -     (39,486 )
                                 
  Net book value at December 31, 2010   227,855     72,173     8,695     190,909     499,632  

No items of property, plant and equipment have been pledged as security for liabilities.

During the year ended December 31, 2011, the Company identified certain indicators that the mineral property asset constituting the Pirquitas mine, the CGU, may have been impaired. The indicators included a reduction in the mineral reserves and resources and an increase in the close down and restoration provision (note 13) which resulted in an increase to mineral properties. The Company therefore assessed the recoverable amount of this CGU and concluded that it exceeded the carrying value, so no impairment was recorded. The recoverable amount was estimated using a discounted cash flow approach based upon the most recent life-of-mine plan, and an estimated silver price based on market consensus, and a discount rate of 9%.

31 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

7.

PROPERTY, PLANT AND EQUIPMENT (Cont’d)


(a)

Exploration and development expenditures on mineral properties were as follows:


                  December 31, 2011     December 31, 2010  
      Acquisition     Exploration     Total     Total  
      costs     costs              
      $     $     $     $  
  Exploration projects                        
  Bowdens, Australia (i)   -     -     -     19,685  
  Challacollo, Chile   2,990     5,668     8,658     9,206  
  San Agustin, Mexico   101     2,150     2,251     1,654  
  Veta Colorada, Mexico   3,851     1,025     4,876     4,845  
  Nazas, Mexico (ii)   565     511     1,076     1,423  
  Berenguela, Peru   10,645     6,167     16,812     16,480  
  Candelaria, United States   2,434     3,874     6,308     6,022  
  Maverick Springs, United States   565     2,125     2,690     2,628  
  Other exploration projects (iv)   2,907     3,405     6,312     5,743  
                           
  Development projects                        
  Diablillos, Argentina   4,530     16,836     21,366     18,765  
  Pitarrilla, Mexico   17,806     78,194     96,000     77,796  
  San Luis, Peru (iii)   668     33,139     33,807     26,662  
      47,062     153,094     200,156     190,909  

(i)

On September 23, 2011, the Company completed the sale of its 100% interest in the Bowdens project located in Australia to Kingsgate Consolidated Limited (“Kingsgate”). Under the terms of the agreement, the Company received total consideration of $70,655,000. The consideration comprised cash payments of $45,090,000 (of which $40,045,000 was received during the year and $5,045,000 is due to be paid on June 30, 2012), and 3,440,367 common shares of Kingsgate with a fair value of $25,565,000. The total gain recorded on the sale of this mineral property was $51,359,000 before tax expense of $16,058,000.

   
(ii)

During the year ended December 31, 2011, the Company elected not to continue its option on the Navidad claims group, which constitute one area of the Nazas property. As a result the Company wrote off accumulated costs of $4,514,000, reflected in other expenses (note 19).

   
(iii)

On July 28, 2011, the Company completed the 100% acquisition of the San Luis property in Peru (70% interest held at December 31, 2010) from Esperanza Resources Corp. (“Esperanza”). The Company paid consideration of $17,865,000 in cash and transferred to Esperanza the 6,459,000 shares of Esperanza that it owned. In addition, under the terms of the agreement the Company will provide a 1% net smelter return royalty (“NSR”) on future production. The total fair value of the consideration paid to acquire the 30% interest held by Esperanza was $28,694,000, which includes transaction costs of $306,000. The carrying amount of the non-controlling interest in the San Luis project on the date of acquisition was $496,000. This transaction did not result in a change of control and therefore the Company recognized a decrease in non-controlling interest of $496,000 and a decrease in other reserves of $28,198,000 (note 16).


32 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

7.

PROPERTY, PLANT AND EQUIPMENT (Cont’d)


(iv)

In February 2010 the Company completed the sale of its 100% interest in the Silvertip property located in British Columbia, Canada to Silvercorp Metals Inc. (“Silvercorp”). Under the terms of the agreement, Silvercorp paid total consideration of $14,957,000, comprising cash of $7,125,000 and 1,200,000 common shares of Silvercorp with a fair value of $7,832,000, for an after-tax gain of $13,073,000.


8.

INVESTMENT IN ASSOCIATE

   

Investment in associate comprises the following:


    December 31, 2011     December 31, 2010  
    $     $  
Common shares of Pretium Resources Inc.   136,342     187,202  
Convertible note from Pretium Resources Inc.   -     39,069  
    136,342     226,271  

Investment in associate reflects activity for the years as follows:

    December 31, 2011     December 31, 2010  
    $     $  
Carrying amount, beginning of year   226,271     -  
Acquisition   -     226,348  
Partial disposition   (82,138 )   -  
Dilution   1,803     -  
Share of net loss   (6,078 )   (77 )
Share of other comprehensive loss   (3,516 )   -  
Carrying amount, end of year   136,342     226,271  

On December 21, 2010, the Company completed the sale of its 100% interest in the Snowfield and Brucejack properties located in British Columbia, Canada, to Pretium Resources Inc. (“Pretium”). Total consideration was $442,260,000, which comprised 32,537,833 Pretium common shares at their fair value of $191,869,000, cash of $211,322,000 (before underwriters’ fees of $12,427,000), and a non-interest-bearing convertible promissory note in the principal amount of $39,069,000. The Company recognized a gain on sale of mineral properties from this transaction of $388,761,000 net of selling costs of $5,922,000 (after-tax gain $360,612,000). The Company’s ownership interest in Pretium as a result of this transaction was 41.27% .

33 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

8.

INVESTMENT IN ASSOCIATE (Cont’d)

   

At December 31, 2010, the convertible note was included in the carrying value of the investment in Pretium as this most accurately reflected the substance of the arrangement. The note was partially repaid on January 6, 2011, whereby the Company received gross proceeds of $18,083,000. On January 31, 2011, the balance of the note in the amount of $20,986,000 was converted into 3,625,500 common shares of Pretium at their fair value of $22,946,000, resulting in a $1,092,000 gain on settlement. The Company recognized transaction costs of $1,631,000 in the statement of income for the year ended December 31, 2011. The transaction costs and the gain on settlement of the note are recognized within the gain on sale of mineral property in the statement of income, as they are interrelated with the original sale transaction for the Snowfield and Brucejack properties.

   

On April 8, 2011, the Company sold 11,500,000 of its Pretium common shares by completing a secondary offering of 11,500,000 units at C$10.00 per unit. Each unit consisted of one Pretium common share and half of a warrant to acquire an additional Pretium common share for C$12.50 within twelve months. The Company received cash proceeds from this offering of $120,117,000 before transaction costs of $7,734,000. As a result of this transaction, the Company recognized a gain on partial disposal of its associate of $38,776,000 (an after-tax gain of $34,687,000). The warrants issued in the unit offering were recognized as a liability and are recorded at fair value (note 12). Following the closing of the offering, the Company’s ownership interest in Pretium was 28.86%.

   

On July 15, 2011, Pretium completed a private placement of 1,390,000 flow-through common shares, in which the Company elected not to participate. This share issuance by Pretium resulted in a dilution of the Company’s interest (to 28.39%) and a dilution gain of $1,803,000, which was recognized in other income (note 19).

   

The fair value of Pretium's common shares at December 31, 2011, excluding potential selling costs, according to published price quotations was $303,359,000 (December 31, 2010 - $209,040,000).

   

Summarized financial information for Pretium is as follows:


    December 31, 2011     December 31, 2010  
    $     $  
Assets   506,167     499,158  
Liabilities   (7,350 )   (40,876 )
Revenues   -     -  
Net loss   (17,573 )   (14,127 )

Subsequent to the reporting date, on February 17, 2012, Pretium completed a private placement of 1,250,000 flow-through common shares, in which the Company elected not to participate. This share issuance by Pretium resulted in a dilution of the Company’s interest to 27.99% and a dilution gain of $4,260,000.

34 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

9.

CURRENT AND DEFERRED INCOME TAX

   

Significant components of income tax expense recognized in the statements of income are as follows:


      December 31,     December 31,  
      2011     2010  
      $     $  
  Current tax:            
     Current tax on taxable income of the current year   36,347     2,599  
  Deferred tax:            
     Origination and reversal of temporary differences   (4,950 )   29,594  
  Total tax expense   31,397     32,193  

The tax expense on the Company’s income before tax is reconciled to the amount that would arise using the Canadian tax rate applicable to income of the consolidated entities as follows:

      December 31,     December 31,  
      2011     2010  
               
  Statutory tax rate   26.50%     28.50%  
               
      $     $  
               
  Income for the year before taxes   111,525     370,648  
               
  Provision for income taxes based on statutory rates   29,554     105,634  
  Differences in foreign and future tax rates   5,844     (2,893 )
  Foreign exchange   4,349     489  
  Partial sale of associate and sale of mineral properties taxed at            
  capital gains rates   (4,522 )   (60,324 )
  Tax benefits (not recognized) and other   (3,828 )   (10,713 )
      31,397     32,193  

The applicable tax rate in Canada for the year ended December 31, 2011 was 26.5%, which reflects the legislated provincial tax rate decrease from the prior year of 28.5% .

35 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

9.

CURRENT AND DEFERRED INCOME TAX (Cont’d)

   

The company recognizes certain deferred tax assets and liabilities relating to temporary differences as follows:


      December 31,     December 31,     January 1,  
      2011     2010     2010  
      $     $     $  
  Deferred tax assets                  
  Property, plant and equipment   10,853     -     -  
  Foreign exchange losses   3,554     -     -  
  Inventory   2,290     -     -  
  Other   4,894     -     -  
  Total deferred tax assets   21,591     -     -  
                     
  Deferred tax liabilities                  
  Mineral properties   (28,111 )   (7,037 )   (1,949 )
  Marketable securities and investments   (13,220 )   (19,728 )   -  
  Total deferred tax liabilities   (41,331 )   (26,765 )   (1,949 )
                     
  Net deferred tax liabilities   (19,740 )   (26,765 )   (1,949 )

The analysis of deferred tax assets and deferred tax liabilities is as follows:

      December 31,     December 31,  
      2011     2010  
      $     $  
  Deferred tax assets            
  Deferred tax assets to be recovered after more than 12 months   15,047     -  
  Deferred tax assets to be recovered within 12 months   6,544     -  
  Total deferred tax assets   21,591     -  
               
  Deferred tax liabilities            
  Deferred tax liabilities to be discharged after more than 12 months   (36,547 )   (19,566 )
  Deferred tax liabilities to be discharged within 12 months   (4,784 )   (7,199 )
  Total deferred tax liabilities   (41,331 )   (26,765 )
               
  Net deferred tax liabilities   (19,740 )   (26,765 )

36 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

9.

CURRENT AND DEFERRED INCOME TAX (Cont’d)

   

The movement in the net deferred income tax liability account was as follows:


      December 31,     December 31,  
      2011     2010  
      $     $  
               
  Balance, beginning of year   (26,765 )   (1,949 )
  Recovered from (charged to) the statement of income   4,950     (29,594 )
  (Tax charge)/credit related to components of other comprehensive income   1,982     (1,833 )
  Recovery to share capital   -     5,109  
  Exchange differences   93     1,502  
  Balance, end of year   (19,740 )   (26,765 )

The following items were charged (credited) to the statement of income during the year:

      December 31,     December 31,  
      2011     2010  
      $     $  
               
  Property plant and equipment   (10,853 )   199  
  Capital and non capital losses   95     1,280  
  Foreign resource pools   (283 )   -  
  Share issuance costs   1,275     -  
  Marketable securities and investments   (12,571 )   31,753  
  Other   (3,688 )   (8,526 )
  Mineral properties   21,075     4,888  
      (4,950 )   29,594  

The Company also has the following balances in respect of which no deferred tax asset was recognized:

      December 31,     December 31,  
      2011     2010  
          $  
               
  Property plant and equipment   3,155     21,898  
  Capital and non capital losses   60     373  
  Foreign resource pools   316     618  
  Other   1,875     3,572  
      5,406     26,461  

The company has an unrecognised deferred tax asset in respect of potential foreign tax credits that may be used to offset taxes paid in Argentina. These have not been recognised due to measurement uncertainty over the extent and timing of any potential benefit. If recognized this will create a recovery of income tax expense in that period.

37 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

9.

CURRENT AND DEFERRED INCOME TAX (Cont’d)

   

At December 31, 2011, the Company had the following estimated tax operating losses available to reduce future taxable income. The losses expire at various dates and amounts between 2012 and 2031, with the exception of tax losses incurred in Chile which are available indefinitely:


     
       
Argentina   7,153  
Chile   355  
Mexico   59,692  
Peru   48  
U.S.A.   2,006  

10.

VALUE ADDED TAX RECEIVABLE


    December 31,     December 31,     January 1,  
    2011     2010     2010  
        $     $  
Current   1,482     901     19  
Non-current   89,160     70,782     54,094  
    90,642     71,683     54,113  

In countries where value added tax (“VAT”) has been paid but recoverability is uncertain, the VAT payments have either been deferred within mineral property costs, or expensed if related to general mineral exploration. If the Company ultimately recovers the amounts that have been deferred, the amount received will be applied to reduce mineral property costs. Current VAT is presented within current tax receivables (note 4).

VAT paid in Argentina in relation to the Pirquitas mine is recoverable under Argentine law once the mine reaches the production stage. Production commenced at the mine on December 1, 2009, and as a result the Company has applied to the Argentine government to recover the applicable VAT. The Company believes that the balance is fully recoverable and has not provided an allowance.

