Inmet Announces Fourth Quarter Earnings of $0.69 per Share
TORONTO, CANADA -- (Marketwire) -- 02/09/12 -- All amounts in Canadian dollars unless indicated otherwise
Inmet (TSX: IMN) announces fourth quarter earnings of $0.69 per share.
Fourth quarter highlights
-- Strong earnings from operations
Earnings from operations were $92 million compared to $93 million in the fourth quarter of 2010. The impact of significantly higher sales volumes this quarter mainly from Las Cruces, was offset by lower average copper and zinc prices. Although sales volumes were higher this quarter, timing of shipments resulted in copper sales lagging production by a combined 3,000 tonnes at Cayeli and Las Cruces. This timing effect reduced earnings from operations by approximately $12 million (or $0.13 per share on an after-tax basis).
-- Las Cruces production increased
In the fourth quarter of 2011, Las Cruces produced 14,100 tonnes of copper cathode, and finished the year with December production above 5,000 tonnes. In the last two weeks of 2011, we sustained recoveries above 88 percent at throughput levels and cathode production approaching design capacity. We believe that the commissioning phase of the operation is now essentially complete and anticipate output in 2012 to stabilize at the plant design capacity of 72,000 tonnes per year.
-- Continued strong performance at Cayeli and Pyhasalmi
Cayeli milled a record 316,000 tonnes this quarter and 1,195,000 tonnes for the year. Pyhasalmi milled 348,000 tonnes this quarter and reached near-record annual throughput of 1,386,000 for the year.
-- Adjustment of applied interest rate for closure liabilities under
International Financial Reporting Standards (IFRS)
We recognized a charge of $17 million in earnings from operations, or $0.24 per share, for post-closure liabilities at our closed properties primarily as a result of a decrease in the discount rates we applied in determining the liabilities at period end. This compares to a charge of $13 million recognized in the fourth quarter of 2010.
-- Net income decreased
Our net income from continuing operations was $49 million lower than for the same quarter of 2010. We recognized after-tax foreign exchange losses of $9 million this quarter, mainly on cash and long-term bonds we held in US dollars. In the fourth quarter of 2010, we disposed of a non-core investment and recognized a gain of $50.5 million.
-- Cobre Panama received approval of Environmental Social Impact Assessment
On December 28, 2011, the government of Panama, through the Autoridad Nacional del Ambiente (ANAM), Panama's environmental regulatory authority, approved the Environmental and Social Impact Assessment (ESIA) required for development of Cobre Panama, including the mining operations and related infrastructure, a port facility, and a coal-fired power plant.
-- Korea Panama Mining Corp. (KPMC) election to exercise Cobre Panama
option
In January 2012, we received notice from KPMC that it elected to exercise its option to acquire a 20 percent interest in Minera Panama S.A. (MPSA), the owner and developer of Cobre Panama, which would leave Inmet with an 80 percent interest. The option exercise is expected to close by the end of February 2012. At closing, KPMC will invest approximately US $155 million into MPSA, representing a 20 percent share of development costs to closing, over the US $30 million of such costs KPMC has already funded.
Key financial data
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three months ended Year ended
December 31 December 31
(thousands, except
per share
amounts) 2011 2010 Change 2011 2010 change
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FINANCIAL
HIGHLIGHTS
Sales
Gross sales $ 241,059 $ 230,269 +5% $ 979,045 $ 778,556 +26%
Net income
Net income from
continuing
operations $ 48,072 $ 96,863 -50% $ 264,732 $ 265,714 -
Net income from
continuing
operations per
share $ 0.69 $ 1.73 -60% $ 3.99 $ 4.74 -16%
Net income from
discontinued
operations - $ 47,993 -100% $ 83,439 $ 124,755 -33%
Net income from
discontinued
operations per
share - $ 0.84 -100% $ 1.26 $ 2.21 -43%
Net income
attributable to
Inmet
shareholders $ 48,072 $ 146,932 -67% $ 348,171 $ 391,876 -11%
Net income per
share $ 0.69 $ 2.57 -73% $ 5.25 $ 6.95 -24%
Cash flow
Cash flow provided
by operating
activities $ 73,097 $ 90,515 -19% $ 404,854 $ 254,918 +59%
Cash flow provided
by operating
activities per
share (1) $ 1.05 $ 1.59 -34% $ 6.09 $ 4.52 +35%
Capital spending
(2) $ 58,976 $ 58,862 - $ 208,541 $ 127,619 +63%
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OPERATING
HIGHLIGHTS
Production(3)
Copper (tonnes) 26,200 17,500 +50% 84,800 65,500 +29%
Zinc (tonnes) 17,900 21,300 -16% 80,400 81,400 -1%
Gold (ounces) - - - - 37,900 -100%
Pyrite (tonnes) 210,500 186,800 +13% 804,900 584,100 +38%
Copper cash cost
(US $ per
pound)(4) $ 0.82 $ 0.74 +11% $ 0.86 $ 0.64 +34%
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as at as at
December 31 December 31
FINANCIAL CONDITION 2011 2010
Current ratio 9.3 to 1 3.4 to 1
Gross debt to total equity 1% 1%
Net working capital balance (millions) $1,304 $626
Liquidity balance including cash and long-
term bonds (millions) $1,706 $699
Gross debt (millions) $17 $17
Shareholders' equity (millions) $3,414 $2,555
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(1) Cash flow provided by operating activities divided by average shares
outstanding for the period.
(2) Year ended December 31, 2011 includes capital spending of $133 million
at Cobre Panama and $54 million at Las Cruces. Year ended December 31,
2010 includes capital spending of $85 million at Cobre Panama and $80
million at Las Cruces, reduced by positive cash flow from pre-operating
costs net of revenues and working capital changes at Las Cruces of $56
million.
(3) Inmet's share. 2010 production does not include our share of Ok Tedi.
(4) Copper cash cost per pound is a non-GAAP financial measure - see
Supplementary financial information on pages 30 to 32.
Fourth quarter press release
Where to find it
Our financial results 5
Key changes in 2011 5
Understanding our performance 6
Earnings from operations 8
Corporate costs 12
Results of our operations 15
Cayeli 16
Las Cruces 18
Pyhasalmi 20
Status of our development project 22
Cobre Panama 22
Managing our liquidity 24
Financial condition 27
Accounting changes 28
Supplementary financial information 30
In this press release, Inmet means Inmet Mining Corporation and we, us and our mean Inmet and/or its subsidiaries and joint ventures. This quarter refers to the three months ended December 31, 2011.
Adoption of International Financial Reporting Standards
We have prepared our fourth quarter 2011 consolidated financial statements and other financial information according to International Financial Reporting Standards, and restated our 2010 comparative financial statements and other financial information following our IFRS accounting policies. See Adoption of International Financial Reporting Standards on page 28 for more information.
Caution with respect to forward-looking statements and information
Securities regulators encourage companies to disclose forward-looking information to help investors understand a company's future prospects. This interim report contains statements about our business, results of operation and future financial condition.
These statements are 'forward-looking' because we have used what we know and expect today to make a statement about the future. Forward-looking statements usually include words like may, expect, anticipate, believe or other similar words. Our objectives and outlook have been prepared based on our existing operations, expectations and circumstances. Actual events and results could be substantially different, however, because of the risks and uncertainties associated with our business or events that happen after the date of this interim report.
You should not place undue reliance on forward-looking statements. As a general policy, we do not update forward-looking statements except if there is an offering document or where securities legislation requires us to do so.
Although we have attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements or information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Also, many of the factors are beyond the control of Inmet. Accordingly, readers should not place undue reliance on forward-looking statements or information. Inmet undertakes no obligation to update forward-looking statements or information as a result of new information after the date of this interim report except as required by law. All forward-looking statements and information herein are qualified by this cautionary statement.
Our financial results
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three months ended December
31 Year ended December 31
(thousands,
except per
share amounts) 2011 2010 change 2011 2010 change
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EARNINGS FROM
OPERATIONS (1)
Cayeli $ 35,807 $ 36,810 -3% $ 159,698 $ 148,504 +8%
Las Cruces 41,710 23,508 +77% 126,392 44,889 +182%
Pyhasalmi 31,182 45,440 -31% 143,149 120,257 +19%
Other (16,722) (13,071) +28% (16,722) 16,595 -201%
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91,977 92,687 -1% 412,517 330,245 +25%
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DEVELOPMENT AND
EXPLORATION
Corporate
development and
exploration (6,541) (5,434) +20% (29,202) (13,495) +116%
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CORPORATE COSTS
General and
administration (7,734) (4,758) +63% (34,401) (20,364) +69%
Investment and
other income (4,011) 50,622 -108% 30,725 58,344 -47%
Stand by costs - - - - (6,753) -100%
Finance costs (2,390) (4,294) -44% (9,484) (13,176) -28%
Income taxes (23,229) (31,960) -27% (105,423) (69,087) +53%
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(37,364) 9,610 -487% (118,583) (51,036) +132%
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Net income from
continuing
operations 48,072 96,863 -51% 264,732 265,714 -
Income from
discontinued
operation (net
of taxes) - 47,993 -100% 83,439 124,755 -33%
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Non-controlling
interest - (2,076) -100% - (1,407) -100%
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Net income
attributable to
Inmet
shareholders $ 48,072 $ 146,932 -67% $ 348,171 $ 391,876 -11%
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Income from
continuing
operations per
common share $ 0.69 $ 1.73 -60% $ 3.99 $ 4.74 -16%
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Diluted income
from continuing
operations per
common share $ 0.69 $ 1.73 -60% $ 3.98 $ 4. 73 +16%
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Basic net income
per common
share $ 0.69 $ 2.57 -73% $ 5.25 $ 6.95 -24%
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Diluted net
income per
common share $ 0.69 $ 2.57 -73% $ 5.23 $ 6.94 -25%
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Weighted average
shares
outstanding 69,332 57,053 +22% 66,432 56,345 +18%
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(1) Gross sales less smelter processing charges and freight, cost of sales
including depreciation and provisions for mine reclamation at closed
properties.
Key changes in 2011
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three months
ended Year ended see
(millions) December 31 December 31 page
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EARNINGS FROM OPERATIONS
Market Factors
Higher (lower) copper prices
denominated in Canadian dollars $ (27) $ 36 8
Lower zinc prices denominated in
Canadian dollars (7) (7) 8
Other changes in prices
denominated in Canadian dollars (1) 16 8
Lower smelter processing charges 4 7 10
Foreign exchange - decreased
operating costs 2 9 11
Operational Factors
Higher sales volume at Las
Cruces, net of production costs 37 114 19
2010 earnings from Troilus - (30)
Higher sales volumes at our
other mines 6 18 8
Higher operating costs at our
other mines (3) (19) 11
Higher depreciation due to Las
Cruces production (9) (57) 12
Other (3) (4)
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Increase (decrease) in operating
earnings, compared to 2010 (1) 83
Lower (higher) taxes from lower
(higher) income 9 (37) 14
Higher corporate development,
exploration and administrative
costs (4) (30) 12
Foreign exchange changes (8) 12 13
Gain on sale of investment in
Premier Gold Mines Ltd. in 2010 (51) (51) 13
Higher interest income 2 9 13
Las Cruces standby charges in
2010 - 7 14
Other 4 6
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Lower net income from continuing
operations compared to 2010 (49) (1)
Lower income from discontinued
operation - Ok Tedi (48) (41) 14
Non-controlling interest in 2010 (2) -
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Lower net income attributable to
Inmet shareholders compared to
2010 $ (99) $ (42)
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Understanding our performance
Metal prices
The table below shows the average metal prices we realized in US dollars and Canadian dollars, this quarter and year to date compared to 2010. The prices we realize include finalization adjustments - see Gross sales on page 9.
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three months ended Year ended
December 31 December 31
2011 2010 change 2011 2010 change
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US dollar metal prices
Copper (per pound) US $3.51 US $4.10 -14% US $3.84 US $3.55 +8%
Zinc (per pound) US $0.87 US $1.06 -18% US $0.97 US $0.96 +1%
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Canadian dollar metal
prices
Copper (per pound) C $3.59 C $4.15 -13% C $3.80 C $3.66 +4%
Zinc (per pound) C $0.89 C $1.07 -17% C $0.96 C $0.99 -3%
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Copper
Copper was one of the strongest performing base metals for most of this year, with London Metals Exchange (LME) prices rising from US $4.42 per pound at the beginning of the year, to a record high price of US $4.60 per pound on February 14. Prices remained strong for much of the year, before they fell sharply by 23 percent in the final quarter of 2011, closing the year at US $3.43 per pound. LME copper prices averaged US $4.00 per pound this year, the highest ever average annual price, compared to US $3.42 per pound in 2010. LME copper prices averaged US $3.40 per pound in the fourth quarter, a decrease of 13 percent from the comparative quarter of 2010.
Zinc
LME zinc prices averaged US $0.86 per pound this quarter, a decrease of 18 percent from the fourth quarter of 2010. LME zinc prices averaged US $0.99 per pound this year, slightly higher than the average 2010 zinc price of US $0.98 per pound.
Exchange rates
Exchange rates affect our revenue and earnings. The table below shows the average exchange rates we realized this quarter and year to date compared to 2010.
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three months ended December 31 Year ended December 31
2011 2010 change 2011 2010 change
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Exchange rates
1 US$ to C$ $ 1.02 $ 1.01 +1% $ 0.99 $ 1.03 -4%
1 euro to C$ $ 1.38 $ 1.38 - $ 1.38 $ 1.37 +1%
1 euro to US$ $ 1.35 $ 1.37 -1% $ 1.39 $ 1.39 -
1 US$ to
Turkish lira TL 1.83 TL 1.46 +25% TL 1.65 TL 1.50 +10%
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Compared to the same quarter last year, the value of the Canadian dollar went down 1 percent relative to the US dollar, and maintained its value relative to the euro.
Our earnings are affected by changes in foreign currency exchange rates when we:
-- translate the results of our operations from their functional currency
(US dollars or euros) to Canadian dollars
-- translate Cayeli's Turkish lira denominated costs into its functional
currency (US dollars)
-- revalue US dollars and euros that we hold in cash and long-term bonds at
Corporate.
Lower zinc treatment charges
Treatment charges are one component of smelter processing charges. We also pay smelters for content losses and price participation.
The table below shows the average charges we realized this quarter and for the year.
Our copper contracts with the smelters for 2011 had higher payment terms than 2010, consistent with the overall industry. Additionally, spot smelter processing charges for a portion of the year were significantly higher as the earthquake in Japan in March 2011 caused temporary stoppages in copper smelter production, lowering short-term demand for copper concentrates. Zinc treatment charges were lower in 2011 compared to 2010, reflecting a tightening zinc concentrate market.
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three months ended Year ended
December 31 December 31
(US$) 2011 2010(1) change 2011 2010(1) change
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Treatment charges
Copper (per dry
metric tonne of
concentrate) US $55 US $45 +22% US $57 US $51 +12%
Zinc (per dry
metric tonne of
concentrate) US $184 US $239 -23% US $216 US $244 -11%
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Price participation
Copper (per
pound) US $0.02 US $0.03 -33% US $0.02 US $0.02 -
Zinc (per pound) US ($0.02) - -100% US ($0.01) US ($0.01) -
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Freight charges
Copper (per dry
metric tonne of
concentrate) US $58 US $58 - US $51 US $50 +2%
Zinc (per dry
metric tonne of
concentrate) US $11 US $12 -9% US $22 US $26 -15%
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(1) 2010 charges exclude Ok Tedi charges.
Statutory tax rates remain consistent
The table below shows the statutory tax rates for each of our taxable operating mines.
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2011 2010 change
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Statutory tax rates
Cayeli 24% 24% -
Las Cruces 30% 30% -
Pyhasalmi 26% 26% -
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Earnings from operations
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three months ended Year ended
December 31 December 31
(thousands) 2011 2010 change 2011 2010 change
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Gross sales $ 241,059 $ 230,269 +5% $ 979,045 $ 778,556 +26%
Smelter
processing
charges and
freight (28,228) (35,733) -21% (130,726) (138,464) -6%
Cost of sales:
Direct
production
costs (78,456) (75,887) +3% (302,513) (236,124) +28%
Inventory
changes 7,003 12,719 -45% 666 6,426 -90%
Other non-cash
expenses (21,685) (19,799) +10% (25,229) (24,161) +4%
Depreciation (27,716) (18,882) +47% (108,726) (55,988) +94%
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Earnings from
operations $ 91,977 $ 92,687 -1% $ 412,517 $ 330,245 +25%
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Significantly higher gross sales this year
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three months ended Year ended
December 31 December 31
(thousands) 2011 2010 change 2011 2010 change
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Gross sales by
operation
Cayeli $ 79,656 $ 79,944 - $ 353,706 $ 333,611 +6%
Las Cruces 100,941 66,794 +51% 356,918 128,643 +177%
Pyhasalmi 60,462 81,775 -26% 268,421 242,476 +11%
Other (Troilus) - 1,756 -100% - 73,826 -100%
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$ 241,059 $ 230,269 +5% $ 979,045 $ 778,556 +26%
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Gross sales by metal
Copper $ 183,155 $ 153,554 +19% $ 696,257 $ 470,378 +48%
Zinc 34,394 49,843 -31% 177,172 176,065 +1%
Gold - 1,756 -100% - 56,672 -100%
Other 23,510 25,116 -6% 105,616 75,441 +40%
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$ 241,059 $ 230,269 +5% $ 979,045 $ 778,556 +26%
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Key components of the increase in sales: increasing gross sales at Las Cruces, no sales at Troilus
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three months
ended Year ended
(millions) December 31 December 31
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Higher (lower) copper prices,
denominated in Canadian dollars $ (27) $ 36
Lower zinc prices, denominated in
Canadian dollars (7) (7)
Higher (lower) other metal prices (1) 16
2010 gross sales from Troilus (2) (74)
Higher sales volumes at Las Cruces 46 205
Higher sales volumes at our other
operations 2 25
Other - (1)
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Higher gross sales, compared to 2010 $ 11 $ 200
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We record sales that settle during the reporting period using the metal price on the day they settle. For sales that have not settled, we use an estimate based on the month we expect the sale to settle and the forward price of the metal at the end of the reporting period. We recognize the difference between our estimate and the final price by adjusting our gross sales in the period when we settle the sale (finalization adjustment).
This quarter, we recorded $4 million in positive finalization adjustments from third quarter sales.
At the end of this quarter, the following sales had not been settled:
-- 21 million pounds of copper provisionally priced at US $3.45 per pound
-- 10 million pounds of zinc provisionally priced at US $0.83 per pound.
The finalization adjustment we record for these sales will depend on the actual price we receive when they settle, which can be up to five months from the time we initially record the sales. We expect these sales to settle in the following months:
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(millions of pounds) copper zinc
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January 2012 11 10
February 2012 4 -
March 2012 6 -
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Unsettled sales at December 31, 2011 21 10
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Significantly higher copper and pyrite sales volumes, no gold sales volumes this year
Our sales volumes are directly affected by the amount of production from our mines and our ability to ship to our customers.
-- Copper production was significantly higher mainly from Las Cruces.
Additionally in late 2010, we acquired the 30 percent non-controlling
interest in Las Cruces to increase our ownership to 100 percent. This
quarter, timing of shipments resulted in copper sales volumes lagging
production volumes by a combined 3,000 tonnes at Cayeli and Las Cruces.
-- Zinc production was lower this quarter than in 2010 due to lower zinc
grades at Cayeli and Pyhasalmi, and in line with 2010 production levels
this year.
-- We did not produce any gold this year as Troilus ceased production in
2010.
-- Pyhasalmi's pyrite sales volumes were higher than in 2010 because of
increased customer demand in Europe and China.
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three months ended Year ended
December 31 December 31
Sales volumes 2011 2010(1) change 2011 2010(1) change
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Copper contained in
concentrate 10,300 9,200 +12% 41,200 43,300 -5%
Copper cathode
(tonnes) 12,800 5,500 +133% 42,000 19,100 +120%
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Total copper (tonnes) 23,100 14,700 +57% 83,200 62,400 +33%
Zinc (tonnes) 17,300 21,000 -18% 84,400 80,700 +5%
Gold (ounces) - 1,300 -100% - 47,300 -100%
Pyrite (tonnes) 175,900 178,200 -1% 809,200 573,300 +41%
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Production
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three months ended
December 31 Year ended December 31 objective
Inmet's
share(2) 2011 2010(1) Change 2011 2010(1) change 2012
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Copper
(tonnes)
27,000 -
Cayeli 8,600 6,700 +28% 28,700 28,200 +2% 30,000
61,700 -
Las Cruces 14,100 6,900 +104% 42,100 20,600 +104% 68,600
11,300 -
Pyhasalmi 3,500 3,900 -10% 14,000 14,700 -5% 12,600
Troilus - - - - 2,000 -100% -
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100,000 -
26,200 17,500 +50% 84,800 65,500 +29% 111,200
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Zinc (tonnes)
36,000 -
Cayeli 11,300 13,100 -14% 48,100 51,300 -6% 39,800
22,800 -
Pyhasalmi 6,600 8,200 -20% 32,300 30,100 +7% 25,200
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58,800 -
17,900 21,300 -16% 80,400 81,400 -1% 65,000
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Gold (ounces)
Troilus - - - - 37,900 -100% -
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Pyrite
(tonnes)
Pyhasalmi 210,500 186,800 +13% 804,900 584,100 +38% 800,000
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(1) 2010 volumes exclude Ok Tedi.
(2) Inmet's share: 100 percent for Cayeli, Pyhasalmi and Troilus. Our share
of Las Cruces was 70 percent until December 15, 2010 and 100 percent
after that.
2012 outlook for sales
We use our production objectives to estimate our sales target.
We expect copper production in 2012 to be significantly higher than 2011 as Las Cruces operates more consistently towards its nameplate capacity of 72,000 tonnes of copper cathode per year. Pyhasalmi expects its copper production to decrease in 2012 as fewer higher grade stopes are available in the short-term mining sequence.
We expect zinc sales volumes to decrease in 2012 as a result of lower zinc production from Cayeli and Pyhasalmi as they each move towards their average reserve grade of 4.3 percent and 2.1 percent, respectively.
Our Canadian dollar sales revenues are affected by the US dollar denominated metal price we receive and the exchange rate between the US dollar and Canadian dollar.
According to international research, global copper supply should grow modestly in 2012. New production should be mostly offset by declining production at large existing copper mines and could possibly also be impacted by labour disruptions. Continued strong demand is expected in China, with increasing economic recovery in the United States, and continued interest from investors. Increasing demand, combined with tighter supply, should translate into historically elevated copper prices during 2012.
For zinc, modest increases in both market supply and demand are expected, with a decreasing market surplus compared to 2011, which should continue to support prices in 2012 at levels consistent with those of 2011.
Lower smelter processing charges this year
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three months ended Year ended
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(thousands) 2011 2010 change 2011 2010 change
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Smelter
processing
charges and
freight by
operation
Cayeli $ 14,845 $ 16,899 -12% $ 71,704 $ 75,268 -5%
Las Cruces 363 271 +34% 1,227 298 +312%
Pyhasalmi 13,020 18,563 -30% 57,795 58,372 -1%
Other
(Troilus) - - - - 4,526 -100%
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$ 28,228 $ 35,733 -21% $ 130,726 $ 138,464 -6%
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Smelter
processing
charges and
freight by
metal
Copper $ 11,351 $ 9,799 +16% $ 43,761 $ 43,806 -
Zinc 11,618 18,560 -37% 65,587 70,709 -7%
Other 5,259 7,374 -29% 21,378 23,949 -11%
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$ 28,228 $ 35,733 -21% $ 130,726 $ 138,464 -6%
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Smelter
processing
charges by
type, and
freight
Copper
treatment and
refining
charges $ 3,803 $ 2,695 +41% $ 14,884 $ 14,855 -
Zinc treatment
charges 6,401 10,047 -36% 35,498 39,999 -11%
Copper price
participation 430 547 -21% 1,592 1,800 -12%
Zinc price
participation (670) (41) +1,534% (1,934) (1,987) -3%
Content losses 9,228 11,992 -23% 43,823 45,109 -3%
Freight 8,724 10,234 -15% 35,612 37,240 -4%
Other 312 259 +20% 1,251 1,448 -14%
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$ 28,228 $ 35,733 -21% $ 130,726 $ 138,464 -6%
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2012 outlook for smelter processing charges and freight
We expect our costs for copper treatment and refining to be slightly higher in 2012 than in 2011. A tight concentrate supply is expected to keep the copper market in a deficit position in 2012 and treatment costs close to this year's level. We do not expect to pay copper price participation.
We expect total zinc smelter processing charges, including price participation, to be lower than in 2011 and a continued deficit to exist in the zinc concentrate market.
Las Cruces sells its copper cathode production directly to buyers in the Spanish and Mediterranean markets and therefore does not incur smelting processing charges and has relatively low freight costs.
We expect our ocean freight costs to be similar to rates realized in 2011.
