Inmet Announces Third Quarter Net Income From Continuing Operations of $101 Million Compared to $68 Million in the Third Quarter of 2010
TORONTO, CANADA -- (Marketwire) -- 10/27/11 -- All amounts in Canadian dollars unless indicated otherwise
Inmet (TSX: IMN) announces third quarter net income from continuing operations of $101 million compared to $68 million in the third quarter of 2010.
Third quarter highlights
-- Earnings from operations up from last year
Earnings from operations were $116 million this quarter compared to $102 million in the same quarter of last year. This is the result of our continuing ramp up at Las Cruces and a significant increase in pyrite sales volumes at Pyhasalmi, offset somewhat by higher operating costs, and lower realized copper prices at Cayeli this quarter. A high proportion of Cayeli's sales this quarter were not yet finalized so they were valued using September 30 forward prices.
-- Foreign exchange gains increase net income
We recognized foreign exchange gains of $30 million in the quarter, mainly on the cash, and long-term bonds we hold in US dollars.
-- Higher operating cash flows
Our cash flow provided by operating activities was $121 million this quarter. This represents an increase of $41 million over the third quarter of 2010, mainly because our net working capital was lower and because of the higher production from Las Cruces. Reduced working capital reflects lower accounts receivable at Cayeli and Pyhasalmi related to the timing of collections from customers and a decrease in metal prices at the end of this quarter.
-- Las Cruces production increased
Las Cruces produced 11,400 tonnes of cathode copper in the third quarter, including a record 4,500 tonnes in August. Reactor performance and reliability improved this quarter, and by the end of September, all eight reactors had operated reliably for 30 consecutive days. We expect cathode copper production of approximately 4,700 tonnes for October, and anticipate reaching production design capacity by the end of the year.
-- Update on Environmental and Social Impact Assessment (ESIA) approval
We continue to await ESIA approval for the Cobre Panama project. The government's review and assessment process has been methodical and thorough. Our final step in the process this quarter was to submit our responses to the second round of questions posed by the Panamanian environmental authority and other consulting ministries and the public file indicates that the Panamanian government has completed its technical review.
Key financial data
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September 30 September 30
(thousands, except
per share
amounts) 2011 2010 Change 2011 2010 change
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FINANCIAL
HIGHLIGHTS
Sales
Gross sales $ 261,757 $ 225,960 16% $ 737,986 $ 548,287 35%
Net income
Net income from
continuing
operations $ 101,205 $ 67,986 49% $ 216,660 $ 168,851 28%
Net income from
continuing
operations per
share $ 1.46 $ 1.04 40% $ 3.31 $ 3.00 10%
Net income from
discontinued
operations - $ 33,569 -100% $ 83,439 $ 76,762 9%
Net income from
discontinued
operations per
share - $ 0.60 -100% $ 1.27 $ 1.37 -7%
Net income
attributable to
Inmet
shareholders $ 101,205 $ 91,678 10% $ 300,099 $ 244,944 23%
Net income per
share $ 1.46 $ 1.64 -11% $ 4.58 $ 4.37 5%
Cash flow
Cash flow provided
by operating
activities $ 120,650 $ 79,585 52% $ 331,757 $ 164,403 102%
Cash flow provided
by operating
activities per
share (1) $ 1.74 $ 1.42 23% $ 5.07 $ 2.93 73%
Capital spending
(2) $ 57,034 $ 44,327 29% $ 149,565 $ 68,757 118%
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OPERATING
HIGHLIGHTS
Production(3)
Copper (tonnes) 21,700 17,100 27% 58,600 47,900 22%
Zinc (tonnes) 23,000 20,800 11% 62,500 60,100 4%
Gold (ounces) - - - - 37,900 -100%
Pyrite (tonnes) 210,100 62,000 239% 594,300 397,200 50%
Copper cash cost
(US $ per
pound)(4) $ 0.69 $ 0.77 -10% $ 0.88 $ 0.59 49%
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as at as at
September 30 December 31
FINANCIAL CONDITION 2011 2010
Current ratio 7.6 to 1 3.4 to 1
Gross debt to total equity 1% 1%
Net working capital balance (millions) $ 1,239 $ 626
Liquidity balance including cash and long-
term bonds (millions) $ 1,738 $ 699
Gross debt (millions) $ 18 $ 17
Shareholders' equity (millions) $ 3,479 $ 2,555
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(1) Cash flow provided by operating activities divided by average shares
outstanding for the period.
(2) The nine months ended September 30, 2011 includes capital spending of
$90 million at Cobre Panama and $44 million at Las Cruces. The nine
months ended September 30, 2010 includes capital spending of $65
million at Cobre Panama and $52 million at Las Cruces, reduced by
positive cash flow from pre-operating costs net of revenues and working
capital changes at Las Cruces of $60 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 29 to 31. Copper cash
costs this quarter and year to September were higher because Las Cruces
is ramping up to full production. We did not include Las Cruces'
results in cash costs in the first half of 2010 because it had not yet
reached commercial production.
Third quarter press release
Where to find it
Our financial results 4
Key changes in 2011 4
Understanding our performance 5
Earnings from operations 7
Corporate costs 12
Results of our operations 14
Cayeli 15
Las Cruces 17
Pyhasalmi 19
Status of our development project 21
Cobre Panama 21
Managing our liquidity 23
Financial condition 26
Accounting changes 27
Supplementary financial information 29
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 September 30, 2011. Revised objective is as of October 27, 2011.
Adoption of International Financial Reporting Standards
We have prepared our third 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 27 for more information.
Forward looking information
Securities regulators encourage companies to disclose forward-looking information to help investors understand a company's future prospects. This press release contains statements about our future financial condition, results of operations and business.
These 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 such as may, expect, anticipate, believe or other similar words. We believe the expectations reflected in these forward-looking statements are reasonable. However, actual events and results could be substantially different because of the risks and uncertainties associated with our business or events that happen after the date of this press release. You should not place undue reliance on forward-looking statements. As a general policy, we do not update forward-looking statements except as required by securities laws and regulations.