38 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

11.

TRADE AND OTHER PAYABLES


      December 31     December 31     January 1  
      2011     2010     2010  
      $     $     $  
                     
  Trade payables   12,648     9,683     28,124  
  Accrued liabilities   32,174     22,449     20,141  
  Current portion of close down and restoration provision (note 13)   1,125     955     341  
  Accrued interest on convertible notes (note 14)   2,076     2,076     2,076  
      48,023     35,163     50,682  

All trade and other payables are expected to be settled within twelve months.

12.

WARRANT LIABILITY

   

As part of its offering of Pretium shares on April 8, 2011 (note 8), the Company issued 5,750,000 Pretium common share purchase warrants (the “Pretium warrants”). Each Pretium warrant is exercisable at a price of C$12.50 until April 7, 2012. Upon issuance of the Pretium warrants the Company recognized a liability of $7,500,000 in the statement of financial position and recognized transaction costs of $433,000 in the statement of income. The liability is recorded at FVTPL. The trading price of the Pretium warrants at December 31, 2011 was C$1.25. This price was unchanged from the trading price at inception, and therefore, there was no remeasurement effect on the Consolidated Statement of Income for the year ended December 31, 2011 other than foreign exchange.

   
13.

CLOSE DOWN AND RESTORATION PROVISION


    December 31,     December 31,  
    2011     2010  
        $  
Balance, beginning of year   13,626     10,643  
             
Liabilities settled during the year   (251 )   (223 )
Accretion expense   1,596     1,798  
Foreign exchange gain   (1,020 )   (55 )
Revisions and new estimated cash flows   33,827     1,463  
             
Balance, end of year   47,778     13,626  
             
Less: current portion of close down and restoration provision in   (1,125 )   (955 )
Long-term close down and restoration provision   46,653     12,671  

39 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

13.

CLOSE DOWN AND RESTORATION PROVISION (Cont’d)

   

The Company’s close down and restoration provision relates to the restoration and closure of the Company’s mining operations and projects under development (note 7). The provision is initially recorded at net present value, and subsequently re-measured at each reporting period. During the fourth quarter of the year ended December 31, 2011, the Company recorded a change in its estimate for close down and restoration from the preliminary findings of a mine closure plan for its Pirquitas mine in Argentina, that is scheduled for completion in 2012. This is a prospective change in estimate and had no impact on the Consolidated Statement of Income for the year ended December 31, 2011. There is considerable measurement uncertainty with a provision of this nature (note 2(u)) from the timing of cash flows, inflationary environment and impact of exchange rates.

   

The provision is calculated as the present value of estimated future net cash outflows based on the following key assumptions:


  - Total undiscounted value of estimated future cash outflows: $100,297,000 (2010 - $26,642,000);
  - Discount interest rate: 9.75% (2010 - 11%); and
  - Settlement of obligations expected to occur over the next 12 years.

14.

CONVERTIBLE NOTES

   

In February 2008, the Company sold $138,000,000 in senior convertible unsecured notes (“Notes”) for net proceeds of $132,754,000 after payment of commissions and expenses related to the offering. The unsecured Notes mature on March 1, 2028 and bear an interest rate of 4.5% per annum, payable semi-annually. The Notes will be convertible into common shares of the Company at a fixed conversion rate, subject to certain anti-dilution adjustments, only in the following events:


  a)

during specified consecutive trading periods, if the market price of our common shares exceeds 130% of the conversion price of the Notes;

  b)

the trading price of the Notes, per $1,000 principal amount, falls to 97% or less of the amount equal to the then prevailing price of our common shares, multiplied by the applicable conversion rate;

  c)

the Notes are called for redemption;

  d)

upon the occurrence of specified corporate transactions; or

  e)

during specified periods in early 2013 and 2028.

On conversion, holders of the Notes will receive cash and, if applicable, common shares (or, at the Company’s election, in lieu of such common shares, cash or any combination of cash and common shares). In addition, if certain fundamental changes occur to the Company, holders of the Notes may be entitled to an increased conversion rate. The principal amount will be repaid in cash and any excess value will be settled at the Company’s election in either cash or shares or a combination of the two. Any portion of the Notes not settled in cash will be convertible into the Company’s common shares at an initial conversion rate of 23.0792 common shares per $1,000 principal amount of Notes converted, representing an initial conversion price of approximately $43.33 per common share.

Holders of the Notes will have the right to require the Company to repurchase all or part of their Notes on March 1 of each of 2013, 2018 and 2023, or upon certain fundamental corporate changes. The repurchase price will be equal to 100% of the principal amount of the Notes being converted, plus accrued and unpaid interest to the repurchase date. Subject to specified conditions, the Company shall pay the purchase price in cash. On and after March 5, 2013, the Company may redeem all or part of the Notes for cash at a redemption price equal to 100% of the principal amount of the Notes being redeemed, plus accrued and unpaid interest to, the redemption date.

40 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

14.

CONVERTIBLE NOTES (Cont’d)

   

The Notes contain an embedded derivative due to the fact that if the holder elects to exercise their conversion option, the Company has the option to settle in either cash or common shares. At initial recognition the value of the Notes was allocated as follows:


    Fair     Transaction     Net  
    Value     Costs     Value  
    $     $     $  
Fair value of debt   99,144     (3,773 )   95,371  
Fair value of derivative liability   38,856     (1,473 )   37,383  
    138,000     (5,246 )   132,754  

The debt portion has been designated as an ‘other financial liability’ so that it is recorded at amortized cost, net of transaction costs, and is accreted over an expected life of 5 years until March 2013 using the effective interest method.

The movement in the debt portion of the Notes during the years comprised the following:

    December 31,     December 31,  
    2011     2010  
    $     $  
Balance, beginning of year   118,201     109,971  
Accretion of discount   9,188     8,230  
Interest accrued   6,210     6,210  
Interest paid   (6,210 )   (6,210 )
Balance, end of year   127,389     118,201  
Accrued interest   (2,076 )   (2,076 )
Non-current portion of convertible notes   125,313     116,125  

The derivative liability is recognized as FVTPL, all transaction costs were expensed upon recognition and the instrument is re-measured at each reporting period using a binomial tree approach. For the year ended December 31, 2011, the Company recorded an unrealized gain on the derivative liability of $20,182,000 (2010 - unrealized loss of $1,109,000) (note 19). The following key assumptions were used to obtain the valuation:

    December 31,     December 31,     January 1,     February 27,  
    2011     2010     2010     2008  
Expected dividend yield (%)   -     -     -     -  
Average risk-free interest rate (%)   2.57     4.13     4.58     4.62  
Expected life (years)   16.3     17.3     18.3     20.0  
Expected volatility (%)   65.0     57.5     60.0     60.0  
Implied yield on straight debt (%)   7.07     11.39     12.60     11.85  

41 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

15.

SHARE CAPITAL AND SHARE-BASED PAYMENTS

a) Authorized capital

The Company has unlimited authorized common shares with no par value.

b) Public share offering

In February 2010, the Company closed a public share offering of 6,729,000 common shares at a price of $17.00 per share, for aggregate gross proceeds of $114,389,000. After deducting underwriting fees and estimated offering expenses of $4,821,000, net proceeds were $109,568,000. The Company also recognized an income tax recovery of $5,109,000 relating to share issuance costs.

c) Stock options

The Company has an incentive plan, approved by the Company’s shareholders at its annual general meeting held on May 14, 2008 and subsequently amended on May 11, 2011, under which options to purchase common shares may be granted to directors, officers, employees and others at the discretion of the Board of Directors. The plan provides for the issuance of incentive options to acquire up to a total of 8.5% of the issued and outstanding common shares of the company. The exercise price of each option is set at the date of grant and shall not be less than the closing market price of the company’s stock on the award date. The options can be granted for a maximum term of 10 years with vesting provisions determined by the Board of Directors. Currently, the vesting periods range up to three years, and expire after 7 years. New shares from treasury are issued on the exercise of stock options.

The changes in stock options issued during the year ended December 31, 2011 and the year ended December 31, 2010 was as follows :

            December 31           December 31  
            2011           2010  
      Number     Weighted     Number     Weighted  
      of stock     average     of stock     average  
      options     exercise     options     exercise  
            price           price  
            (C$/option)           (C$/option)  
                           
  Outstanding, beginning of period   4,703,870     27.18     5,271,118     26.40  
         Granted   518,500     24.79     605,000     17.82  
         Exercised   (1,028,391 )   (18.97 )   (971,578 )   (17.00 )
         Expired   (787,500 )   (34.48 )   -     -  
         Forfeited   (1,528,107 )   (32.21 )   (200,670 )   (27.72 )
                           
  Outstanding, end of period   1,878,372     23.86     4,703,870     27.18  

During the year ended December 31, 2011, the Company granted 518,500 (December 31, 2010 – 605,000) options to officers, employees, directors and other eligible persons at exercise prices ranging from C$15.64 to C$28.78 (December 31, 2010 – C$17.38 to C$26.55) and expiry dates ranging from January 27, 2018 to November 17, 2018.

42 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

15.

SHARE CAPITAL AND SHARE-BASED PAYMENTS (Cont’d)

   

As of December 31, 2011, incentive stock options constitute 2.3% (December 31, 2010 – 5.9%) of issued and outstanding common capital. The aggregate intrinsic values of vested share options (the market value less the exercise value) at December 31, 2011 and December 31, 2010 were $107,000 and $20,242,000, respectively.

   

The weighted average fair value of stock options granted during the year ended December 31, 2011 and year ended December 31, 2010 were estimated to be C$11.28 and C$9.00 per stock option, respectively, at the grant date using the Black-Scholes option pricing model, using the following assumptions:


    Year ended     Year ended  
    December 31     December 31  
    2011     2010  
             
Expected dividend yield (%)   -     -  
Average risk-free interest rate (%)   2.20     2.90  
Expected life (years)   4.8     6.5  
Expected volatility (%)   55.0     53.0  

Option pricing models require the input of highly subjective assumptions. The expected life of the options considered such factors as the average length of time similar option grants in the past have remained outstanding prior to exercise and the vesting period of the grants. Volatility was estimated based upon historical price observations over the expected term. Changes in the subjective input assumptions can materially affect the estimated fair value of the options.

The weighted average share price, at the date of grant, of stock options granted in the period was C$24.02 (2010 - C$17.36) .

The weighted average share price at the date of the exercise of stock options was C$26.60 (2010 - C$24.74) .

The following table summarizes information about stock options outstanding and exercisable at December 31, 2011:

    Stock options outstanding     Stock options exercisable  
          Weighted           Weighted  
          average           average  
    Stock options     remaining     Stock options     exercise  
    outstanding     contractual life     exercisable     price  
Exercise prices (C$)         (years)           (C$/option)  
                         
11.50 – 17.38   711,136     8.6     271,135     15.19  
21.07 – 24.61   461,736     7.4     230,493     23.99  
26.23 – 29.02   432,500     4.7     153,333     28.97  
34.71 – 40.62   273,000     0.8     273,000     35.97  
    1,878,372     6.3     927,961     25.76  

43 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

15.

SHARE CAPITAL AND SHARE-BASED PAYMENTS (Cont’d)

d) Deferred Share Units (“DSUs”)

Non-executive directors may elect to receive all or a portion of their annual compensation in the form of DSUs which are linked to the value of the Company’s common shares. DSUs are issued on a quarterly basis under the terms of the DSU Plan, at the market value of the Company’s common shares at the date of grant. The DSUs vest immediately and are redeemable in cash on the date the director ceases to be a director of the Company.

          December 31,           December 31,  
          2011           2010  
    Number     Fair     Number     Fair  
    of DSUs     value     of DSUs     value  
                     
Outstanding, beginning of year   90,361     2,527     59,704     1,312  
       Granted   21,151     555     39,398     772  
       Redeemed   (13,223 )   (342 )   (8,741 )   (159 )
       Fair value remeasurement   -     (1,377 )   -     602  
Outstanding, end of year   98,289     1,363     90,361     2,527  

The DSUs are cash-settled instruments and therefore the fair value of the outstanding DSUs at the end of each reporting period is recognized as an accrued liability with the associated compensation cost recorded in general and administrative expenses.

e) Restricted Share Units (“RSUs”)

During the year ended December 31, 2011, the Company implemented the RSU Plan. RSUs are granted to employees based on the value of the Company’s share price at the date of grant. The awards have a graded vesting schedule over a three-year period, and are cash-settled immediately upon vesting.

RSUs are cash-settled instruments and therefore are recognized as a liability, with fair value remeasurement at each reporting period. The associated compensation cost is recorded in general and administrative expenses unless directly attributable to a mineral property.

          December 31,  
          2011  
    Number     Fair  
    of RSUs     value  
          $/unit  
Outstanding, beginning of year   -     -  
       Granted   93,300     26.61  
       Settled   -     -  
       Forfeited   (16,500 )   -  
       Fair value remeasurement   -     (12.35 )
Outstanding, end of year   76,800     14.26  

At December 31, 2011, an accrued liability of $382,000 (December 31, 2010 - nil; January 1, 2010 - nil) was recorded with a corresponding share-based payment expense.

44 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

15.