Higher direct production costs and cost of sales
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(thousands) 2011 2010 change 2011 2010 change
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Direct
production
costs by
operation
Cayeli $ 24,779 $ 25,584 -3% $ 96,299 $ 90,927 +6%
Las Cruces 39,039 35,769 +9% 147,636 66,702 +121%
Pyhasalmi 14,638 14,534 +1% 58,578 54,590 +7%
Other
(Troilus) - - - - 23,905 -100%
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Total direct
production
costs 78,456 75,887 +3% 302,513 236,124 +28%
Inventory
changes (7,003) (12,719) -45% (666) (6,426) -90%
Charges for mine
rehabilitation
and other non-
cash charges 21,685 19,799 +10% 25,229 24,161 +4%
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Total cost of
sales
(excluding
depreciation) $ 93,138 $ 82,967 +12% $ 327,076 $ 253,859 +29%
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Direct production costs
Direct production costs were $67 million (or 28 percent) higher in 2011 than they were in 2010 mainly because we began recognizing operating results at Las Cruces in our consolidated income statement effective July 1, 2010, somewhat offset by the closure of Troilus in mid-2010.
Inventory changes
Copper inventories at Cayeli and Las Cruces increased this quarter end and at the end of the fourth quarter of 2010 because of timing of shipments.
Charges for mine rehabilitation and other non-cash charges
These charges include accruals for asset retirement obligations, provisions for severance and retirement and other non-cash expenses. We recorded an additional $17 million this quarter, and for the year, for post-closure liabilities at our closed properties primarily as a result of a decrease in the discount rates we applied in determining the liabilities. Under IFRS, we are required to revalue our asset retirement obligations for changes in market risk-free interest rates - this discount rate decrease reflects the significantly reduced current interest rate environment and resulted in a charge of $12 million. See note 3 to our interim consolidated financial statements for more detail on how we recognize our asset retirement obligations. Additionally, we recognized a $5 million increase in our estimated closure obligations at Troilus for on-going treatment of tailings effluent for suspended solids and associated labour costs. In 2010, we recorded increased asset retirement obligations of $16 million: $10 million for closure liabilities at Troilus to reflect the longer time we expect will be required for post-closure monitoring, as well as higher owner and other costs, and $6 million from a decrease in the discount rates we applied.
2012 outlook for cost of sales (excluding depreciation)
We expect consolidated direct production costs to be higher in 2012 because higher production at Las Cruces will increase total variable costs, primarily electricity and royalties.
Our budget for 2012 assumes our costs at Cayeli and Pyhasalmi will be similar to 2011.
Certain variable costs may continue to affect our earnings, depending on metal prices:
-- royalties at Cayeli are affected by its net income
-- royalties at Las Cruces are affected by its net sales.
The total amount we spend in Canadian dollars will also be affected by the value of the US dollar and euro relative to the Canadian dollar.
Additionally, changes in market risk-free interest rates could significantly increase or decrease our costs related to mine rehabilitation at our closed properties.
Higher depreciation
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31
(thousands) 2011 2010 change 2011 2010 change
----------------------------------------------------------------------------
Depreciation by
operation
Cayeli $ 5,568 $ 4,145 +34% $ 22,037 $ 20,577 +7%
Las Cruces 19,757 12,516 +58% 77,392 23,068 +235%
Pyhasalmi 2,391 2,193 +9% 9,297 8,281 +12%
Other (Troilus) - 28 -100% - 4,062 -100%
----------------------------------------------------------------------------
$ 27,716 $ 18,882 +47% $ 108,726 $ 55,988 +94%
----------------------------------------------------------------------------
Depreciation was higher this year mainly because Las Cruces only began to depreciate its operating assets in our consolidated income statement on July 1, 2010 and because this operation's production was higher for 2011 than 2010. There was no depreciation at Troilus in 2011 because it stopped operating in mid-2010.
2012 outlook for depreciation
We expect depreciation to be higher in 2012 because of higher production volumes at Las Cruces.
Corporate costs
Corporate costs include corporate development and exploration, general and administration costs, interest and other income, stand-by costs and taxes.
Spending on corporate development and exploration
Corporate development and exploration costs were approximately $16 million higher than 2010. In early 2011, we incurred approximately $6 million of expenses related to the arrangement agreement to merge with Lundin Mining Corporation. We mutually agreed to terminate our arrangement agreement on March 29, 2011. All of the costs incurred in connection with the proposed merger were expensed and classified as corporate development and exploration in the consolidated statement of earnings. Increased costs compared to 2010 also reflect our higher budget for 2011 to explore for world class deposits.
2012 outlook for corporate development and exploration
We expect to spend more on exploration in 2012, focusing on Mexico, Chile and Peru, where we have established field offices, and on Cobre Panama to drill more exploration targets on the concession there. We will also continue exploring in areas around our existing operations.
General and administration
General and administration costs are largely for management remuneration, governance and strategy. Costs in 2011 were $14 million higher than 2010 ($3 million in the fourth quarter) mainly because of increased human resources and other spending as we plan our move forward with Cobre Panama, and the impact of share-based compensation plans adopted this year.
2012 outlook for general and administration
We expect general and administration costs to be higher than 2011 as we expect to continue to increase our human resources as we plan our move forward with Cobre Panama.
Investment and other income
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31
(thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Interest income $ 4,821 $ 2,887 $ 16,627 $ 8,234
Foreign exchange gain (loss) (8,601) (1,464) 10,789 (968)
Dividend and royalty income 1,508 634 3,041 3,173
Gain on sale of investment in
Premier Gold Mines Ltd. - 50,505 - 50,505
Other (1,739) (1,940) 268 (2,600)
----------------------------------------------------------------------------
$ (4,011) $ 50,622 $ 30,725 $ 58,344
----------------------------------------------------------------------------
Interest income
We recognized higher interest income this year because of higher yields on our held to maturity bond portfolio and because of higher cash balances this year.
Gain on sale of investment in Premier Gold Mines Ltd (Premier Gold) - 2010
We sold 9.45 million common shares of Premier Gold Mines Ltd. in 2010 for $61 million in cash and recognized a gain of $51 million.
Foreign exchange gain (loss)
We have a foreign exchange gain or loss when we revalue certain foreign denominated assets and liabilities.
Our foreign exchange gains (losses) were from:
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31
(thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Translation of US dollar cash
and held-to-maturity
investments held at corporate $ (9,029) $ (72) $ 3,338 $ (47)
Translation of Turkish lira
taxes payable at Cayeli (287) (1,131) 4,027 (672)
Translation of other monetary
assets and liabilities 715 (228) 3,424 (249)
----------------------------------------------------------------------------
$ (8,601) $ (1,431) $ 10,789 $ (968)
----------------------------------------------------------------------------
We continue to hold the proceeds from the sale of our equity interest in Ok Tedi in US dollars and plan to use this money to fund our US dollar denominated capital program at Cobre Panama. We have recognized total foreign exchange gains of $3 million this year on these funds because the US dollar appreciated relative to the Canadian dollar. We recognized a foreign exchange loss of $9 million on these funds in the fourth quarter of 2011 as the US dollar depreciated relative to the Canadian dollar. Cayeli's income taxes are denominated in Turkish lira. This operation recognized a foreign exchange gain of $4 million this year from the revaluation of its taxes payable due to the appreciation of the US dollar (Cayeli's functional currency) relative to the Turkish lira.
2012 outlook for investment and other income
Investment and other income is affected by cash and held to maturity investment balances, and by interest rates and exchange rates. At December 31, 2011, we held US $276 million in cash and held to maturity investments subject to translation in our Canadian accounts. At the end of January 2012, we converted EUR150 million to US $200 million in one of our euro functional currency companies. This US $200 million will also be subject to translation, but in our euro accounts.
Stand-by costs
In the first quarter of 2010, we could not mine ore at Las Cruces because of water levels in the pit. We expensed $7 million in operating and maintenance costs for the water purification plant because they did not relate to production activities.
Income tax expense
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31
(thousands) 2011 2010 change 2011 2010 change
----------------------------------------------------------------------------
Cayeli $ 9,754 $ 12,863 $ 52,620 $ 35,885
Las Cruces 8,362 (20) 23,536 (4,094)
Pyhasalmi 6,830 12,213 31,719 28,996
Corporate and
other (1,717) 6,904 (2,452) 8,300
----------------------------------------------------------------------------
$ 23,229 $ 31,960 $ 105,423 $ 69,087
----------------------------------------------------------------------------
Consolidated
effective tax
rate 33% 25% +8% 28% 21% +7%
----------------------------------------------------------------------------
Our tax expense changes as our earnings change.
The consolidated effective tax rate is higher year to date compared to last year, mainly because in 2010 Las Cruces recognized a tax recovery on a foreign exchange loss from its intercompany US dollar denominated debt. The foreign exchange eliminates on consolidation, but the tax recovery does not since there is no corresponding tax expense on the foreign exchange gain. Additionally, taxes at Cayeli were higher this year as it recognized a tax expense on a foreign exchange gain from its US dollar denominated cash (Cayeli's income taxes are denominated in Turkish lira). Corporate and other taxes were lower this year as there were no mining duties payable after the closure of Troilus in 2010.
2012 outlook for income tax expense
For Pyhasalmi, the statutory rate should decrease from 26 percent to 24.5 percent based on changes to enacted rates in Finland. We expect all other statutory tax rates at our operations in 2012 to remain the same as they were in 2011, unless a statutory tax rate change is enacted.
Discontinued operation
We sold our 18 percent equity interest in Ok Tedi in January 2011, and have reported our results relating to Ok Tedi as discontinued operations retroactively. After-tax income of $83 million in 2011 includes net earnings of $17 million in January, before the sale, and a gain on sale of $66 million net of withholding taxes. We paid Papua New Guinea withholding taxes of $28 million on the sale. We did not pay any Canadian taxes, and we have reduced our tax-effected Canadian tax loss pools by about $3 million.
Results of our operations
2012 estimates
Our financial review by operation includes estimates for our 2012 operating earnings and operating cash flows. We have based these estimates on our 2012 objectives for production (using the midpoints in our production volume ranges) and cost per tonne of ore milled, as well as the following assumptions for the year:
----------------------------------------------------------------------------
Copper price US $3.80 per pound
Zinc price US $0.95 per pound
US $ to C$ exchange rate $1.00
euro to C$ exchange rate $1.30
Working capital Assume no changes for the year
----------------------------------------------------------------------------
Cayeli
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31
2011 2010 change 2011 2010 change
----------------------------------------------------------------------------
Tonnes of ore milled
(000's) 316 288 +10% 1,195 1,147 +4%
Tonnes of ore milled
per day 3,400 3,100 +10% 3,300 3,150 +4%
----------------------------------------------------------------------------
Grades (percent)
copper 3.5 3.2 +9% 3.2 3.2 -
zinc 5.3 6.5 -18% 6.0 6.3 -5%
----------------------------------------------------------------------------
Mill recoveries
(percent)
copper 79 73 +8% 75 76 -1%
zinc 67 70 -4% 68 71 -4%
----------------------------------------------------------------------------
Production (tonnes)
copper 8,600 6,700 28% 28,700 28,200 +2%
zinc 11,300 13,100 -14% 48,100 51,300 -6%
----------------------------------------------------------------------------
Cost per tonne of
ore milled (C$) $ 79 $ 89 -11% $ 81 $ 79 +3%
----------------------------------------------------------------------------
Record throughput achieved this year
Cayeli's mine production reached a record 1.2 million tonnes this year and set new records for weekly tonnage of 30,160 tonnes and monthly tonnage of 108,100 tonnes. This increase in performance is the result of improved mine planning processes, the implementation of a mine control system, and additional rehabilitation resources. Cayeli's ground conditions require constant monitoring and reinforcement, including the need to minimize any underground void area. The underground void volume was reduced to an all-time low during the year.
Mill production this year also reached a record 1.2 million tonnes despite difficult metallurgy from milling five different ore types with some ore types containing bornite minerals. Bornite activates zinc leading to its inclusion in Cayeli's copper concentrate rather than reporting to the zinc concentrate. This reduced the overall metallurgical recoveries for both copper and zinc this year. Copper grades this year were in line with our target and with last year. Copper production was therefore slightly below our expectations. Zinc production was essentially on target because higher grades offset the impact of lower recoveries.
Cost per tonne of ore milled was higher than 2010 mainly because consumables, ground control and royalty costs were higher, somewhat offset by the impact of the depreciation of the Turkish lira relative to the US dollar on Turkish lira costs.
2012 outlook for production
In 2012, production levels should remain at approximately 1.2 million tonnes. As the ore pass project progresses, the mine will rely on two rather than three ore passes for much of 2012, reducing flexibility and increasing ore mixing. This will be mitigated by the introduction of a new mining block in 2012 in close proximity to one of the functioning ore passes.
Both copper and zinc recoveries should remain near 2011 levels in 2012, reflecting the ongoing metallurgical challenges presented by the higher percentages of bornite containing ores and the decreasing zinc grade.
We expect to produce between 27,000 tonnes and 30,000 tonnes of copper and between 36,000 and 39,800 tonnes of zinc. Zinc production at Cayeli from 2008 to 2011 benefitted from grades well above the average reserve grade of 4.3 percent. In 2012, lower zinc grades expected account for the anticipated decline in zinc production.
Financial review
Higher copper sales volumes offset by lower realized metal prices this quarter
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31 objective
(millions of Canadian
dollars unless
otherwise stated) 2011 2010 2011 2010 2012
----------------------------------------------------------------------------
Sales analysis
Copper sales (tonnes) 6,900 4,800 27,500 26,300 28,500
Zinc sales (tonnes) 9,900 12,700 50,000 51,200 37,900
------------------------------------------------------
Gross copper sales $ 54 $ 45 $ 221 $ 205 $ 239
Gross zinc sales 20 29 105 109 79
Other metal sales 6 6 28 20 17
------------------------------------------------------
Gross sales 80 80 354 334 335
Smelter processing
charges and freight (15) (17) (72) (75) (65)
----------------------------------------------------------------------------
Net sales $ 65 $ 63 $ 282 $ 259 $ 270
----------------------------------------------------------------------------
Cost analysis
Tonnes of ore milled
(thousands) 316 288 1,195 1,147 1,200
Direct production
costs ($ per tonne) $ 79 $ 89 $ 81 $ 79 $ 80
----------------------------------------------------------------------------
Direct production
costs $ 25 $ 26 $ 96 $ 91 $ 96
Change in inventory (3) (4) (1) (4) -
Depreciation and other
non-cash costs 7 4 27 23 32
----------------------------------------------------------------------------
Operating costs $ 29 $ 26 $ 122 $ 110 $ 128
----------------------------------------------------------------------------
Operating earnings $ 36 $ 37 $ 160 $ 149 $ 142
----------------------------------------------------------------------------
Operating cash flow $ 8 $ 42 $ 157 $ 116 $ 130
----------------------------------------------------------------------------
The objective for 2012 uses the assumptions listed on page 15.
The table below shows what contributed to the change in operating earnings and operating cash flow between 2011 and 2010.
----------------------------------------------------------------------------
three months
ended Year ended
(millions) December 31 December 31
----------------------------------------------------------------------------
Higher (lower) copper prices,
denominated in Canadian dollars $ (10) $ 7
Lower zinc prices, denominated in
Canadian dollars (3) (1)
Higher (lower) other metal prices,
denominated in Canadian dollars (1) 7
Higher copper sales volumes 18 6
Lower zinc sales volumes (4) (3)
Lower smelter processing charges and
freight - 4
Foreign exchange - decreased production
costs 2 9
Higher production costs denominated in
local currencies (1) (14)
Other (2) (4)
----------------------------------------------------------------------------
Higher (lower) operating earnings,
compared to 2010 (1) 11
Change in tax expense because of change
in taxable income 7 (10)
Changes in working capital (see note 20
on page 74) (42) 36
Other 2 4
----------------------------------------------------------------------------
Higher (lower) operating cash flow,
compared to 2010 $ (34) $ 41
----------------------------------------------------------------------------
Capital spending
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31 objective
(thousands) 2011 2010 change 2011 2010 change 2012
----------------------------------------------------------------------------
Capital spending $ 3,500 $ 6,700 -48% $13,100 $14,900 -12% $ 20,000
----------------------------------------------------------------------------
We spent $13 million this year to engineer a pair of new ore pass upgrades, add to the underground mobile equipment fleet, install copper concentrate column flotation cells, install a conveyor dust collection system in the mill, add surface storm water runoff capacity, and to continue our mine development. In 2010, we spent $15 million to upgrade underground mobile equipment, remediate the head frame, and install a new double deck screen for the crusher and mine development.
2012 outlook for capital spending
We expect to spend $20 million on capital in 2012, including $7 million to upgrade our ore pass system to addresses deterioration that has accumulated over time from normal abrasion, and to extend the shotcrete slickline and replace certain mobile equipment.
Las Cruces
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31
(100 percent) 2011 2010 change 2011 2010 change
----------------------------------------------------------------------------
Tonnes of ore
processed (000's) 231 164 +41% 776 495 +57%
----------------------------------------------------------------------------
Copper grades
(percent) 6.9 6.4 +8% 6.5 7.0 -7%
----------------------------------------------------------------------------
Plant recoveries
(percent) 86 86 - 84 83 +1%
----------------------------------------------------------------------------
Cathode copper
production (tonnes) 14,100 9,000 +57% 42,100 28,500 +48%
----------------------------------------------------------------------------
Cost per pound of
cathode produced
(C$)(1) $ 1.25 $ 1.80 -31% $ 1.59 $ 1.74 -9%
----------------------------------------------------------------------------
(1) Subsequent to July 1, 2010
Improved plant performance
Las Cruces production in 2011 was significantly higher than 2010, increasing to 42,100 tonnes of copper cathode from 28,500 tonnes. In the fourth quarter of 2011, Las Cruces produced 14,100 tonnes, and finished the year with monthly production above 5,000 tonnes. In the last two weeks of 2011, we sustained recoveries above 88 percent at increased throughput levels and cathode production approached design capacity.
Plant reliability and process stability continued to improve throughout the year while copper recoveries increased. In the area of process stability, the largest gains were from improvements to the grinding thickener and oxygen distribution within the leach reactors. Plant reliability has been enhanced by the addition of surge capacity with the leach feed tank and the leach residue tank ahead of the leach filters. Better control of the precipitated solids and redundant pipelines has greatly reduced the downtime experienced previously to clean key components. Rebuilding of the grinding thickener in June was successful in allowing us to reach the designed density for feeding the leach circuit and controlling the leach chemistry. During the year we progressively improved oxygen distributors in the leach reactors and now have a design that allows effective use of the oxygen in the reaction. We completed our program to change all 8 leach reactor agitators to fully stainless steel components and agitator wear has been well controlled.
Our water purification and drainage and reinjection well systems performed well this year. We have completed and commissioned all phases of the water purification plant, which has increased our treatment capacity. The addition of new dewatering wells has further reduced pit inflows over the course of the year and at year end, pit and pond water levels were well controlled.
Notwithstanding the significant improvements achieved this year, production fell short of our target of 50,200 tonnes of copper cathode.
Cost per pound of cathode produced this quarter was significantly lower than earlier in the year and in the same quarter of 2010, as higher production translated into a lower unit cost.
2012 outlook for production
For 2012, we expect throughput and recoveries to stabilize at the high levels we achieved towards the end of 2011. We have set our production objective as a range of 61,700 to 68,600 tonnes copper cathode, or approximately 90 percent of design capacity. No major construction projects are planned for the year. Routine maintenance is planned for mill relining, solids management and thickener inspection. Additional strengthening of the grinding thickener will take place during our planned shutdown activities to add security to this critical equipment. In total, we expect a minimum of 90 percent operating time throughout 2012.
Las Cruces' unit operating costs should continue to decrease as production volumes increase.
Financial review
Higher operating earnings and operating cash flow this year as Las Cruces ramps up
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31 objective
(millions of Canadian
dollars unless
otherwise stated) 2011 2010 2011 2010(1) 2012
----------------------------------------------------------------------------
Sales analysis
Copper sales (tonnes) 12,800 7,600 42,000 15,600 65,200
-------------------------------------------------------
Gross copper sales $ 101 $ 67 $ 357 $ 129 $ 551
Smelter processing
charges and freight - - (1) - (3)
----------------------------------------------------------------------------
Net sales $ 101 $ 67 $ 356 $ 129 $ 548
----------------------------------------------------------------------------
Cost analysis
Pounds of copper
produced (millions) 31 20 93 38 144
Direct production
costs ($ per pound) $ 1.25 $ 1.80 $ 1.59 1.74 $ 1.14
----------------------------------------------------------------------------
Direct production
costs $ 39 36 $ 148 $ 67 $ 164
Change in inventory (3) (10) 1 (11) -
Depreciation and
other non-cash costs 23 17 81 28 92
----------------------------------------------------------------------------
Operating costs $ 59 $ 43 $ 230 $ 84 $ 256
----------------------------------------------------------------------------
Operating earnings $ 42 $ 24 $ 126 $ 45 $ 292
----------------------------------------------------------------------------
Operating cash flow $ 46 $ 34 $ 195 $ 59 $ 385
----------------------------------------------------------------------------
(1) Subsequent to July 1, 2010 and at 100 percent
The objective for 2012 uses the assumptions listed on page 15.
The table below shows what contributed to the change in operating earnings and operating cash flow between 2011 and 2010.
----------------------------------------------------------------------------
three months
ended Year ended
(millions) December 31 December 31
----------------------------------------------------------------------------
Higher (lower) copper prices,
denominated in Canadian dollars $ (12) $ 23
Higher copper sales volumes due to
higher production 39 193
Higher smelter processing charges and
freights - (1)
Higher operating costs due to higher
production (3) (80)
Higher depreciation (6) (54)
----------------------------------------------------------------------------
Higher operating earnings, compared to
2010 18 81
Changes in working capital (see note 20
on page 74) (15) (9)
Change in depreciation 6 54
Standby charges in 2010 - 7
Other 3 3
----------------------------------------------------------------------------
Higher operating cash flow, compared to
2010 $ 12 $ 136
----------------------------------------------------------------------------
Capital spending
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31 objective
(100 percent and
millions of Canadian
dollars) 2011 2010 change 2011 2010 change 2012
----------------------------------------------------------------------------
Capital $ 10 $ 28 -64% $ 54 $ 80 -33% $ 48
Pre-operating costs
capitalized, net of
sales, working
capital and other - 4 -100% - (56) -100% -
----------------------------------------------------------------------------
$ 10 $ 32 -69% $ 54 $ 24 +125% $ 48
----------------------------------------------------------------------------
Capital spending in 2011 and 2010 was mainly for plant improvements, the permanent water purification plant and mine development.
2012 outlook for capital spending
We expect to spend $48 million on capital projects in 2012. The largest expenditures will come in the areas of mine development, tailings facility expansion and land purchase.
Pyhasalmi
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31
2011 2010 change 2011 2010 change
----------------------------------------------------------------------------
Tonnes of ore milled
(000's) 348 350 -1% 1,386 1,401 -1%
Tonnes of ore milled
per day 3,800 3,800 - 3,800 3,800 -1%
----------------------------------------------------------------------------
Grades (percent)
copper 1.1 1.2 -8% 1.1 1.1 -
zinc 2.1 2.6 -19% 2.6 2.4 +8%
sulphur 43 43 - 42 43 -2%
----------------------------------------------------------------------------
Mill recoveries
(percent)
copper 95 96 -1% 96 96 -
zinc 90 89 +1% 91 90 +1%
----------------------------------------------------------------------------
Production (tonnes)
copper 3,500 3,900 -10% 14,000 14,700 -5%
zinc 6,600 8,200 -20% 32,300 30,100 +7%
pyrite 210,500 186,800 +13% 804,900 584,100 +38%
----------------------------------------------------------------------------
Cost per tonne of
ore milled (C$) $ 42 $ 42 - $ 42 $ 39 +8%
----------------------------------------------------------------------------
Record pyrite production and sales
Pyhasalmi maintained its strong performance in 2011, processing 1.4 million tonnes of ore through the mill and achieving copper recoveries of 96 percent and zinc recoveries of 91 percent. Backfill supply was reliable and the underground open void volume was maintained at planned levels.
Copper production in 2011 was higher than target and lower than 2010 because of variations in copper grades. Zinc grades were significantly higher than last year, pushing zinc production higher. A record 805,000 tonnes of pyrite concentrate was produced this year to meet higher customer demand.
Operating costs have been higher this year mostly because of increased ground support and consumables costs, and due to the incremental costs associated with producing more pyrite.
2012 outlook for production
Pyhasalmi expects to mine 1.4 million tonnes of approximately 1 percent copper and 2 percent zinc in 2012, and produce between 11,300 tonnes and 12,600 tonnes of copper and 22,800 tonnes and 25,200 tonnes of zinc. Copper and zinc production should be lower than 2011 as fewer higher grade stopes are available in the short-term mining sequence. Both copper and zinc grades should recover after 2012.
Pyhasalmi expects to produce and sell 800,000 tonnes of pyrite in 2012.