Our financial results
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(thousands,
except per
share amounts) 2011 2010 change 2011 2010 change
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EARNINGS FROM
OPERATIONS (1)
Cayeli $ 37,147 $ 48,396 -23% $ 123,891 $ 111,694 11%
Las Cruces 32,631 21,381 53% 84,682 21,381 296%
Pyhasalmi 46,471 26,985 72% 111,967 74,817 50%
Other - 5,275 -100% - 29,666 -100%
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116,249 102,037 14% 320,540 237,558 35%
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DEVELOPMENT AND
EXPLORATION
Corporate
development and
exploration (4,688) (2,758) 70% (22,661) (8,061) 181%
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CORPORATE COSTS
General and
administration (9,987) (3,985) 151% (26,667) (15,606) 71%
Investment and
other income 35,778 3,197 1,019% 34,736 7,722 350%
Stand by costs - - - - (6,753) -100%
Finance costs (2,377) (5,239) -55% (7,094) (8,882) -20%
Income and
capital taxes (33,770) (25,266) 34% (82,194) (37,127) 121%
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(10,356) (31,293) -67% (81,219) (60,646) 34%
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Net income from
continuing
operations 101,205 67,986 49% 216,660 168,851 28%
Income from
discontinued
operation (net
of taxes) - 33,569 -100% 83,439 76,762 9%
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Non-controlling
interest - 9,877 -100% - 669 -100%
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Net income
attributable to
Inmet
shareholders $ 101,205 $ 91,678 10% $ 300,099 $ 244,944 23%
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Income from
continuing
operations per
common share $ 1.46 $ 1.04 40% $ 3.31 $ 3.00 10%
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Diluted income
from continuing
operations per
common share $ 1.46 $ 1.04 40% $ 3.30 $ 2.99 10%
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Basic net income
per common
share $ 1.46 $ 1.64 -11% $ 4.58 $ 4.37 5%
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Diluted net
income per
common share $ 1.46 $ 1.64 -11% $ 4.57 $ 4.36 5%
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Weighted average
shares
outstanding 69,331 56,107 24% 65,454 56,107 17%
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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 nine months
ended ended see
(millions) September 30 September 30 page
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EARNINGS FROM OPERATIONS
Sales
Higher copper prices denominated in
Canadian dollars $ - $ 71 7
Other changes in prices denominated in
Canadian dollars 6 19 7
Higher sales volumes 29 156 7
Costs
Higher operating costs, including costs
that vary with income and cash flows (10) (88) 10
2010 earnings from Troilus (5) (30)
Higher depreciation (9) (48) 11
Other 3 3
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Higher earnings from operations compared
to 2010 14 83
CORPORATE COSTS
Costs related to proposed merger with
Lundin - (6) 12
Higher exploration and administrative
costs (8) (20) 12
Standby charges in 2010 - 7 13
Foreign exchange changes 30 19 13
Higher income taxes (9) (45) 13
Higher interest income 3 6 12
Other 3 4
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Higher net income from continuing
operations compared to 2010 33 48
Higher (lower) income from discontinued
operation - Ok Tedi (34) 7 13
Non-controlling interest in 2010 10 -
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Higher net income attributable to Inmet
shareholders compared to 2010 $ 9 $ 55
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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 7.
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2011 2010 change 2011 2010 change
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US dollar metal
prices
Copper (per pound) US $3.54 US $3.41 4% US $3.97 US $3.25 22%
Zinc (per pound) US $0.92 US $0.95 -3% US $0.99 US $0.92 8%
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Canadian dollar metal
prices
Copper (per pound) C $3.47 C $3.54 -2% C $3.88 C $3.37 15%
Zinc (per pound) C $0.90 C $0.99 -9% C $0.97 C $0.95 2%
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Copper
Copper prices declined substantially in September after remaining steady earlier in the year. Prices on the London Metals Exchange (LME) fell from US $4.27 per pound on July 1 to US $3.23 per pound on September 30. LME copper prices averaged US $4.07 per pound this quarter - a 24 percent increase over the third quarter of 2010. Our realized copper price of US $3.54 per pound this quarter is significantly lower than the LME average price, mainly because of Cayeli. A high proportion of Cayeli's sales this quarter were not yet finalized so they were valued using September 30 forward prices.
Zinc
Zinc prices on the LME went down 19 percent this quarter, from US $1.06 per pound at the start of the quarter to $0.86 per pound on September 30. Zinc prices averaged US $1.01 per pound this quarter, slightly lower than last quarter's average price of US $1.02 per pound and an 11 percent increase over the third quarter of 2010.
Pyrite
Prices for sulphur remained steady this quarter and we expect to realize similar prices over the rest of the year.
Exchange rates
Exchange rates affect our revenue and earnings. The table below shows the average exchange rates we realized this quarter and year to date compared to 2010.
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three months ended nine months ended
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2011 2010 change 2011 2010 change
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Exchange rates
1 US$ to C$ $ 0.98 $ 1.04 -6% $ 0.98 $ 1.04 -6%
1 euro to C$ $ 1.38 $ 1.34 3% $ 1.38 $ 1.36 1%
1 euro to US$ $ 1.42 $ 1.29 10% $ 1.41 $ 1.32 7%
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Our sales are affected by the conversion of US dollar revenue to Canadian dollars. Compared to the same quarter last year, the value of the Canadian dollar went up 6 percent relative to the US dollar, and down 3 percent 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
-- revalue US dollars and euros that we hold in cash and long-term bonds at
Corporate.
Treatment charges down for zinc
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 year to date.
Treatment charges for copper concentrates this year were higher than in 2010 based on agreements we have signed with customers. Additionally, treatment charges for copper concentrates this quarter were higher because of spot market shipments we made. Spot smelter processing charges were higher because the earthquake in Japan in March caused temporary stoppages in copper smelter production, lowering short-term demand for copper concentrates. Treatment charges for zinc concentrates are lower than last year, reflecting a tightening zinc concentrate market.