SHARE CAPITAL AND SHARE-BASED PAYMENTS (Cont’d)

f) Performance Share Units (“PSU”)

During the year ended December 31, 2010 the Company implemented the PSU Plan for grants commencing in 2011. PSUs are granted to senior executives, and vest after a performance period of three years. During 2011, in addition to a normal annual grant there was also a one-off grant of transitional PSUs, which vest after a two-year performance period. The vesting of these awards is based on the Company’s total shareholder return in comparison to its peer group, and awards range from 0% to 200% of initial PSUs granted.

PSUs are cash-settled instruments and therefore are recognized as a liability, with fair value remeasurement at each reporting period using a Monte Carlo simulation. The associated compensation cost is recorded in general and administrative expenses.

          December 31,  
          2011  
    Number     Fair  
    of PSUs     value  
          $/unit  
Outstanding, beginning of year   -     -  
       Granted   141,800     31.70  
       Settled   -     -  
       Forfeited   (32,100 )   -  
       Fair value remeasurement   -     (24.01 )
Outstanding, end of year   109,700     7.69  

At December 31, 2011, an accrued liability of $311,000 (December 31, 2010 - nil; January 1, 2010 - nil) was recorded with a corresponding share-based payment expense.

g) Share-based compensation

Share-based compensation consists of the fair values of both equity-settled and cash-settled awards as follows:

    2011     2010  
    $     $  
Equity-settled   4,676     8,153  
Cash-settled   (589 )   1,162  
Total   4,087     9,315  

Share-based compensation for the years ended December 31, 2011 and 2010 has been recognized in the financial statements as follows:

    2011     2010  
        $  
General and administrative expense   4,052     8,984  
Property, plant and equipment   35     331  
Total share-based compensation   4,087     9,315  

45 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

16.

OTHER RESERVES


      December 31,     December 31,  
      2011     2010  
          $  
  Foreign currency translation reserve            
               
  At January 1   1,832     -  
  Parent company and subsidiary companies' currency translation adjustments   (4,781 )   1,832  
  Currency translation adjustments recycled to net income on disposals   (898 )   -  
               
  At December 31   (3,847 )   1,832  
               
  Available for sale revaluation reserves            
               
  At January 1   19,301     6,039  
  Unrealized gains (losses) on available for sale securities   (15,778 )   17,142  
  Foreign exchange gains   699     1,117  
  Deferred income tax recovery (expense)   1,259     (2,352 )
  Realized gains on available for sale securities recycled to net income (loss), net of tax   (4,731 )   (2,645 )
               
  At December 31   750     19,301  
               
  Transactions with non-controlling interests            
               
  At January 1   -     -  
  Acquisition of non-controlling interest in subsidiary   (28,198 )   -  
               
  At December 31   (28,198 )   -  
               
  Share-based compensation reserve            
               
  At January 1   42,124     40,927  
  Stock options exercised   (8,990 )   (6,956 )
  Share-based compensation   4,676     8,153  
  At December 31   37,810     42,124  
               
  Total other reserves   6,515     63,257  

46 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

17.

OPERATING COSTS BY NATURE


  a)

Cost of sales


      December 31,     December 31,  
      2011     2010  
          $  
  Cost of inventory   66,694     67,231  
  Depletion, depreciation and amortization   16,546     22,151  
  Export duties (1)   12,686     8,740  
      95,926     98,122  

  (1)

The Pirquitas mine has a fiscal stability agreement with the government of Argentina dating from 1998. In 2002, the government of Argentina implemented an export duty on concentrates that did not apply to companies with pre-existing fiscal stability agreements. In December 2007, the National Customs Authority of Argentina levied an export duty of approximately 10% on concentrates for projects with fiscal stability agreements predating 2002. The Company has been advised that the project is subject to this export duty despite rights under the fiscal stability agreement from 1998. The legality of the export duty applied to silver concentrates has been challenged and is currently under review by the court in Argentina. In July 2010, the Company filed a claim in the provincial Argentina court for repayment of export duties paid on silver concentrates, and for an order to cease payment of the export duty until the matter was decided by the court. An order was granted effective September 29, 2010 to cease payment of the export duty on silver concentrates pending the decision of the courts, and in April 2011 a government appeal against this order was denied.

     
 

Up to December 31, 2011, the Pirquitas mine had paid $6,649,000 in export duties against which it has filed for recovery. In accordance with the order to cease payment the Company has not been paying export duties on silver concentrate but continues to accrue duties in full until the outcome of the claim is known with certainty. At December 31, 2011, the accrual totalled $13,101,000, and $10,538,000 has been included in cost of sales for the year. If this export duty is successfully overturned the benefit will be recognized in the Consolidated Statement of Income for the full amount of paid and unpaid duty in the period recovery becomes virtually certain.


  b)

General and administrative


      2011     2010  
      $     $  
  Salaries and benefits   9,804     11,251  
  Share-based compensation   4,052     8,984  
  Consulting and professional fees   1,790     2,383  
  Travelling expense   1,673     968  
  Shareholder and investor relations   1,055     651  
  Insurance expense   846     784  
  Directors fees and expenses   688     424  
  Rent expense   685     621  
  Computer expenses   456     310  
  Listing and filing fees   374     204  
  Recruiting expense   323     364  
  Depreciation and amortization   286     285  
  Reclamation expense   251     166  
  Other expenses   1,368     1,501  
      23,651     28,896  

47 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

18.

FINANCE INCOME AND EXPENSES

a) Interest earned and other finance income

      2011     2010  
          $  
  Interest earned   1,600     535  
  Accretion earned on convertible debenture receivable   691     865  
  Total interest earned and other finance income   2,291     1,400  

b) Interest expense and other finance costs

      2011     2010  
      $     $  
  Interest expense on convertible notes   (6,210 )   (6,210 )
  Accretion expense on convertible notes   (9,188 )   (8,230 )
  Accretion of close down and restoration provision   (1,596 )   (1,798 )
  Other interest expense   (398 )   (125 )
  Total interest expense and other finance costs   (17,392 )   (16,363 )

48 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

19.

OTHER INCOME (OTHER EXPENSES)


      2011     2010  
      $     $  
  Reversal of impairment of convertible debenture   2,400     -  
  Unrealized gain (loss) on financial instruments at FVTPL (1)   20,182     (1,109 )
  Gain on sale of marketable securities   5,453     3,114  
  Write-off of mineral property costs   (4,624 )   (238 )
  Gain on dilution of associate   1,803     -  
  Share of loss of associate   (6,078 )   (77 )
  Miscellaneous income (expense)   (1,056 )   16  
      18,080     1,706  

(1) Financial instruments held at FVTPL include the conversion feature of the convertible debenture receivable (note 5), the warrant liability (note 12), and the conversion option embedded in the convertible notes (note 14).

20.

EARNINGS PER SHARE

   

The calculations of basic and diluted earnings per share for the year ended December 31, 2011 and 2010 are based on the following:


      2011     2010  
             
  Earnings used in the calculation of diluted earnings per share $  80,128   $  338,455  
               
  Weighted average number of common shares issued (thousands)   80,324     77,972  
  Adjustments for dilutive instruments:            
       Stock options (thousands)   336     384  
  Weighted average number of common shares for diluted earnings per share (thousands)   80,660     78,356  
               
  Basic earnings per share $  1.00   $  4.34  
  Diluted earnings per share $  0.99   $  4.32  

The convertible notes (note 14) in certain circumstances are convertible at the request of the holders. In such an event the initial principal would be repayable in cash and any incremental value settled at the election of the Company in either cash or common shares, or a combination of the two. The potential dilutive impact of the shares is therefore only that portion of the Notes where the share price exceeds the conversion price of $43.33 per share. Given that at December 31, 2011 and December 31, 2010 the share price was significantly below the conversion price an assumed conversion by holders would not have any dilution impact because the balance would be repaid in full in cash.

49 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

21.

OPERATING SEGMENTS

   

The Company is a resource company focused on acquisition, exploration, development and operation of silver- dominated projects primarily in the Americas.

   

An operating segment is defined as a component of the Company:


  - that engages in business activities from which it may earn revenues and incur expenses;
  - whose operating results are reviewed regularly by the entity’s chief operating decision maker; and,
  - for which discrete financial information is available.

The Company has identified its operating segments based on the information used by the President and Chief Executive Officer (who is considered to be the chief operating decision maker) to manage the business. The Company primarily manages its business by looking at individual extractive projects and typically segregates these projects between production, development and exploration. For reporting purposes all exploration and development projects have been aggregated into a single reportable segment ‘exploration and development properties’ because they all have similar characteristics and none exceed the quantitative thresholds for individual disclosure. The only production property, the Pirquitas mine, is considered a single operating segment which derives its revenues from the sale of silver and zinc concentrates. The corporate division only earns income that is considered incidental to the activities of the Company and therefore does not meet the definition of an operating segment. The following reporting segments have been identified:

  - Pirquitas mine; and
  - Exploration and development properties.

The following is a summary of the reported amounts of income or loss, and the carrying amounts of assets and liabilities by operating segment:

      Pirquitas mine     Exploration and     Other     Total  
            development     reconciling        
  December 31, 2011         properties     items (i, ii)        
          $     $     $  
  Revenue from external customers   147,845     -     -     147,845  
                           
  Cost of inventory and export duties   (79,380 )   -     -     (79,380 )
  Depletion, depreciation and amortization   (16,546 )   -     -     (16,546 )
  Cost of sales   (95,926 )   -     -     (95,926 )
  Income from mine operations   51,919     -     -     51,919  
                           
  Operating income (loss)   47,691     (1,143 )   (23,983 )   22,565  
  Income before income tax   39,126     46,040     26,359     111,525  
                           
  Interest income and other finance income   -     -     2,291     2,291  
  Interest expense and other finance costs   (1,542 )   (114 )   (15,736 )   (17,392 )
  Write-off of mineral property costs   -     (4,624 )   -     (4,624 )
  Income tax expense   (21,050 )   (9,524 )   (823 )   (31,397 )
                           
                           
  Total assets   568,212     232,038     475,852     1,276,102  
  Non-current assets   459,789     202,752     136,885     799,426  
  Total liabilities   (94,395 )   (22,355 )   (175,377 )   (292,127 )

(i) Other reconciling items refer to items that are not reported as part of segment performance as they are managed on a group basis.
(ii) Includes the equity-accounted investment in Pretium.

50 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

21.

OPERATING SEGMENTS (Cont’d)


      Pirquitas mine     Exploration and     Other     Total  
            development     reconciling        
  December 31, 2010         properties     items (i)        
      $     $     $     $  
  Revenue from external customers   112,256     -     -     112,256  
                           
  Cost of inventory and export duties   (75,971 )   -     -     (75,971 )
  Depletion, depreciation and amortization   (22,151 )   -     -     (22,151 )
  Cost of sales   (98,122 )   -     -     (98,122 )
                           
  Income from mine operations   14,134     -     -     14,134  
                           
  Operating income (loss)   12,525     (377 )   (29,310 )   (17,162 )
  Income (loss) before income tax   7,552     (596 )   363,692     370,648  
                           
  Interest income and other finance income   -     -     1,400     1,400  
  Interest expense and other finance costs   (1,491 )   (220 )   (14,652 )   (16,363 )
  Income tax recovery (expense)   (5,712 )   654     (27,135 )   (32,193 )
                           
                           
  Total assets   452,256     196,829     498,905     1,147,990  
  Non-current assets   378,352     191,698     235,886     805,936  
  Total liabilities   (56,823 )   (2,064 )   (157,243 )   (216,130 )

(i) Other reconciling items refer to items that are not reported as part of segment performance as they are managed on a group basis.

Segment revenue by product

  2011 2010
  % %
Silver 94 100
Zinc 6 -

Segment revenue by location of customer

100% of revenues are attributable to the Pirquitas mine segment. Revenues were from a single customer based in Switzerland.

51 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

21.

OPERATING SEGMENTS (Cont’d) Non-current assets by location


    December 31, 2011     December 31, 2010  
    $     $  
Canada   138,205     235,563  
Argentina   481,654     397,447  
Mexico   108,674     89,540  
Peru   50,950     43,456  
United States   10,942     10,419  
Australia   -     19,970  
Chile   9,001     9,541  
Total   799,426     805,936  

22.

FINANCIAL INSTRUMENTS

   

The Company’s financial instruments include cash and cash equivalents, trade and other receivables, other financial assets, trade and other payables, warrant liabilities and convertible notes.

a) Financial assets and liabilities by category

    Loans and           Available     Other financial        
At December 31, 2011   receivables     FVTPL     for sale     liabilities     Total  
    $     $     $     $     $  
Financial assets                              
Cash and cash equivalents   329,055     -     -     -     329,055  
Trade and other receivables   5,045     -     -     -     5,045  
Other financial assets (3)   1,768     -     33,539     -     35,307  
Total financial assets   335,868     -     33,539     -     369,407  
                               
Financial liabilities                              
Trade and other payables   -     -     -     46,898     46,898  
Warrant liability   -     7,067     -     -     7,067  
Convertible notes (4)   -     1,242     -     125,313     126,555  
Total financial liabilities   -     8,309     -     172,211     180,520  

52 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

22.