Financial review
Higher earnings this year because of significantly higher pyrite sales volumes
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31 objective
(millions of Canadian
dollars unless
otherwise stated) 2011 2010 2011 2010 2012
----------------------------------------------------------------------------
Sales analysis
Copper sales (tonnes) 3,400 4,500 13,700 14,800 11,900
Zinc sales (tonnes) 7,400 8,300 34,400 29,500 24,000
Pyrite sales (tonnes) 175,900 178,200 809,200 573,300 800,000
-------------------------------------------------------
Gross copper sales $ 28 $ 42 $ 118 $ 121 $ 100
Gross zinc sales 15 21 72 67 50
Other metal sales 17 19 78 54 60
-------------------------------------------------------
Gross sales 60 82 268 242 210
Smelter processing
charges and freight (13) (19) (58) (58) (41)
----------------------------------------------------------------------------
Net sales 47 $ 63 $ 210 $ 184 $ 169
----------------------------------------------------------------------------
Cost analysis
Tonnes of ore milled
(thousands) 348 350 1,386 1,401 1,370
Direct production
costs ($ per tonne) $ 42 $ 42 $ 42 $ 39 $ 43
----------------------------------------------------------------------------
Direct production
costs $ 15 $ 15 $ 59 $ 55 $ 58
Change in inventory (1) 1 (1) - -
Depreciation and
other non-cash costs 2 2 9 9 10
----------------------------------------------------------------------------
Operating costs $ 16 $ 18 $ 67 $ 64 $ 68
----------------------------------------------------------------------------
Operating earnings $ 31 $ 45 $ 143 $ 120 $ 101
----------------------------------------------------------------------------
Operating cash flow $ 24 $ 27 $ 118 $ 80 $ 85
----------------------------------------------------------------------------
The objective for 2012 uses the assumptions listed on page 15.
The table below shows what contributed to the change in operating earnings and operating cash flow between 2011 and 2010.
----------------------------------------------------------------------------
three months
ended Year ended
(millions) December 31 December 31
----------------------------------------------------------------------------
Higher (lower) copper prices,
denominated in Canadian dollars $ (5) $ 6
Lower zinc prices, denominated in
Canadian dollars (4) (6)
Higher other metal prices - 8
Higher (lower) sales volumes (9) 15
Lower smelter processing prices and
freight 4 4
Higher operating costs - (4)
----------------------------------------------------------------------------
Higher (lower) operating earnings,
compared to 2010 (14) 23
Change in tax expense because of change
in earnings 3 (6)
Changes in working capital (see note 20
on page 74) 9 18
Other (1) 3
----------------------------------------------------------------------------
Higher (lower) operating cash flow,
compared to 2010 $ (3) $ 38
----------------------------------------------------------------------------
Capital spending
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31 objective
(thousands) 2011 2010 change 2011 2010 change 2012
----------------------------------------------------------------------------
Capital spending $2,000 $ 700 +186% $7,300 $4,000 +83% $ 10,000
----------------------------------------------------------------------------
2012 outlook for capital spending
Capital spending of $10 million in 2012 will primarily be to replace underground mobile equipment, improve the tailings impoundment area, and upgrade the satellite ore grinding circuit and zinc cleaner cells.
Status of our development project
Cobre Panama
Engineering and infrastructure
Basic engineering progressed this quarter and we expect to conclude and report on basic engineering in the second quarter of 2012.
We made progress with several early works projects in the quarter in preparation for a final notice to proceed with construction, including the start of construction on a pioneer road and other road by-passes, preparation for bridge construction, and initiation of several permits required for additional work.
ESIA approval by ANAM
On December 28, 2011, the Government of Panama, through ANAM, approved the ESIA required for development of Cobre Panama, including the mining operations and related infrastructure, a port facility and a coal-fired power plant. The ESIA describes the existing socio-environmental conditions in the project area, the likely impacts and benefits that will result from the project and the commitments that MPSA will undertake to minimize the impacts and enhance the benefits.
KPMC decision to exercise Cobre Panama option
Our announcement of the approval of the ESIA on January 3, 2012 triggered a seven-day period by which KPMC was required to provide Inmet and MPSA with notice as to its election to acquire a 20 percent interest in MPSA. On January 10, 2012, Inmet and MPSA received formal written notice from KPMC that KPMC elected under its option agreement to acquire a 20 percent interest in MPSA. The option agreement, announced October 28, 2009, requires KPMC to invest approximately US $155 million in exchange for its 20 percent interest in the project. The US $155 million investment represents KPMC's share of historical development costs incurred to the date of the option agreement and its proportionate share of development costs incurred above a cap of US $150 million. We expect the transaction with KPMC to close by the end of February 2012.
Partnership process
We continue to engage with potential new partners in Cobre Panama. Interested parties are engaged at various stages of due diligence under confidentiality agreements.
2012 outlook for development
We plan to:
-- continue to build our privilege to operate through intensive dialogue
with stakeholders at the community, regional and national levels, to
increase their understanding of the project and its benefits to Panama,
and our understanding of their potential concerns
-- continue to improve site access and infrastructure, including the
completion of early works projects that will facilitate contractors'
mobilization for site capture
-- complete additional work on resource definition, metallurgical
recoveries, pit design and other engineering to allow us to include the
Balboa and Brazo mineralization in our mine plan for Cobre Panama
-- complete basic engineering and prepare to initiate site capture upon
receipt of the main permits
-- continue to work with SK Engineering and Construction to complete basic
engineering for the coal-fired power plant and begin detail engineering
and procurement
-- develop a range of financing options including a project level limited
recourse facility, capital market alternatives and potential new
partners
-- update the capital and operating expenditure estimates for the
development project at the conclusion of basic engineering
-- develop and implement, with the assistance of our EP+CM contractors,
project specific Health & Safety and Environmental and Social mitigation
plans that are consistent with the ESIA and Inmet's corporate
responsibility standards
-- continue to grow the strength of our management team and human resources
dedicated to the project.
After basic engineering is completed and we have received the appropriate approvals, site capture, preparation and construction should take approximately 48 months.
We expect to spend $105 million on a 100 percent basis in the first quarter of 2012 to carry out work on the Cobre Panama project up to the point of consideration of a final decision to proceed with construction. Further capital expenditure guidance for 2012 will be provided after a decision is made.
Managing our liquidity
We develop our financing strategy by considering our long-term capital requirements and deciding on the optimal mix of cash, future operating cash flow, credit facilities and project financing.
Our capital structure includes a liquidity cushion that gives us the flexibility to deal with operational disruptions or general market downturns.
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31
(millions) 2011 2010 2011 2010
----------------------------------------------------------------------------
CASH FROM OPERATING ACTIVITIES
Cayeli $ 8 $ 42 $ 157 $ 117
Las Cruces 46 34 195 59
Pyhasalmi 24 27 118 80
Other (Troilus) - - - 44
Corporate development and
exploration not incurred by
operations (5) (4) (21) (9)
General and administration (8) (5) (34) (20)
Settlement of asset retirement
obligations at closed sites (4) (4) (11) (10)
Investment income and other 12 1 1 (6)
----------------------------------------------------------------------------
73 91 405 255
----------------------------------------------------------------------------
CASH FROM INVESTING AND
FINANCING
Purchase of property, plant and
equipment (59) (59) (209) (128)
Purchase and maturing of long-
term investments, net 14 26 (233) (270)
Foreign exchange on cash held in
foreign operations (24) (11) (5) (27)
Issuance of common shares - - 502 -
Acquisition of non-controlling
interest in Las Cruces - (151) - (151)
Sale of Premier Gold Mines Ltd. - 61 - 61
Other (11) 10 (10) 22
----------------------------------------------------------------------------
(80) (124) 45 (493)
----------------------------------------------------------------------------
CASH FROM DISCONTINUED OPERATION
(OK TEDI) - (65) 307 30
----------------------------------------------------------------------------
Increase (decrease) in cash (7) (98) 757 (208)
Cash and short-term investments
Beginning of period 1,090 424 326 534
----------------------------------------------------------------------------
End of period $ 1,083 $ 326 $ 1,083 $ 326
----------------------------------------------------------------------------
Our available liquidity also includes $623 million of held to maturity investments ($373 million at December 31, 2010), providing a total of $1,706 million in cash available to finance our growth strategy as at December 31, 2011 ($699 million at December 31, 2010).
OPERATING ACTIVITIES
Key components of the change in operating cash flows
----------------------------------------------------------------------------
three months
ended Year ended
(millions) December 31 December 31
----------------------------------------------------------------------------
Higher (lower) earnings from operations
(see page 5) $ (1) $ 83
Add back higher depreciation included in
earnings from operations 9 53
Lower (higher) income tax expense
because of change in taxable earnings 12 (7)
Higher corporate development and
administrative costs (4) (30)
Realized foreign exchange loss on cash
held by Inmet corporate - (8)
Standby charges in 2010 at Las Cruces - 7
Changes in working capital (see note 20
on page 74) (46) 38
Other 12 14
----------------------------------------------------------------------------
Higher (lower) operating cash flow,
compared to 2010 $ (18) $ 150
----------------------------------------------------------------------------
Operating cash flows for the fourth quarter were lower than 2010 because working capital was higher mainly due to the timing of tax installment payments.
Operating cash flows this year were higher than 2010 because:
-- our operating earnings before depreciation were higher
-- working capital was lower at year end because metal prices and,
therefore, accounts receivable balances were lower, and from the timing
of payments from customers.
2012 outlook for cash from operating activities
The table below shows expected operating cash flow from our operations, based on our outlook for metal prices and production (see page 15), and on the assumptions in Results of our operations (starting on page 15).
2012 estimated operating cash flow by operation
----------------------------------------------------------------------------
(millions)
----------------------------------------------------------------------------
Cayeli $ 130
Las Cruces 385
Pyhasalmi 85
----------------------------------------------------------------------------
$ 600
----------------------------------------------------------------------------
INVESTING AND FINANCING
Capital spending
----------------------------------------------------------------------------
three months ended Year ended
December 31 December 31 objective
(millions) 2011 2010 2011 2010 2012
----------------------------------------------------------------------------
Cayeli $ 4 $ 7 $ 13 $ 15 $ 20
Las Cruces 10 32 54 24 48
Pyhasalmi 2 1 7 4 10
Cobre Panama 43 19 133 85 105(1)
----------------------------------------------------------------------------
$ 59 $ 59 $ 207 $ 128 $ 183
----------------------------------------------------------------------------
(1) represents expected spending in the first quarter of 2012 to carry out
work up to the point of a final decision to proceed with construction.
Further capital spending guidance will be provided after a decision is
made.
Please see Results of our operations and Status of our development project on page 22 for a discussion of actual results and our 2012 objective. Capital spending this year was mainly for Cobre Panama.
Purchase of long-term investments
In 2011, we used most of the US dollar proceeds from the sale of Ok Tedi to buy US $274 million in US Treasury bonds with AA credit ratings. The bonds mature between March 2012 and January 2016 and have a weighted average annual yield to maturity of 1.2 percent. In 2010, we bought $296 million in medium-term Canadian government and corporate bonds with credit ratings of A to AAA.
Acquisition of non-controlling interest in Las Cruces - 2010
We paid $151 million in cash and 5.4 million Inmet common shares to acquire Leucadia's 30 percent indirect equity interest and subordinated sponsor loans in Las Cruces.
Sale of investment in Premier Gold - 2010
We sold our 9.45 million common shares of Premier Gold for $61.4 million in cash.
Proceeds from issuing common shares
On May 17, 2011, a subsidiary of Temasek Holdings (Private) Ltd. exchanged its subscriptions receipts for 7.78 million Inmet common shares and we received $500 million in cash, plus accrued interest on funds in escrow during the subscription period.
Cash from discontinued operation
In January 2011, we sold our 18 percent equity interest in Ok Tedi for net proceeds of $307 million (after Papua New Guinea withholding taxes).
2012 outlook for investing and financing
Capital spending
We expect capital spending to be $183 million in 2012. The more significant items include:
-- $48 million at Las Cruces, including $22 million for mine development,
as well as several smaller expenditures including a tailings facility
expansion, land purchase and certain plant improvements
-- $105 million on a 100 percent basis at Cobre Panama in the first quarter
of 2012
In January 2012, we received notice from KPMC that it had elected, under its option agreement, to acquire a 20 percent interest in MPSA. This transaction is expected to close by the end of February 2012. At closing, KPMC would be required to invest approximately US $155 million into MPSA, representing KPMC's share of historical development costs incurred to the date of the option agreement and their proportionate share of development costs incurred above a funding cap of US $150 million. After closing, KPMC would continue to fund its 20 percent share of the development costs of Cobre Panama and would enter into an off-take agreement, enabling KPMC to purchase a 20 percent share of MPSA's concentrates production on arm's length market terms, subject to KPMC's arranging for related financing.
Financial condition
Our strategy is to ensure we have sufficient liquidity (including cash and committed credit facilities) to finance our operating requirements as well as our growth projects. At December 31, 2011, we had $1,706 million in total funds, including $1,083 million in cash and short-term investments and $623 million invested in long-term bonds.
Cash
At December 31, 2011, cash and short-term investments of $1,083 million included cash and money market instruments that mature in 90 days or less, and short-term investments that mature in 91 days to a year.
Our policy is to invest excess cash in highly liquid investments of the highest credit quality, and to limit our exposure to individual counterparties to minimize the risk associated with these investments. We base our decisions about the length of maturities on our cash flow requirements, rates of return and other factors.
At December 31, 2011, we held cash and short-term investments in the following:
-- A to AAA rated treasury funds and money market funds managed by leading
international fund managers, who are investing in money market and
short-term debt securities and fixed income securities issued by leading
international financial institutions and their sponsored securitization
vehicles.
-- Cash, term and overnight deposits with leading Canadian and
international financial institutions.
See note 7 on page 67 in the consolidated financial statements for more details about where our cash is invested.
Medium-term bonds
We have created a bond portfolio to provide better yields with no change to our investment risk. As at December 31, 2011, the portfolio was $623 million (Held to maturity investments - note 9):
-- 58 percent US Treasury bonds
-- 4 percent Government of Canada bonds
-- 33 percent Canadian Provincial Government bonds
-- 5 percent corporate bonds.
The bonds mature between January 2012 and August 2016. Although our intention is to hold these investments to maturity, there is a liquid market for them and they are available to us at any time.
Restricted cash
Our restricted cash balance of $73 million as at December 31, 2011 included:
-- $17 million in cash collateralized letters of credit for Inmet
-- $54 million at Las Cruces related to a reclamation bond, issuing letters
of credit to suppliers and the local water authority and for its labour
bond to the government
-- $2 million for future reclamation at Pyhasalmi.
COMMON SHARES
----------------------------------------------------------------------------
Common shares outstanding as of December 31, 2011 and February
9, 2012 69,332,492
----------------------------------------------------------------------------
Deferred share units outstanding as of December 31, 2011
(redeemable on a one-for-one basis for common shares) 121,069
----------------------------------------------------------------------------
Accounting changes
Adoption of International Financial Reporting Standards
The Accounting Standards Board incorporated International Financial Reporting Standards (IFRS) into the Canadian Institute of Chartered Accountants Accounting Handbook effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The first quarter of 2011 was the first presentation of our results under IFRS, with an effective transition date of January 1, 2010.
While the adoption of IFRS did not change our business activities, it has significantly changed our reported financial position. Our key controls over financial reporting did not change as a result of our transition to IFRS. For all changes to policies and procedures that have been identified, the effectiveness of internal controls over financial reporting and disclosure controls and procedures has been assessed and any required changes have been implemented. In addition, controls over the IFRS changeover process have been implemented as necessary.
See note 3 to our interim consolidated financial statements for a complete list of our significant accounting policies followed on adoption of IFRS. See note 6 to the financial statements for a detailed description of our conversion to IFRS, including a line-by-line reconciliation of our financial statements previously prepared under Canadian GAAP to those under IFRS for the three months and year ended December 31, 2010.
The table below reconciles total equity under Canadian GAAP to total equity under IFRS, and illustrates the after-tax effect that each of the most significant adjustments had on equity.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 1, December 31,
Notes 2010 2010
----------------------------------------------------------------------------
Canadian GAAP equity $ 2,238,145 $ 2,758,484
IFRS adjustments:
Reclassification of non-controlling
interest to equity 78,005 -
Revenue recognition i 14,210 30,023
Reversal of impairment of assets -
Cayeli ii 42,395 34,005
Provision for asset retirement
obligations iii (38,349) (41,310)
Acquisition of the non-controlling
interest in Las Cruces iv - (254,056)
Property, plant and equipment
associated with asset retirement
obligations v 8,304 12,175
Other 18,702 15,218
----------------------------------------------------------------------------
IFRS equity $ 2,361,412 $ 2,554,539
----------------------------------------------------------------------------
i) Revenue
Under Canadian GAAP, we recognized revenue when title was legally transferred to the purchaser. For certain shipments at Cayeli, Pyhasalmi and Ok Tedi, we transfer title when we receive the first provisional payment, which is later than the transfer point for risks and rewards of ownership.
Under IFRS, we recognize revenue when all significant risks and rewards of ownership of our products are transferred to the purchaser.
ii) Impairment of assets
Under Canadian GAAP, we used a two-step approach to impairment testing:
-- first comparing asset carrying values with undiscounted future cash
flows to determine whether impairment exists
-- then measuring any impairment by comparing asset carrying values with
fair values (generally assessed using a discounted cash flow valuation
process).
Under IFRS we use a one-step approach to test for and measure impairment, and compare asset carrying values directly with the higher of fair value less costs to sell and value in use (which uses discounted future cash flows). IFRS also requires a full or partial reversal of previous impairment losses when circumstances have changed and the impairments have been reduced. Impairment losses were not reversed under Canadian GAAP.
We increased January 1, 2010 property plant and equipment at Cayeli by approximately $50 million to reverse an impairment charge we recognized for this operation in 1996. The increase results in the IFRS carrying amount we would have calculated, net of depreciation, if we had not recognized the original impairment. This will also result in a higher ongoing depreciation expense for Cayeli, including an increase of $8 million for the year ended December 31, 2010.
iii) Asset retirement obligations
Under Canadian GAAP, we used a credit adjusted risk free interest rate to measure asset retirement obligations and were not required to update the rate when market rates changed.
Under IFRS, we measure asset retirement obligations using a risk free interest rate and revalue when market risk free interest rates change.
iv) Business combinations
Under Canadian GAAP, companies that acquired an additional interest in an entity they already controlled accounted for it as a step acquisition. Under IFRS, acquiring a non-controlling interest is not considered a business combination, and is instead accounted for as an equity transaction.
Under IFRS, we have accounted for our acquisition of the remaining 30 percent interest in Las Cruces in December 2010 as an equity transaction, because we already controlled it. We recognized the difference between the non-controlling interest (as determined under IFRS) and the fair value of the consideration paid in retained earnings.
v) First time adoption of IFRS: property, plant and equipment associated with asset retirement obligations
First time adoption of International Financial Reporting Standards (IFRS 1) provides specific exemptions that we used when we adopted IFRS.
IFRS and Canadian GAAP both require us to recognize a corresponding change in asset retirement obligations in the carrying value of the related property, plant and equipment (where we identify an asset) and depreciate this amount prospectively. The amount under IFRS was different from the amount determined under Canadian GAAP because of the different way asset retirement obligations are measured under IFRS.
We used an optional transitional calculation to determine the property, plant and equipment associated with our provision for asset retirement obligations. Under the transitional calculation, we measured the provision at the transition date and discounted it to the date the liability first arose. The result became the initial asset value. Depreciation was applied to this value. We applied this exemption to certain mines instead of determining property, plant and equipment associated with asset retirement obligations retrospectively.
Supplementary financial information
Pages 31 and 32 include supplementary financial information about cash costs. These measures do not fall into the category of International Financial Reporting Standards.
We use unit cash cost information as a key performance indicator, both on a segmented and consolidated basis. We have included cash costs as supplementary information because we believe our key stakeholders use these measures as a financial indicator of our profitability and cash flows before the effects of capital investment and financing costs, such as interest.
Since cash costs are not recognized financial measures under International Financial Reporting Standards, they should not be considered in isolation of earnings or cash flows. There is also no standard way to calculate cash costs, so they are not a reliable way to compare us to other companies.
About Inmet
Inmet is a Canadian-based global mining company that produces copper, zinc and pyrite. We have three wholly-owned mining operations: Cayeli (Turkey), Las Cruces (Spain) and Pyhasalmi (Finland). We also have a 100 percent interest in Cobre Panama, a development property in Panama.
This press release is also available at www.inmetmining.com.