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(US$) 2011 2010(1) change 2011 2010(1) change
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Treatment
charges
Copper (per
dry metric
tonne of
concentrate) US $67 US $53 26% US $58 US $52 12%
Zinc (per dry
metric tonne
of
concentrate) US $225 US $244 -8% US $225 US $246 -9%
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Price
participation
Copper (per
pound) US $0.02 US $0.02 - US $0.02 US $0.02 -
Zinc (per
pound) US ($0.01) US ($0.01) - US ($0.01) US ($0.01) -
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Freight charges
Copper (per
dry metric
tonne of
concentrate) US $46 US $51 -10% US $49 US $49 -
Zinc (per dry
metric tonne
of
concentrate) US $26 US $30 -13% US $25 US $31 -19%
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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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(thousands) 2011 2010 change 2011 2010 change
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Gross sales $ 261,757 $ 225,960 16% $ 737,986 $ 548,287 35%
Smelter
processing
charges and
freight (37,043) (34,358) 8% (102,498) (102,731) -
Cost of sales:
Direct
production
costs (75,406) (65,355) 15% (224,057) (160,100) 40%
Inventory
changes (4,836) (2,938) 65% (6,337) (6,430) -1%
Other non-cash
expenses (900) (2,210) -59% (3,544) (4,362) -19%
Depreciation (27,321) (19,062) 43% (81,010) (37,106) 118%
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Earnings from
operations $ 116,249 $ 102,037 14% $ 320,540 $ 237,558 35%
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Significantly higher gross sales
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(thousands) 2011 2010 change 2011 2010 change
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Gross sales by
operation
Cayeli $ 93,168 $ 96,204 -3% $ 274,050 $ 253,667 8%
Las Cruces 86,364 61,849 40% 255,977 61,849 314%
Pyhasalmi 82,225 58,014 42% 207,959 160,701 29%
Other (Troilus) - 9,893 -100% - 72,070 -100%
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$ 261,757 $ 225,960 16% $ 737,986 $ 548,287 35%
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Gross sales by metal
Copper $ 176,632 $ 159,300 11% $ 513,102 $ 316,824 62%
Zinc 47,616 39,951 19% 142,779 126,222 13%
Gold - 8,625 -100% - 54,917 -100%
Other 37,509 18,084 107% 82,105 50,324 63%
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$ 261,757 $ 225,960 16% $ 737,986 $ 548,287 35%
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Key components of the increase in sales:
increasing gross sales at Las Cruces, higher pyrite sales at Pyhasalmi, no sales at Troilus
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three months nine months
ended ended
(millions) September 30 September 30
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Higher copper prices, denominated in Canadian
dollars $ 1 $ 64
Higher (lower) zinc prices, denominated in
Canadian dollars (5) 1
Changes in other metal prices 11 19
2010 gross sales from Troilus (10) (72)
Higher sales volumes at our other mines 39 178
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Higher gross sales, compared to 2010 $ 36 $ 190
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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 $3 million in negative finalization adjustments from second quarter sales.
At the end of this quarter, the following sales had not been settled:
-- 24 million pounds of copper provisionally priced at US $3.18 per pound
-- 24 million pounds of zinc provisionally priced at US $0.84 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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October 2011 18 19
November 2011 6 5
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Unsettled sales at September 30, 2011 24 24
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Significantly higher copper, zinc and pyrite sales volumes, no gold sales volumes
Our sales volumes are directly affected by the amount of production from our mines and our ability to ship to our customers.
-- Copper production volumes were up this quarter and year to date mainly
because of higher production at Las Cruces. Copper sales volumes were
higher than production volumes this quarter mainly because of the timing
of shipments to our customers at Cayeli and Pyhasalmi.
-- Zinc sales volumes this quarter and year to date were higher than 2010
due to higher production volumes, and the timing of shipments to our
customers.
-- There were no gold production or sales volumes because Troilus stopped
operating in June 2010 and we sold our interest in Ok Tedi in January
2011.
-- Pyhasalmi's pyrite sales volumes were higher than in 2010 because of
increased customer demand in Europe and China.
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Sales volumes 2011 2010(1) change 2011 2010(1) change
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Copper (tonnes) 23,100 18,000 28% 60,000 47,700 26%
Zinc (tonnes) 23,900 18,400 30% 67,000 59,700 12%
Gold (ounces) - 6,700 -100% - 46,000 -100%
Pyrite (tonnes) 269,200 136,000 98% 633,200 395,100 60%
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Production
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Inmet's share(2) 2011 2010(1) change 2011 2010(1) change 2011(3)
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Copper (tonnes)
Cayeli 7,100 7,300 -3% 20,100 21,500 -7% 28,400
Las Cruces 11,400 5,800 97% 28,000 13,600 106% 43,500
Pyhasalmi 3,200 3,900 -18% 10,500 10,800 -3% 13,300
Troilus - - - - 2,000 -100% -
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21,700 17,000 28% 58,600 47,900 22% 85,200
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Zinc (tonnes)
Cayeli 13,900 11,700 19% 36,900 38,200 -3% 48,000
Pyhasalmi 9,100 9,100 - 25,600 21,900 17% 31,900
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23,000 20,800 11% 62,500 60,100 4% 79,900
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Gold (ounces)
Troilus - - - - 37,900 -100% -
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Pyrite (tonnes)
Pyhasalmi 210,100 62,000 239% 594,300 397,000 50% 800,000
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(1) 2010 volumes have been revised to 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.
(3) 2011 objective was revised for Cayeli's to reduce its copper production
and increase its zinc production. All other production objectives are
unchanged.
2011 outlook for sales
We use our production objectives to estimate our sales target.
-- We expect copper production in 2011 to be 85,200 tonnes. Copper
production at Las Cruces should be more than 50 percent higher than it
was in 2010 as the operation ramps up to its nameplate capacity of
72,000 tonnes of copper cathode, and because we increased our ownership
from 70 percent to 100 percent in December 2010. We have reduced our
copper production for Cayeli from 30,900 tonnes to 28,400 tonnes for the
year to reflect lower recoveries year to date.