FINANCIAL INSTRUMENTS (Cont’d)


    Loans and           Available     Other financial        
At December 31, 2010   receivables     FVTPL     for sale     liabilities     Total  
                                                        
Financial assets                              
Cash and cash equivalents   232,311     -     -     -     232,311  
Trade and other receivables (1)   -     15,409     -     -     15,409  
Other financial assets (2, 3)   9,051     386     33,465     -     42,902  
Total financial assets   241,362     15,795     33,465     -     290,622  
                               
Financial liabilities                              
Trade and other payables   -     -     -     34,208     34,208  
Convertible notes (4)   -     21,735     -     116,125     137,860  
Total financial liabilities   -     21,735     -     150,333     172,068  

    Loans and           Available     Other financial        
At January 1, 2010   receivables     FVTPL     for sale     liabilities     Total  
                               
Financial assets                              
Cash and cash equivalents   26,659     -     -     -     26,659  
Trade and other receivables (1)   -     3,335     -     -     3,335  
Other financial assets (2, 3)   9,399     475     17,863     -     27,737  
Total financial assets   36,058     3,810     17,863     -     57,731  
                               
Financial liabilities                              
Trade and other payables   -     -     -     50,341     50,341  
Convertible notes (4)   -     20,728     -     107,895     128,623  
Total financial liabilities   -     20,728     -     158,236     178,964  

  (1)

Certain trade and other receivables are classified as FVTPL due to the embedded derivative identified through provisional pricing arrangements discussed in note 2(e).

  (2)

The convertible debenture receivable is allocated between FVTPL and loans and receivables. The conversion feature is recognized at FVTPL whilst the note receivable is designated within loans and receivables.

  (3)

Other financial assets include marketable securities which have been designated as available for sale assets

  (4)

The embedded share purchase option of the convertible notes is recognized at FVTPL whilst the debt portion is designated as an other financial liability.


53 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

22.

FINANCIAL INSTRUMENTS (Cont’d)

b)     Fair value of financial instruments

    December 31, 2011     December 31, 2010     January 1, 2010  
    Carrying value     Fair value     Carrying value     Fair value     Carrying value     Fair value  
    $     $     $     $     $     $  
Financial assets                                    
Trade and other receivables   5,045     5,045     15,409     15,409     3,335     3,335  
Other financial assets   35,307     35,307     42,902     42,902     27,737     27,737  
Total financial assets   40,352     40,352     58,311     58,311     31,072     31,072  
                                     
Financial liabilities                                    
Warrant liability   7,067     7,067     -     -     -     -  
Convertible notes   126,555     136,275     137,860     143,506     128,623     129,030  
Total financial liabilities   133,622     143,342     137,860     143,506     128,623     129,030  

The carrying values of cash and cash equivalents, certain other financial assets, trade and other payables, approximate their fair values due to their relatively short maturity.

54 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

22.

FINANCIAL INSTRUMENTS (Cont’d)

   

Fair value hierarchy

   

Financial instruments that are held at fair value are categorized based on a valuation hierarchy which is determined by the valuation methodology utilized:


    Fair Value at December 31, 2011  
    Level 1     Level 2     Level 3     Total  
        $     $     $  
Marketable securities   33,539     -     -     33,539  
Warrant liability   7,067     -     -     7,067  
Derivative liability   -     1,242     -     1,242  
    40,606     1,242     -     41,848  

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities

Marketable securities, consisting of available-for-sale investments with no trading restrictions, and the warrant liability are valued using a market approach based upon unadjusted quoted prices in an active market obtained from securities exchanges.

Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and Trade receivables from provisional invoices for concentrate sales are included within Level 2, as the basis of valuation uses quoted commodity prices.

The value of the Company’s Notes’ embedded share purchase option is also included in Level 2 of the fair value hierarchy as they are valued using an option pricing model. This model requires a variety of inputs, including, but not limited to, contractual terms, market prices, forward price curves, yield curves and credit spreads.

Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs)

The Company has investments in asset-backed commercial paper which are included within Level 3 in the fair value hierarchy because they trade infrequently. At December 31, 2011, December 31, 2010, and January 1, 2010 the fair value was considered to be $nil.

There were no transfers between Level 1 and Level 2 during the years ended December 31, 2011 or 2010.

55 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

23.

FINANCIAL RISK MANAGEMENT

   

The Company is exposed to a variety of financial risks as a result of its operations, including market risk (which includes price risk, currency risk and interest rate risk), credit risk and liquidity risk. The Company’s overall risk management strategy seeks to reduce potential adverse effects on the Company’s financial performance. Risk management is carried out under policies approved by the Board of Directors.

   

The Company may, from time to time, use foreign exchange contracts, commodity price contracts and interest rate swaps to manage its exposure to fluctuations in foreign currency, metal prices and interest rates. The Company does not have a practice of trading derivatives. In the past, the Company’s use of derivatives was limited to specific programs to manage fluctuations in foreign exchange risk, which are subject to the oversight of the Board of Directors. The risks associated with the Company’s financial instruments, and the policies on how the Company mitigates those risks are set out below.

a)     Market Risk

This is the risk that the fair values of financial instruments will fluctuate owing to changes in market prices. The significant market risks to which the Company is exposed are price risk, currency risk and interest rate risk.

 (i)   Price Risk

This is the risk that the fair values or future cash flows of the Company’s financial instruments will fluctuate because of changes in market prices. Income from mine operations in the next year depends on the metal prices for silver and to a lesser extent zinc. These prices are affected by numerous factors that are outside the control of the Company such as:

  - global or regional consumption patterns;
  - the supply of, and demand for, these metals;
  - speculative activities;
  - the availability and costs of metal substitutes;
  - inflation; and
  - political and economic conditions, including interest rates and currency values.

The principal financial instrument that the Company holds which is impacted by commodity prices is the embedded derivative within trade receivables. The majority of revenue agreements are subject to pricing terms that settle within one to three months after delivery, and this adjustment period represents the Company’s trade receivable exposure to variations in commodity prices.

The Company has not hedged the price of silver as part of its overall corporate strategy.

The costs relating to the Company’s production, development and exploration activities vary depending on the market prices of certain mining consumables including diesel fuel and natural gas. The Company has not hedged any such costs.

56 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

23.

FINANCIAL RISK MANAGEMENT (Cont’d)

   

A 10% increase in the average commodity price for the year, with all other variables held constant, would have resulted in the following impact to the Company’s after-tax net income:


    2011     2010  
Products   $     $  
10% increase in silver price   9,005     7,359  
10% increase in zinc price   605     -  
10% increase in diesel and natural gas prices   (1,192 )   (658 )

The Company holds certain investments in available for sale marketable securities which are measured at fair value, being the closing price of each equity investment at the balance sheet date. The Company is exposed to changes in share prices which would result in gains and losses being recognized in other comprehensive income.

(ii)   Currency Risk

Currency risk is the risk that the fair values or future cash flows of the Company’s financial instruments will fluctuate because of changes in foreign currency rates. The Company’s financial instruments are exposed to currency risk where those instruments are denominated in currencies that are not the same as their functional currency; exchange gains and losses in these situations impact earnings. The Company’s sales of silver and zinc are denominated in US dollars and thus the risk is related to costs incurred and other non-USD financial instruments.

The following are the most significant areas of exposure to currency risk:

      December 31, 2011  
      Canadian dollar     Argentine peso     Australian dollar     Mexican peso  
  Cash   80,480     6,051     -     584  
  Marketable securities   13,753     -     19,787     -  
  Accounts receivable   -     -     5,045     -  
  Value added tax receivable   -     89,636     -     1,006  
  Trade and other payables   (7,825 )   (11,608 )   (16,500 )   (1,114 )
  Warrant liability   (7,067 )   -     -     -  
  Total   79,341     84,079     8,332     476  

      December 31, 2010  
      Canadian dollar     Argentine peso     Australian dollar     Mexican peso  
  Cash   164,557     9,588     151     487  
  Marketable securities   36,700     -     -     -  
  Accounts receivable   4,821     -     -     -  
  Value added tax receivable   -     71,683     -     -  
  Trade and other payables   (5,984 )   (13,044 )   (12 )   (219 )
  Total   200,094     68,227     139     268  

57 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

23.

FINANCIAL RISK MANAGEMENT (Cont’d)

   

On October 26, 2011, the Argentina government announced a decree that requires all funds from export sales to be repatriated to Argentina and converted into Argentine pesos within the Sole Foreign Exchange Market in Argentina, and each transfer is subject to a 0.6% transfer tax. The Company will comply with all laws and regulations, and is monitoring the situation closely. The impact of the transfer tax should not have a material impact on the Company.

   

The Company monitors and manages this risk with the objective of ensuring its group-wide exposure to negative fluctuations in currencies against the U.S. dollars is managed. As at December 31, 2011 the Company has not entered into any derivatives to mitigate this risk.

   

A 10% increase in the United States dollar exchange rate on financial assets and liabilities denominated in the following currencies, with all other variables held constant, would have resulted in the following impact to the Company’s after-tax net income:


    2011     2010  
    $     $  
Canadian dollar   (5,830 )   (12,183 )
Argentine peso   (5,635 )   (4,514 )
Australian dollar   (630 )   (10 )
Mexican peso   (33 )   (19 )

(iii)  Interest Rate Risk

Interest rate risk is the risk that the fair values or future cash flows of the Company’s financial instruments will fluctuate because of changes in market interest rates. Interest rate risk mainly arises from the interest rate impact on our cash and cash equivalents because they are the only financial instrument the Company holds that earns interest based on variable market interest rates. The long-term convertible notes have fixed interest rates and are not exposed to fluctuations in interest rates; a change in interest rates would impact the fair value of the instruments, but because the notes are recorded at amortized cost there would be no impact on the financial results of the Company. The Company monitors its exposure to interest rates closely and has not entered into any derivative contracts to manage its risk.

As at December 31, 2011, the weighted average interest rate on our cash and cash equivalents was 0.14% (2010 - 0.89%) . With other variables unchanged, a 1% increase in the interest rate would increase after tax net income by $2,340,000 (2010 - $450,000).

b)     Credit Risk

Credit risk is the risk that a third party might fail to discharge its obligations under the terms of a financial contract. The Company’s credit risk is limited to the collectability of trade receivables in the ordinary course of business and the quality of its financial investments.

Credit risk related to financial institutions and cash deposits The Company’s policy is only to utilise highly rated financial institutions and only to invest in government securities. The Company considers the risk of loss associated with cash deposits to be low.

58 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

23.

FINANCIAL RISK MANAGEMENT (Cont’d)

   

Credit risk related to trade receivables The Company is subject to significant concentrations of credit risk related to trade receivables because all of its sales through 2011 were to a single customer. However, the Company has not recorded an allowance against trade receivables because it is confident of the collectability based on the nature of its customer and all balances owed have been settled in full when due. In order to mitigate this risk, the Company ensures a minimum creditworthiness of customers, and has entered into sales agreements with additional customers in 2012.

Credit risk related to other financial assets All other receivable balances are expected to be collectible in full due to the nature of the counterparties and/or a previous history of collectability.

   

The Company also has credit risk through its significant value added tax receivable balance that is collectible with the government of Argentina. The balance is expected to be recoverable in full but due to the legislative rules and complex collection process the asset has been classified as non-current. The Company believes that this balance is collectible in full.

   

The Company’s maximum exposure to credit risk as at December 31 was as follows:


    2011     2010  
    $     $  
Cash and cash equivalents   329,055     232,311  
Value added tax receivable   90,642     71,683  
Trade and other receivables   5,045     35,916  
Other financial assets   1,768     9,051  
    426,510     348,961  

At December 31, 2011, no amounts were held as collateral.

c)     Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its obligations over financial instruments as they fall due. The Company manages its liquidity risk through a rigorous planning and budgeting process, which is reviewed and updated on a regular basis, to help determine the funding requirements to support the Company’s current operations, expansion and development plans, and by managing its capital structure as described in note 23(d). The Company’s objective is to ensure that there are sufficient financial resources to meet its business requirements for a minimum of twelve months.

59 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

23.

FINANCIAL RISK MANAGEMENT (Cont’d)

   

In the normal course of business the Company enters into contracts that give rise to commitments for future minimum payments. The following is a maturity profile of financial liabilities and operating and capital commitments presenting contractual undiscounted cash flows as at December 31, 2011:


      Payments due by period  
  Contractual obligations   Total     Less than one year     1 - 3 years     4-5 years     After 5 years  
          $     $     $     $  
                                 
  Trade and other payables   46,898     46,898     -     -     -  
  Convertible notes (i)   138,000     -     138,000     -     -  
  Interest on convertible notes (i)   1,004     -     1,004     -     -  
  Capital expenditure commitments   9,635     7,573     2,062     -     -  
  Minimum lease rental and lease payments   505     453     52     -     -  
                                 
  Total contractual obligations   196,042     54,924     141,118     -     -  

  (i)

Convertible notes are due in 2028 but are redeemable in part or in full at the option of the holder on March 1 at each of 2013, 2018, and 2023, or upon fundamental corporate changes. They are also redeemable by the Company in part or in full on and after March 5, 2013. The notes bear interest of 4.5% per annum and are convertible into common shares upon specified events at a fixed conversion price of approximately $44.33 per common share (note 14).

In the opinion of management, working capital at December 31, 2011 together with future cash flows from operations is sufficient to support the Company’s commitments through 2012.

d)     Capital management

The Company’s objectives when managing capital are:

  -

to safeguard its ability to continue as a going concern in order to develop and operate its current projects and pursue strategic growth initiatives;

     
  -

to maintain a flexible capital structure which optimizes the cost of capital; and

     
  - to provide an adequate return to shareholders.