Fourth quarter conference call
Will be held on
-- Friday, February 10, 2012
-- 8:30 a.m. Eastern Time
-- webcast available at
http://events.digitalmedia.telus.com/inmet/021012/index.php or
www.inmetmining.com
You can also dial in by calling
-- Local or international: +1.416.695.6616
-- Toll-free within North America: +1.800.952.6845
Starting at approximately 10:30 a.m. (ET) Friday, February 10, 2012, a conference call replay will be available
-- Local or international: +1.905.694.9451 passcode 7433427
-- Toll-free within North America: +1.800.408.3053 passcode 7433427
INMET MINING CORPORATION
Supplementary financial information
Cash costs
2011 For the year ended December 31
per pound of copper
-----------------------------------------------
CAYELI LAS CRUCES PYHASALMI TOTAL
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 1.35 $ 1.55 $ 1.93 $ 1.54
Royalties and variable
compensation 0.18 0.07 - 0.10
Smelter processing charges
and freight 1.48 0.01 1.16 0.70
Metal credits (2.41) - (4.02) (1.48)
-----------------------------------------------
Cash cost $ 0.60 $ 1.63 $ (0.93) $ 0.86
-----------------------------------------------
-----------------------------------------------
2010 For the year ended
December 31
per pound of copper
-----------------------------------------------
LAS CRUCES
CAYELI (1) PYHASALMI TOTAL
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 1.28 $ 1.64 $ 1.63 $ 1.46
Royalties and variable
compensation 0.14 0.06 - 0.08
Smelter processing charges
and freight 1.41 0.01 1.11 1.01
Metal credits (2.19) - (3.02) (1.91)
-----------------------------------------------
Cash cost $ 0.64 $ 1.71 $ (0.28) $ 0.64
-----------------------------------------------
-----------------------------------------------
----------------------------------------------------------------------------
Reconciliation of cash costs to statements of earnings
2011 For the year ended
December 31
per pound of copper
-----------------------------------------------
(millions of Canadian
dollars, except where
otherwise noted) CAYELI LAS CRUCES PYHASALMI TOTAL
----------------------------------------------------------------------------
GAAP reference page 17 page 19 page 21
Direct production costs $ 96 $ 148 $ 59 $ 303
Smelter processing charges
and freight 72 1 58 131
By product sales (133) - (150) (283)
Adjust smelter processing and
freight, and sales to
production basis 3 5 8
-----------------------------------------------
Operating costs net of metal
credits $ 38 $ 149 $ (28) $ 159
US$ to C$ exchange rate $ 0.99 $ 0.99 $ 0.99 $ 0.99
Inmet's share of production
(000's) 63,300 92,900 30,800 187,000
-----------------------------------------------
Cash cost (US dollars) $ 0.60 $ 1.63 $ (0.93) $ 0.86
-----------------------------------------------
-----------------------------------------------
2010 For the year ended
December 31
per pound of copper
-----------------------------------------------
(millions of Canadian
dollars, except where LAS CRUCES
otherwise noted) CAYELI (1) PYHASALMI TOTAL
----------------------------------------------------------------------------
GAAP reference page 17 page 19 page 21
Direct production costs $ 91 $ 67 $ 55 $ 213
Smelter processing charges
and freight 75 - 58 133
By product sales (129) - (121) (250)
Adjust smelter processing and
freight, and sales to
production basis 4 - (1) 3
-----------------------------------------------
Operating costs net of metal
credits $ 41 $ 67 $ (9) $ 99
US$ to C$ exchange rate $ 1.03 $ 1.03 $ 1.03 $ 1.03
Inmet's share of production
(000's) 62,100 28,200 32,400 122,700
-----------------------------------------------
Cash cost (US dollars) $ 0.64 $ 1.71 $ (0.28) $ 0.64
-----------------------------------------------
-----------------------------------------------
(1) Las Cruces' results are included from July 1, 2010
INMET MINING CORPORATION
Supplementary financial information
Cash costs
2011 For the three months ended December 31
per pound of copper
-----------------------------------------------
CAYELI LAS CRUCES PYHASALMI TOTAL
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 1.15 $ 1.19 $ 1.86 $ 1.27
Royalties and variable
compensation 0.09 0.05 - 0.06
Smelter processing charges
and freight 1.13 0.01 0.92 0.50
Metal credits (1.71) - (3.36) (1.01)
-----------------------------------------------
Cash cost $ 0.66 $ 1.25 $ (0.58) $ 0.82
-----------------------------------------------
-----------------------------------------------
2010 For the three months ended December 31
per pound of copper
-----------------------------------------------
CAYELI LAS CRUCES PYHASALMI TOTAL
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 1.50 $ 1.75 $ 1.69 $ 1.64
Royalties and variable
compensation 0.22 0.06 - 0.11
Smelter processing charges
and freight 1.61 0.01 1.24 0.89
Metal credits (2.76) - (3.85) (1.90)
-----------------------------------------------
Cash cost $ 0.57 $ 1.82 $ (0.92) $ 0.74
-----------------------------------------------
-----------------------------------------------
----------------------------------------------------------------------------
Reconciliation of cash costs to statements of earnings
2011 For the three months ended December 31
per pound of copper
-----------------------------------------------
(millions of Canadian
dollars, except where
otherwise noted) CAYELI LAS CRUCES PYHASALMI TOTAL
----------------------------------------------------------------------------
GAAP reference page 17 page 19 page 21
Direct production costs $ 25 $ 39 $ 15 $ 79
Smelter processing charges
and freight 15 - 13 28
By product sales (26) - (32) (58)
Adjust smelter processing and
freight, and sales to
production basis (2) - - (2)
-----------------------------------------------
Operating costs net of metal
credits $ 12 $ 39 $ (4) $ 47
US$ to C$ exchange rate $ 1.02 $ 1.02 $ 1.02 $ 1.02
Inmet's share of production
(000's) 19,000 31,100 7,700 57,800
-----------------------------------------------
Cash cost (US dollars) $ 0.66 $ 1.25 $ (0.58) $ 0.82
-----------------------------------------------
-----------------------------------------------
2010 For the three months ended December 31
per pound of copper
-----------------------------------------------
(millions of Canadian
dollars, except where
otherwise note) CAYELI LAS CRUCES PYHASALMI TOTAL
----------------------------------------------------------------------------
GAAP reference page 17 page 19 page 21
Direct production costs $ 26 $ 36 $ 15 $ 77
Smelter processing charges
and freight 17 - 19 36
By product sales (35) - (40) (75)
Adjust smelter processing and
freight, and sales to
production basis 1 - (2) (1)
-----------------------------------------------
Operating costs net of metal
credits $ 9 $ 36 $ (8) $ 37
US$ to C$ exchange rate $ 1.01 $ 1.01 $ 1.01 $ 1.01
Inmet's share of production
(000's) 14,600 15,200 8,500 38,300
-----------------------------------------------
Cash cost (US dollars) $ 0.57 $ 1.82 $ (0.92) $ 0.74
-----------------------------------------------
-----------------------------------------------
INMET MINING CORPORATION
Quarterly review
(unaudited)
Latest Four Quarters
----------------------------------------------------------------------------
2011 2011 2011 2011
(thousands of Canadian dollars, Fourth Third Second First
except per share amounts) quarter quarter quarter quarter
----------------------------------------------------------------------------
STATEMENTS OF EARNINGS
Gross sales $ 241,059 $ 261,757 $ 221,952 $ 254,277
Smelter processing charges and
freight (28,228) (37,043) (33,870) (31,585)
Cost of sales (excluding
depreciation) (93,138) (81,144) (73,644) (79,150)
Depreciation (27,716) (27,321) (26,649) (27,040)
--------------------------------------------
91,977 116,249 87,789 116,502
Corporate development and
exploration (6,541) (4,688) (4,562) (13,411)
General and administration (7,734) (9,987) (8,258) (8,422)
Investment and other income (4,011) 35,778 4,731 (5,773)
Finance costs (2,390) (2,377) (2,386) (2,331)
Income tax expense (23,229) (33,770) (21,264) (27,160)
--------------------------------------------
Income from continuing
operations 48,072 101,205 56,050 59,405
Income from discontinued
operation (net of taxes) - - - 83,439
--------------------------------------------
Net income attributable to Inmet
equity holders $ 48,072 $ 101,205 $ 56,050 $ 142,844
--------------------------------------------
--------------------------------------------
Income from continuing
operations per share
Basic $ 0.69 $ 1.46 $ 0.86 $ 0.97
Diluted $ 0.69 $ 1.46 $ 0.86 $ 0.96
Income from discontinuing
operations per share
Basic $ - $ - $ - $ 1.36
Diluted $ - $ - $ - $ 1.35
Net Income per share
Basic $ 0.69 $ 1.46 $ 0.86 $ 2.33
Diluted $ 0.69 $ 1.46 $ 0.86 $ 2.31
INMET MINING CORPORATION
Quarterly review (continued)
(unaudited)
Previous Four Quarters
----------------------------------------------------------------------------
2010(1) 2010(1) 2010(1) 2010(1)
(thousands of Canadian dollars, Fourth Third Second First
except per share amounts) quarter quarter quarter quarter
----------------------------------------------------------------------------
STATEMENTS OF EARNINGS
Gross sales $ 230,269 $ 225,960 $ 161,165 $ 161,162
Smelter processing charges and
freight (35,733) (34,358) (35,272) (33,101)
Cost of sales (excluding
depreciation) (82,967) (70,503) (48,123) (52,266)
Depreciation (18,882) (19,062) (10,328) (7,716)
--------------------------------------------
--------------------------------------------
92,687 102,037 67,442 68,079
Corporate development and
exploration (5,434) (2,758) (2,524) (2,779)
General and administration (4,758) (3,985) (6,200) (5,421)
Investment and other income 50,622 3,197 3,321 1,204
Stand-by costs - - - (6,753)
Finance costs (4,294) (5,239) (1,770) (1,873)
Income tax expense (31,960) (25,266) (8,775) (3,086)
--------------------------------------------
Income from continuing
operations 96,863 67,986 51,494 49,371
Income from discontinued
operation (net of taxes) 47,993 33,569 12,475 30,718
--------------------------------------------
Net income $ 144,856 $ 101,555 $ 63,969 $ 80,089
--------------------------------------------
Net income attributable to:
Inmet equity holders $ 146,932 $ 91,678 $ 68,495 $ 84,771
Non-controlling interest (2,076) 9,877 (4,526) (4,682)
--------------------------------------------
$ 144,856 $ 101,555 $ 63,969 $ 80,089
--------------------------------------------
Income from continuing
operations per share
Basic $ 1.73 $ 1.04 $ 1.00 $ 0.96
Diluted $ 1.73 $ 1.04 $ 1.00 $ 0.96
Income from discontinuing
operations per share
Basic $ 0.84 $ 0.60 $ 0.22 $ 0.55
Diluted $ 0.84 $ 0.60 $ 0.22 $ 0.55
Net Income per share
Basic $ 2.57 $ 1.64 $ 1.22 $ 1.51
Diluted $ 2.57 $ 1.64 $ 1.22 $ 1.51
(1) Information from 2010 restated in accordance with IFRS, including presentation of our share of Ok Tedi as discontinued operations.
(2) Information from 2009 is presented in accordance with Canadian GAAP and was not required to be restated to IFRS.
Consolidated financial statements
INMET MINING CORPORATION
Consolidated statements of financial position
(unaudited)
(thousands of Canadian Note December 31, December 31, January 1,
dollars) reference 2011 2010(1) 2010(1)
----------------------------------------------------------------------------
Assets
Current assets:
Cash and short term
investments 7 $ 1,082,893 $ 326,425 $ 533,913
Restricted cash 8 810 617 15,130
Accounts receivable 105,213 119,426 155,761
Inventories 90,533 72,154 98,324
Current portion of
held to maturity
investments 9 181,699 53,915 9,993
Assets held for sale 10 - 319,082 -
--------------------------------------------
1,461,148 891,619 813,121
Restricted cash 8 71,822 70,059 101,589
Property, plant and
equipment 1,830,992 1,736,065 1,945,669
Investments in equity
securities 3,161 2,694 42,411
Held to maturity
investments 9 441,775 318,615 89,891
Deferred income tax
assets 327 8,721 2,360
Other assets 1,425 2,335 1,903
--------------------------------------------
Total assets $ 3,810,650 $ 3,030,108 $ 2,996,944
----------------------------------------------------------------------------
Liabilities
Current liabilities:
Accounts payable and
accrued liabilities 11 $ 143,149 $ 136,345 $ 170,524
Provisions 12 13,517 17,668 17,417
Derivatives - - 1,543
Liabilities
associated with
assets held for
sale 10 - 111,896 -
--------------------------------------------
156,666 265,909 189,484
Long-term debt 17,126 16,619 200,026
Provisions 12 175,609 162,399 196,430
Other liabilities 17,719 18,117 20,695
Derivatives - - 3,165
Deferred income tax
liabilities 29,282 12,525 25,732
--------------------------------------------
Total liabilities 396,402 475,569 635,532
--------------------------------------------
Commitments and
contingencies 21
Equity
Share capital 13 1,591,948 1,089,576 669,952
Contributed surplus 66,752 66,131 64,809
Share based
compensation 14 8,527 6,542 5,170
Retained earnings 1,911,805 1,577,507 1,527,109
Accumulated other
comprehensive income
(loss) 15 (164,784) (185,217) 19,093
--------------------------------------------
Total equity
attributable to Inmet
equity holders 3,414,248 2,554,539 2,286,133
Non-controlling
interest - - 75,279
--------------------------------------------
Total equity 3,414,248 2,554,539 2,361,412
--------------------------------------------
Total liabilities and
equity $ 3,810,650 $ 3,030,108 $ 2,996,944
----------------------------------------------------------------------------
(1) Refer to note 6 for effects of adoption of IFRS
(See accompanying notes)
INMET MINING CORPORATION
Segmented statements of financial position
(unaudited)
CORPORATE &
2011 As at December 31 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Assets
Cash and short-term
investments $ 734,794 $ 137,590 $ 136,128 $ 47,623
Other current assets 189,749 46,197 86,683 53,597
Restricted cash 16,842 - 53,364 1,616
Property, plant and equipment 1,236 142,260 897,860 68,274
Investments in equity
securities 3,161 - - -
Held to maturity investments 359,452 82,323 - -
Other non-current assets 1,303 449 - -
-----------------------------------------------
$1,306,537 $ 408,819 $1,174,035 $ 171,110
-----------------------------------------------
Liabilities
Current liabilities $ 22,006 $ 42,822 $ 54,898 $ 16,957
Long-term debt 17,126 - - -
Provisions 71,083 18,023 55,626 30,877
Other liabilities 676 - 17,043 -
Deferred income tax
liabilities - - 17,656 11,626
-----------------------------------------------
$ 110,891 $ 60,845 $ 145,223 $ 59,460
-----------------------------------------------
COBRE DISCONTINUED
2011 As at December 31 PANAMA OPERATIONS - OK TEDI TOTAL
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Panama) (Papua New Guinea)
Assets
Cash and short-term
investments $ 26,758 $ - $1,082,893
Other current assets 2,029 - 378,255
Restricted cash - - 71,822
Property, plant and equipment 721,362 - 1,830,992
Investments in equity
securities - - 3,161
Held to maturity investments - - 441,775
Other non-current assets - - 1,752
-----------------------------------------------
$ 750,149 $ - $3,810,650
-----------------------------------------------
Liabilities
Current liabilities $ 19,983 $ - $ 156,666
Long-term debt - - 17,126
Provisions - - 175,609
Other liabilities - - 17,719
Deferred income tax
liabilities - - 29,282
-----------------------------------------------
$ 19,983 $ - $ 396,402
-----------------------------------------------
CORPORATE LAS
2010 As at December 31 & OTHER CAYELI CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Assets
Cash and short-term
investments $ 53,184 $ 107,750 $ 59,866 $ 97,056
Other current assets 60,785 58,959 59,602 66,193
Restricted cash 16,906 - 51,521 1,632
Property, plant and equipment 779 152,653 941,434 66,984
Investments in equity
securities 2,694 - - -
Held to maturity investments 253,749 64,866 - -
Other non-current assets 952 5,754 4,350 -
-----------------------------------------------
$ 389,049 $ 389,982 $1,116,773 $ 231,865
-----------------------------------------------
Liabilities
Current liabilities $ 30,286 $ 39,654 $ 47,220 $ 28,913
Long-term debt 16,619 - - -
Provisions 57,536 21,607 56,439 26,817
Other liabilities 676 - 17,441 -
Deferred income tax
liabilities 176 - - 12,349
-----------------------------------------------
$ 105,293 $ 61,261 $ 121,100 $ 68,079
-----------------------------------------------
DISCONTINUED
COBRE OPERATIONS -
2010 As at December 31 PANAMA OK TEDI TOTAL
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Panama) (Papua New Guinea)
Assets
Cash and short-term
investments $ 8,569 $ - $ 326,425
Other current assets 686 318,969 565,194
Restricted cash - - 70,059
Property, plant and equipment 574,215 - 1,736,065
Investments in equity
securities - - 2,694
Held to maturity investments - - 318,615
Other non-current assets - - 11,056
-----------------------------------------------
$ 583,470 $ 318,969 $3,030,108
-----------------------------------------------
Liabilities
Current liabilities $ 7,940 $ 111,896 $ 265,909
Long-term debt - - 16,619
Provisions - - 162,399
Other liabilities - - 18,117
Deferred income tax
liabilities - - 12,525
-----------------------------------------------
$ 7,940 $ 111,896 $ 475,569
-----------------------------------------------
INMET MINING CORPORATION
Segmented statements of financial position (continued)
(unaudited)
CORPORATE &
2010 As at January 1 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian dollars) (Turkey) (Spain) (Finland)
Assets
Cash and short-term investments $ 251,570 $ 158,631 $ 10,039 $ 66,314
Other current assets 37,591 40,341 73,501 49,882
Restricted cash 16,492 - 56,878 1,854
Property, plant and equipment 13,508 168,389 1,034,947 72,183
Investments in equity securities 42,411 - - -
Held to maturity investments 89,891 - - -
Other non-current assets 729 2,196 412 -
--------------------------------------------
$ 452,192 $ 369,557 $1,175,777 $ 190,233
--------------------------------------------
Liabilities
Current liabilities $ 42,278 $ 35,144 $ 29,173 $ 27,665
Long-term debt 18,094 - 181,932 -
Provisions 56,281 21,214 55,929 21,522
Other liabilities 676 - 20,019 -
Derivatives - - - -
Deferred income tax liabilities 3,128 - - 11,448
--------------------------------------------
$ 120,457 $ 56,358 $ 287,053 $ 60,635
--------------------------------------------
COBRE DISCONTINUED
2010 As at January 1 PANAMA OPERATIONS - OK TEDI TOTAL
----------------------------------------------------------------------------
(thousands of Canadian dollars) (Panama) (Papua New Guinea)
Assets
Cash and short-term investments $ 10,728 $ 36,631 $ 533,913
Other current assets 468 77,425 279,208
Restricted cash - 26,365 101,589
Property, plant and equipment 537,251 119,391 1,945,669
Investments in equity securities - - 42,411
Held to maturity investments - - 89,891
Other non-current assets - 926 4,263
--------------------------------------------
$ 548,447 $ 260,738 $2,996,944
--------------------------------------------
Liabilities
Current liabilities $ 10,855 $ 44,369 $ 189,484
Long-term debt - - 200,026
Provisions - 41,484 196,430
Other liabilities - - 20,695
Derivatives - 3,165 3,165
Deferred income tax liabilities - 11,156 25,732
--------------------------------------------
$ 10,855 $ 100,174 $ 635,532
--------------------------------------------
INMET MINING CORPORATION
Consolidated statements of changes in equity
(unaudited)
----------------------------------------------------------------------------
Attributable to Inmet equity holders
----------------------------------------------------------------------------
(thousands of
Canadian Share Retained Contributed Share based
dollars) Capital earnings surplus compensation
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance as at
January 1,
2010(1) $ 669,952 $ 1,527,109 $ 64,809 $ 5,170
Comprehensive
income - 391,876 - -
Equity settled
share-based
compensation
plans - - 1,322 1,372
Dividends on
common shares - (11,210) - -
Acquisition of
non-controlling
interest in Las
Cruces 419,624 (330,268) - -
Other - - - -
-------------------------------------------------------
Balance as at
December 31,
2010(1) $ 1,089,576 $ 1,577,507 $ 66,131 $ 6,542
-------------------------------------------------------
Comprehensive
income - $ 348,171 - -
Equity settled
share-based
compensation
plans 204 - 621 1,985
Dividends - (13,873) - -
Issuance of share
capital 13 502,168 - - -
-------------------------------------------------------
Balance as at
December 31,
2011 $ 1,591,948 $ 1,911,805 $ 66,752 $ 8,527
-------------------------------------------------------
Non-
Attributable to Inmet equity controlling
holders interest Total equity
---------------------------------------------------------------------------
Accumulated
other
(thousands of comprehensive
Canadian income (loss)
dollars) (note 13) Total
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Balance as at
January 1,
2010(1) $ 19,093 $ 2,286,133 $ 75,279 $ 2,361,412
Comprehensive
income (197,405) 194,471 (8,312) 186,159
Equity settled
share-based
compensation
plans - 2,694 - 2,694
Dividends on
common shares - (11,210) - (11,210)
Acquisition of
non-controlling
interest in Las
Cruces (6,905) 82,451 (66,847) 15,604
Other - - (120) (120)
----------------------------------------------------------
Balance as at
December 31,
2010(1) $ (185,217) $ 2,554,539 $ - $ 2,554,539
----------------------------------------------------------
Comprehensive
income 20,433 368,604 - 368,604
Equity settled
share-based
compensation
plans - 2,810 - 2,810
Dividends - (13,873) - (13,873)
Issuance of share
capital - 502,168 - 502,168
----------------------------------------------------------
Balance as at
December 31,
2011 $ (164,784) $ 3,414,248 $ - $ 3,414,248
----------------------------------------------------------
(1) Refer to note 6 for effects of adoption of IFRS
(See accompanying notes)
INMET MINING CORPORATION
Consolidated statements of earnings
(unaudited)
Three Months Ended Year Ended
December 31 December 31
(thousands of Canadian
dollars except per Note
share amounts) reference 2011 2010(1) 2011 2010(1)
----------------------------------------------------------------------------
Gross sales $ 241,059 $ 230,269 $ 979,045 $ 778,556
Smelter processing
charges and freight (28,228) (35,733) (130,726) (138,464)
Cost of sales
(excluding
depreciation) (93,138) (82,967) (327,076) (253,859)
Depreciation (27,716) (18,882) (108,726) (55,988)
----------------------------------------------------------------------------
Earnings from
operations 91,977 92,687 412,517 330,245
Corporate development
and exploration (6,541) (5,434) (29,202) (13,495)
General and
administration (7,734) (4,758) (34,401) (20,364)
Investment and other
income 16 (4,011) 50,622 30,725 58,344
Stand-by charges - - - (6,753)
Finance costs 17 (2,390) (4,294) (9,484) (13,176)
----------------------------------------------------------------------------
Income before taxation 71,301 128,823 370,155 334,801
Income tax expense 18 (23,229) (31,960) (105,423) (69,087)
----------------------------------------------------------------------------
Income from continuing
operations 48,072 $ 96,863 $ 264,732 $ 265,714
Income from
discontinued
operation (net of
taxes) 12 - 47,993 83,439 124,755
----------------------------------------------------------------------------
Net income 48,072 $ 144,856 $ 348,171 $ 390,469
----------------------------------------------------------------------------
Net income
attributable to:
Inmet equity holders 48,072 $ 146,932 $ 348,171 $ 391,876
Non-controlling
interest - (2,076) - (1,407)
----------------------------------------------------------------------------
48,072 $ 144,856 $ 348,171 $ 390,469
----------------------------------------------------------------------------
Earnings per common
share 19
Income from continuing
operations
Basic $ 0.69 $ 1.73 $ 3.99 $ 4.74
Diluted $ 0.69 $ 1.73 $ 3.98 $ 4.73
----------------------------------------------------------------------------
Income from
discontinued
operation
Basic $ - $ 0.84 $ 1.26 $ 2.21
Diluted $ - $ 0.84 $ 1.25 $ 2.21
----------------------------------------------------------------------------
Net income
Basic $ 0.69 $ 2.57 $ 5.25 $ 6.95
Diluted $ 0.69 $ 2.57 $ 5.23 $ 6.94
----------------------------------------------------------------------------
(1) Refer to note 6 for effects of adoption of IFRS
(See accompanying notes)
INMET MINING CORPORATION
Segmented statements of earnings
(unaudited)
2011 For the year ended CORPORATE &
December 31 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Gross sales $ - $ 353,706 $ 356,918 $ 268,421
Smelter processing charges
and freight - (71,704) (1,227) (57,795)
Cost of sales (excluding
depreciation) (16,722) (100,267) (151,907) (58,180)
Depreciation - (22,037) (77,392) (9,297)
------------------------------------------------
Earnings from operations (16,722) 159,698 126,392 143,149
Corporate development and
exploration (21,267) (1,665) (449) (3,592)
General and administration (34,401) - - -
Investment and other income 20,733 7,768 1,741 462
Finance costs (3,843) (589) (4,159) (893)
Income tax expense 2,452 (52,620) (23,536) (31,719)
------------------------------------------------
Net income from continuing
operations $ (53,048) $ 112,592 $ 99,989 $ 107,407
Income from discontinued
operation (net of taxes) - - - -
------------------------------------------------
Net income (loss) $ (53,048) $ 112,592 $ 99,989 $ 107,407
------------------------------------------------
2011 For the year ended COBRE DISCONTINUED OPERATIONS
December 31 PANAMA - OK TEDI TOTAL
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Panama) (Papua New Guinea)
Gross sales $ - $ - $ 979,045
Smelter processing charges
and freight - - (130,726)
Cost of sales (excluding
depreciation) - - (327,076)
Depreciation - - (108,726)
------------------------------------------------
Earnings from operations - - 412,517
Corporate development and
exploration (2,229) - (29,202)
General and administration - - (34,401)
Investment and other income 21 - 30,725
Finance costs - - (9,484)
Income tax expense - - (105,423)
------------------------------------------------
Net income from continuing
operations $ (2,208) $ - $ 264,732
Income from discontinued
operation (net of taxes) - 83,439 83,439
------------------------------------------------
Net income (loss) $ (2,208) $ 83,439 $ 348,171
------------------------------------------------
2010 For the year ended CORPORATE &
December 31 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Gross sales $ 73,826 $ 333,611 $ 128,643 $ 242,476
Smelter processing charges
and freight (4,526) (75,268) (298) (58,372)
Cost of sales (excluding
depreciation) (48,643) (89,262) (60,388) (55,566)
Depreciation (4,062) (20,577) (23,068) (8,281)
------------------------------------------------
Earnings from operations 16,595 148,504 44,889 120,257
Corporate development and
exploration (8,799) (700) - (3,996)
General and administration (20,364) - - -
Investment and other income 58,957 (190) (423) -
Stand-by charges - - (6,753) -
Finance costs (3,836) (590) (8,042) (708)
Income tax expense (8,300) (35,885) 4,094 (28,996)
------------------------------------------------
Net income from continuing
operations $ 34,253 $ 111,139 $ 33,765 $ 86,557
Income from discontinued
operation (net of taxes) - - - -
------------------------------------------------
Net income $ 34,253 $ 111,139 $ 33,765 $ 86,557
------------------------------------------------
2010 For the year ended COBRE DISCONTINUED OPERATIONS
December 31 PANAMA - OK TEDI TOTAL
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Panama) (Papua New Guinea)
Gross sales $ - $ - $ 778,556
Smelter processing charges
and freight - - (138,464)
Cost of sales (excluding
depreciation) - - (253,859)
Depreciation - - (55,988)
------------------------------------------------
Earnings from operations - - 330,245
Corporate development and
exploration - - (13,495)
General and administration - - (20,364)
Investment and other income - - 58,344
Stand-by charges - - (6,753)
Finance costs - - (13,176)
Income tax expense - - (69,087)
------------------------------------------------
Net income from continuing
operations $ - $ - $ 265,714
Income from discontinued
operation (net of taxes) - 124,755 124,755
------------------------------------------------
Net income $ - $ 124,755 $ 390,469
------------------------------------------------
INMET MINING CORPORATION
Segmented statements of earnings
(unaudited)
2011 For the three months CORPORATE &
ended December 31 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Gross sales $ - $ 79,656 $ 100,941 $ 60,462
Smelter processing charges
and freight - (14,845) (363) (13,020)
Cost of sales (excluding
depreciation) $ (16,722) (23,436) (39,111) (13,869)
Depreciation - (5,568) (19,757) (2,391)
------------------------------------------------
Earnings from operations (16,722) 35,807 41,710 31,182
Corporate development and
exploration (4,613) (389) (443) (1,096)
General and administration (7,734) - - -
Investment and other income (5,726) 496 939 161
Finance costs (972) (153) (1,042) (223)
Income tax expense 1,717 (9,754) (8,362) (6,830)
------------------------------------------------
Net income from continuing
operations $ (34,050) $ 26,007 $ 32,802 $ 23,194
Income from discontinued
operation (net of taxes) - - - -
------------------------------------------------
Net income (loss) $ (34,050) $ 26,007 $ 32,802 $ 23,194
------------------------------------------------
2011 For the three months COBRE DISCONTINUED
ended December 31 PANAMA OPERATIONS - OK TEDI TOTAL
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Panama) (Papua New Guinea)
Gross sales $ - $ - $ 241,059
Smelter processing charges
and freight - - (28,228)
Cost of sales (excluding
depreciation) - - (93,138)
Depreciation - - (27,716)
------------------------------------------------