-- We expect 2011 zinc sales and production volumes to be slightly lower
than 2010 volumes because of lower grades and recoveries at Cayeli.
Notwithstanding this, zinc grades at this operation year to date are
higher than anticipated and we have increased our zinc production
objective by 2,300 tonnes.
-- We do not expect any gold sales in 2011.
-- Pyhasalmi expects to produce and sell 800,000 tonnes of pyrite in 2011.
It signed a five year sales contract in March 2011 with a customer in
the Far East for up to 400,000 tonnes of pyrite per year, and now has
long term agreements covering sales of up to 760,000 tonnes annually.
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. Since mid-September this year, there has been a weakening in the economic environment and a decline in base metal prices. Our estimates for our 2011 operating earnings and cash flows reflect this decline. See Results of our operations on page 14 for more information.
Higher smelter processing charges this quarter
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(thousands) 2011 2010 change 2011 2010 change
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Smelter
processing
charges and
freight by
operation
Cayeli $ 20,615 $ 18,672 10% $ 56,859 $ 58,369 -3%
Las Cruces 388 27 1,337% 864 27 3,100%
Pyhasalmi 16,040 15,454 4% 44,775 39,809 12%
Other (Troilus) - 205 -100% - 4,526 -100%
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$ 37,043 $ 34,358 8% $ 102,498 $ 102,731 -
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Smelter
processing
charges and
freight by
metal
Copper $ 12,781 $ 12,524 2% $ 32,410 $ 34,007 -5%
Zinc 18,595 16,171 15% 53,969 52,149 3%
Other 5,667 5,663 - 16,119 16,575 -3%
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$ 37,043 $ 34,358 8% $ 102,498 $ 102,731 -
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Smelter
processing
charges by
type, and
freight
Copper
treatment and
refining
charges $ 4,882 $ 4,591 6% $ 11,081 $ 12,160 -9%
Zinc treatment
charges 10,438 9,089 15% 29,097 29,952 -3%
Copper price
participation 448 416 8% 1,162 1,253 -7%
Zinc price
participation (705) (508) 39% (1,264) (1,946) -35%
Content losses 11,809 10,721 10% 34,595 33,117 4%
Freight 9,819 9,614 2% 26,887 27,006 -
Other 352 435 -19% 940 1,189 -21%
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$ 37,043 $ 34,358 8% $ 102,498 $ 102,731 -
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Lower zinc treatment charges per tonne than last year reflects better terms with smelters due to a tightening zinc concentrate market; however zinc treatment charges this quarter were nominally higher than the third quarter of 2010 due to significantly higher zinc sales volumes.
2011 outlook for smelter processing charges and freight
We expect costs for copper treatment and refining to be higher in 2011 based on agreements we have signed with customers. We sell approximately 90 percent of our copper concentrate under long-term contracts.
Spot smelter processing charges for copper concentrates have now normalized, after being significantly higher earlier this year than they were in 2010 because the earthquake in Japan in March caused temporary stoppages in copper smelter production, lowering short-term demand for copper concentrates. We expect spot prices to be lower for the remainder of 2011 due to production interruptions and declining grades at operating mines.
We expect copper price participation to be minimal.
We expect total zinc smelter processing charges, including price participation, to be lower than in 2010 because of a tightening zinc concentrate market and our long-term contracts reflect this.
We expect our ocean freight costs to be similar to 2010.
Las Cruces sells its copper cathode production directly to buyers in the Spanish and Mediterranean markets, so it does not incur smelter processing charges and has relatively low freight costs.
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 $ 25,253 $ 22,333 13% $ 71,520 $ 65,342 9%
Las Cruces 35,869 30,797 16% 108,597 30,797 253%
Pyhasalmi 14,284 12,225 17% 43,940 40,056 10%
Other (Troilus) - - - - 23,905 -100%
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Total direct
production costs 75,406 65,355 15% 224,057 160,100 40%
Inventory changes 4,836 2,938 65% 6,337 6,430 -1%
Other non-cash
expenses 902 2,210 -59% 3,544 4,362 -19%
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Total cost of
sales (excluding
depreciation) $ 81,144 $ 70,503 15% $ 233,938 $ 170,892 37%
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Direct production costs
Direct production costs are higher this year, mainly because we began recognizing operating results at Las Cruces in our consolidated income statement effective July 1, 2010, partly offset by the closure of Troilus mid-year in 2010. At Cayeli, consumables, ground control and royalty costs were higher, as anticipated in our guidance. Pyhasalmi realized higher consumable and ground support costs, as well as incremental costs associated with producing more pyrite this year to meet higher customer demand.
Inventory changes
Copper inventories at Cayeli and Pyhasalmi were down at the end of this quarter because of the timing of shipments.
2011 outlook for cost of sales (excluding depreciation)
We expect consolidated direct production costs to be higher in 2011 because we will recognize a full year of production costs in the income statement for Las Cruces. This will be somewhat offset by the closure of Troilus.
Our budget for 2011 assumes our costs will be similar to 2010 at Pyhasalmi, and higher than 2010 at Cayeli. Costs at Las Cruces will increase as production increases, but costs per pound of copper produced should decrease significantly.
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.
Higher depreciation
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(thousands) 2011 2010 change 2011 2010 change
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Depreciation by
operation
Cayeli $ 6,215 $ 5,618 11% $ 16,469 $ 16,432 -
Las Cruces 18,796 10,552 78% 57,635 10,552 446%
Pyhasalmi 2,310 2,072 11% 6,906 6,088 13%
Other (Troilus) - 820 -100% - 4,034 -100%
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$ 27,321 $ 19,062 43% $ 81,010 $ 37,106 118%
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Depreciation was higher this year mainly because Las Cruces began to depreciate its operating assets in the income statement on July 1, 2010 and because this operation's production was higher. There was no depreciation at Troilus in 2011 because it stopped operating in June 2010.