In assessing the capital structure of the Company, management includes in its assessment the components of shareholders’ equity, non-current convertible notes, and cash and cash equivalents. In order to facilitate the management of capital requirements, the Company prepares annual expenditure budgets and continuously monitors and reviews actual and forecasted cash flows. The annual and updated budgets are monitored and approved by the Board of Directors.

To maintain or adjust the capital structure, the Company may, from time to time, issue new shares, issue new debt, repay debt or dispose of non-core assets. The Company expects its current capital resources will be sufficient to carry out its exploration plans and support operations through the current operating period.

The Company issued convertible notes (note 14) but these do not contain any financial covenants. Accordingly, as of December 31, 2011, there were no externally-imposed capital requirements.

60 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

24.

RELATED PARTY TRANSACTIONS

a)     Related party transactions

During the year ended December 31, 2011, the Company recorded administrative, technical services and expense reimbursements of $82,000 (2010 - $19,000) from companies related by common directors or officers, including Pretium. At December 31, 2011, trade and other receivables include $101,000 (2010 - $2,000) and trade and other payables include $688,000 (2010 - nil) with these related parties. Any amounts due from and payable to related parties are non-interest bearing and without specific terms of repayment. Any transactions for expense reimbursement with related parties are under normal business terms.

b)    Key management compensation

Key management includes directors (executive and non-executive) and other key officers of the Company, including the CEO, CFO and Senior Vice Presidents. The compensation paid or payable to key management for employee services is shown below:

    December 31,     December 31,  
    2011     2010  
    $     $  
Salaries and other short-term employee benefits   2,252     3,507  
Post-employment benefits   25     55  
Termination benefits   1,067     1,160  
Share-based compensation (i)   2,904     6,619  
Total compensation   6,248     11,341  

  (i)

Share-based compensation includes mark-to-market adjustments on cumulative DSU positions as reported in the Consolidated Statements of Income.

c)     Principal Subsidiaries

The consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries, the most significant of which are presented in the following table:

  Subsidiary Location Ownership Project
  Pacific Rim Mining Corporation Argentina, S.A. Argentina 100% Diablillos
  Minera Silver Standard Chile S.A. Chile 100% Challacollo
  Silver Standard Durango S.A. de C.V. Mexico 100% Pitarrilla
  Silver Standard Exploraciones S.A. de C.V. Mexico 100% Veta Colorada and others
  Silver Standard Mexico S.A. de C.V. Mexico 100% San Agustin, Nazas and others
  Sociedad Minera Berenguela S.A. Peru 100% Berenguela
  Reliant Ventures S.A.C. Peru 100% San Luis
  Candelaria Mining Company USA (Delaware) 100% Candelaria
  Mina Pirquitas, Inc. USA (Delaware) 100% Pirquitas
  Maverick Silver Inc. USA (Nevada) 100% Maverick Springs

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

25.

SUPPLEMENTAL CASH FLOW INFORMATION

   

Changes in working capital items during the year ended December 31, 2011 and 2010 are as follows:


    2011     2010  
        $  
Trade and other receivables   19,831     (20,245 )
Other financial assets   -     (201 )
Inventory   (50,073 )   (26,945 )
Trade and other payables   11,728     21,447  
Taxes payable   16,861     -  
    (1,653 )   (25,944 )

During the year ended December 31, 2011 and 2010 the Company conducted the following non-cash investing and financing transactions:

    2011     2010  
    $     $  
Shares received for sale of mineral property   15,133     187,202  
Fair value of marketable securities transferred to acquire non-controlling interest   (10,522 )   -  
Transfer of share-based payment reserve upon exercise of stock options   (8,990 )   (6,956 )
Promissory note received for sale of Snowfield and Brucejack properties   -     39,069  

During the year ended December 31, 2011 and 2010 the Company made the following cash payments for interest and taxes:

    2011     2010  
    $     $  
Interest paid   6,210     6,210  
Taxes paid   16,430     -  

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

26.

TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

   

The accounting policies set out in these consolidated financial statements have been applied for the years ended December 31, 2011 and December 31, 2010, and in the preparation of an opening IFRS statement of financial position at January 1, 2010.

   

In preparing its opening IFRS statement of financial position, the Company has adjusted amounts reported previously in accordance with its previous basis of accounting (Canadian GAAP). An explanation of how the transition from Canadian GAAP to IFRS has affected the Company’s statement of financial position and statement of income is set out in the following tables and accompanying notes.

a)     Reconciliation of equity as at:

        December 31,     January 1,  
        2010     2010  
        $     $  
  Total equity reported under Canadian GAAP     1,031,772     537,186  
                 
  Increase (decrease) net of tax in respect of:              
                 
  Valuation of Pirquitas mine (i)   (79,842 )   (84,018 )
  Close down and restoration provision (ii)   (76 )   -  
  Share-based compensation (iii)   (52 )   -  
  Functional currency (iv)   4,654     5,030  
  Convertible notes (v)   (18,859 )   (17,086 )
  Deferred tax liabilities (vii)   (5,737 )   (1,949 )
                 
  Total equity reported under IFRS     931,860     439,163  

b)     Reconciliation of total comprehensive income for the year ended December 31, 2010:

        2010  
        $  
  Total comprehensive income as reported under Canadian GAAP     359,501  
           
  Increase (decrease) net of tax in respect of:        
  Valuation of Pirquitas mine (i)   4,176  
  Close down and restoration provision (ii)   (76 )
  Share-based compensation (iii)   991  
  Functional currency (iv)   (373 )
  Convertible notes (v)   (1,773 )
  Deferred tax liabilities (vii)   (8,897 )
           
  Total comprehensive income as reported under IFRS     353,549  

63 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

26.

TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Cont’d)


c)

Explanations of the key differences between Canadian GAAP and IFRS giving rise to adjustments in the reconciliations

(i) Valuation of the Pirquitas mine

The Company elected under IFRS 1 to deem the fair value of the Pirquitas mine as cost at January 1, 2010 (note 2(a)). The fair value of the mine was determined to be $317,275,000 following a discounted cash flow analysis using a discount rate of 10%. The resulting adjustment between the carrying value under Canadian GAAP and the deemed cost of $84,018,000 was charged to the opening accumulated deficit.

In addition to the adjustment to the carrying value of the Pirquitas mine additional adjustments following the transition to IFRS were recorded. These relate to the close down and restoration provision (note 26 (c)(ii)), capitalized interest (note 26(c)(vi)) and deferred tax liabilities (note 26(c)(vii)). The impacts of these adjustments on the carrying value of the Pirquitas mine at January 1, 2010 are detailed below:

      Canadian GAAP     Transition to IFRS adjustment     IFRS  
            Fair value as     Close down     Capitalised              
            deemed cost of     and restoration     borrowing     Deferred        
      January 1, 2010     Pirquitas     provision     costs     taxes     January 1, 2010  
                  (ii)     (vi)     (vii)        
                                       
  Producing properties   180,018     (84,018 )   313     797     (20,262 )   76,848  
  Construction in progress   8,015     -     -     -     -     8,015  
  Mining equipment   12,478     -     -     -     -     12,478  
  Plant and equipment   219,305     -     407     -     -     219,712  
  Other   222     -     -     -     -     222  
  Total   420,038     (84,018 )   720     797     (20,262 )   317,275  

The lower carrying value of the producing property balance under IFRS also impacts the periodic depletion expense charged. Depletion is charged using the percentage of completion method based on the tonnage of ore mined as a ratio to the total ore expected to be mined over the life of the mine. The lower cost base of the asset reduced cost of sales by $4,176,000 for the year ended December 31, 2010.

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

26.

TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Cont’d)

(ii)    Close down and restoration provision

Under Canadian GAAP asset retirement obligations for close down and decommissioning costs are measured at the initial date of recognition using a discounted cash flow analysis with the Company’s credit-adjusted risk free interest rate. The liability (and corresponding asset) is only re-measured in the event of changes in the amount or timing of cash flows required to settle the obligation.

IFRS (IAS 37) requires initial measurement of the obligation using a pre-tax discount rate that reflects the risk associated with the liability; furthermore the liability is required to be re-measured at each reporting date.

As described in note 2(a), the Company elected to use the IFRS 1 transition exemption from full retrospective adjustment that would have been required under IFRIC 1. The Company re-measured the liability at the date of transition to IFRS and recorded an adjustment of $810,000 to the carrying value of the liability and to the carrying value of the corresponding property, plant and equipment asset, of which $720,000 related to Pirquitas.

For the year ended December 31, 2010 the Company recorded an adjustment of $713,000 to the carrying value of the liability and related mineral property asset, with a $76,000 impact on earnings.

(iii)  Share-based payments

The Company’s accounting policy for share-based payments under Canadian GAAP was broadly consistent with the requirements of IFRS, however, under IFRS 2 the Company is required to make adjustments to the compensation expense recorded for estimates of non-market vesting conditions, such as stock options that are not expected to vest i.e. forfeited. The initial estimation of non-market vesting conditions is not mandatory under Canadian GAAP. As a result the Company’s accounting policy choice was to make adjustments only when events occurred so that non-market vesting conditions were not met, such as when stock options were forfeited. The Company elected to apply the IFRS 1 transition exemption (note 2(a)), whereby adjustments were only required to be made to stock options that had been granted after November 7, 2002 and had not vested at the date of transition to IFRS.

The Company estimated the amount of stock options that would not vest by using historical data, the resulting impact at January 1, 2010 was insignificant but for the year ended December 31, 2010 the impact was a reduction to stock based compensation of $1,046,000, of which $991,000 was credited to the statement of income and the balance of $52,000 to property, plant and equipment.

(iv)    Functional currency and cumulative translation adjustment account

Under Canadian GAAP the Company determines whether a subsidiary is an integrated operation or a self-sustaining entity which determines the method of translation into the presentation currency of the Group. IFRS requires that an entity determine the functional currency of each subsidiary individually, prior to consolidation into the Group’s presentation currency.

65 | P a g e


Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

26.

TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Cont’d)

   

The Company determined that three subsidiaries had a functional currency other than the US dollar, which under Canadian GAAP had been classified as being integrated operations. Those subsidiaries under Canadian GAAP were consolidated using the temporal method (i.e. monetary assets and liabilities translated at the current rate and non- monetary assets and liabilities at historic exchange rates with gains or losses being charged to income), whereas under IFRS those entities with non US dollar functional currencies are translated into US dollars using the current rate method (whereby all assets and liabilities are translated using the reporting date exchange rates with any gains or losses being recorded in equity).

   

The net impact was an increase in mineral properties of $5,030,000, offset by a charge to currency translation adjustment (“CTA”). The Company also elected to take the IFRS 1 exemption to deem cumulative translation adjustments to be zero at the date of transition to IFRS. Hence all existing CTA balances and the impact of the above adjustments as of January 1, 2010 were recorded against the opening accumulated deficit.

   

For the year ended December 31, 2010 the impact was a reduction of the mineral properties of $373,000, with an equal and opposite effect on total comprehensive income.

(v)     Convertible notes

As discussed in note 14, the Company issued $138,000,000 of convertible notes (“Notes”) in 2008. Under Canadian GAAP the Company accounted for the Notes as a split instrument allocating the value of the notes between the debt and equity components. The debt was valued using a discounted cash flow model, with the residual balance being allocated to equity. At initial recognition the transaction costs were allocated to the debt and equity components pro rata. The debt portion was designated as an ‘other financial liability’, those transaction costs allocated to the debt were expensed, and those allocated to equity were treated as a reduction of the value of the equity component. Subsequently, the difference in carrying value of the debt and its final redemption amount is recognized as accretion expense in the statement of income over the period to maturity using the effective interest rate method.

There are two GAAP differences in relation to this instrument. Firstly, under Canadian GAAP the conversion feature is considered to be an equity instrument, but under IFRS it is considered as an embedded derivative liability due to the fact that if the holder elects to exercise their conversion option, the instrument can be cash-settled at the option of the Company. Secondly, under Canadian GAAP the debt component of the instrument was designated as an ‘other financial liability’, and it was similarly designated under IFRS. However, under IFRS, transaction costs relating to an instrument that is designated as an ‘other financial liability’ must be netted against the carrying value of the instrument, whereas under Canadian GAAP the Company made an accounting policy election to expense those costs.

At initial recognition under IFRS, similar to Canadian GAAP, the fair value of the debt component and conversion option were estimated but under IFRS the conversion option was recognized as a derivative liability. Transaction costs incurred were allocated pro rata to the two components, again consistent with Canadian GAAP. For IFRS the debt has been designated as an ‘other liability’, which means that the instrument is recorded at amortized cost, net of transaction costs. Subsequently, the accounting is the same as Canadian GAAP whereby the instrument is accreted over an expected life of 5 years using the effective interest method.

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

26.

TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Cont’d)

   

The accretion expense each reporting period under IFRS is greater than under Canadian GAAP due to the lower value attributed to the debt portion upon initial recognition, due to the fact that transaction costs are netted against the carrying value of the debt. Differences in accretion expense have been charged to the opening accumulated deficit at the date of transition. Also a proportion of the accretion was capitalized to the Pirquitas mineral property asset and as such the amount capitalized under IFRS differs from that under Canadian GAAP (note 26(c)(vi)).