Earnings from operations - - 91,977
Corporate development and
exploration - - (6,541)
General and administration - - (7,734)
Investment and other income 119 - (4,011)
Finance costs - - (2,390)
Income tax expense - - (23,229)
------------------------------------------------
Net income from continuing
operations $ 119 $ - $ 48,072
Income from discontinued
operation (net of taxes) - - -
------------------------------------------------
Net income (loss) $ 119 $ - $ 48,072
------------------------------------------------
2010 For the three months CORPORATE &
ended December 31 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Gross sales $ 1,756 $ 79,944 $ 66,794 $ 81,775
Smelter processing charges
and freight - (16,899) (271) (18,563)
Cost of sales (excluding
depreciation) (14,799) (22,090) (30,499) (15,579)
Depreciation (28) (4,145) (12,516) (2,193)
------------------------------------------------
Earnings from operations (13,071) 36,810 23,508 45,440
Corporate development and
exploration (4,078) (249) - (1,107)
General and administration (4,758) - - -
Investment and other income 52,602 (1,088) (892) -
Finance costs (974) (145) (2,996) (179)
Income tax expense (6,904) (12,863) 20 (12,213)
------------------------------------------------
Net income from continuing
operations $ 22,817 $ 22,465 $ 19,640 $ 31,941
Income from discontinued
operation (net of taxes) - - - -
------------------------------------------------
Net income $ 22,817 $ 22,465 $ 19,640 $ 31,941
------------------------------------------------
2010 For the three months COBRE DISCONTINUED
ended December 31 PANAMA OPERATIONS - OK TEDI TOTAL
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Panama) (Papua New Guinea)
Gross sales $ - $ - $ 230,269
Smelter processing charges
and freight - - (35,733)
Cost of sales (excluding
depreciation) - - (82,967)
Depreciation - - (18,882)
------------------------------------------------
Earnings from operations - - 92,687
Corporate development and
exploration - - (5,434)
General and administration - - (4,758)
Investment and other income - - 50,622
Finance costs - - (4,294)
Income tax expense - - (31,960)
------------------------------------------------
Net income from continuing
operations $ - $ - $ 96,863
Income from discontinued
operation (net of taxes) - 47,993 47,993
------------------------------------------------
Net income $ - $ 47,993 $ 144,856
------------------------------------------------
INMET MINING CORPORATION
Consolidated statements of comprehensive income
(unaudited)
Three Months Ended Year Ended
December 31 December 31
(thousands of Canadian Note
dollars) reference 2011 2010(1) 2011 2010(1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income $ 48,072 $ 144,856 $ 348,171 $ 390,469
--------------------------------------------
Other comprehensive
income for the
period:
Continuing operations
Changes in fair
value of
investments (671) 7,855 (3,669) 21,168
Currency translation
adjustments (110,620) (74,984) 4,158 (168,390)
Reclassifications to
net income of gains
and losses realized
on:
Gain on sale of
investments - (50,280) - (50,280)
Other 3,553 - 3,553 -
Income tax recovery
related to
investments - other
comprehensive
income - 6,172 16 4,866
--------------------------------------------
(107,738) (111,237) 4,058 (192,636)
--------------------------------------------
Other comprehensive
income from
discontinued
operation (net of
taxes) - (7,118) 16,375 (11,674)
--------------------------------------------
Comprehensive income $ (59,666) $ 26,501 $ 368,604 $ 186,159
----------------------------------------------------------------------------
Comprehensive income
attributable to:
Inmet equity holders $ (59,666) $ 31,093 $ 368,604 $ 194,471
Non-controlling
interests - (4,592) - (8,312)
--------------------------------------------
$ (59,666) $ 26,501 $ 368,604 $ 186,159
----------------------------------------------------------------------------
(1) Refer to note 6 for effects of adoption of IFRS
(See accompanying notes)
INMET MINING CORPORATION
Consolidated statements of cash flows
(unaudited)
Three Months Ended Year Ended
December 31 December 31
(thousands of Note
Canadian dollars) reference 2011 2010(1) 2011 2010(1)
----------------------------------------------------------------------------
Cash provided by
(used in) operating
activities(2)
Net income from
continuing
operations $ 48,072 $ 96,863 $ 264,732 $ 265,714
Add (deduct) items
not affecting cash:
Depreciation 27,716 18,882 108,726 55,988
Deferred income
taxes 9,537 6,688 26,342 (2,770)
Accretion expense
on provisions and
capital leases 1,916 1,773 7,636 6,283
Increase in asset
retirement
obligations at
closed sites 16,722 14,295 16,722 14,295
Foreign exchange
loss (gain) 6,230 181 (21,053) (652)
Gain on
disposition of
equity securities - (50,280) - (50,280)
Other 10,254 2,743 7,660 9,110
Settlement of asset
retirement
obligations 12 (4,347) (3,621) (10,854) (9,719)
Net change in non-
cash working
capital 20 (43,003) 2,991 4,943 (33,051)
----------------------------------------------
73,097 90,515 404,854 254,918
----------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant and
equipment (58,976) (58,862) (208,541) (127,619)
Acquisition of held
to maturity
investments (2,191) - (301,599) (295,846)
Maturing of held to
maturity
investments 16,125 26,097 68,692 26,097
Acquisition of non-
controlling
interest in Las
Cruces - (150,600) - (150,600)
Funding received
under Cobre Panama
option agreement - 4,065 12,714 14,427
Sale of equity
securities - 61,827 - 61,827
Sale (purchase) of
short-term
investments, net 82,684 (7,296) (259,897) 19,700
Other (3,853) (494) (3,875) 5,008
----------------------------------------------
33,789 (125,263) (692,506) (447,006)
----------------------------------------------
Cash provided by
(used in) financing
activities
Issuance of common
shares 13 - - 502,168 -
Dividends on common
shares (6,940) (5,600) (13,873) (11,210)
Financial assurance
(payments) receipts (209) 11,498 (2,575) 11,498
Other (540) (67) (2,859) 994
----------------------------------------------
(7,689) 5,831 482,861 1,282
----------------------------------------------
Foreign exchange on
cash held in
foreign currencies (23,545) (11,241) (5,375) (27,469)
----------------------------------------------
Cash provided by
discontinued
operation 12 - 28,384 306,982 123,340
----------------------------------------------
Reclassification of
our share of Ok
Tedi cash to assets
held for sale - (92,853) - (92,853)
----------------------------------------------
Increase (decrease)
in cash: 75,652 (104,627) 496,816 (187,788)
Cash:
Beginning of
period 740,293 423,756 319,129 506,917
----------------------------------------------
End of period $ 815,945 $ 319,129 $ 815,945 $ 319,129
Short term
investments 266,948 7,296 266,948 7,296
----------------------------------------------
Cash and short-term
investments $1,082,893 $ 326,425 $1,082,893 $ 326,425
----------------------------------------------------------------------------
(1) Refer to note 6 for effects of adoption of IFRS
(See accompanying notes)
(2) Supplementary cash flow information:
Cash interest paid $ - $ - $ 1,155 $ 1,146
Cash taxes paid $ 29,992 $ 12,429 $ 95,127 $ 75,548
----------------------------------------------------------------------------
INMET MINING CORPORATION
Segmented statements of cash flows
(unaudited)
2011 For the year ended CORPORATE &
December 31 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Cash provided by (used in)
operating activities
Before net change in non-
cash working capital $ (57,133) $ 136,402 $ 205,154 $ 117,696
Net change in non-cash
working capital (4,767) 20,404 (10,511) (183)
------------------------------------------------
(61,900) 156,806 194,643 117,513
------------------------------------------------
Cash provided by (used in)
investing activities
Purchase of property, plant
and equipment (1,090) (13,125) (53,641) (7,255)
Acquisition of held to
maturity investments (285,916) (15,683) - -
Maturity of held-to-maturity
investments 68,692 - - -
Funding received under Cobre
Panama option agreement - - - -
Sale (purchase) of short-
term investments (267,174) - 7,277 -
Other (3,875) - - -
------------------------------------------------
(489,363) (28,808) (46,364) (7,255)
------------------------------------------------
------------------------------------------------
Cash provided by (used in)
financing activities 488,059 - (5,198) -
------------------------------------------------
Foreign exchange on cash
held in foreign currencies - 663 (3,905) (2,694)
------------------------------------------------
Cash provided by
discontinued operation - - - -
------------------------------------------------
Intergroup funding
(distributions) 477,866 (98,821) (55,618) (156,997)
------------------------------------------------
Increase (decrease) in cash 414,662 29,840 83,558 (49,433)
Cash:
Beginning of year 53,184 107,750 52,570 97,056
------------------------------------------------
End of period 467,846 137,590 136,128 47,623
Short term investments 266,948 - - -
------------------------------------------------
Cash and short-term
investments $ 734,794 $ 137,590 $ 136,128 $ 47,623
------------------------------------------------
------------------------------------------------
DISCONTINUED
2011 For the year ended COBRE OPERATIONS -
December 31 PANAMA OK TEDI TOTAL
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Panama) (Papua New Guinea)
Cash provided by (used in)
operating activities
Before net change in non-
cash working capital $ (2,208) $ - $ 399,911
Net change in non-cash
working capital - - 4,943
------------------------------------------------
(2,208) - 404,854
------------------------------------------------
Cash provided by (used in)
investing activities
Purchase of property, plant
and equipment (133,430) - (208,541)
Acquisition of held to
maturity investments - - (301,599)
Maturity of held-to-maturity
investments - - 68,692
Funding received under Cobre
Panama option agreement 12,714 - 12,714
Sale (purchase) of short-
term investments - - (259,897)
Other - - (3,875)
------------------------------------------------
(120,716) - (692,506)
------------------------------------------------
------------------------------------------------
Cash provided by (used in)
financing activities - - 482,861
------------------------------------------------
Foreign exchange on cash
held in foreign currencies 561 - (5,375)
------------------------------------------------
Cash provided by
discontinued operation - 306,982 306,982
------------------------------------------------
Intergroup funding
(distributions) 140,552 (306,982) -
------------------------------------------------
Increase (decrease) in cash 18,189 (306,982) 496,816
Cash:
Beginning of year 8,569 - 319,129
------------------------------------------------
End of period 26,758 (306,982) 815,945
Short term investments - - 266,948
------------------------------------------------
Cash and short-term
investments $ 26,758 $ - $1,082,893
------------------------------------------------
------------------------------------------------
2010 For the year ended CORPORATE &
December 31 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Cash provided by (used in)
operating activities
Before net change in non-
cash working capital $ (4,320) $ 132,739 $ 61,157 $ 98,393
Net change in non-cash
working capital 2,815 (15,901) (1,678) (18,287)
------------------------------------------------
(1,505) 116,838 59,479 80,106
------------------------------------------------
Cash provided by (used in)
investing activities
Purchase of property, plant
and equipment (222) (14,911) (23,978) (3,974)
Acquisition of held to
maturity investments (228,500) (67,346) - -
Maturing of held to maturity
investments 26,097 - - -
Acquisition of non-
controlling Interest in Las
Cruces (150,600) - - -
Funding received under Cobre
Panama option agreement - - - -
Sale (net) of equity
investments 61,827 - - -
Sale (purchase) of short-
term investments 26,996 - (7,296) -
Other 5,008 - - -
------------------------------------------------
(259,394) (82,257) (31,274) (3,974)
------------------------------------------------
------------------------------------------------
Cash provided by (used in)
financing activities (11,919) - 13,201 -
------------------------------------------------
Foreign exchange on cash
held in foreign currencies - (9,954) (2,768) (14,388)
------------------------------------------------
Cash provided by
discontinued operation - - - -
------------------------------------------------
Reclassification of our
share of Ok Tedi cash to
assets held for sale - - - -
------------------------------------------------
Intergroup funding
(distributions) 101,428 (75,508) 3,893 (31,002)
------------------------------------------------
Increase (decrease) in cash (171,390) (50,881) 42,531 30,742
Cash:
Beginning of year 224,574 158,631 10,039 66,314
------------------------------------------------
End of period 53,184 107,750 52,570 97,056
Short term investments - - 7,296 -
------------------------------------------------
Cash and short-term
investments $ 53,184 $ 107,750 $ 59,866 $ 97,056
------------------------------------------------
------------------------------------------------
DISCONTINUED
2010 For the year ended COBRE OPERATIONS -
December 31 PANAMA OK TEDI TOTAL
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Panama) (Papua New Guinea)
Cash provided by (used in)
operating activities
Before net change in non-
cash working capital $ - $ - $ 287,969
Net change in non-cash
working capital - - (33,051)
------------------------------------------------
- - 254,918
------------------------------------------------
Cash provided by (used in)
investing activities
Purchase of property, plant
and equipment (84,534) - (127,619)
Acquisition of held to
maturity investments - - (295,846)
Maturing of held to maturity
investments - - 26,097
Acquisition of non-
controlling Interest in Las
Cruces - - (150,600)
Funding received under Cobre
Panama option agreement 14,427 - 14,427
Sale (net) of equity
investments - - 61,827
Sale (purchase) of short-
term investments - - 19,700
Other - - 5,008
------------------------------------------------
(70,107) - (447,006)
------------------------------------------------
------------------------------------------------
Cash provided by (used in)
financing activities - - 1,282
------------------------------------------------
Foreign exchange on cash
held in foreign currencies (359) - (27,469)
------------------------------------------------
Cash provided by
discontinued operation - 123,340 123,340
------------------------------------------------
Reclassification of our
share of Ok Tedi cash to
assets held for sale - (92,853) (92,853)
------------------------------------------------
Intergroup funding
(distributions) 68,307 (67,118) -
------------------------------------------------
Increase (decrease) in cash (2,159) (36,631) (187,788)
Cash:
Beginning of year 10,728 36,631 506,917
------------------------------------------------
End of period 8,569 - 319,129
Short term investments - - 7,296
------------------------------------------------
Cash and short-term
investments $ 8,569 $ - $ 326,425
------------------------------------------------
------------------------------------------------
INMET MINING CORPORATION
Segmented statements of cash flows
(unaudited)
2011 For the three
months ended December CORPORATE LAS
31 & OTHER CAYELI CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Cash provided by (used
in) operating
activities
Before net change in
non-cash working
capital $ (6,542) $ 34,760 $ 62,016 $ 25,747
Net change in non-cash
working capital 1,443 (26,312) (16,483) (1,651)
----------------------------------------------------
(5,099) 8,448 45,533 24,096
----------------------------------------------------
Cash provided by (used
in) investing
activities
Purchase of property,
plant and equipment (357) (3,549) (9,984) (1,977)
Acquisition of held-to-
maturity investments (1,866) (325) - -
Maturing of held-to-
maturity investments 16,125 - - -
Funding received under
Cobre Panama option
agreement - - - -
Sale (purchase) of
short-term investments 82,685 - (1) -
Other (2,882) (971) - -
----------------------------------------------------
93,705 (4,845) (9,985) (1,977)
----------------------------------------------------
Cash provided by (used
in) financing
activities (7,062) - (627) -
----------------------------------------------------
Foreign exchange on cash
held in foreign
currencies - (5,600) (8,951) (7,462)
----------------------------------------------------
Intergroup funding
(distributions) 51,213 (56) (15,158) (78,407)
----------------------------------------------------
Increase (decrease) in
cash 132,757 (2,053) 10,812 (63,750)
Cash:
Beginning of year 335,089 139,643 125,316 111,373
----------------------------------------------------
End of period 467,846 137,590 136,128 47,623
Short term investments 266,948 - - -
----------------------------------------------------
Cash and short-term
investments $ 734,794 $ 137,590 $ 136,128 $ 47,623
----------------------------------------------------
INMET MINING CORPORATION
Segmented statements of cash flows
(unaudited)
2011 For the three DISCONTINUED
months ended December COBRE OPERATIONS -OK
31 PANAMA TEDI TOTAL
----------------------------------------------------------------------------
(thousands of Canadian (Papua New
dollars) (Panama) Guinea)
Cash provided by (used
in) operating
activities
Before net change in
non-cash working
capital $ 119 $ - $ 116,100
Net change in non-cash
working capital - - (43,003)
----------------------------------------------------
119 - 73,097
----------------------------------------------------
Cash provided by (used
in) investing
activities
Purchase of property,
plant and equipment (43,109) - (58,976)
Acquisition of held-to-
maturity investments - - (2,191)
Maturing of held-to-
maturity investments - - 16,125
Funding received under
Cobre Panama option
agreement - - -
Sale (purchase) of
short-term investments - - 82,684
Other - - (3,853)
----------------------------------------------------
(43,109) - 33,789
----------------------------------------------------
Cash provided by (used
in) financing
activities - - (7,689)
----------------------------------------------------
Foreign exchange on cash
held in foreign
currencies (1,532) - (23,545)
----------------------------------------------------
Intergroup funding
(distributions) 42,408 -
----------------------------------------------------
Increase (decrease) in
cash (2,114) - 75,652
Cash:
Beginning of year 28,872 - 740,293
----------------------------------------------------
End of period 26,758 - 815,945
Short term investments - - 266,948
----------------------------------------------------
Cash and short-term
investments $ 26,758 $ - $ 1,082,893
----------------------------------------------------
2010 For the three
months ended December CORPORATE LAS
31 & OTHER CAYELI CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Cash provided by (used
in) operating
activities
Before net change in
non-cash working
capital $ (11,744) $ 26,794 $ 35,662 $ 36,812
Net change in non-cash
working capital (659) 15,584 (1,736) (10,198)
----------------------------------------------------
(12,403) 42,378 33,926 26,614
----------------------------------------------------
Cash provided by (used
in) investing
activities
Purchase of property,
plant and equipment (90) (6,682) (31,812) (710)
Maturing of held to
maturity investments 26,097 - - -
Repurchase of long term
debt (150,600) - - -
Funding received under
Cobre Panama option
agreement - - - -
Sale (purchase) of
equity securities 61,827 - - -
Sale of short-term
investments - - (7,296) -
Other (494) - - -
----------------------------------------------------
(63,260) (6,682) (39,108) (710)
----------------------------------------------------
Cash provided by (used
in) financing
activities (5,810) - 11,641 -
----------------------------------------------------
Foreign exchange on cash
held in foreign
currencies - (3,398) (2,812) (4,660)
----------------------------------------------------
Cash provided by
discontinued operation - - - -
----------------------------------------------------
Reclassification of our
share of Ok Tedi cash
to
assets held for sale - - - -
----------------------------------------------------
Intergroup funding
(distributions) (12,324) 373 (1,389) (3,018)
----------------------------------------------------
Increase (decrease) in
cash (93,797) 32,671 2,258 18,226
Cash:
Beginning of year 146,981 75,079 50,312 78,830
----------------------------------------------------
End of period 53,184 107,750 52,570 97,056
Short term investments - - 7,296 -
----------------------------------------------------
Cash and short-term
investments $ 53,184 $ 107,750 $ 59,866 $ 97,056
----------------------------------------------------
----------------------------------------------------
2010 For the three DISCONTINUED
months ended December COBRE OPERATIONS -
31 PANAMA OK TEDI TOTAL
----------------------------------------------------------------------------
(thousands of Canadian (Papua New
dollars) (Panama) Guinea)
Cash provided by (used
in) operating
activities
Before net change in
non-cash working
capital $ - $ - $ 87,524
Net change in non-cash
working capital - - 2,991
----------------------------------------------------
- - 90,515
----------------------------------------------------
Cash provided by (used
in) investing
activities
Purchase of property,
plant and equipment (19,568) - (58,862)
Maturing of held to
maturity investments - - 26,097
Repurchase of long term
debt - - (150,600)
Funding received under
Cobre Panama option
agreement 4,065 - 4,065
Sale (purchase) of
equity securities - - 61,827
Sale of short-term
investments - - (7,296)
Other - - (494)
----------------------------------------------------
(15,503) - (125,263)
----------------------------------------------------
Cash provided by (used
in) financing
activities - - 5,831
----------------------------------------------------
Foreign exchange on cash
held in foreign
currencies (371) - (11,241)
----------------------------------------------------
Cash provided by
discontinued operation - 28,384 28,384
----------------------------------------------------
Reclassification of our
share of Ok Tedi cash
to
assets held for sale - (92,853) (92,853)
----------------------------------------------------
Intergroup funding
(distributions) 16,722 (364) -
----------------------------------------------------
Increase (decrease) in
cash 848 (64,833) (104,627)
Cash:
Beginning of year 7,721 64,833 423,756
----------------------------------------------------
End of period 8,569 - 319,129
Short term investments - - 7,296
----------------------------------------------------
Cash and short-term
investments $ 8,569 $ - $ 326,425
----------------------------------------------------
----------------------------------------------------
Notes to the consolidated financial statements
1. Corporate information
Inmet Mining Corporation is a publicly traded corporation listed on the Toronto stock exchange. Our registered and head office is 330 Bay Street, Suite 1000, Toronto Canada. Our principal activities are the exploration, development and mining of base metals.
2. Basis of presentation and statement of compliance
International Financial Reporting Standards (IFRS) require us to make an explicit and unreserved statement that our financial statements are in compliance with IFRS. We have made this statement when we issued our 2011 annual financial statements. These condensed interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board (IASB) and using the accounting policies we expect to adopt in our consolidated financial statements for the year ending December 31, 2011.
This is the first year we have prepared our financial statements in accordance with IFRS. See note 6, First time adoption of IFRS, for information about our transition from Canadian GAAP. You should read our interim statements in conjunction with our annual statements which you can find in our 2011 Annual Report.
We have prepared the consolidated financial statements under the historical cost convention, modified by the revaluation of certain financial instruments we have measured in accordance with IFRS. The financial statements are in Canadian dollars and all values are rounded to the nearest thousand except where otherwise indicated. These statements have been approved by Inmet's board of directors and have been reviewed by our external auditors.
Our segmented statements reflect the management structure of our company in which each operation retains its own management team and compiles its own financial information, following the accounting policies outlined here.
-- Cayeli - a mine in Turkey that produces copper and zinc concentrates.
Cayeli is a wholly-owned subsidiary.
-- Las Cruces - a high grade copper deposit in Spain that produces cathode
copper. Las Cruces is a wholly-owned subsidiary.
-- Pyhasalmi - a mine in Finland that produces copper and zinc
concentrates. Pyhasalmi is a wholly-owned subsidiary.
-- Cobre Panama - a copper, gold and molybdenum deposit currently under
development in Panama. We have a 100 percent interest in Cobre Panama.
Korea Panama Mining Corporation owns an option to acquire a 20 percent
interest in Cobre Panama (note 22).
-- Corporate and other - our head office and closed properties. As a result
of the closure of Troilus, we no longer consider it to be a separate
reportable operating segment and included its results in Corporate and
other retroactively.
3. Summary of significant accounting policies
We have applied the accounting policies set out below consistently for all periods presented in these consolidated financial statements and in preparing the opening IFRS statement of financial position at January 1, 2010 for the purposes of our transition to IFRSs, unless otherwise indicated.
Basis of consolidation
Entities we control
We have control of an entity when we have the right to govern its operating and financial policies (usually when we have more than 50 percent voting power through ownership or agreements), unless a non-controlling interest is able to prevent us from exercising control.
We consolidate the results of entities we control and eliminate all intercompany balances and transactions. When we acquire a new entity, we consolidate from the day that control passes to us. We consolidate those we sell until the day control passes to the acquirer.
Interests in jointly controlled entities
We jointly control an entity when we hold a long-term interest in it, and share joint control over its operating and financial decisions with one or more other parties under a contractual arrangement.
We proportionately consolidate our share of any entity we jointly control, combining its line-by-line results with similar line items in our financial statements.
Foreign exchange
Functional and presentation currency
Inmet Mining's functional currency is the Canadian dollar. We report our consolidated financial statements in Canadian dollars.
Our entities measure the items in their financial statements in their functional currency (the currency of the primary economic environment they operate in). Cayeli and Cobre Panama use the US dollar and Pyhasalmi and Las Cruces use the euro.
Foreign currency transactions
Monetary items denominated in foreign currencies are translated into each entity's functional currency at the rate of exchange on the balance sheet date, and gains and losses on translation are recognized in the statement of earnings for the year. We recognize all other transactions in foreign currencies at the exchange rate at the time of the transaction.
Financial statements of foreign operations
For operations that have a functional currency other than the Canadian dollar, we translate the statement of earnings and balance sheet as follows:
-- assets and liabilities: translated at the closing rate at the end of the
year.
-- revenues and expenses: translated for each statement of earnings at
rates approximating the exchange rates at the time of the transactions.
-- resulting differences: recognized as a separate component of accumulated
other comprehensive income.
We also recognize exchange differences relating to long-term intercompany loan balances with foreign operations that form part of the net investment in the foreign operation in this separate component of accumulated other comprehensive income.
When we sell all or part of a foreign operation, or repay its share capital or intercompany debt considered part of the net investment, we recognize exchange differences arising from the translation of the net investment in the statement of earnings.
Business combinations
When we acquire a subsidiary, we account for it using the purchase method.
The cost of the business combination is the fair value at the date of exchange of:
-- the assets we gave
-- the liabilities we incurred or assumed, and
-- the equity instruments we issued in exchange for control.
We allocate total consideration paid to the identifiable assets, liabilities and contingent liabilities (identifiable net assets) we acquired, at their fair value on the date of the acquisition, including mineral reserves and resources that can be reliably valued.
We expense transaction costs related to an acquisition as incurred.
If the fair value of our share of the identifiable net assets acquired is greater than the fair value of the consideration paid, we recognize the difference in the statement of earnings on the acquisition date.
Non controlling interest is the portion of an entity that we do not own (the profit or loss and net assets we are not entitled to). We record non controlling interests in equity, separate from our shareholders' equity.