2011 outlook for depreciation
We expect depreciation to be higher in 2011 mainly because we will recognize Las Cruces' operating results in earnings for the entire year. This will be offset somewhat by the closure of Troilus.
Corporate costs
Corporate costs include corporate development and exploration, general and administration costs, taxes, interest and other income.
Corporate development and exploration
Costs year to date are approximately $15 million higher than 2010. In the first quarter, we incurred approximately $6 million of expenses related to the arrangement agreement to merge with Lundin Mining Corporation. We and Lundin Mining Corporation agreed to mutually 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. In addition, we incurred $2 million in expenditures in the first quarter to drill the Balboa deposit at Cobre Panama. Work on the Balboa deposit has continued and we began capitalizing drilling and evaluation costs for this deposit in the second quarter based on the positive results to date. See Status of development project - Cobre Panama on page 21 for more information. Increased costs compared to 2010 also reflect our higher budget for 2011 to explore for world class deposits.
General and administration
General and administration costs are largely for management remuneration, governance and strategy. Costs year to date were $11 million higher than 2010 ($6 million in the third quarter) mainly because of increased human resources and other spending as we move forward with Cobre Panama, and the impact of share-based compensation plans adopted earlier this year.
Investment and other income
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
(thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Interest income $ 4,829 $ 1,990 $ 11,806 $ 5,347
Foreign exchange gains 30,483 661 19,390 463
Dividend and royalty income 466 650 1,533 2,539
Other - (104) 2,007 (627)
----------------------------------------------------------------------------
$ 35,778 $ 3,197 $ 34,736 $ 7,722
----------------------------------------------------------------------------
Interest income
Interest income was higher this quarter and year to date compared to last year because our long-term bond portfolio had higher yields and our cash and long-term bond balances were higher.
Foreign exchange gains
We have foreign exchange gains or losses when we revalue certain foreign denominated assets and liabilities.
Our foreign exchange gains were from:
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
(thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Translation of US dollar cash and
held-to-maturity investments
held at corporate $ 23,406 $ 35 $ 12,367 $ 25
Translation of Turkish lira taxes
payable at Cayeli 3,187 780 4,314 459
Translation of other monetary
assets and liabilities 3,890 (154) 2,709 (21)
----------------------------------------------------------------------------
$ 30,483 $ 661 $ 19,390 $ 463
----------------------------------------------------------------------------
We continue to hold the proceeds we received 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 $12 million year to date ($23 million this quarter) on these funds because the US dollar appreciated in value relative to the Canadian dollar. Cayeli's income taxes are denominated in Turkish lira. This operation recognized a foreign exchange gain of $4 million ($3 million this quarter) from the revaluation of its income taxes payable due to the appreciation of the US dollar (Cayeli's functional currency) relative to the Turkish lira.
2011 outlook for investment and other income
Investment and other income is affected by cash and held to maturity investments, and by interest rates and exchange rates.
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. We recognized these expenses as stand-by costs because we were not yet at commercial production.
Income tax expense
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
(thousands) 2011 2010 change 2011 2010 change
----------------------------------------------------------------------------
Cayeli $ 19,274 $ 7,418 $ 42,866 $ 23,022
Las Cruces 5,240 10,782 15,174 (4,074)
Pyhasalmi 10,491 6,273 24,889 16,783
Corporate and
other (1,235) 793 (735) 1,396
----------------------------------------------------------------------------
$ 33,770 $ 25,266 $ 82,194 $ 37,127
----------------------------------------------------------------------------
Consolidated
effective tax
rate 25% 27% -2% 28% 18% 10%
----------------------------------------------------------------------------
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).
2011 outlook for income tax expense
We expect statutory tax rates at our operations to remain the same as they were in 2010 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 $2 million.
Results of our operations
2011 estimates
Our financial review by operation includes estimates for our 2011 operating earnings and operating cash flows. We have based these estimates on our 2011 objectives for production and cost per tonne of ore milled, as well as the following assumptions for the fourth quarter of the year:
----------------------------------------------------------------------------
Copper price US $3.40 per pound
Zinc price US $0.85 per pound
Copper treatment cost US $56 per tonne for contracts
Zinc treatment cost US $229 per tonne (basis US $2,500 per tonne)
for contracts
US $ to C$ exchange rate $1.00
euro to C$ exchange rate $1.40
Working capital Assume no changes for the year
----------------------------------------------------------------------------
Cayeli
----------------------------------------------------------------------------
three months ended nine months ended revised
September 30 September 30 objective
2011 2010 change 2011 2010 change 2011
----------------------------------------------------------------------------
Tonnes of ore
milled (000's) 312 275 13% 880 859 2% 1,200
Tonnes of ore
milled per day 3,400 3,000 13% 3,200 3,100 2% 3,300
----------------------------------------------------------------------------
Grades (percent)
copper 3.1 3.4 -9% 3.1 3.2 -3% 3.2
zinc 6.5 6.2 5% 6.2 6.3 -2% 5.9
----------------------------------------------------------------------------
Mill recoveries
(percent)
copper 74 78 -5% 74 77 -4% 75
zinc 68 68 - 68 71 -4% 68
----------------------------------------------------------------------------
Production
(tonnes)
copper 7,100 7,300 -3% 20,100 21,500 -7% 28,400
zinc 13,900 11,700 19% 36,900 38,200 -3% 48,000
----------------------------------------------------------------------------
Cost per tonne
of ore milled
(C$) $ 81 $ 81 - $ 81 $ 76 7% $ 81
----------------------------------------------------------------------------
Higher grades increase zinc production this quarter
Mill throughput at Cayeli was strong this quarter, and in line with its annual 1.2 million tonne objective. In August 2011, we mined over 107,000 tonnes of ore, setting an all-time record, and have now mined more than 100,000 tonnes of ore per month for four consecutive months. This increase in performance is the result of improved mine planning processes, the implementation of a mine control system, and additional rehabilitation resources.