   

Under IFRS the derivative liability is recognized as FVTPL so all transaction costs were expensed and the instrument is re-measured at each reporting period using a binomial tree approach. The following assumptions were used to obtain the valuation:


    December 31,     January 1,     February 27,  
    2010     2010     2008  
Expected dividend yield (%)   0.0     0.0     0.0  
Average risk-free interest rate (%)   4.13     4.58     4.62  
Expected life (years)   17.25     18.25     20.0  
Expected volatility (%)   57.5     60.0     60.0  
Implied yield on straight debt (%)   11.39     12.6     11.85  

The following table illustrates the differences in the carrying values of the debt and conversion option:

   
Canadian GAAP
 
IFRS
 
Canadian GAAP
 
IFRS
 
Canadian GAAP
 
IFRS
   
Carrying value
 
Carrying value
 
Carrying value
 
Carrying value
 
Carrying value
 
Carrying value
   
Inception
 
Inception
 
January 1, 2010
 
January 1, 2010
 
December 31, 2010
 
December 31, 2010
   
$
 
$
 
$
 
$
 
$
 
$
  Statement of financial position          
             
  Convertible notes - current
-
 
-
 
(2,076)
 
(2,076)
 
(2,076)
 
(2,076)
             
  Convertible notes - long term
(99,144)
 
(95,371)
 
(110,739)
 
(107,895)
 
(118,203)
 
(116,125)
             
  Derivative liability
-
 
(38,856)
 
-
 
(20,728)
 
-
 
(21,735)
             
  Equity component of convertible notes
(37,383)
 
-
 
(37,383)
 
-
 
(37,383)
 
-
             
  Property, plant and equipment (i) -   -   -   797   -   -
             
  Accumulated deficit
3,773
 
1,473
 
7,592
 
(12,705)
 
-
 
-
             
  Statement of income          
             
  Interest expense
-
 
-
 
-
 
-
 
6,210
 
6,210
             
  Interest accretion
-
 
-
 
-
 
-
 
7,531
 
8,230
             
  Unrealized (gain) or loss on derivative instruments -   -   -   -   -   1,007

(i) Impact of capitalized interest on property, plant and equipment (see note 26(c)(vi))

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

26.

TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Cont’d)

(vi)    Borrowing costs

The Company’s accounting policy for capitalising borrowing costs during the construction of the Pirquitas mine was unchanged between Canadian GAAP and IFRS. However, owing to the change in accounting methodology for the Notes described in note 26(c)(v) above a greater amount of accretion expense was available for capitalisation. The Company retrospectively adjusted the accretion expense capitalized to mineral properties.

The impact was an increase in the mineral property asset of $797,000 at the date of transition to IFRS. Construction was completed prior to the transition to IFRS so there are no further GAAP differences recorded.

(vii)   Deferred income tax

Under Canadian GAAP deferred tax liabilities were calculated following the acquisition of various mineral property assets. IFRS does not allow the recognition of deferred tax liabilities for temporary differences that arise in a transaction other than a business combination that at the time of the transaction affects neither the taxable nor accounting profit or loss. As a result deferred tax liabilities recognized on asset acquisitions under Canadian GAAP have been derecognized under IFRS and credited to the opening accumulated deficit.

Non-monetary assets and liabilities of an entity are measured in its functional currency. If an entity’s taxable income or loss is determined in a different currency, changes in exchange rate will give rise to a temporary difference that results in a deferred tax asset or liability under IAS 12. Effectively, the carrying value of the non-monetary asset/liability (as measured in the functional currency based on historical exchange rates) is translated from the functional currency to the local currency at the current rate and compared to the tax value in the local currency. The resulting temporary difference (measured in the local currency) is multiplied by the appropriate tax rate to arrive at the deferred tax balance in the local currency. This deferred tax balance is then translated into the functional currency at the current rate and charged/credited to profit or loss.

The above result is different from Canadian GAAP which prohibits the recognition of deferred taxes for temporary differences caused by exchange gains and losses related to foreign non-monetary assets and liabilities that are remeasured into the functional currency using historical exchange rates.

The result of these differences was a reduction of $35,596,000 in the deferred tax liabilities recognized on the date of transition to IFRS, reflected in aggregate credits to mineral properties of $36,797,000 (of which $20,262,000 related to Pirquitas), and aggregate charges to opening accumulated deficit of $1,201,000. The impact on retained earnings in the year ended December 31, 2010 was a charge of $3,354,000.

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Silver Standard Resources Inc.
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010 and January 1, 2010
(tabular amounts expressed in thousands of United States dollars unless otherwise stated)

26.

TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Cont’d)


A GAAP difference also exists in respect of the treatment of the tax effects of share issuance costs. While a deferred tax asset for these costs is recognized under both standards, IFRS requires the benefit to be credited to equity regardless of the period it was recognized, while under Canadian GAAP the benefit is reflected in net income if recognized in a period subsequent to when the issuance costs were incurred. As a result, for the year ended December 31, 2010, under Canadian GAAP an income tax recovery of $5,109,000 relating to share issuance costs was credited to earnings, but under IFRS this recovery has been credited directly to share capital. The effect of this adjustment has been reflected in the reconciliation of shareholders’ equity as at December 31, 2010.

   

The Company revised its previously published transition adjustment for deferred tax liabilities in relation to the tax basis of certain Argentine assets relating to certain foreign exchange and other adjustments. The impact was an increase in the deferred tax liability of $748,000 as at January 1, 2010 and a further increase of $5,543,000 as at December 31, 2010, with a corresponding increase to the tax expense for that year. These adjustments are not material to the previously presented financial information.

   
d)

Adjustments to Statement of Cash Flows

   

The transition from Canadian GAAP to IFRS had no significant impact on cash flows generated or used by the Company.


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SILVER STANDARD RESOURCES INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2011

1.

2011 HIGHLIGHTS

   
2.

OUTLOOK

   
3.

BUSINESS OVERVIEW

   
4.

RESULTS OF OPERATIONS

   
5.

REVIEW OF PROJECTS

   
6.

SUMMARIZED ANNUAL FINANCIAL RESULTS

   
7.

QUARTERLY FINANCIAL REVIEW

   
8.

LIQUIDITY

   
9.

CAPITAL RESOURCES

   
10.

FINANCIAL INSTRUMENTS AND RELATED RISKS

   
11.

OTHER RISKS AND UNCERTAINTIES

   
12.

RELATED PARTY TRANSACTIONS

   
13.

SIGNIFICANT INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD

   
14.

NON-GAAP FINANCIAL MEASURES

   
15.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

   
16.

FUTURE ACCOUNTING CHANGES

   
17.

INTERNAL CONTROLS OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES

   
18.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS



SILVER STANDARD RESOURCES INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2011

This Management’s Discussion and Analysis (“MD&A”) is intended to supplement the audited consolidated financial statements of Silver Standard Resources Inc. (“Silver Standard” or “the Company”) for the year ended December 31, 2011, and the related notes thereto, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The Company adopted IFRS on January 1, 2011 with a transition date of January 1, 2010. Full disclosure of the Company’s IFRS accounting policies and a reconciliation of the previously disclosed opening balance sheet prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) to IFRS is set out in notes 2 and 26 to the audited consolidated financial statements

The Company’s 2010 comparative financial information in this MD&A have been restated and are presented in accordance with IFRS, but 2009 comparative financial information has not been restated. All figures are expressed in U.S. dollars except where otherwise indicated. This MD&A has been prepared as of March 11, 2012, and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011. Unless otherwise stated all currency amounts are presented in U.S. dollars.

Additional information relating to the Company, including the most recent Form 20-F and the Annual Information Form, are available on SEDAR at www.sedar.com , and on the EDGAR section of the SEC website at www.sec.gov .

This MD&A contains “forward-looking statements” that are subject to risk factors set out in a cautionary note contained in item 18 herein. The Company uses certain non-GAAP financial measures in this MD&A. For a description of each of the non-GAAP financial measures used in this MD&A please see the discussion under ‘Non-GAAP Financial Measures’ in item 14 of this MD&A. The Company changed its presentation of costs per ounce during 2011 in line with the newly-endorsed production cost guidance provided by The Silver Institute .

1.     2011 HIGHLIGHTS

2


2.     OUTLOOK

This section of the MD&A provides management’s production and cost estimates for 2012. Major capital and exploration expenditures are also discussed. These are “forward-looking statements” and subject to the cautionary note regarding the risks associated with forward-looking statements contained in item 18 herein.

Estimates of future production and costs are prepared based on the mine plan and the expected method by which the Company will mine reserves at Pirquitas. Actual silver and zinc production may vary from these estimates due to a number of operational factors, including whether the volume and/or grade of ore mined differs from estimates which could occur because of changing mining rates, varying metallurgical or other ore characteristics and/or short term mining conditions that require mining in different areas of the mine or suspension of activities due to maintenance issues. Mining rates are also subject to non-operational risks and risks and hazards including natural phenomena, such as inclement weather conditions, as further described in the section ‘Other Risks and Uncertainties’ contained in item 11 in this MD&A.

On January 12, 2012 the Company provided production guidance of between 8.2 and 8.5 million ounces of silver in 2012. For the year ending December 31, 2012 direct mining costs are anticipated to be approximately $11.85 per ounce of silver based on direct mining costs of $100.8 million.

The regulatory environment within Argentina has been subject to recent changes enacted by the Government including modifications to export revenue repatriation, importation regulations for goods and services and the removal of subsidies provided for fuel and natural gas products. Additionally, recent labour negotiations within the industry indicate labour inflation is likely to continue at elevated levels. The Company continues to assess the overall impact of these items on its operations and Argentine peso denominated operating costs and on the foreign exchange rate as items translate into US dollars, the Company’s reporting currency.

Direct mining cost per ounce is a non-GAAP financial measure. Please see the discussion under ‘Non-GAAP Financial Measures’ in item 14 of this MD&A. Please note the Company changed its presentation of costs per ounce during 2011 in line with the newly-endorsed production cost guidance provided by The Silver Institute.

The Company also expects to produce between 10.5 and 11.5 million pounds of zinc in 2012.

In addition, the Company anticipates that capital expenditures in 2012 at the Pirquitas mine will approximate $19 million and exploration expenditures at ten properties will be more than $25 million, the majority of which will be capitalized. Expenditure for the completion of the feasibility study at Pitarrilla by mid-2012 and further work on access roads, water wells, the operations camp and supporting administration are expected to be approximately $30 million. If the feasibility study results in a positive construction decision, the Company’s capital expenditure requirements will increase materially in late 2012 and for the next several years.

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3.     BUSINESS OVERVIEW

Silver Standard is engaged in the exploration, development and production of silver-dominant mineral properties located in the Americas.

The Company’s strategic focus is to optimize production of silver from the Pirquitas mine and to advance other principal development and exploration projects, including Pitarrilla, San Luis, Diablillos and San Agustin. The Company has a large in-ground silver position and looks to exploit this for the benefit of the Company’s shareholders. Certain projects also contain significant gold and base metals. The Company’s future growth will be primarily driven through the development of core projects, while monetizing other non-core projects to support funding requirements.

2011 was a volatile year for equity and financial markets globally. Significant sell-offs were evidenced in July and August as the U.S. sovereign debt downgrade was pending and the European sovereign debt situation worsened. Equity markets did recover somewhat and were led by the U.S. Dow Jones Index. Central banks around the world, including China and many European banks, acted in concert with the Americans to lower interest rates as the year progressed.

This volatile economic environment has been supportive for the silver price and helped drive silver to a record high of $48.70 per ounce at the end of April before a sharp price reduction. Price increases through the summer saw the silver price back in the $40 per ounce range, but concerns over the world economic outlook in September resulted in prices declining to the low $30 per ounce range. The silver price has been more stable since then and closed the year at $28.18 per ounce. Silver has maintained its status as a “safe haven asset” and a component of asset portfolios around the world.

The Company realized an average silver price of $33.58 per ounce on deliveries during 2011, compared to $20.92 per ounce in 2010.

The stronger price environment enabled the Company to increase revenues by 32% compared to 2010 despite sales volumes being lower, as a result of the Company terminating its long-term sales contract in the third quarter of 2011.

Two significant events impacted Pirquitas during 2011. Firstly, the replacement time for delivery of the ball mill gearbox significantly impacted operations. The Company believes, however, that during the year significant progress was made improving the infrastructure, systems and processes for future operations at Pirquitas. The primary crushing capacity was increased and the ball mill refurbished. Cost initiatives have also been implemented to lower costs where possible and offset the risk of inflationary pressures. Despite the ball mill not being operational for over two months of the year, production of 7.1 million ounces of silver exceeded 2010 by 12%.

Secondly, a reduction to the estimated mineral reserves at Pirquitas has now been incorporated into the mine plan and shortened the mine life. However, this had no significant impact on the Company’s financial results for 2011. In addition, the Company believes the exploration potential at Pirquitas is significant and has planned an extensive drilling program for 2012.

The Company concluded 2,000 tonnes of spot sales of silver concentrate during the fourth quarter of 2011 (of which 1,000 tonnes was delivered before the year-end), and announced on February 14, 2012 that it had committed an additional 6,000 tonnes of silver concentrate to various customers for delivery in the first half of 2012. In addition to the spot sales, trial shipments totaling 500 tonnes of silver concentrate are at various stages of evaluation with potential customers, and these trials are part of longer term contract negotiations. This committed tonnage goes a long way toward reducing the inventory which had accumulated during the year, and current deliveries are expected to be in a strong price environment.