Revenue
Gross sales include the sale of all concentrate, cathode copper and gold dore. It does not include smelter processing charges and freight, which are presented as a separate line item in the statement of earnings.
We recognize revenue when all significant risks and rewards of ownership of our products have been transferred to the customer - usually when the customer takes on the insurance risk and the goods have been delivered to the shipping agent.
Most of our sales contracts set the sales price at the commodity's market price on a specified future date. To calculate our revenue from the sale of our products, we use the forward price of the commodity for the day we expect the contract to settle. Variations between the price we record on the date of initial revenue recognition and the final price we receive due to changes in market prices represents an embedded derivative in our sales contracts. We adjust our revenue every period for any change in the value of the contract using the period end forward price for the day the contract is expected to settle. When it settles, we record the difference between the forward price and the final price we receive in revenue.
We recognize interest income in investment and other income, based on the principal outstanding and the effective interest rate.
We recognize dividends and royalties in investment and other income when we have established the right to receive payment.
Inventories
Inventories include:
-- stockpiled ore, materials and supplies: ore, goods and supplies that
will be consumed directly or indirectly in the production process
-- work in process: inventory in an intermediate state that has not yet
passed through all stages of the production process
-- finished goods: concentrate, cathode copper and gold dore that are ready
for sale.
We measure inventory at the lower of cost or net realizable value, as follows:
-- cost: a weighted average that includes all costs directly related to
bringing the inventory to its current location and condition, such as
mining and milling costs and an allocation of production overheads and
depreciation based on normal capacity
-- net realizable value: the estimated selling price less any additional
costs we expect to incur for completion and sale of the related
inventory.
We classify inventories of stockpiled ore that we do not expect to process in the next year as other assets.
Property, plant and equipment
On initial acquisition, we recognize property, plant and equipment at cost. Cost includes the purchase price, costs that can be directly attributed to acquiring it, and the cost required to bring the asset to the location and the condition necessary to operate in the way we intended it to.
In subsequent periods, we recognize it at cost less accumulated depreciation and any impairment in value.
We depreciate the cost, less estimated residual values of property, plant and equipment, as follows:
-- property: depreciated in proportion to the depletion of proven and
probable reserves on a unit of production basis.
-- plant and equipment: depreciated using a straight-line method based on
estimated useful life. The expected useful lives of plant and equipment
range from 5 to 15 years, but do not exceed the life of mine.
When different parts (or components) of an asset are significant and have different useful lives, we depreciate the individual components separately, considering both a component's physical life, and the present estimated mineral reserves at the mine where the component is located.
We review estimates in remaining useful lives and residual values at least annually and account for any changes prospectively.
When we carry out a major maintenance refit, we may replace or overhaul assets or parts of assets. When we replace an asset or a component that we have been depreciating separately, we capitalize these costs if this extends its useful life and it is probable that this will result in future economic benefits to the operation. In addition, we write off the asset or component that has been replaced. If we replace part of an asset that was not considered a component, we use the replacement value to estimate the carrying amount of the replaced asset and immediately write that off. We expense all other regular maintenance costs as incurred.
Exploration and evaluation expenditures
We expense the costs of exploration and evaluation as incurred, except for the following:
-- in areas currently under development
-- where we can reasonably expect to convert existing mineral resources
into mineral reserves or add additional mineral resources with further
drilling and evaluations
-- the cost to acquire an early stage entity conducting primarily
exploration and evaluation activities.
In the first two instances, we capitalize costs as development expenditures. In the third instance, we capitalize costs as exploration and evaluation assets.
Development expenditures
We capitalize the costs of acquiring and developing mineral reserves and resources on the balance sheet as we incur them. These costs include accessing the ore body, designing and constructing the production infrastructure, interest and financing relating to construction, and costs that can be directly attributed to bringing the assets to the condition necessary for their intended use. This includes costs during the commissioning period when required before the asset can operate at normal levels.
Development expenditures are not depreciated. When production begins, we reclassify these costs to the appropriate category of property, plant and equipment and depreciate them according to our accounting policy.
Capitalized stripping
In open pit mining operations, we remove overburden and other waste in order to access the ore body (stripping). During development, we capitalize the cost of stripping as part of the cost of mine development and reclassify it to property when production begins.
During the production phase, we capitalize these costs to property when stripping activity gives us access to reserves that would not otherwise have been accessible, and that we expect will be mined in the future. We amortize production phase stripping costs over the reserves that are directly affected by the stripping activity on a units-of-production basis.
Leasing
We determine whether an arrangement is, or contains, a lease based on the substance of the arrangement, considering whether the arrangement is dependent on the use of a specific asset or whether the arrangement conveys a right to use the asset.
We classify a lease as financial when we carry substantially all of the risks and rewards of owning the asset. We capitalize assets under financial leases at either the fair value of the leased asset or the present value of the minimum lease payments over the lease term using the interest rate in the lease agreement - whichever is lower. We determine these amounts at the inception of the lease and depreciate the corresponding asset over its estimated useful life or the lease term - whichever is shorter. We recognize a corresponding amount representing our future obligation for finance leases in Other liabilities in the balance sheet, and recognize the associated accretion expense over time in finance costs in the statement of earnings.
We classify a lease as operating when we do not have substantially all the risks and rewards of ownership. We recognize rentals payable under operating leases in the statement of earnings on a straight line basis over the term of the lease.
Impairment of assets
At each reporting date, we look for indications of impairment of our non-current assets. If there are indicators of impairment, we carry out a formal test to see whether the asset's carrying amount exceeds its recoverable amount.
An asset's recoverable amount is its fair value less costs to sell or its value-in-use - whichever is higher.
-- Fair value less costs to sell is the amount we would receive from the
sale of the asset in an arm's-length transaction between knowledgeable
and willing parties. For our mining assets, we generally use the present
value of future cash flows we expect from their continued use, including
any expansion prospects, and from their eventual disposal. When
assessing cash flows and discounting them to present value, we use
assumptions that we believe an arm's length party would consider
appropriate.
-- We calculate the value-in-use of an asset by using the present value of
cash flows we expect from its continued use in its present form, and
from its disposal, without taking into account any future development.
Value-in-use is likely to be different from fair value because we use
different assumptions.
If the carrying amount of the asset exceeds its recoverable amount, we recognize an impairment loss in the statement of earnings to reflect the lower amount of the asset. We recognize impairment losses related to continuing operations in the statement of earnings in the expense category that relates to the asset's function.
We carry out these reviews for each asset, unless the asset does not generate cash flows on its own. In this case, we will carry out the review at the cash-generating unit level. Cash generating units are the smallest identifiable group of assets and liabilities that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. This generally results in an evaluation of assets at the mine entity level.
We reverse an impairment loss in the statement of earnings if the estimates we used to calculate the recoverable amount have changed since we recognized the impairment. We increase the carrying amount to the recoverable amount, net of the depreciation or amortization that would have arisen if we had not recognized the original impairment loss.
After a reversal, we recognize depreciation over the asset's remaining useful life based on its revised carrying amount, less any residual value.
Government subsidies
We recognize government subsidies when there is reasonable assurance we will receive the subsidy and will comply with all of the associated conditions. We credit government subsidies related to a capital expenditure against the carrying amount of the related asset, and amortize the subsidy over the expected useful life of the asset. We credit subsidies that are not associated with an asset to income, to match them with the expenses they relate to.
Provisions for asset retirement obligations
Our mines, closed properties and joint ventures are subject to environmental laws and regulations in Canada and the other countries we operate in. Mining companies are legally obligated to rehabilitate land and other property that has been damaged or contaminated in the course of their business activities. While rehabilitation activities usually happen after the site has been closed, companies are required to estimate reclamation costs from both operating sites and closed sites.
We incur obligations to restore and rehabilitate land and the environment as we carry out the regular construction and operation of our mines. Costs can include, among other things, the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas. We recognize a provision for these costs as the related disturbances occur, using our best estimate of future costs based on information available at the balance sheet date, including an adjustment for risk when there is significant variability in possible outcomes. We discount the provision using a current inflation adjusted pre-tax risk free interest rate and include the accretion of the discounted amount over time in finance costs in the statement of earnings.
When we recognize a provision, we record a corresponding increase in the carrying amount of the related asset (where we can identify one) and recognize depreciation following our accounting policies for property, plant and equipment.
We review these provisions annually for changes to our obligations, legislation or discount rates that affect our cost estimates or lives of operations. We adjust the provision and the cost of the related asset (where we can identify one) when there is a change in the estimated cash flows or discount rate, and depreciate the adjusted cost of the asset prospectively.
When we do not identify an asset, such as at our closed sites, we record a provision or a change in provision in cost of sales.
See note 12 for more information on our asset retirement obligations.
Other provisions
We recognize a provision when we have a legal or constructive obligation because of past events, and it is probable that, to settle the obligation, we will be required to make a payment that we can reliably estimate. If its effect is material, we discount the provision to net present value using a pre-tax risk free interest rate. We recognize the accretion of discounted provisions over the time of the obligation in finance costs in the statement of earnings.
Income taxes
We calculate current income tax expense for each of our taxable entities based on the local taxable income at the local statutory tax rate enacted or substantively enacted at the balance sheet date, and include adjustments to income taxes payable or recoverable for previous periods.
We calculate deferred tax assets and liabilities based on temporary differences between the carrying amounts in our balance sheet and their tax bases, using income tax rates we expect to be in effect when the temporary differences are likely to be settled. We present all deferred taxes as non-current assets and liabilities on the balance sheet.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
We only recognize deferred tax assets when it is probable that we will have enough taxable income in the future to recover them. We include the effects of changes in tax rates in income when the change is enacted or substantively enacted.
We recognize deferred tax assets or liabilities for all temporary differences, except for:
-- A deferred tax liability on the initial recognition of goodwill;
-- A deferred tax asset or liability arising from the initial recognition
of an asset or liability in a transaction which is not a business
combination and at the time of the transaction affects neither
accounting profit or loss nor taxable profit or loss; and
-- A deferred tax liability with respect to investments in subsidiaries,
branches, associates and interests in joint ventures, when we can
control the timing of the reversal of the temporary difference and that
it is probable that the temporary difference will not reverse in the
foreseeable future.
We review the carrying amount of deferred income tax assets at each balance sheet date and adjust it if:
-- an asset not previously recognized meets the criteria for recognition
-- our estimate of future taxable income available to recover them changes.
We recognize current and deferred tax that relates to equity items in equity, and not in the statement of earnings.
Assets held for sale and discontinued operations
Assets held for sale
We classify assets and disposal groups as held for sale if we will recover their carrying amounts through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the assets or disposal groups are available for immediate sale in their present condition. We must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year of the date of classification.
We carry assets (or disposal groups) held for sale at the lower of the carrying amount before being classified as held for sale, and the fair value less costs to sell. We present the assets and liabilities of a disposal group classified as held for sale separately as one line in the assets and liabilities sections on the statement of financial position.
Discontinued operations
A discontinued operation is a component of an entity that has been disposed of or classified as held for sale, with operations and cash flows that are clearly distinguished both operationally and for financial reporting purposes from the rest of the entity. To be classified as a discontinued operation, an operation must:
-- represent a separate major line of business or geographical area of
operations
-- be part of a single coordinated plan to dispose of a separate major line
of business or geographical area of operations, or
-- be a subsidiary acquired only for resale.
When the operation is discontinued at the balance sheet date, the results are presented in one line on the statement of earnings, and prior period results are represented as discontinued.
See note 10 for a breakdown of our results from discontinued operations.
Cash and short-term investments
Cash includes cash and money market instruments that mature in 90 days or less from the date of acquisition. Short-term investments mature in 91 days to a year.
In the consolidated statements of cash flows, we disclose:
-- short-term investments we buy with cash during the year as cash used in
investing activities
-- short-term investments we sell to generate cash as a source of cash from
investing activities
See note 7 for a breakdown of our cash and short-term investments.
Restricted cash
Restricted cash includes cash that has been pledged for other uses, such as reclamation, and is not available for immediate disbursement.
See note 8 for a breakdown of our restricted cash.
Financial instruments
Financial instruments include cash, as well as any contract that gives rise to a financial asset to one party and a financial liability or equity instrument to another party. We classify financial instruments at their initial recognition. We initially recognize financial instruments at their fair value.
Fair value is the value a financial instrument can be closed out or sold at, in a transaction with a willing and knowledgeable counterparty. It is usually the instrument's quoted market price. If a quoted market price is not available, we determine fair value with models using market-based or independent information and assumptions.
Cash and short-term investments, accounts receivable from metal sales, restricted cash and accounts payable and accrued liabilities
These financial instruments have been designated as fair value through profit and loss and are recorded at fair value. We record any changes in their fair value in net income. We record interest and dividends earned on cash, short-term investments and restricted cash in Investment and other income. For cash, we calculate fair value using published price quotations in an active market where there is one. Otherwise fair value represents cost plus accrued interest, which is reasonable given its short-term nature. We record accounts receivable related to metal sales at fair value based on forward market metal prices on the date of the balance sheet (see our Revenue policy above). We record accounts payable and accrued liabilities at amortized cost, which approximates fair value because of their short-term nature.
Investments
Our investments in equity securities are designated as available-for-sale and recorded at fair value. We calculate fair value using the bid price of the investment as quoted in an active market. We record changes in the fair value of our investments in Other comprehensive income. The change in fair value of an investment in an equity security appears in Investment and other income only when it is sold or impaired.
Our investments in long-term government and corporate bonds are designated as held to maturity. We initially recognize these investments at fair value and subsequently at amortized cost with the related interest income recorded in Investment and other income. We only designate investments as held to maturity when we intend, and have the ability, to hold them to maturity.
We capitalize transaction costs related to investments we make and include these in the investment's initial carrying value.
Loans and receivables
All non-metal receivables are designated as loans and receivables. We initially measure these assets at fair value. In subsequent periods, we measure them at amortized cost using the effective interest rate method.
Long-term debt
Our long-term debt is designated as other liabilities and is accounted for at amortized cost. We record interest expense on long-term debt in finance costs in the statement of earnings unless it relates specifically to a development project, and has been accounted for using our accounting policy for borrowing costs.
Derecognition of financial instruments
We will derecognize a financial asset when:
-- our rights to receive cash flows from the asset have expired
-- our right to receive cash flows has been retained, but we have assumed
an obligation to pay them in full to a third party without material
delay, or
-- our right to receive cash flows has been transferred, together with
substantially all the risks and rewards of ownership.
We derecognize financial liabilities when the associated obligation is discharged, cancelled or has expired.
Impairment of financial assets
We review our investments for impairment at the end of each reporting period based on both quantitative and qualitative criteria, including the extent that cost exceeds market value, the length of a market decline and the financial health of the issuer.
For loans and receivables and our investments in long-term bonds, we measure the amount of the loss as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate. We reduce the carrying amount of the asset and recognize the amount of the loss in the income statement in investment and other income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, we reverse the previously recognized impairment loss. We recognize any subsequent reversal of an impairment loss in the income statement, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.
If our investments in equity securities are impaired, we transfer the difference between its cost and its current fair value, less any impairment loss previously recognized in the income statement, from accumulated other comprehensive income to the income statement in investment and other income.
Embedded derivatives
When we enter into a contract, we determine whether it contains an embedded derivative. We separate an embedded derivative from its host contract if the derivative is not measured at fair value through profit and loss, and when its economic characteristics and risks are not closely related to the host contract. In these circumstances, we recognize the embedded derivative according to our accounting policy for derivatives.
Derivatives and hedging
We designate non-financial derivative contracts as held-for-trading and record them at fair value on the balance sheet. We include mark-to-market adjustments on these instruments in net income, unless the instruments are designated as part of a hedge relationship.
We record derivatives on the balance sheet at fair value. On the date we enter into a derivative, we designate it as a hedging instrument or a non-hedge derivative. A hedging instrument is designated in either:
-- a fair value hedge relationship with a recognized asset or liability, or
-- a cash flow hedge relationship with either a forecasted transaction, the
variable future cash flows arising from a recognized asset or liability,
or a foreign currency risk in an unrecognized firm commitment.
When we enter into a hedging contract, we formally document the relationship between the hedging instrument and the items it hedges, and the related risk-management strategy. This documentation:
-- links the hedging instrument to a specific asset or liability, specific
forecasted transaction, firm commitment or variable future cash flows
-- defines how we assess retrospective and prospective hedge effectiveness.
At the end of every quarter, we determine whether we expect a hedging instrument to be highly effective in offsetting risk in the future. If we do not expect it to be highly effective, we stop hedge accounting prospectively, and keep accumulated gains or losses in other comprehensive income until the hedged item affects earnings.
We also stop hedge accounting prospectively if:
-- a derivative is settled
-- it is no longer highly probable that a forecasted transaction will occur
-- we de-designate a hedging relationship.
If we conclude that it is probable that a forecasted transaction will not happen within the documented time frame, we immediately transfer all gains and losses accumulated in other comprehensive income to earnings. When hedge accounting stops, we reclassify the derivative as a non-hedge derivative prospectively.
We classify cash flows from a derivative in the same category as the cash flows from the item it hedges. We record cash flows from non-hedge derivatives as operating cash flows.
We record derivatives on the balance sheet at fair value and record changes in the fair value of derivatives at the end of every period:
-- fair value hedges: we record the change in the fair value of the
derivative and the item it hedges in earnings
-- cash flow hedges: we record the change in the fair value of the
derivative in other comprehensive income until earnings are affected by
the item it hedges, except for any hedge ineffectiveness which we
immediately record in earnings
-- non-hedge derivatives: we record the change in the fair value of the
derivative in investment and other income.
Borrowing costs
When we can attribute borrowing costs directly to the acquisition, construction or production of an asset that takes a substantial period of time to get ready for its intended use, we capitalize these costs as part of the asset's carrying value and amortize them over its useful life. Otherwise, we capitalize borrowing costs related to the establishment of a loan facility as long-term debt, and amortize them over the life of the loan facility.
We recognize other borrowing costs as an expense when we incur them.
Share capital
When we issue common shares, we recognize them in share capital at the net proceeds received (the fair value of the consideration we received, less costs we incurred to issue the shares).
Share-based compensation plans
We have a number of equity-settled and cash settled share-based compensation plans for senior management under which we issue either Inmet common shares or make cash payments based on the value of Inmet common shares. We calculate the cumulative expense at each balance sheet date before vesting, basing it on the vesting period remaining and our best estimate of the fair value of awards that we ultimately expect to vest, and recognize any change in the statement of earnings in general and administration. Annually, we adjust the estimated forfeiture rate for actual forfeitures in the year. For equity settled awards, we determine the fair value at the grant date and recognize our obligation in equity. For cash-settled awards, we recalculate the fair value at each balance sheet date until the awards are settled and recognize our obligation as a liability. Our share-based compensation plans comprise the following:
Stock option plan: Stock options are equity-settled by issuing shares from treasury. We estimate the fair value of stock options at the grant date using the Black-Scholes option pricing model. Options vest evenly over a four-year period.
Performance share unit (PSU) plan: PSUs are cash-settled and are subject to certain vesting requirements and vest at the end of a three year performance period. Vesting requirements are based on performance criteria established by the board of directors (Board). We re-measure the fair value of PSUs at each balance sheet date using a Monte Carlo pricing model that takes into account expected volatility, expected dividend yield and the risk-free interest rate over the life of the PSUs to generate potential outcomes for share prices, which are used to estimate the probability of the PSUs vesting at the end of the three year performance measurement period. A Monte Carlo pricing model is a technique used to approximate the probability of certain outcomes, called simulations, based on normally distributed random variables and highly subjective assumptions. This model generates potential outcomes for stock prices and allows for the simulation of multiple stocks in tandem resulting in an estimated probability of vesting.
Deferred share unit (DSU) program: this program allows Inmet directors to receive director fees in the form of DSUs rather than cash. DSUs are equity-settled by issuing shares from treasury and directors can only redeem their units for Inmet common shares when they retire. DSUs are fully vested when granted. We determine the fair value of DSUs at the grant date based on the closing trading price of an Inmet common share.
Long-term incentive plan (LTIP): this plan ties a portion of incentive compensation to the completion of specific development projects as defined under the plan. LTIP units are equity-settled by issuing shares from treasury. The Board uses its discretion to determine the vesting date for an award, but vesting is generally when the development project is determined to be substantially complete and has operated for enough time to be able to assess its ongoing operating parameters. The Board determines the number of units that vest by assessing senior management's performance against the expectations underlying the Board's original decision to develop the project. We calculate the stock based compensation expense using the estimated vesting date for the project associated with an award, and an estimate of senior management's ultimate performance for an award based on performance to date (estimated performance). We determine the fair value of LTIP units at the grant date based on the closing trading price of an Inmet common share.
Share award plan (SAP): at the time a share award is made, it is equity-settled by purchasing an equivalent number of Inmet common shares on the open market and we record this amount against contributed surplus. The share awards vest evenly over a period of four years.
See note 14 for more information related to our share based compensation plans.
Net income per share
We calculate basic net income per share by dividing net income available to the common shareholders of Inmet Mining by the weighted average number of common shares outstanding for the year.
We calculate diluted net income per share by taking into consideration the dilutive effects of stock options, DSUs and LTIP units. For stock options, we calculate dilution based upon the net number of common shares to be issued assuming in-the-money options are exercised and the proceeds are used to repurchase common shares at the average market price in the period. We also adjust the weighted average number of common shares by the number of DSUs outstanding and the number of LTIP units that are expected to vest.
See note 19 for our calculation of basic and diluted net income per share.
Employee future benefits
We provide a defined contribution retirement benefit to employees in Canada.
Employees in the other jurisdictions where we operate either have state pension arrangements or do not receive pension benefits.
Certain employees take part in the defined contribution employee benefit plans. Our cost for these plans is the required contributions based on specified percentages of salaries we are required to make.
For certain executives, our total contribution to the defined contribution component of the registered plan, including the annual cash payment in lieu of a supplementary pension plan, is equivalent to 9 to 12 percent of their salary and bonus.
We expense contributions as they come due.
4. Application of critical accounting judgements and estimates
Preparing our consolidated financial statements in conformity with IFRS requires us to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements, and reported amounts of revenues and expenses during the reporting period. Our estimates and assumptions are based on our experience and other factors, including expectations of future events that we believe to be reasonable under the circumstances. We continuously evaluate these estimates, but actual outcomes could be different.
The most critical judgements, estimates and assumptions are described below.
Purchase price allocation
We account for acquisitions by the purchase method of accounting whereby the purchase price is allocated to the assets acquired and the liabilities assumed based on fair value at the time of the acquisition. The excess purchase price over the fair value of identifiable assets and liabilities acquired is goodwill. The determination of fair value often requires us to make assumptions and estimates about future events. The assumptions and estimates with respect to determining the fair value of property, plant and equipment acquired generally require a high degree of judgement, and include estimates of mineral reserves acquired, future metal prices and discount rates. Changes in any of the assumptions or estimates used in determining the fair value of acquired assets and liabilities could impact the amounts assigned to assets, liabilities and goodwill in the purchase price allocation.
Estimated mineral reserves
Our mineral reserves are estimates of the amount of ore that can be economically and legally extracted from our mining properties. To calculate reserves, we use estimates and assumptions about a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production and freight costs, commodity prices and exchange rates. Our reserves for all operations are estimated based on information compiled by or under the supervision of a qualified person as defined under National Instrument 43-101.
Changes in our reserve estimates can affect:
-- asset carrying values due to changes in estimated future cash flows and
impairment analysis
-- depreciation in the statement of earnings, when depreciation is based on
units of production, or when the useful economic life of an asset
changes
-- asset retirement obligations where changes in estimated reserves affect
expectations about the timing or cost of these activities.
Provision for asset retirement obligations
Our closed mines, operations and joint ventures are subject to environmental laws and regulations in Canada, the United States and the other countries in which we operate.
Our provision for asset retirement obligations is our best estimate of the present value of the future costs of mine closure, and involves a significant number of technical issues, estimates and assumptions, with many uncertainties, including changes to the relevant legal and regulatory framework, the magnitude of possible contamination and the timing and extent of the cost of required restoration activities. We will record any changes that arise prospectively, as follows:
-- operating mines: we record changes in the balance sheet by adjusting the
reclamation asset and provision, which affects both future depreciation
and finance costs
-- closed properties: we immediately recognize changes to estimated costs
in the statement of earnings as cost of sales.
Impairment of assets
If we believe an asset may be impaired, we calculate its recoverable amount as either its fair value less costs to sell, or its value in use (whichever is higher), following our Impairment of assets accounting policy described in note 3.
When following this policy, we make estimates and assumptions about future production and sales volumes, future commodity prices, recoverable mineral reserves, discount rates, foreign exchange rates, future operating and capital costs. We may also make assumptions about our ability to obtain financing for a project or to recover costs by selling an asset. Actual outcomes could be different.
Income taxes
We operate in a number of countries around the world and are subject to, and pay annual income taxes under the regimes in countries in which we operate. These tax regimes are determined under general corporate income tax laws in those countries. We file all required income tax returns and pay the taxes reasonably determined to be due.
The tax laws in many countries can be complex and subject to interpretation. From time to time, there may be disagreement with the taxing authorities over our interpretation of the country's income tax rules. The final outcome of these disputes could be materially different from our estimated tax liabilities.