Copper grades year to date are slightly lower than last year, but we expect higher grades in the last quarter this year and have not revised our view on average grades. Recoveries for both copper and zinc this year are lower than 2010 because of the difficulties associated with processing ore containing bornite minerals. Copper production was therefore slightly below 2010 and our expectations.
Zinc grades this quarter were higher than the third quarter of 2010 because of variation in ore types. In conjunction with higher mill throughput, this resulted in significantly higher zinc production this quarter.
Cost per tonne of ore milled year to date was higher than 2010 mainly because of higher royalty costs (pushed up by higher realized metals prices), additional ground support costs and increased costs for consumables. This change was, however, consistent with our expectations and the objective for the year.
2011 outlook and revised objectives
Production levels in 2011 should remain at approximately 1.2 million tonnes. We continue to expect copper grades to be 3.2 percent for the year but we have lowered our expected copper recoveries from 80 percent to 75 percent to recognize lower recoveries year to date. Therefore we have reduced our copper production objective by 2,500 tonnes to 28,400 tonnes.
We have increased our zinc grade objective from 5.6 percent to 5.9 percent to reflect actual performance for the first nine months of the year and we have increased our zinc production objective by 2,300 tonnes to 48,000.
Financial review
Lower copper and zinc prices reduced operating earnings this quarter
----------------------------------------------------------------------------
(millions of Canadian
dollars unless otherwise three months ended nine months ended revised
stated) September 30 September 30 objective
2011 2010 2011 2010 2011
----------------------------------------------------------------------------
Sales analysis
Copper sales (tonnes) 8,100 8,400 20,600 21,500 28,400
Zinc sales (tonnes) 14,500 9,600 40,100 38,500 48,000
--------------------------------------------------
Gross copper sales $ 55 $ 69 $ 167 $ 161 $ 227
Gross zinc sales 28 21 85 80 100
Other metal sales 10 6 22 13 29
--------------------------------------------------
Gross sales 93 96 274 254 356
Smelter processing charges
and freight (21) (19) (57) (58) (77)
----------------------------------------------------------------------------
Net sales $ 72 $ 77 $ 217 $ 196 $ 279
----------------------------------------------------------------------------
Cost analysis
Tonnes of ore milled
(thousands) 312 275 880 859 1,200
Direct production costs ($
per tonne) $ 81 $ 81 $ 81 $ 76 $ 81
----------------------------------------------------------------------------
Direct production costs $ 25 $ 22 $ 71 $ 65 $ 97
Change in inventory 3 1 3 - -
Depreciation and other
non-cash costs 7 6 19 19 25
----------------------------------------------------------------------------
Operating costs $ 35 $ 29 $ 93 $ 84 $ 122
----------------------------------------------------------------------------
Operating earnings $ 37 $ 48 $ 124 $ 112 $ 157
----------------------------------------------------------------------------
Operating cash flow $ 57 $ 21 $ 148 $ 74 $ 142
----------------------------------------------------------------------------
The objective for 2011 uses the assumptions listed on page 14.
The table below shows what contributed to the change in operating earnings and operating cash flow between 2011 and 2010.
----------------------------------------------------------------------------
three months nine months
ended ended
(millions) September 30 September 30
----------------------------------------------------------------------------
Higher (lower) copper prices, denominated in
Canadian dollars $ (11) $ 13
Higher (lower) zinc prices, denominated in
Canadian dollars (4) 2
Higher other metal prices, denominated in
Canadian dollars 3 9
Lower copper sales volumes (3) (9)
Higher zinc sales volumes 5 -
Higher production costs, including royalty (3) (6)
Lower smelter processing charges and freight 3 4
Other (1) (1)
----------------------------------------------------------------------------
Higher (lower) operating earnings, compared
to 2010 (11) 12
Change in tax expense because of change in
taxable income (10) (16)
Changes in working capital (see note 20 on
page 75) 56 78
Other 1 -
----------------------------------------------------------------------------
Higher operating cash flow, compared to 2010 $ 36 $ 74
----------------------------------------------------------------------------
The change in working capital this quarter is mainly from lower accounts receivable.
Capital spending
----------------------------------------------------------------------------
three months ended nine months ended revised
September 30 September 30 objective
(thousands) 2011 2010 change 2011 2010 change 2011
----------------------------------------------------------------------------
Capital
spending $ 1,900 $ 3,300 -42% $ 9,600 $ 8,200 17% $ 15,000
----------------------------------------------------------------------------
2011 outlook for capital spending
We expect to spend $15 million on capital in 2011 for underground development, ore pass rehabilitation, mobile equipment, a shotcrete delivery line extension, a new concrete batch plant and other improvements to the mill.
Las Cruces
----------------------------------------------------------------------------
three months ended nine months ended revised
September 30 September 30 objective
(100
percent) 2011 2010 change 2011 2010 change 2011
----------------------------------------------------------------------------
Tonnes of
ore
processed
(000's) 209 143 46% 545 331 65% 800
----------------------------------------------------------------------------
Copper
grades
(percent) 6.5 7.5 -13% 6.3 7.2 -13% 6.3
----------------------------------------------------------------------------
Plant
recoveries
(percent) 87 77 13% 85 81 5% 86
----------------------------------------------------------------------------
Cathode
copper
production
(tonnes) 11,400 8,400 36% 28,000 19,500 44% 43,500
----------------------------------------------------------------------------
Cost per
pound of
cathode
produced not
(C$)(1) $ 1.43 $ 1.68 -15% $ 1.76 $ 1.68 applicable $ 1.59
----------------------------------------------------------------------------
(1) Subsequent to July 1, 2010
Improved plant performance
We produced 11,400 tonnes of cathode this quarter, including a record 4,500 tonnes in August. Plant modifications during the June shutdown had a positive impact on production, which was interrupted in July when a support structure of the new grinding thickener failed due to a faulty weld. Since repairs were made, the grinding thickener has operated as required.
Reactor performance and reliability continued to improve this quarter, and by the end of September, all eight reactors had operated reliably for 30 consecutive days. The major modifications to the plant, including the fines bypass system, pinned bed clarifier and the leach feed surge tank, have all been installed and are now being commissioned.