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The Company also completed significant transactions in the year; acquiring the remaining 30% interest in the San Luis project, monetizing the non-core Bowdens project for $70 million, and monetizing a significant amount of value from the investment in Pretium by selling approximately one-third for $130 million. The market value of the Company’s investment in Pretium at the year-end was in excess of $300 million.

Exploration remains important for the Company and during 2011 $36 million was spent, primarily at the development projects of Pitarrilla in Mexico and San Luis in Peru.

Through 2011 the Company accelerated the Pitarrilla project in Mexico. In the third quarter the Board of Directors committed significant funds for completion of a feasibility study by the middle of 2012, and for commencement of infrastructure construction, such as the operations camp, access roads and water wells. The Company has also been building the management team to advance this project.

4.     RESULTS OF OPERATIONS

Pirquitas Mine, Argentina

                            Total     Total  
Operating data   Q1     Q2     Q3     Q4     2011     2010  
Tonnes milled (kt)   308     295     245     241     1,089     1,255  
Silver mill feed grades (g/t)   233     261     250     274     253     233  
Silver recoveries (%)   73.6     80.0     82.9     82.4     79.5     65.2  
Silver (ounces)                                    
- produced   1,697,294     1,975,616     1,631,281     1,751,398     7,055,589     6,302,140  
- sold   2,053,573     1,569,698     707,202     515,124     4,845,597     5,936,657  
                                     
Average realized silver price ($/oz)   30.44     38.54     39.88     33.42     33.58     20.92  
Average London spot silver price ($/oz)   31.66     38.17     38.79     31.87     35.11     20.16  
                                     
Direct mining cost ($/oz) (1)   12.26     11.57     16.20     14.97     13.65     12.19  
Total cash cost ($/oz) (1)   23.23     22.06     20.60     17.72     20.93     18.03  
Total production cost ($/oz) (1)   26.99     25.26     24.55     24.68     25.37     22.14  
                                     
Financial Data ($000s)                                    
Revenue   60,053     47,271     26,152     14,369     147,845     112,256  
Income (loss) from mine operations   27,859     15,838     11,492     (3,270 )   51,919     14,134  

(1)

The Company reports non-GAAP cost per ounce of silver produced to manage and evaluate operating performance at the Pirquitas mine. For a better understanding and a reconciliation of these measures to cost of sales, as shown in the Company’s Consolidated Statement of Income please refer to ‘Non-GAAP Financial Measures’ in item 14 of this MD&A.

Mine production

The Pirquitas mine produced 7.1 million ounces of silver during 2011 compared with 6.3 million ounces in 2010. Although production was 12% higher than in 2010, 2011 production was negatively impacted by over two months of production downtime due to installing additional crushing capacity, and operating for most of the year with a damaged ball mill gearbox. The gearbox has now been completely rebuilt to nearly-new condition, and the mill recommenced operating in early November 2011. A spare gearbox from Europe is due to arrive in March 2012 and the Company has purchased a spare ball mill ring gear with expected delivery towards the end of 2012. Since the mill has been back in operation, it has exceeded design rates and production volumes have been strong.

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Operations were also impacted by import restrictions imposed by the Argentine government on all industries, including mining. The restrictions make the timely sourcing of spare and replacement parts challenging as many necessary mining-related parts are not readily available at the required quality or specifications in Argentina. Import restrictions therefore result in lower equipment availability and additional maintenance costs. Most significantly impacted was the operation of the jig circuit. Loading, drilling and haulage equipment availabilities were also impacted.

During the year, 1.1 million tonnes of ore were processed at an average milling rate of 2,983 tonnes per day, compared to 1.3 million tonnes at an average of 3,439 tonnes per day in 2010. The reduced tonnage processed during 2011 was due to the aforementioned ball mill shutdowns, however, the average milling rate during 2011 per operating day was in excess of 3,600 tonnes per day.

Ore milled during 2011 contained an average silver grade of 253 g/t and an average silver recovery of 79.5% was achieved. This was a significant improvement compared to a silver grade of 233 g/t and recovery of 65.2% in 2010. The better silver recovery achieved during 2011 was due principally to improvements in the consistency of feed and continuous improvements to the crushing and flotation circuits.

The mine produced a total of 10.1 million pounds of zinc in 2011 which met guidance and resulted from milling higher grades and achieving better recovery than planned. There was no zinc production in 2010 as the zinc circuit was not commissioned until the start of 2011.

Mine operating costs

Direct mining cost per ounce, total cash cost per ounce and total production cost per ounce are non-GAAP financial measures. Please see the discussion under ‘Non-GAAP Financial Measures’ in item 14 of this MD&A.

During 2011 the Company adopted The Silver Institute’s presentation guidance for production costs. This disclosure guidance differed from the Company’s previous methodology; previous disclosures have therefore been restated to conform to the amended presentation.

Direct mining costs in 2011 were $13.65 per ounce of silver compared to $12.19 per ounce in 2010. The increase in unit cost in 2011 versus 2010 was primarily driven by inflationary pressures on local labour costs and catering, repairs and maintenance costs related to the primary crusher and the refurbishment of the ball mill gearbox, additional maintenance costs and external costs associated with the import restrictions, and expenditures incurred to improve the long-term production efficiency of the facility.

Total cash cost in 2011, which includes by-product credits, treatment and refining costs, royalties and production taxes, was $20.93 per ounce of silver compared to $18.03 per ounce of silver in 2010. Treatment and refining costs, as well as royalties and production taxes all vary as a function of sales prices and are recorded for the actual ounces of silver sold. Consequently, on a per ounce basis, the variability in total cash cost from period to period is partially due to sales prices and the difference between production and sales volumes. The higher incremental per ounce impact of these costs in 2011 compared with 2010 is due primarily to higher prices achieved for sales in the current year.

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Total production cost, which includes depreciation and amortization, was $25.37 per ounce in 2011 compared to $22.14 in 2010. The depreciation and amortization costs are largely similar on a per ounce basis, although these costs were impacted in the fourth quarter of 2011 following the reduction of mineral reserves at Pirquitas which increased the depreciation charges on certain assets.

Pirquitas Mineral Resources and Reserve

As part of the Company’s ongoing production to mineral reserve reconciliation and mine planning, and to delineate the deposit in greater detail for the mine’s mineral resources and mineral reserve estimates, the Company undertook a comprehensive drilling campaign between the fourth quarter of 2010 and September 2011. Assay results from these drill-holes were utilized by the Company’s Qualified Persons (“QPs”) to complete advanced modeling of the deposit’s mineral resource and mineral reserve estimates. The results of this work were included in the National Instrument 43-101 (“NI 43-101”) technical report that was filed on SEDAR on December 23, 2011. As of December 31, 2011 the mineral reserves of 16.3 million tonnes averaged 172.3 g/t of silver and 0.72% zinc, for approximately 90.3 million ounces of contained silver and 259 million pounds of contained zinc.

Exploration drilling program

In addition to the comprehensive in-fill drilling program that was completed in 2011 in the area of the San Miguel open-pit, the Company diamond drilled 1,837 meters at an exploration target located just 200 meters north of the pit in the Cortaderas Valley. The main target at Cortaderas consists of a steeply-plunging breccia body where the breccia matrix is composed of silver-bearing iron and zinc sulphide mineralization and sulfide-rich, vein-hosted mineralization was intersected by drill-holes in the vicinity of the above-mentioned breccia body. To date, nine relatively closely-spaced drill-holes have intersected the mineralized breccia body. The results from this drilling were encouraging and based on the drilling completed, the Company estimated an Inferred mineral resource for the breccia of 7.0 million tonnes averaging 98.4 g/t silver and 2.3% zinc, for approximately 22.5 million ounces of contained silver and 360.1 million pounds of contained zinc, at a 50 g/t silver cut-off grade. Additional drilling is planned in the first half of 2012 to further define and delineate this resource.

Fiscal stability agreement and regulatory environment

The Pirquitas mine has a fiscal stability agreement with the government of Argentina dating from 1998. In 2002, the government of Argentina implemented an export duty on concentrates that did not apply to companies with pre-existing fiscal stability agreements. In December 2007 the National Customs Authority of Argentina levied an export duty of approximately 10% from concentrates for projects with fiscal stability agreements pre-dating 2002. The Company has been advised that Pirquitas is subject to this export duty despite contrary rights detailed under the 1998 fiscal stability agreement. The legality of the export duty applied to silver concentrates has been challenged and is currently under review by the court in Argentina. In July 2010, the Company filed a claim in the provincial court for repayment of export duties paid on silver concentrates, and for an order to cease payment of the export duty until the matter has been decided by the court. An order was granted effective September 29, 2010 to cease payment of the export duty on silver concentrates pending the decision of the courts, and in April 2011 a government appeal against this order was denied.

As of December 31, 2011 the Pirquitas mine has paid $6.6 million in export duties against which it has filed for recovery. In accordance with the order to cease payment the Company has not been paying export duties on silver concentrate but continues to accrue duties in full until the outcome of the claim is known with certainty. At December 31, 2011, the Company had accrued a liability totaling $13.1 million, with a corresponding impact on cost of sales in the relevant period. If this export duty is successfully overturned the benefit will be recognized in the Consolidated Statement of Income for the full amount of paid and unpaid duty in the period recovery becomes virtually certain.

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On October 26, 2011 the Argentina government announced a decree that requires all funds from mining export sales to be repatriated to Argentina and converted into Argentina Pesos within the Sole Foreign Exchange Market in Argentina, and each transfer is subject to a 0.6% transfer tax. The mining industry had previously been exempted from this tax. Although the aforementioned fiscal stability agreement also includes stability over foreign exchange controls, the government removed such benefits with this decree. The Company will comply with all laws and regulations, and is monitoring the situation closely. The impact of the transfer tax should not have a material impact on the Company.

5.     REVIEW OF PROJECTS

Pitarrilla, Mexico

A total of $18.2 million was spent during 2011 at the wholly-owned Pitarrilla project located in the state of Durango, Mexico compared to $17.7 million in 2010.

During the year a campaign of diamond drilling was conducted, with 83 boreholes and a total of 13,867 meters being drilled. This drilling program was designed to provide in-fill assay data for an enhanced estimate of the project’s ‘oxide’ silver mineral resource as well as geotechnical and metallurgical information that will be used for mine design and optimization. This drilling work is the basis for a feasibility study which is scheduled to be completed in the middle of 2012.

A scoping level evaluation indicates the optimum project will be a large open pit mine. Plant facilities are expected to target 16,000 tonnes per day and include a milling circuit, an agitated leach circuit and a flotation circuit. These facilities are expected to produce silver doré and separate lead and zinc concentrates containing payable silver.

The design of the open pit is expected to start in the upper and mid-level oxide and transitional ores and then extend into the higher grade sulfide ores in the heart of the deposit in the basal conglomerate zone and finally bottom out in the upper levels of sulfide mineralization in sedimentary structures below the conglomerate. This mining operation will leave intact, the middle and lower zones of the sedimentary structures for subsequent potential underground mining.

The Environmental Impact Assessment (“EIA”) process is currently scheduled to be completed with a construction permit application in the third quarter of 2012. Land access rights are being secured and construction has commenced for the operations camp, water wells and access roads.

In March 2012 the Company plans to commence the latest phase of in-fill and brownfields drilling. This diamond drill program of approximately 8,300 meters has the objective of expanding the near-surface oxide mineralization at the Breccia Ridge and South Ridge zones. In addition, metallurgical testing is underway to optimize metal recoveries from oxide and sulfide mineralization. Where possible, results of the drilling and metallurgical studies will be included in the Pitarrilla feasibility study.

The Company also continues to build management and technical capability, notably with the recruitment of a new country manager and a project manager.

The Company updated the mineral resources at Pitarrilla as of January 31, 2012, as announced in the Company’s news release on February 27, 2012 and the project currently comprises Measured and Indicated mineral resources of 245.0 million tonnes containing 655.7 million ounces of silver averaging 83.3 g/t and Inferred mineral resources of 31.3 million tonnes containing 65.0 million ounces of silver averaging 64.7 g/t, at a 30 g/t silver cut-off grade. The project also contains Measured and Indicated mineral resources of 4 billion pounds of zinc and 2 billion pounds of lead.

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San Luis, Peru

A total of $5.6 million was spent during 2011 at the now wholly-owned San Luis project in Peru compared to $6.4 million in 2010. On July 28, 2011, the Company acquired the remaining 30% interest in the San Luis project from the Company’s former joint venture partner, Esperanza Resources Corp. (“Esperanza”). Under the terms of the agreement, the Company paid $17.9 million in cash, transferred to Esperanza the 6.5 million shares of Esperanza that the Company owned, and granted to Esperanza a 1% net smelter return royalty on future revenues earned from the project.

Long-term land access negotiations continued with two local communities, one agreement being completed and one ongoing, and work also continued on completing the required Environmental Impact Study (“EIS”). The completion of the land access agreements and approval of the EIS will enable a construction decision to be made.

During the year, mineral prospecting on the property resulted in the discovery of a set of northwesterly trending quartz veins which were tested for their precious metal content with the collection of 265 rock-chip samples. Assay results for these samples indicate sections of these veins are significantly mineralized with gold and require further assessment by diamond drilling. In addition, the Company contracted an external consultant to examine and assess the potential of the BP Zone. This zone of widespread hydrothermal alteration and base metal mineralization is centered about 4 kilometers southwest of the Ayelen vein-hosted gold-silver deposit. It was concluded that the alteration and mineralization found at the BP Zone is most likely related to a porphyry intrusion and warrants additional drill-testing. Exploration programs to further evaluate the epithermal gold and porphyry copper targets are planned.