We have significant Canadian tax benefits from capital losses, capital cost allowances and mining resource pools. We only recognize deferred tax assets arising from tax loss carry forwards, capital losses and temporary differences when it is probable that we will have enough taxable income in the future to recover them, therefore this is dependent on the generation of sufficient future taxable income.
Our estimates of future taxable income include assumptions about interest rates, foreign currency exchange rates and other factors. Our deferred tax asset could be reduced if future taxable income is reduced resulting in a corresponding charge to income tax expense in the statement of earnings.
Plant construction
In the construction of plant and equipment, we capitalize costs that can be directly attributed to bringing the asset into working condition for its intended use, including costs during a commissioning period, before the asset is able to operate at normal levels.
We use several criteria to determine when an asset is able to operate at normal levels. These are complex, and depend on each development property's plan and its economic, political and environmental condition. Criteria can include:
-- producing saleable material
-- completing a reasonable period of testing of the plant and equipment in
the mine, mill and/or plant
-- achieving certain level of recoveries from the ore mined and processed
-- sustaining ongoing production and reaching a certain level of
production.
Once these criteria are met, we stop capitalizing the costs related to the commissioning period, and begin to recognize production costs in the statement of earnings.
5. Standards issued but not yet effective
The IASB has issued the following new standards and amendments to existing standards. These changes in accounting are not yet effective at December 31, 2011, and could have an impact in future periods:
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IFRS 9 Financial instruments IFRS 9 simplifies the current
measurement model for financial
instruments under IFRS and
establishes two measurement
categories for financial
assets: amortized cost and fair
value. Existing IAS 39
categories of loans and
receivables, held-to-maturity
investments, and available-for-
sale financial assets will be
eliminated. A financial asset
can be measured at amortized
cost when:
- the objective of the business
model is to hold assets in
order to collect contractual
cash flows, and
- the contractual terms give
rise, on contractual dates, to
cash flows that are solely
payments of principal and
interest on principal
outstanding.
All other financial assets are
measured at fair value.
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IFRS 7 and Offsetting financial assets and The IASB published amendments
IAS 32 liabilities to IFRS 7 and IAS 32, the
standards that address
disclosure and presentation
requirements for financial
instruments, respectively,
related to offsetting financial
assets and liabilities. The
amendments provide new
disclosure requirements
relating to offsetting of
financial assets and financial
liabilities and do not change
the criteria required for
offsetting. We expect this
standard will not result in a
significant impact to our
consolidated financial
statements.
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IFRS 10 Consolidated financial IFRS 10 provides a definition
statements of control determined by the
following three elements: power
over an investee, exposure to
variable returns from an
investee, and the ability to
use power to affect the
reporting entity's returns.
Power is not defined as the
legal or contractual right to
direct activities, but is based
on the ability to direct
activities, which requires the
entity to exercise significant
judgment. Accounting
requirements and consolidation
procedures remain unchanged
from IAS 27.
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IFRS 11 Joint arrangements IFRS 11 introduces a principle-
based approach where a party to
a joint arrangement recognizes
its own rights and obligations
arising from the arrangement.
Joint arrangements not
structured through a separate
vehicle are classified as a
'joint operation' and the
accounting for transactions is
in accordance with the
contractual arrangement. Joint
arrangements structured through
a separate vehicle must be
evaluated based on their legal
form and the terms of the
contractual arrangement; these
arrangements are classified as
either a joint operation or a
joint venture based on this
evaluation. Joint ventures are
accounted for using the equity
method. The most significant
impact of this standard is
therefore the elimination of
proportionate consolidation as
a method to account for joint
arrangements.
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IFRS 12 Disclosure of interests in IFRS 12 enhances, and replaces
other entities the disclosure requirements for
subsidiaries, joint
arrangements, associates and
unconsolidated structured
entities. The standard requires
a reporting entity to disclose
information that helps users
assess the nature and financial
effects of the reporting
entity's relationship with
other entities. Disclosure
requirements include
information that helps users in
understanding the judgments and
assumptions made by a reporting
entity when deciding how to
classify its involvement with
another entity, understand the
interest that non-controlling
interests have in consolidated
entities, and assess the nature
of the risks associated with
interests in other entities.
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IFRS 13 Fair value measurement IFRS 13 defines fair value,
sets a framework for measuring
fair value, and requires
disclosures about fair value
measurements. Generally, the
standard does not introduce new
requirements to measure assets
or liabilities at fair value,
change what is measured at fair
value in IFRS, or address how
to present changes in fair
value, but rather consolidates
guidance on fair value into a
single standard and better
clarifies measurement and
disclosure objectives.
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IAS 19 Employee benefits The IASB published amendments
to IAS 19, the standard dealing
with accounting for pensions
and other post-retirement and
post-employment benefits, most
significantly:
- Immediate recognition of all
changes in a plan's funded
status (i.e. removal of the
corridor approach option for
recognizing actuarial gains and
losses)
- streamlining the presentation
of changes in assets and
liabilities arising from
defined benefit plans,
including requiring re-
measurements to be presented in
other comprehensive income
(OCI), thereby separating those
changes from changes that many
perceive to be the result of an
entity's day-to-day operations
- expanded disclosures about
defined benefit plans, with an
additional focus on describing
the risks to which the plan
sponsor is exposed because of
the plan and the effect of the
plan on the plan sponsor's
future cash flows
- We expect this standard will
not result in a significant
impact to our consolidated
financial statements.
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IFRIC 20 Stripping costs in the IFRIC 20 is a new
production phase of a surface interpretation issued to
mine provide guidance on stripping
costs incurred in the
production phase of a surface
mine. The interpretation
requires that production
stripping costs incurred as
part of a stripping campaign
are capitalized as a component
of the larger asset to which
they relate. Subsequent to
initial recognition, the
component is recognized at cost
less amortization, based on the
expected useful life of the
specific section of ore body
that becomes directly
accessible as a result of the
stripping campaign, and less
any impairment losses. As this
guidance is consistent with our
current accounting policy for
stripping costs, we do not
expect this interpretation to
have a significant effect on
our consolidated financial
statements.
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We are currently assessing the impact that IFRS's 9, 10, 11 and 12 will have on our consolidated financial statements.
6. First time adoption of IFRS
We have adopted IFRS from January 1, 2011, as required for publicly accountable enterprises in Canada.
Our transition date is January 1, 2010 and we have adjusted the 2010 comparative information from what was previously reported under Canadian GAAP in order to conform to IFRS.
Under IFRS 1 - First time adoption of International Financial Reporting Standards, we must apply IFRS retrospectively at the transition date, changing retained earnings to incorporate all adjustments to assets and liabilities as stated previously under Canadian GAAP, except where we apply any exemptions that are available. We have applied the following significant exemptions:
-- we did not restate acquisitions we made prior to January 1, 2010 in
accordance with IFRS 3 - Business combinations
-- we reset the cumulative translation gains and losses in accumulated
other comprehensive income to nil at January 1, 2010 and made the
corresponding adjustment to retained earnings
-- we applied IFRS 2 - Share based payments only to equity settled share
based payment awards we granted after November 7, 2002 and that had not
vested by January 1, 2010
-- for certain mines, we used a transitional calculation to determine the
property, plant and equipment associated with our provision for asset
retirement obligations. Under this calculation, we measured the
provision at the transition date and discounted to the date the
liability first arose. The result became the initial asset value we
applied depreciation to.
Balance sheet reconciliations
The schedule below reconciles our Canadian GAAP and IFRS balance sheets as at January 1, 2010 (our transition date to IFRS).
Canadian GAAP Reclassifications Subtotal
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Assets
Current assets:
Cash and short-term
investments $ 533,913 $ - $ 533,913
Restricted cash 15,130 - 15,130
Accounts receivable 129,987 - 129,987
Inventories 103,108 - 103,108
Current portion of
held to maturity
investments 9,993 - 9,993
Deferred income tax
assets 8,466 (8,466) -
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800,597 (8,466) 792,131
Restricted cash 101,589 - 101,589
Property, plant and
equipment 1,860,616 - 1,860,616
Investments in equity
securities 42,411 - 42,411
Held to maturity
investments 89,891 - 89,891
Deferred income tax
assets 6,151 5,076 11,227
Other assets 2,894 - 2,894
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$ 2,904,149 $ (3,390) $ 2,900,759
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Liabilities
Current liabilities:
Accounts payable and
accrued liabilities $ 185,145 $ (15,047) $ 170,098
Provisions - 17,417 17,417
Derivatives 1,543 - 1,543
Deferred income tax
liabilities 4,612 (4,612) -
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191,300 (2,242) 189,058
Long-term debt 200,026 - 200,026
Asset retirement
obligations 145,038 (145,038) -
Provisions - 156,456 156,456
Other liabilities 32,113 (11,418) 20,695
Derivatives 3,165 - 3,165
Deferred income tax
liabilities 16,357 (1,148) 15,209
Non-controlling
interest 78,005 (78,005) -
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666,004 (81,395) 584,609
Equity
Share capital 669,952 - 669,952
Contributed surplus 63,296 - 63,296
Stock based
compensation 5,170 - 5,170
Retained earnings 1,541,803 - 1,541,803
Accumulated other
comprehensive income
(loss) (42,076) - (42,076)
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Total equity
attributable to Inmet
equity holders 2,238,145 - 2,238,145
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Non-controlling
interest - 78,005 78,005
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Total equity 2,238,145 78,005 2,316,150
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Total liabilities and
equity $ 2,904,149 $ (3,390) $ 2,900,759
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Adjustments Notes IFRS
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Assets
Current assets:
Cash and short-term
investments $ - $ 533,913
Restricted cash - 15,130
Accounts receivable 25,774 i 155,761
Inventories (4,784) i, ii 98,324
Current portion of
held to maturity
investments - 9,993
Deferred income tax
assets - -
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20,990 813,121
Restricted cash - 101,589
Property, plant and
equipment 85,053 ii, iii, iv, v 1,945,669
Investments in equity
securities - 42,411
Held to maturity
investments - 89,891
Deferred income tax
assets (8,867) vii, viii 2,360
Other assets (991) 1,903
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$ 96,185 $ 2,996,944
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Liabilities
Current liabilities:
Accounts payable and
accrued liabilities $ 426 i $ 170,524
Provisions - 17,417
Derivatives - 1,543
Deferred income tax
liabilities - -
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426 189,484
Long-term debt - 200,026
Asset retirement
obligations - -
Provisions 39,974 vi 196,430
Other liabilities - 20,695
Derivatives - 3,165
Deferred income tax
liabilities 10,523 vii, viii 25,732
Non-controlling
interest - -
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50,923 635,532
Equity
Share capital - 669,952
Contributed surplus 1,513 64,809
Stock based
compensation - 5,170
Retained earnings (14,694) 1,527,109
Accumulated other
comprehensive income
(loss) 61,169 ix 19,093
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Total equity
attributable to Inmet
equity holders 47,988 2,286,133
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Non-controlling
interest (2,726) 75,279
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Total equity 45,262 2,361,412
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Total liabilities and
equity $ 96,185 $ 2,996,944
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The schedule below reconciles our Canadian GAAP and IFRS balance sheets as at December 31, 2010.
Re-
Canadian GAAP classifications Subtotal
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Assets
Current assets:
Cash and short-term
investments $ 326,425 $ - $ 326,425
Restricted cash 617 - 617
Accounts receivable 91,893 - 91,893
Inventories 84,077 - 84,077
Current portion of
held to maturity
investments 53,915 - 53,915
Deferred income tax
assets 27,614 (27,614) -
Assets held for sale 282,255 - 282,255
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866,796 (27,614) 839,182
Restricted cash 70,059 - 70,059
Property, plant and
equipment 1,921,843 - 1,921,843
Investments in equity
securities 2,694 - 2,694
Held to maturity
investments 318,615 - 318,615
Deferred income tax
assets 1,336 12,782 14,118
Goodwill 76,368 - 76,368
Other assets 4,865 - 4,865
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$ 3,262,576 $ (14,832) $ 3,247,744
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Liabilities
Current liabilities:
Accounts payable and
accrued liabilities $ 153,111 $ (17,668) $ 135,443
Provisions - 17,668 17,668
Liabilities
associated with
assets held for
sale 102,447 - 102,447
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255,558 - 255,558
Long-term debt 16,619 - 16,619
Asset retirement
obligations 108,592 (108,592) -
Provisions - 118,598 118,598
Other liabilities 28,123 (10,006) 18,117
Deferred income tax
liabilities 95,200 (14,832) 80,368
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504,092 (14,832) 489,260
Equity
Share capital 1,015,698 - 1,015,698
Contributed surplus 64,972 - 64,972
Stock based
compensation 6,542 - 6,542
Retained earnings 1,889,491 - 1,889,491
Accumulated other
comprehensive income
(loss) (218,219) - (218,219)
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Total equity 2,758,484 - 2,758,484
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Total liabilities and
equity $ 3,262,576 $ (14,832) $ 3,247,744
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Adjustments Notes IFRS
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Assets
Current assets:
Cash and short-term
investments $ - $ 326,425
Restricted cash - 617
Accounts receivable 27,533 i 119,426
Inventories (11,923) i, x 72,154
Current portion of
held to maturity
investments - 53,915
Deferred income tax
assets - -
Assets held for sale 36,827 xi 319,082
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52,437 891,619
Restricted cash - 70,059
Property, plant and ii, iii, iv, v,
equipment (185,778) x 1,736,065
Investments in equity
securities - 2,694
Held to maturity
investments - 318,615
Deferred income tax
assets (5,397) vii, viii 8,721
Goodwill (76,368) x -
Other assets (2,530) 2,335
----------------------------------------------------------------------------
$ (217,636) $ 3,030,108
----------------------------------------------------------------------------
Liabilities
Current liabilities:
Accounts payable and
accrued liabilities $ 902 i $ 136,345
Provisions - 17,668
Liabilities
associated with
assets held for
sale 9,449 111,896
----------------------------------------------------------------------------
10,351 265,909
Long-term debt - 16,619
Asset retirement
obligations - -
Provisions 43,801 vi 162,399
Other liabilities - 18,117
Deferred income tax
liabilities (67,843) vii, viii 12,525
----------------------------------------------------------------------------
(13,691) 475,569
Equity
Share capital 73,878 x 1,089,576
Contributed surplus 1,159 66,131
Stock based
compensation - 6,542
Retained earnings (311,984) 1,577,507
Accumulated other
comprehensive income
(loss) 33,002 ix (185,217)
----------------------------------------------------------------------------
Total equity (203,945) 2,554,539
----------------------------------------------------------------------------
Total liabilities and
equity $ (217,636) $ 3,030,108
----------------------------------------------------------------------------
Notes to the balance sheet reconciliations as at January 1, 2010 and December 31, 2010:
Reclassifications
We reclassified several items to conform to IFRS. The following are the most significant:
-- non-controlling interests are under a separate component of equity.
Under Canadian GAAP, we reported these as a liability.
-- current deferred income tax assets and liabilities are under long term
assets and liabilities. Under IFRS, all deferred income taxes assets and
liabilities must be classified as long term.
-- asset retirement obligations are under provisions. We previously
reported these as a separate long term liability.
-- certain employee compensation obligations are under current and long
term provisions. Under Canadian GAAP, we reported them in accounts
payable if they were current obligations, or as other liabilities if
they were long term obligations.
Adjustments
i. Revenue recognition - at January 1, 2010 we increased accounts
receivable by $25.8 million (December 31, 2010 - $27.5 million) and
reduced inventory by $5.6 million (December 31, 2010 - $6.3 million).
Under IFRS, we recognize revenue when all significant risks and
rewards of ownership of our products are transferred to the purchaser.
Under Canadian GAAP, title also had to legally transfer to the
purchaser before revenue was recognized. For certain shipments at
Cayeli, Pyhasalmi and Ok Tedi, we transfer title when we receive the
first provisional payment, which is later than the transfer point for
risks and rewards of ownership.
ii. Reversal of impairment of assets - at January 1, 2010, we increased
property plant and equipment by $51.9 million (December 31, 2010 -
$41.1 million) to reverse an impairment charge we recognized for
Cayeli in 1996. The increase is the IFRS carrying amount we would have
calculated, net of depreciation, if we had not recognized the original
impairment.
Canadian GAAP did not allow for reversal of impairment charges after
they were initially recognized. Under IFRS, we must reverse an
impairment loss if there is a change in the estimates we used to
determine the recoverable amount. In 1996, after Cayeli's first 2
years of operations, we recognized an impairment charge of $128
million against property, plant and equipment. At the time, zinc and
copper recoveries were significantly lower than feasibility levels,
and were continuing to deteriorate. The complex mineralogy of the
Cayeli ore body, continuing poor metallurgical results and the
possibility that no improvements may have been achievable were the
main reasons for the impairment. After many initiatives and capital
improvements, and many years of significantly improved production
performance since that time, we concluded the extensive uncertainties
underlying the original impairment no longer apply and, that Cayeli's
recoverable amount exceeds its carrying value on our transition to
IFRS.
iii. Plant and equipment at Ok Tedi - at January 1, 2010, we increased
property, plant and equipment by $14.5 million. For plant and
equipment that has been purchased after our initial proportionate
consolidation of Ok Tedi, we used Ok Tedi's accumulated depreciation,
which Ok Tedi has determined historically under IFRS.
iv. Property, plant and equipment associated with asset retirement
obligations - at January 1, 2010, we increased property, plant and
equipment by $8.8 million on our transition to IFRS (December 31, 2010
- $12.1 million).
Under both IFRS and Canadian GAAP, we recognize a corresponding change
in the provision for asset retirement obligations in the carrying
value of the related property, plant and equipment and depreciate this
amount prospectively. The amount of our asset retirement obligations
under IFRS is different from the amount under Canadian GAAP as
described in (vi) below, and therefore has an impact on our related
assets.
v. Foreign exchange forward contract - at January 1, 2010, we increased
property, plant and equipment by $13.4 million on our transition to
IFRS (December 31, 2010 - $11.5 million).
To fix the amount of euros under its credit facility upon conversion
to a US dollar denominated loan, Las Cruces entered into a forward
contract to exchange US $215 million for EUR171.1 million. In 2008,
this derivative settled on a net basis with Las Cruces receiving cash
of EUR32.6 million ($52.3 million).
Under Canadian GAAP, we applied hedge accounting for this contract.
During the period that the credit facility was outstanding, Las Cruces
capitalized the related interest under its credit facility as a cost
of deferred development. We amortized the gain in property, plant and
equipment, as a reduction of this capitalized interest. Under IFRS,
this instrument does not qualify as a hedge for accounting purposes,
and we reclassed the amount we had recognized against property, plant
and equipment to retained earnings.
vi. Provision for asset retirement obligations - at January 1, 2010, we
increased our provision for asset retirement obligations by $39.8
million (December 31, 2010 - $43.6 million).
Under IFRS, we measure asset retirement obligations using a risk free
interest rate, and revalue for changes in market risk free interest
rates. Under Canadian GAAP, we used a credit adjusted risk free
interest rate and were not required to remeasure for changes in market
rates.
vii. Deferred income taxes - translation of non-monetary items - at January
1, 2010, we increased deferred income tax assets by $3.3 million
(December 31, 2010 - $1.3 million).
Under IFRS, when an entity's taxes are denominated in a currency that
is not its functional currency (Cayeli and Ok Tedi), we are required
to recognize deferred income taxes and liabilities related to the
foreign exchange gains and losses for foreign non-monetary assets and
liabilities that are re-measured into the functional currency, using
historical foreign exchange rates. This was not allowed under Canadian
GAAP.
viii. Deferred income taxes - as a result of the tax effect of changes to
our opening balances under IFRS, we decreased deferred income tax
assets by $12.2 million (December 31, 2010 - $6.4 million) and
increased deferred income tax liabilities by $10.7 million (December
31, 2010 - decrease of $65.9 million).
ix. Cumulative translation adjustment - at January 1, 2010, we reset the
cumulative translation gains and losses in accumulated other
comprehensive income to nil, and recognized a corresponding decrease
of $61.2 million in retained earnings, using an election under IFRS 1.
x. Acquisition of non-controlling interest in Las Cruces - at December
31, 2010, we decreased inventory by $6.8 million, decreased property,
plant and equipment by $247.0 million, decreased goodwill by $76.4
million and increased share capital by $73.9 million.
Under Canadian GAAP, companies that acquire an additional interest in
an entity they already control must account for it as a step
acquisition. Under IFRS, acquiring a non-controlling interest is not
considered a business combination, and is instead accounted for as an
equity transaction. Under IFRS, we have accounted for our acquisition
of the remaining 30 percent interest in Las Cruces which closed in
December 2010, as an equity transaction, because we already controlled
it.
xi. Assets and liabilities held for sale for Ok Tedi - on January 29,
2011, Ok Tedi Mining Limited repurchased our 18 percent equity
interest in Ok Tedi for US $335 million, and we classified it as held
for sale at December 31, 2010 (consistent to our Canadian GAAP
presentation). Our share of Ok Tedi's assets and liabilities
classified as held for sale under IFRS were $36.8 million and $9.4
million higher respectively than they were under Canadian GAAP because
of the adjustments outlined above.
xii. Equity reconciliation - The table below reconciles total equity under
Canadian GAAP to total equity under IFRS, and illustrates the after-
tax effect of each of the most significant adjustments had on equity.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 1, December 31,
Notes 2010 2010
----------------------------------------------------------------------------
Canadian GAAP equity $ 2,238,145 $ 2,758,484
IFRS adjustments:
Reclassification of non-controlling
interest to equity 78,005 -
Revenue recognition i 14,210 30,023
Reversal of impairment of assets -
Cayeli ii 42,395 34,005
Plant and equipment - Ok Tedi iii 10,184 11,179
Property, plant and equipment associated
with asset retirement obligations iv 8,304 12,175
Foreign exchange forward contract - Las
Cruces v 9,386 8,034
Provision for asset retirement
obligations vi (38,349) (41,310)
Deferred income taxes vii 3,481 2,870
Acquisition of the non-controlling
interest in Las Cruces x - (254,056)
Other (4,349) (6,865)
----------------------------------------------------------------------------
IFRS equity $ 2,361,412 $ 2,554,539
----------------------------------------------------------------------------
The schedule below reconciles our Canadian GAAP and IFRS net income for the three months ended December 31, 2010. The Canadian GAAP statement of earnings is presented in an IFRS format.(1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canadian Reclassi-
GAAP fications Ok Tedi Adjustments Notes IFRS
----------------------------------------------------------------------------
Gross sales $318,128 $ - $(116,582) $ 28,723 i $230,269
Smelter
processing
charges and
freight (38,440) - 10,220 (7,513) i (35,733)
Cost of sales
(excluding
depreciation) (98,625) 2,039 23,270 (9,651) i (82,967)
Depreciation iii,
(23,361) - 6,949 (2,470) iv (18,882)
----------------------------------------------------------------------------
Earnings from
operations 157,702 2,039 (76,143) 9,089 92,687
Corporate
development
and
exploration (3,975) - - (1,459) (5,434)
General and
administration (4,767) - - 9 (4,758)
Investment and
other income 50,331 - (19) 310 ii 50,622
Stand-by costs - - - - -
Finance costs (2,520) (2,306) 224 308 (4,294)
----------------------------------------------------------------------------
Income before
taxation 196,771 (267) (75,938) 8,257 128,823
Income tax
expense (54,307) 267 27,945 (5,865) vi (31,960)
----------------------------------------------------------------------------
Income from
continuing
operations $142,464 $ - $ (47,993) $ 2,392 $ 96,863
Income from
discontinued
operation (net
of taxes) - - 47,993 - 47,993
----------------------------------------------------------------------------
Net income $142,464 $ - $ - $ 2,392 $144,856
----------------------------------------------------------------------------
Attributable
to:
Inmet equity
holders $144,505 $ - $ - $ 2,427 $146,932
Non-controlling
interest (2,041) - - (35) (2,076)
----------------------------------------------------------------------------
$142,464 $ - $ - $ 2,392 $144,856
----------------------------------------------------------------------------
(1) Under Canadian GAAP, we deducted the non-controlling interest's share of
Las Cruces' income when calculating net income. Under IFRS, no deduction for
this is made and net income is presented as separately attributable to the
equity holders of Inmet Mining and to the non-controlling interest.