Mining activities year to date are close to planned levels, despite limited access in the first half of the year because of water levels in the pit. Surface stockpiles are approaching 700,000 tonnes, and should remain at that level through to year end, in preparation for the rainy season.
Our water treatment and drainage and reinjection well systems performed very well this quarter, and the pit is in optimal condition as we head into the rainy season. Our contact water storage ponds are at only 40 percent of their available capacity, and we have reduced our water discharge to the river to remain well below our regulated limits for the year.
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.
2011 outlook
Following a successful third quarter, we continue to target a ramp up to production design capacity by year end, and we continue to expect cathode production of 42,000 - 45,000 tonnes this year.
We are currently testing the plant at up to 100 percent throughput levels to assess its overall stability and identify any remaining bottlenecks. We have installed a higher strength conveyor belt to accommodate higher tonnage, and intend to increase the width of the conveyor in early 2012 to provide capacity above design. We have seen copper recoveries improve to an average of 87 percent this quarter and continue to push to reach design levels of 91 percent. We expect this improvement to evolve with better oxygen dispersion as we pilot the fifth generation oxygen distributors (currently installed in one reactor), and with further improvements in overall fluid flow and process control. We completed a three day shutdown in October to change worn mill linings, and are not planning any further production interruptions this year.
Las Cruces' cost per pound of cathode produced should continue to go down as production increases. By the first quarter of 2012, we expect to have a reliable prediction for long term costs when one time contractor costs can be separated from ongoing maintenance costs.
Financial review
Higher operating earnings and operating cash flow this year as Las Cruces ramps up
----------------------------------------------------------------------------
(millions of Canadian nine months
dollars unless three months ended ended revised
otherwise stated) September 30 September 30 objective
2011 2010 2011 2011
----------------------------------------------------
Sales analysis
Copper sales (tonnes) 10,800 8,600 29,200 43,500
----------------------------------------------------
Gross copper sales $ 86 $ 62 $ 256 $ 364
Smelter processing
charges and freight - - (1) (1)
----------------------------------------------------------------------------
Net sales $ 86 $ 62 $ 255 $ 363
----------------------------------------------------------------------------
Cost analysis
Pounds of copper
produced (millions) 25 18 62 96
Direct production costs
($ per pound) $ 1.43 $ 1.68 $ 1.76 $ 1.59
----------------------------------------------------------------------------
Direct production costs $ 36 31 $ 109 $ 153
Change in inventory (1) (1) 4 -
Depreciation and other
non-cash costs 18 11 57 88
----------------------------------------------------------------------------
Operating costs $ 53 41 $ 170 $ 241
----------------------------------------------------------------------------
Operating earnings $ 33 $ 21 $ 85 $ 122
----------------------------------------------------------------------------
Operating cash flow $ 50 $ 32 $ 149 $ 207
----------------------------------------------------------------------------
The objective for 2011 uses the assumptions listed on page 14.
The table below shows what contributed to the change in operating earnings and operating cash flow between the three months ended September 30, 2011 and 2010.
----------------------------------------------------------------------------
three months ended
(millions) September 30
----------------------------------------------------------------------------
Higher copper prices, denominated in Canadian dollars $ 9
Higher copper sales volumes 16
Higher production costs, including royalty (5)
Higher depreciation (7)
Other (1)
----------------------------------------------------------------------------
Higher operating earnings, compared to 2010 12
Changes in working capital (see note 20 on page 75) 1
Change in depreciation 7
Other (2)
----------------------------------------------------------------------------
Higher operating cash flow, compared to 2010 $ 18
----------------------------------------------------------------------------
Capital spending
----------------------------------------------------------------------------
three months ended nine months ended revised
September 30 September 30 objective
(100 percent and
millions of
Canadian dollars) 2011 2010 change 2011 2010 change 2011
----------------------------------------------------------------------------
Capital $ 10 $ 23 -57% $ 44 $ 52 -15% $ 61
Pre-operating
costs
capitalized, net
of sales, working
capital and other - (7) -100% - (60) -100% -
----------------------------------------------------------------------------
$ 10 $ 16 -38% $ 44 $ (8) -650% $ 61
----------------------------------------------------------------------------
Capital spending this year has been mainly on making improvements to the plant, the permanent water purification plant and mine development. In 2010 it was mainly for the permanent water purification plant.
2011 outlook for capital spending
We expect to spend $61 million on capital projects in 2011, including $16 million for mine development and $37 million for plant improvements.
Pyhasalmi
----------------------------------------------------------------------------
three months ended nine months ended revised
September 30 September 30 objective
2011 2010 change 2011 2010 change 2011
----------------------------------------------------------------------------
Tonnes of ore
milled (000's) 351 351 - 1,038 1,051 -1% 1,370
Tonnes of ore
milled per day 3,800 3,800 - 3,800 3,800 -1% 3,750
----------------------------------------------------------------------------
Grades
(percent)
copper 1.0 1.2 -17% 1.1 1.1 - 1.0
zinc 2.9 2.9 - 2.7 2.3 17% 2.6
sulphur 41 40 3% 41 43 -5% 43
----------------------------------------------------------------------------
Mill recoveries
(percent)
copper 95 95 - 96 96 - 95
zinc 90 90 - 91 90 1% 90
----------------------------------------------------------------------------
Production
(tonnes)
copper 3,200 3,900 -18% 10,500 10,800 -3% 13,300
zinc 9,100 9,100 - 25,600 21,900 17% 31,900
pyrite 210,100 62,000 239% 594,300 397,000 50% 800,000
----------------------------------------------------------------------------
Cost per tonne
of ore milled
(C$) $41 $35 17% $42 $38 11% $42
----------------------------------------------------------------------------
Record pyrite production and sales
Pyhasalmi processed at an annualized rate that was in line with its annual objective.