The San Luis project comprises Proven and Probable Mineral Reserves of 0.5 million tonnes containing 7.2 million ounces of silver averaging 446 g/t and 0.29 million ounces of gold averaging 18 g/t. These mineral reserves are 100% attributable to the Company as of July 28, 2011, following its consolidation of ownership.

Diablillos, Argentina

A total of $2.6 million was spent during 2011 at the Company’s wholly-owned Diablillos project (which is located 275 kilometers south of the Pirquitas Mine in northwestern Argentina) compared to $2.2 million in 2010.

Expenditures primarily included administrative, property taxes and camp maintenance costs. Fieldwork mainly comprised rock sampling to identify satellite zones of near-surface oxidized gold mineralization that would complement the resources defined in the main Oculto silver-gold deposit. A number of prospects were identified for follow-up mechanized trenching and additional sampling and several of these targets will be drilled in 2012 with shallow boreholes.

The Oculto deposit at the Diablillos project has an Indicated mineral resource of 21.6 tonnes containing 77.1 million ounces of silver averaging 111 g/t and 0.64 million ounces of gold averaging 0.9 g/t, with additional Inferred mineral resources of 7.2 million tonnes containing 6.3 million ounces of silver averaging 27 g/t and 0.19 million ounces of gold averaging 0.8 g/t.

9


San Agustin, Mexico

A total of $0.6 million was spent during 2011 at the Company’s wholly-owned San Agustin project located in Durango State, Mexico compared to $1.1 million spent in the prior year. Most of the expenditure was incurred as property holding costs and other administrative expenses.

Advanced negotiations were conducted during the year with three parties that control the property surface rights. Once land access agreements are in place, a 5,000 meter diamond drilling program will be initiated. The objective of the drilling program will be to expand the near-surface oxidized gold resource. In addition to the proposed program of in-fill drilling, detailed metallurgical studies will also be undertaken and will focus on gold recovery characteristics of the oxide gold mineralization.

The San Agustin project currently comprises an Indicated mineral resource of 121 million tonnes containing 47.8 million ounces of silver averaging 12.3 g/t and 1.59 million ounces of gold averaging 0.41 g/t, along with an Inferred mineral resource of 91.2 million tonnes containing 36.9 million ounces of silver averaging 12.6 g/t and 1.06 million ounces of gold averaging 0.36 g/t.

Nazas, Mexico

A total of $4.4 million was spent during 2011 at the Company’s wholly-owned Nazas project located in Durango State, Mexico compared to $1.3 million during 2010.

Nazas, which until recently comprised three contiguous mineral properties covering approximately 236 square kilometers, is centered about 16 kilometers east of the Pitarrilla project and covers an extensive system of gold- and silver-bearing quartz veins and related hydrothermal alteration. Several of these vein targets have now been tested, with approximately 12,587 meters being drilled from 22 boreholes during 2011. Early in the campaign, drill-holes intersected gold mineralization in epithermal quartz veining that prompted the addition of seven holes to the original program.

During the fourth quarter of 2011 however, the Company elected not to continue its option to purchase the Navidad claim group at the center of the Nazas project area and expensed previously capitalized exploration costs of $4.5 million. Although mineralization was encountered, assay results were inadequate to justify the high costs to maintain the option. Notwithstanding the decision on the Navidad claim group, the geological information provided by this year’s drilling campaign will be utilized in the planning of future drilling on the other two Nazas properties. The goal at Nazas continues to be the discovery of precious metal-rich polymetallic mineralization.

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6.     SUMMARIZED ANNUAL FINANCIAL RESULTS

The following table sets out selected annual financial results (1) ;

    Years ended December 31  
    2011     2010     2009  
    $000s     $000s     $000s  
Revenue   147,845     112,256     5,442  
Earnings (loss) from mine operations   51,919     14,134     (2,523 )
Earnings (loss) from operations   22,565     (17,162 )   (19,954 )
Gain on sale of mineral properties   49,856     402,009     167  
Net income (loss) attributable to shareholders   80,128     338,455     (13,193 )
Basic earnings (loss) $ per share   1.00     4.34     (0.19 )
Diluted earnings (loss) $ per share   0.99     4.32     (0.19 )

    As at December 31  
    2011     2010     2009  
    $000s     $000s     $000s  
Cash and cash equivalents   329,055     232,311     26,659  
Total assets   1,276,102     1,147,990     749,925  
Non-current financial liabilities   126,555     137,860     110,739  
Cash dividends declared ($/share)   0.00     0.00     0.00  

(1) The Company’s annual financial results as at and for the years ended December 31, 2011 and 2010 have been prepared in accordance with IFRS. As the Company’s transition date to IFRS was January 1, 2010, the summarized annual financial results as at and for the year ended December 31, 2009 have not been restated and have been prepared under Canadian GAAP.

Review of the Annual Financial Results

Net income for the year ended December 31, 2011 was $80.1 million ($1.00 per share) compared to $338.5 million ($4.34 per share) in 2010 and a net loss of $13.2 million ($0.19 per share) in 2009. The following is a summary and discussion on significant components of income and expenses recorded during 2011 compared to the prior two years.

In 2011 the Company recorded total revenues from the Pirquitas Mine of $147.8 million from the sale of 4.8 million ounces of silver and 12.4 million pounds of zinc. Shipments made in the period realized an average silver price of $33.58 per ounce, excluding the impact of period-end price adjustments, and zinc realized an average price of $1.02 per pound. This is compared with 2010 which recorded revenues of $112.3 million from the sale of 5.9 million ounces of silver at an average realized price of $20.92, and 2009 which only recognised $5.4 million in revenue because commercial production only started in December of that year. There were no zinc sales in either 2010 or 2009. The increase in sales recognised compared to 2010 is reflective of the significant increase in the price of silver, partially offset by the lower volume sold in 2011. Zinc sold in 2011 contributed $9.3 million to total revenues.

Since the mine’s start-up, silver concentrates were sold pursuant to a sales contract to a single customer. The contract was terminated during the third quarter of 2011 which resulted in sales volumes of silver concentrate being lower than the prior year. Zinc concentrate sales were unaffected. A total of 1,000 tonnes of spot sales of silver concentrate were completed in the fourth quarter the Company has committed an additional 7,000 tonnes for delivery in the first half of 2012. The Company is continuing negotiations to establish long-term contracts with various counterparties.

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Cost of sales for 2011 was $95.9 million compared to $98.1 million in 2010, and $7.9 million in 2009. This resulted in income from mine operations of $51.9 million in 2011, $14.1 million in 2010 and a loss of $2.5 million in 2009. The net result was an improvement in margins from 2010 to 2011 from 14.4% to 54.1% . Higher silver prices realized in 2011, and the commencement of zinc sales, fully offset the increase in unit costs that the mine experienced in the same period.

General and administrative expenses for the year ended December 31, 2011 were $23.7 million compared to $28.9 million in 2010 and $20.9 million in 2009. The main reason for the reduction between 2011 and 2010 was share-based payments that are revalued based on the Company’s share price were significantly lower as the share price declined towards the end of 2011. Salaries and benefits were slightly higher in 2011 due to the increase in headcount as the Company expands its business. The increase in 2010 compared with 2009 was primarily due to growth in headcount and was mainly salary, employee benefit and bonus related, and the increase in stock price through 2010 also resulted in a significant increase in certain forms of share-based payments.

Expensed exploration costs of $5.7 million for 2011 and $2.4 million in 2010, and $0.5 million in 2009 relate primarily to the drilling programs at the Pirquitas mine. Such costs at an operating property are expensed in line with the Company’s accounting policy.

In 2011 the Company recorded a gain on sale of mineral properties of $51.4 million from the sale of the Bowdens project in Australia, offset by $1.5 million of transaction costs related to the Snowfield and Brucejack disposition in 2010, for a net gain of $49.9 million. In 2010 the Company recognised a total gain of $402.0 million from the disposal of Snowfield and Brucejack, and the smaller Silvertip property.

In September 2011, the Company sold the Bowdens project in Australia to Kingsgate Consolidated Limited (“Kingsgate”) for $35.0 million in cash, 3.4 million shares of Kingsgate (with an approximate value of $25.6 million), and two deferred cash payments of AUD5 million each. The first deferred payment was received on December 31, 2011 and the second is due on June 30, 2012. Total consideration was approximately $70.7 million, resulting in a gain on sale of $51.4 million (after tax gain of $35.3 million).

On December 21, 2010 the Company sold its 100% interest in the Snowfield and Brucejack properties located in British Columbia, Canada to Pretium for total consideration of $442.3 million. Under the terms of the transaction the Company received a total of 32.5 million common shares of Pretium with a fair value of $191.9 million, cash proceeds of $211.3 million (before costs of $12.4 million) and a non-interest bearing convertible promissory note in the principal amount of $39.1 million. This resulted in a gain of $388.8 million (after tax gain of $360.6 million).

During February 2010, the Company sold its 100% interest in the Silvertip property located in British Columbia, Canada to Silvercorp Metals Inc. (“Silvercorp”). Under the terms of the agreement, Silvercorp paid consideration of $15.0 million, comprising cash of $7.1 million and 1.2 million common shares of Silvercorp with a fair value of $7.8 million, for an after-tax gain of $13.1 million.

On April 8, 2011 the Company sold 11.5 million units of Pretium for $120.1 million, before transaction costs. Each unit is comprised of one common share of Pretium and half of a warrant to purchase an additional common share of Pretium for C$12.50. This constituted a partial disposal of the investment in the equity accounted associate, and resulted in a gain of $38.8 million. As at December 31, 2011 the Company retained an ownership interest of 28.39% in Pretium, which had a book value of $136.3 million and a market value in excess of $300 million.

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Other income (expenses) comprised the following for the year ended December 31;

    2011     2010     2009  
    $000s     $000s     $000s  
(Impairment) reversal of impairment of convertible debenture   2,400     -     (2,002 )
Unrealized gain (loss) on financial instruments at FVTPL   20,182     (1,109 )   412  
Gain (loss) on sale of marketable securities   5,453     3,114     (1,279 )
Write-off of mineral property costs   (4,624 )   (238 )   (377 )
Write down of marketable securities and other investments, net of                  
interest received   -     -     534  
Gain on dilution of associate   1,803     -     -  
Share of loss of associate   (6,078 )   (77 )   -  
Miscellaneous income (expense)   (1,056 )   16     -  
    18,080     1,706     (2,712 )

The unrealized gain on financial instruments at fair value through profit and loss (“FVTPL”) is primarily from the convertible notes, for which a gain of $20.2 million was recorded in 2011 compared to a loss of $1.1 million in 2010. This item was not recorded in 2009 as this instrument did not meet the definition of a derivative liability under Canadian GAAP. Since the acquisition of the Company’s interest in Pretium in December 2010 the Company is required to record its share of Pretium’s losses, which were $6.1 million in 2011 and $0.1 million in 2010. The Company wrote off exploration costs of $4.5 million following its decision to let its option of the Navidad claim group at the Nazas property expire. There were no significant cost write-offs in either 2010 or 2009. The gain on marketable securities recognised in the income statement is the cumulative gain from the sale of marketable securities which has been recycled from other comprehensive income.

The Company recorded a foreign exchange loss for the year ended December 31, 2011 of $2.7 million compared to a loss of $0.9 million in 2010 and a gain of $1.2 million in 2009. The Company’s main exposure to foreign exchange risk is related to net monetary assets denominated in Canadian dollars and Argentine pesos. During 2011 the Canadian dollar was strong against the U.S. dollar during the first half of the year and weakened subsequently, while the Argentine peso steadily weakened against the U.S. dollar.

In the year ended December 31, 2011 the Company recorded an income tax expense of $31.4 million compared to $32.2 million in 2010 and a recovery of $4.3 million in 2009. Of the total tax expense in 2011, $21.1 million reflects the current and deferred tax expense at Pirquitas, $5.2 million from the capital gain on the sale of the Pretium shares, $16.1 million from the gain on the sale of the Bowdens project; these expenses are partially offset by realized losses and the balance relates to changes in deferred tax liabilities. In 2010 the tax expense at Pirquitas was $5.5 million and there was an expense of $27.1 million in Canada primarily due to the sale of the Snowfield and Brucejack properties. The income tax recovery in 2009 was the result of unrealized losses on marketable securities and the operating loss at Pirquitas in that year.

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7.     QUARTERLY FINANCIAL REVIEW

The following table sets out selected results from the eight most recent quarters all of which have been prepared in accordance with IFRS;

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    2011     2010  
    31-Dec     30-Sep     30-Jun     31-Mar     31-Dec     30-Sep     30-Jun     31-Mar  
    $000s     $000s     $000s     $000s     $000s     $000s     $000s   $000s  
Revenue   14,369     26,152     47,271     60,053     45,077     41,557     14,091     11,531  
Income (loss) from mine operations   (3,270 )   11,492     15,838     27,859     24,975     7,426     (1,673 )   (16,594 )
Net income (loss)   2,584     21,836     45,765     9,943     361,623     (10,407 )   (9,385 )   (3,376 )
                                                 
Basic earnings (loss) per share   0.03     0.27     0.57     0.12     4.64     (0.13 )   (0.12 )   (0.04 )
Dliuted earnings (loss) per share   0.03     0.27     0.57     0.12     4.62