The schedule below reconciles our Canadian GAAP and IFRS net income for the year ended December 31, 2010. The Canadian GAAP statement of earnings is presented in an IFRS format.(1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canadian
GAAP Reclassifications Ok Tedi
----------------------------------------------------------------------------
Gross sales $ 1,098,087 $ - $ (356,629)
Smelter processing
charges and freight (166,754) - 36,448
Cost of sales
(excluding
depreciation) (345,764) 6,343 95,871
Depreciation (81,844) - 27,513
----------------------------------------------------------------------------
Earnings from
operations 503,725 6,343 (196,797)
Corporate development
and exploration (12,036) - -
General and
administration (20,638) - -
Investment and other
income 35,416 - (32)
Stand-by costs (6,753) - -
Finance costs (6,873) (7,148) 910
----------------------------------------------------------------------------
Income before taxation 492,841 (805) (195,919)
Capital tax expense (373) - -
Income tax expense (134,682) 805 71,164
----------------------------------------------------------------------------
Income from continuing
operations $ 357,786 $ - $ (124,755)
Income from
discontinued
operation - - 124,755
----------------------------------------------------------------------------
Net income $ 357,786 $ - $ -
----------------------------------------------------------------------------
Net income
attributable to:
Inmet equity holders $ 358,898 $ - $ -
Non-controlling
interest (1,112) - -
----------------------------------------------------------------------------
$ 357,786 $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjustments Notes IFRS
----------------------------------------------------------------------------
Gross sales $ 37,098 i $ 778,556
Smelter processing
charges and freight (8,158) i (138,464)
Cost of sales
(excluding
depreciation) (10,309) i, v (253,859)
Depreciation (1,657) i, iii, iv (55,988)
----------------------------------------------------------------------------
Earnings from
operations 16,974 330,245
Corporate development
and exploration (1,459) (13,495)
General and
administration 274 (20,364)
Investment and other
income 22,960 ii 58,344
Stand-by costs - (6,753)
Finance costs (65) (13,176)
----------------------------------------------------------------------------
Income before taxation 38,684 334,801
Capital tax expense - (373)
Income tax expense (6,001) vi (68,714)
----------------------------------------------------------------------------
Income from continuing
operations $ 32,683 $ 265,714
Income from
discontinued
operation - 124,755
----------------------------------------------------------------------------
Net income $ 32,683 $ 390,469
----------------------------------------------------------------------------
Net income
attributable to:
Inmet equity holders $ 32,978 $ 391,876
Non-controlling
interest (295) (1,407)
----------------------------------------------------------------------------
$ 32,683 $ 390,469
----------------------------------------------------------------------------
(1) Under Canadian GAAP, we deducted the non-controlling interest's share of
Las Cruces' income when calculating net income. Under IFRS, no deduction for
this is made and net income is presented as separately attributable to the
equity holders of Inmet Mining and to the non-controlling interest.
Notes to the reconciliation of the statement of earnings for three months and year ended December 31, 2010:
Reclassifications
When we adopted IFRS, we reclassified accretion of asset retirement obligations and capital lease obligations to finance costs. We recognized it as part of cost of sales under Canadian GAAP.
Ok Tedi
In January 2011, we sold our 18 percent equity interest in Ok Tedi. As the operations and cash flows for Ok Tedi have been eliminated as a result of this disposal and we have no continuing involvement with this operation, we have presented our proportionately consolidated results from Ok Tedi as discontinued operations retroactively. The sale of our investment in Ok Tedi did not qualify for treatment as discontinued operations under Canadian GAAP. This change affects our entire income statement so we have disclosed it separately.
Adjustments
i. Revenue - for the three months ended December 30, 2010 we increased
revenue by $28.7 million (year ended December 31, 2010 - $37.1 million)
and made associated adjustments to smelter processing charges and
freight, cost of sales and depreciation.
Under IFRS, we recognize revenue when all significant risks and rewards
of ownership of our products are transferred to the purchaser. Under
Canadian GAAP, title also had to legally transfer to the purchaser
before revenue was recognized. For certain shipments at Cayeli,
Pyhasalmi and Ok Tedi, we transfer title when we receive the first
provisional payment, which is later than the transfer point for risks
and rewards of ownership.
ii. Foreign exchange gains and losses - for the three months ended December
31, 2010, we reversed foreign exchange losses recognized under Canadian
GAAP, which increased investment and other income by $nil million (year
ended December 31, 2010 - $22.7 million).
Under IFRS, only dividends that represent a return on capital invested
in a foreign operation require recognition of previously deferred
foreign exchange gains or losses. Under Canadian GAAP, dividends,
including those related to the accumulation of earnings are considered
a return on investment, and we recognized the deferred foreign exchange
gains or losses on these amounts in investment and other income.
iii. Depreciation - we increased property, plant and equipment relating to
the reversal of an impairment charge recognized for Cayeli, and made an
associated increase in depreciation of $1.8 million for the three
months ended December 31, 2010 (year ended December 31, 2010 - $7.9
million).
iv. Depreciation of property, plant and equipment associated with asset
retirement obligations - we recognized a $0.2 million increase in
depreciation for the three months ended December 31, 2010 (year ended
December 31, 2010 - $6.3 million decrease).
Under both IFRS and Canadian GAAP, we recognize a corresponding change
in the provision for asset retirement obligations in the carrying value
of the related property, plant and equipment and depreciate this amount
prospectively. The amount of our asset retirement obligations under
IFRS is different from the amount under Canadian GAAP, and therefore
has an impact on our related assets and depreciation expense.
v. Provision for asset retirement obligations - we increased cost of sales
by $6.5 million for the year ended December 31, 2010 to increase our
asset retirement obligations at our closed properties as a result of
changes in discount rates.
Under IFRS, we measure asset retirement obligations using a risk free
interest rate, and revalue for changes in market risk free interest
rates. Under Canadian GAAP, we used a credit adjusted risk free
interest rate and were not required to remeasure for changes in market
rates.
vi. Deferred income taxes - as a result of the tax effect of changes
recognized in our income statement under IFRS, we increased income tax
expense by $4.3 million for the three months ended December 31, 2010
(year ended December 31, 2010 - $4.8 million increase).
The schedule below reconciles our Canadian GAAP and IFRS comprehensive income for the three months and year ended December 31, 2010. The Canadian GAAP statement of comprehensive income is presented in an IFRS format.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended year ended
Notes December 31, 2010 December 31, 2010
----------------------------------------------------------------------------
Comprehensive income reported
under Canadian GAAP $ 22,668 $ 181,643
Total adjustments to net
income 2,392 32,683
Adjustments to other
comprehensive income (loss):
Currency translation
adjustments i, ii 1,441 (28,167)
----------------------------------------------------------------------------
Comprehensive income under
IFRS $ 26,501 $ 186,159
----------------------------------------------------------------------------
Notes to the reconciliation of the statement of comprehensive income for the three months and the year ended December 31, 2010
Adjustments
i. Currency translation adjustments - for the three months ended December
31, 2010, we reversed foreign exchange losses previously recognized in
the statement of earnings under Canadian GAAP, which decreased other
comprehensive income by $nil million (year ended December 31, 2010 -
$22.7 million).
Under IFRS, only dividends that represent a return on capital invested
in a foreign operation require recognition of previously deferred
foreign exchange gains or losses. Under Canadian GAAP, dividends,
including those related to the accumulation of earnings and repayment of
intercompany debt, are considered a return on investment, and we
recognized the deferred foreign exchange gains or losses on these
amounts in investment and other income.
ii. Currency translation adjustments - as a result of the currency
translation impact of recognizing changes to our balance sheet under
IFRS, we decreased other comprehensive income by $1.4 million for the
three months ended December 31, 2010 (year ended December 31, 2010 -
$5.5 million).
Cash flow statement
The IFRS transition adjustments above did not have an impact on our cash and short-term investments. Differences in our cash flow statements between Canadian GAAP and IFRS are the result of non-cash adjustments to items in the statements of earnings outlined above and the presentation of Ok Tedi cash flows as discontinued operations (note 10).
7. Cash and short-term investments
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, December 31, January 1,
2011 2010 2010
----------------------------------------------------------------------------
Cash and cash
equivalents:
Liquidity funds $ 387,857 $ 194,603 $ 205,190
Term deposits 6,763 52,991 40,140
Overnight deposits 72,701 4,319 54,435
Bankers acceptances 920 - 92,200
Money market funds 130,485 40,048 19,951
Corporate 11,974 - -
Bank deposits 32,764 27,168 95,001
Provincial short-term
notes 172,481 - -
----------------------------------------------------------------------------
815,945 319,129 506,917
----------------------------------------------------------------------------
Short-term
investments:
Corporate 50,184 - 26,996
Term deposits - 7,296 -
Provincial short term
notes 193,339 - -
Bankers acceptances 23,425 - -
----------------------------------------------------------------------------
266,948 7,296 26,996
----------------------------------------------------------------------------
Total cash and short-
term instruments $ 1,082,893 $ 326,425 $ 533,913
----------------------------------------------------------------------------
----------------------------------------------------------------------------
8. Restricted cash
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, December 31, January 1,
2011 2010 2010
----------------------------------------------------------------------------
Collateralized cash for letter
of credit facility - Inmet
Mining $ 16,842 $ 16,906 $ 16,492
In trust for Ok Tedi
reclamation (note 10) - - 26,365
Collateralized cash for letters
of credit - Las Cruces 54,174 52,138 72,008
Collateralized cash for
Pyhasalmi reclamation 1,616 1,632 1,854
---------------------------------------------
72,632 70,676 116,719
Less current portion:
Collateralized cash for
letters of credit - Las
Cruces (810) (617) (15,130)
----------------------------------------------------------------------------
$ 71,822 $ 70,059 $ 101,589
----------------------------------------------------------------------------
9. Held to maturity investments
In 2011, we purchased $287 million (2010 - $67 million) of US Treasury bonds and $15 million (2010 - $229 million) of long-term Canadian and Provincial government bonds. During the year, bonds with a face value of $69 million matured (2010 - $26 million).
10. Sale of our interest in Ok Tedi
On January 29, 2011, Ok Tedi Mining Limited repurchased our 18 percent equity interest in Ok Tedi for US $335 million. Our interest in Ok Tedi met the criteria of an asset held for sale, so we presented our share of the results of operations of Ok Tedi as discontinued operations in the consolidated statements of earnings and the consolidated statements of cash flow retroactively. In 2011, after-tax income of $83 million from this discontinued operation includes net earnings of $17 million in January, before the sale, and a gain on sale of $66 million net of withholding taxes. Papua New Guinea withholding taxes of $28 million were paid on the sale and no Canadian taxes were payable because we used our Canadian tax pool attributes. The following tables provide a breakdown of our share of the earnings and cash flows at Ok Tedi for the three months and year ended December 31, 2010 and 2011.
Statements of earnings
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
2011 2010 2011 2010
----------------------------------------------------------------------------
Gross sales $ - $ 116,582 $ 44,865 $ 356,629
Smelter processing
charges and freight - (10,220) (4,051) (36,448)
Cost of sales (excluding
depreciation) - (23,270) (12,116) (95,871)
Depreciation - (6,949) (2,272) (27,513)
---------------------------------------------------
- 76,143 26,426 196,797
Investment and other
income - 19 (80) 32
Finance costs - (224) (33) (910)
Income tax expense - (27,945) (9,670) (71,164)
---------------------------------------------------
- 47,993 16,643 124,755
Gain on sale of our
interest - - 79,029 -
Income tax expense on
sale of our interest - - (12,233) -
----------------------------------------------------------------------------
Net income from
discontinued operation $ - $ 47,993 $ 83,439 $ 124,755
----------------------------------------------------------------------------
Statements of cash flow
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
2011 2010 2011 2010
----------------------------------------------------------------------------
Cash provided by operating
activities
Before net change in
non-cash working
capital $ - $ 61,348 $ - $ 153,962
Net change in non-cash
working capital - (16,529) - 455
--------------------------------------------------
- 44,819 - 154,417
Cash provided by (used in)
investing activities
Cash proceeds on sale,
net of withholding tax - - 306,982 -
Purchase of property,
plant and equipment - (4,481) - (16,344)
--------------------------------------------------
- (4,481) 306,982 (16,344)
Cash used in financing
activities - (9,268) - (10,556)
--------------------------------------------------
Foreign exchange change on
cash held in foreign
currency - (2,686) - (4,177)
----------------------------------------------------------------------------
Net cash from discontinued
operation $ - $ 28,384 $ 306,982 $ 123,340
----------------------------------------------------------------------------
11. Accounts payable and accrued liabilities
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, December 31, January 1,
2011 2010 2010
----------------------------------------------------------------------------
Accounts payable and accrued
liabilities $ 121,592 $ 94,792 $ 106,701
Amounts payable related to metal
sales 761 592 103
Income taxes payable 20,796 40,961 63,720
----------------------------------------------------------------------------
$ 143,149 $ 136,345 $ 170,524
----------------------------------------------------------------------------
12. Provisions
The table below shows the significant components of our provisions.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, December 31, January 1,
2011 2010 2010
----------------------------------------------------------------------------
Asset retirement obligations
(a) $ 176,007 $ 168,589 $ 198,291
Employee benefits and other 13,119 11,478 15,556
---------------------------------------------
189,126 180,067 213,847
Less current portion:
Asset retirement obligations
(a) (11,279) (16,417) (13,500)
Employee benefits and other (2,238) (1,251) (3,917)
---------------------------------------------
(13,517) (17,668) (17,417)
----------------------------------------------------------------------------
$ 175,609 $ 162,399 $ 196,430
----------------------------------------------------------------------------
(a) Asset retirement obligations
We recorded an additional $17 million this quarter, and for the year, for closure liabilities at our closed properties. $12 million of this increase is the result of a decrease in the discount rates we applied in determining the liabilities. Additionally, we recognized a $5 million increase in our estimated closure obligations at Troilus for higher tailings pond and labour costs.
In 2010, we recorded increased asset retirement obligations of $16 million: $10 million for closure liabilities at Troilus to reflect the longer time we expect will be required for post-closure monitoring, as well as higher owner and other costs, and $6 million from a decrease in the discount rates we applied.
13. Common share issuance
On May 17, 2011, Temasek Holdings (Private) Ltd. exchanged its subscriptions receipts for 7.78 million Inmet common shares and we received cash of $500 million, plus accrued interest on funds in escrow during the subscription period.
14. Stock-based compensation
During the second quarter of 2011, a number of changes were made to equity-based compensation plans following a review of senior management compensation:
Stock option plan
On June 27, 2011, shareholders approved a share option plan (SOP) for senior management, enabling them to purchase Inmet common shares, with a reserve of 2.8 million common shares. The exercise price is determined by the Board at the time the option is granted, and may not be less than the volume weighted average price of Inmet common shares for the five preceding trading days (5 day VWAP). In the absence of specific vesting conditions determined by the Board at the grant date, each grant will vest 25 percent per year for four years, with each amount vesting on the anniversary of the grant date (graded vesting).
An initial grant of 380,000 options was made to senior management on May 10, 2011, with an exercise price of $65.11, graded vesting and an expiry date of May 10, 2018. We calculated the compensation expense for these options using the Black Scholes valuation model assuming the following weighted average parameters, resulting in a weighted average fair value per option of $28.86 per option: 5 year expected life, 49 percent expected volatility, expected dividend rate of 0.3 percent annually and a risk free interest rate of 2 percent.
Performance share unit plan
Effective May 10, 2011, we adopted a performance share unit plan (PSUP) for senior management with an initial grant of 29,488 performance share units (PSUs). The Board grants PSUs at its sole discretion with grants generally being equal in value to a percentage of an executive's annual base salary. The vesting period for the PSUs is the three year period commencing on January 1 of the year in which a PSU grant is made and ending on November 25th of the second year following the year in which the grant is made. Each PSU is settled in cash based on the 5 day VWAP prior to November 25 of the second year following the year of the grant.
We used a Monte Carlo simulation model to calculate the compensation expense for the PSUs assuming no forfeitures, 3 year historical average volatilities and a risk free interest rate of 0.95%, resulting in a December 31, 2011 fair value of $101.87 per PSU.
Long-term incentive plan
On May 10, 2011, the LTIP units associated with Las Cruces were redeemed with a vesting performance factor of 60 percent, based on the board's assessment of senior management performance for the project. The board decided to redeem the LTIP units for $3.4 million in cash based on the 5 day VWAP of $65.11.
Additionally, the LTIP has been replaced by the SOP and PSUP described above. The 312,000 LTIP units associated with Cobre Panama remain in place and will be redeemed in accordance with the LTIP provisions. However, no additional LTIP units will be granted as a result of the replacement of the plan.
Share award plan
The share award plan has been terminated for the 2011 year onwards in conjunction with the establishment of the SOP and PSUP. Shares already awarded under the plan will continue to vest according to the original vesting period and no additional shares will be awarded.
In 2011, we recognized the following share-based compensation expense in general and administration:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
2011 2010 2011 2010
----------------------------------------------------------------------------
Stock option plan $ 1,428 $ - $ 3,808 $ -
Performance share unit plan 470 - 775 -
Long-term incentive plan - - 759 382
Deferred share unit plan 232 217 1,030 990
Share award plan 151 332 621 1,322
----------------------------------------------------------------------------
$ 2,281 $ 579 $ 6,993 $ 2,694
----------------------------------------------------------------------------
15. Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss) includes:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, December 31, January 1,
2011 2010 2010
----------------------------------------------------------------------------
Unrealized losses on gold
forward sales contracts (net
of tax of nil) (December 31,
2010 - $2,427, January 1, 2010
- $2,015) $ - $ (5,661) $ (4,701)
Unrealized gains (losses) on
investments (net of tax of
$94) (December 31, 2010 - $78,
January 1, 2010 - $4,788)) (552) (452) 23,794
Currency translation adjustment (164,232) (179,104) -
----------------------------------------------------------------------------
Accumulated other comprehensive
income (loss) $ (164,784) $ (185,217) $ 19,093
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Currency translation adjustments
The table below is breakdown of our currency translation adjustments.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, December 31, January 1,
2011 2010 2010
----------------------------------------------------------------------------
Pyhasalmi (euro functional
currency) $ (28,277) $ (24,354) $ -
Las Cruces (euro functional
currency) (106,456) (93,427) -
Cayeli (US dollar functional
currency) (15,563) (20,908) -
Cobre Panama (US dollar
functional currency) (13,936) (29,701) -
Ok Tedi (US dollar functional
currency) - (10,714) -
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$ (164,232) $ (179,104) $ -
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The Canadian dollar to US dollar exchange rate was $1.02 at December 31, 2011, $0.99 at December 31, 2010 and $1.05 at January 1, 2010. The Canadian dollar to euro exchange rate was $1.32 at December 31, 2011, $1.33 at December 31, 2010 and $1.50 at January 1, 2010.
16. Investment and other income
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----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
2011 2010 2011 2010
----------------------------------------------------------------------------
Interest income $ 4,821 $ 2,887 $ 16,627 $ 8,234
Dividend and royalty
income 1,508 634 3,041 3,173
Foreign exchange gain
(loss) (8,601) (1,464) 10,789 (968)
Gain on sale of
investments - 50,505 - 50,505
Other (1,739) (1,940) 268 (2,600)
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$ (4,011) $ 50,622 $ 30,725 $ 58,344
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Foreign exchange gain is a result of:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
2011 2010 2011 2010
----------------------------------------------------------------------------
Translation of US dollar
cash and held-to-
maturity investments $ (9,029) $ (72) $ 3,338 $ (47)
Translation of Turkish
lira taxes payable at
Cayeli (287) (1,131) 4,027 (672)
Translation of other
monetary assets and
liabilities 715 (228) 3,424 (249)
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$ (8,601) $ (1,431) $ 10,789 $ (968)
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17. Finance costs
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----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
2011 2010 2011 2010
----------------------------------------------------------------------------
Interest on note payable $ 292 $ 292 $ 1,156 $ 1,148
Accretion on note payable 182 162 692 618
Interest on loans from non-
controlling shareholder In
Las Cruces - 2,066 - 5,107
Accretion on provisions and
capital lease obligations 1,916 1,774 7,636 6,303
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$ 2,390 $ 4,294 $ 9,484 $ 13,176
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18. Income tax
For the three months ended December 31, 2011:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Current income
taxes $ (1,629) $ 8,166 $ 82 $ 7,073 $ 13,692
Deferred
income taxes (88) 1,588 8,280 (243) 9,537
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Income tax
expense $ (1,717) $ 9,754 $ 8,362 $ 6,830 $ 23,229
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----------------------------------------------------------------------------
For the three months ended December 31, 2010:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Current income
taxes $ 544 $ 14,828 $ - $ 9,900 $ 25,272
Deferred
income taxes 6,360 (1,965) (20) 2,313 6,688
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Income tax
expense $ 6,904 $ 12,863 $ (20) $ 12,313 $ 31,960
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the year ended December 31, 2011:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Current income
taxes $ (2,242) $ 48,378 $ 625 $ 32,320 $ 79,081
Deferred
income taxes (210) 4,242 22,911 (601) 26,342
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Income tax
expense $ (2,452) $ 52,620 $ 23,536 $ 31,719 $ 105,423
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the year ended December 31, 2010:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Current
income taxes $ 6,386 $ 38,706 $ - $ 26,765 $ 71,857
Deferred
income taxes 1,914 (2,821) (4,094) 2,231 (2,770)
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Income tax
expense $ 8,300 $ 35,885 $ (4,094) $ 28,996 $ 69,087
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19. Net income per share
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
(thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Income from continuing
operations available to
common shareholders $ 48,072 $ 98,939 $ 264,732 $ 267,121
Income from discontinued
operations available to
common shareholders - 47,993 83,439 124,755
Net income available to
common shareholders $ 48,072 $ 146,932 $ 348,171 $ 391,876
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----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
(thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Weighted average common
shares outstanding 69,332 57,053 66,432 56,345
Plus incremental shares
from assumed
conversions:
Deferred share units 122 108 122 108
Long term incentive
plan units - 43 18 43
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Diluted weighted average
common shares
outstanding 69,454 57,204 66,572 56,496
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The table below shows our earnings per common share for the three months ended December 31.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended December 31
(Canadian dollars per share) 2011 2010
----------------------------------------------------------------------------
Basic Diluted Basic Diluted
Net income from continuing
operations per share $ 0.69 $ 0.69 $ 1.73 $ 1.73
Income from discontinued
operations per share - - 0.84 0.84
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Net income per share $ 0.69 $ 0.69 $ 2.57 $ 2.57
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----------------------------------------------------------------------------
The table below shows our earnings per common share for the year ended December 31.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
year ended December 31
(Canadian dollars per share) 2011 2010
----------------------------------------------------------------------------
Basic Diluted Basic Diluted
Net income from continuing
operations per share $ 3.99 $ 3.98 $ 4.74 $ 4.73
Income from discontinued
operations per share 1.26 1.25 2.21 2.21
----------------------------------------------------------------------------
Net income per share $ 5.25 $ 5.23 $ 6.95 $ 6.94
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----------------------------------------------------------------------------
20. Statements of cash flows
The tables below show the components of our net change in non-cash working capital by segment.
For the three months ended December 31, 2011:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Accounts
receivable $ 355 $ (18,222) $ (6,980) $ 6,522 $ (18,325)
Inventories - (3,108) (5,147) (1,329) (9,584)
Accounts payable
and accrued
liabilities 2,326 843 (4,438) 1,534 265
Taxes payable (1,184) (6,809) 82 (8,114) (16,025)
Provisions (54) - - - (54)
Other - 984 - (264) 720
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$ 1,443 $ (26,312) $ (16,483) $ (1,651) $ (43,003)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended December 31, 2010:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Accounts
receivable $ 973 $ 10,671 $ (613) $ (22,335) $ (11,304)
Inventories 89 (4,416) (9,844) 1,426 (12,745)
Accounts payable
and accrued
liabilities (5,066) 649 8,936 4,034 8,553
Taxes payable 2,052 8,591 - 6,677 17,320
Other 1,293 89 (215) - 1,167
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$ (659) $ 15,584 $ (1,736) $ (10,198) $ 2,991
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the year ended December 31, 2011:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Accounts
receivable $ (185) $ 13,319 $ (11,271) $ 16,396 $ 18,259
Inventories - (1,158) (7,966) (1,372) (10,496)
Accounts payable
and accrued
liabilities 1,179 7,865 8,815 (242) 17,617
Taxes payable (5,048) (829) (89) (14,701) (20,667)
Provisions (713) - - - (713)
Other - 1,207 - (264) 943
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$ (4,767) $ 20,404 $ (10,511) $ (183) $ 4,943
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the year ended December 31, 2010:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Accounts
receivable $ 10,289 $ (15,559) $ (1,290) $ (22,859) $ (24,419)
Inventories 9,881 (5,263) (11,975) 32 (7,325)
Accounts payable
and accrued
liabilities (9,791) (2,009) 11,802 (1,207) (1,205)
Taxes payable (8,853) 8,118 - 5,747 5,012
Other 1,289 (1,188) (215) - (114)
----------------------------------------------------------------------------
$ 2,815 $ (15,901) $ (1,678) $ (18,287) $ (33,051)
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----------------------------------------------------------------------------
21. Capital commitments
Our operations had the following capital commitments as at December 31, 2011:
-- Las Cruces committed $3.4 million for the purchase of plant and water
equipment.
-- Cobre Panama committed $187.0 million for the design and supply of two
SAG mills, four ball mills and the related gearless drives, basic
engineering, resource drilling and early works.
22. Events after balance sheet date
In January 2012, we received notice from KPMC that it had elected, under its option agreement, to acquire a 20 percent interest in MPSA, the owner and developer of Cobre Panama, which would leave Inmet with an 80 percent interest. At closing, KPMC would be required to invest approximately US $155 million into MPSA, representing KPMC's share of historical development costs incurred to the date of the option agreement and their proportionate share of development costs incurred above a funding cap of US $150 million.
Contacts:
Inmet Mining Corporation
Jochen Tilk
President and Chief Executive Officer
+1.416.860.3972
Inmet Mining Corporation
Flora Wood
Director, Investor Relations
+1.416.361.4808
www.inmetmining.com