The operation maintained its strong production record and achieved copper recoveries of 95 percent and zinc recoveries of 90 percent. Zinc grades were significantly higher year to date compared to last year, pushing zinc production significantly higher. Copper production this quarter was below the same quarter in 2010 and consistent with our plan because of variations in copper grades. Pyrite production was significantly higher this year to meet higher customer demand. In August, Pyhasalmi shipped a record 150,000 tonnes of pyrite concentrate to customers.
Operating costs have been higher this year mostly because of increased group support and consumables costs, and due to the incremental costs associated with producing more pyrite.
2011 outlook
Pyhasalmi remains on target to mine 1.4 million tonnes of 1 percent copper and 2.6 percent zinc in 2011, and to produce 13,300 tonnes of copper and 31,900 tonnes of zinc.
Pyhasalmi expects to produce and sell 800,000 tonnes of pyrite in 2011 and has long term agreements covering sales of up to 760,000 tonnes per year.
Financial review
Higher earnings because of significantly higher pyrite sales volumes
----------------------------------------------------------------------------
(millions of Canadian
dollars unless three months ended nine months ended revised
otherwise stated) September 30 September 30 objective
2011 2010 2011 2010 2011
----------------------------------------------------------------------------
Sales analysis
Copper sales (tonnes) 4,200 3,500 10,300 10,400 13,300
Zinc sales (tonnes) 9,400 8,800 26,900 21,200 31,900
Pyrite sales (tonnes) 269,200 136,000 633,200 395,100 800,000
-------------------------------------------------------
Gross copper sales $ 35 $ 27 $ 90 $ 79 $ 113
Gross zinc sales 19 19 58 46 67
Other metal sales 28 12 60 36 73
-------------------------------------------------------
Gross sales 82 58 208 161 253
Smelter processing
charges and freight (16) (15) (45) (40) (56)
----------------------------------------------------------------------------
Net sales $ 66 $ 43 $ 163 $ 121 $ 197
----------------------------------------------------------------------------
Cost analysis
Tonnes of ore milled
(thousands) 351 351 1,038 1,051 1,370
Direct production
costs ($ per tonne) $ 41 $ 35 $ 42 $ 38 $ 42
----------------------------------------------------------------------------
Direct production
costs $ 14 $ 12 $ 44 $ 40 $ 58
Change in inventory 3 1 - (1) -
Depreciation and
other non-cash costs 3 3 7 7 10
----------------------------------------------------------------------------
Operating costs $ 20 $ 16 $ 51 $ 46 $ 68
----------------------------------------------------------------------------
Operating earnings $ 46 $ 27 $ 112 $ 75 $ 129
----------------------------------------------------------------------------
Operating cash flow $ 24 $ 26 $ 93 $ 53 $ 106
----------------------------------------------------------------------------
The objective for 2011 uses the assumptions listed on page 14.
The table below shows what contributed to the change in operating earnings and operating cash flow between 2011 and 2010.
----------------------------------------------------------------------------
three months nine months
ended ended
(millions) September 30 September 30
----------------------------------------------------------------------------
Higher copper prices, denominated in Canadian
dollars $ 3 $ 12
Lower zinc prices, denominated in Canadian
dollars (1) (1)
Higher other metal prices 7 10
Higher zinc sales volumes 1 7
Higher pyrite sales volumes 9 15
Higher production costs (2) (4)
Other 2 (2)
----------------------------------------------------------------------------
Higher operating earnings, compared to 2010 19 37
Change in tax expense because of change in
earnings (4) (8)
Changes in working capital (see note 20 on
page 75) (18) 10
Other 1 1
----------------------------------------------------------------------------
Higher (lower) operating cash flow, compared
to 2010 $ (2) $ 40
----------------------------------------------------------------------------
Capital spending
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30 objective
(thousands) 2011 2010 change 2011 2010 change 2011
----------------------------------------------------------------------------
Capital
spending $ 2,500 $ 700 257% $ 5,300 $ 3,300 61% $ 8,000
----------------------------------------------------------------------------
2011 outlook for capital spending
Capital spending in 2011 is mainly to replace underground mobile equipment.
Status of our development project
Cobre Panama
Engineering, infrastructure and power
Basic engineering progressed as scheduled this quarter. We continue to expect to announce revised capital and operating cost estimates for the project at the conclusion of basic engineering (early 2012), allowing major civil work to begin at that time.
We continued with preparatory road construction this quarter on a pioneer road to the tailings dam site, and other road by-passes and upgrades, as well as preparation for bridge construction.
Update on Environmental and Social Impact Assessment (ESIA) approval
We continue to await ESIA approval for the project. The government's review and assessment process has been methodical and thorough. Our final step in the process this quarter was to submit our responses to the second round of questions posed by Autoridad Nacional del Ambiente (ANAM), the Panamanian environmental authority, and other consulting ministries and the public file indicates that the Panamanian government has completed its technical review.
When we receive and formally announce ESIA approval, Korea Panama Mining Corporation will have seven days to make its election on whether to exercise its option to acquire a 20 percent interest in Minera Panama.
Partnership process
We continue to engage with potential new partners in Cobre Panama. Interested parties are engaged in various stages of due diligence under confidentiality agreements.
Drilling
We continued with resource drilling this quarter on the recently discovered Balboa deposit, to delineate the extents of the zone as well as infill drilling on 100 metre centres. This quarter, we completed 11,150 metres of drilling in 21 holes, bringing the total to date for this deposit to 28,400 metres in 48 holes. We plan to continue the program to the end of this year with a view to establishing National Instrument 43-101 compliant mineral resources for the Balboa deposit in early 2012. Metallurgical test work is also continuing on the mineralization, which should allow us to convert Balboa resources into reserves and include them in a revised mine plan for the property later in 2012.
2011 outlook for development
We plan to:
-- continue our 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
-- work with all the government agencies to obtain permits that will be
required after the ESIA is approved
-- continue with a 720 hectare reforestation plan outside of the concession
area, as a first step in our biodiversity commitments
-- work with environmental non-governmental organizations and the
environmental authorities to plan the conservation initiative for two
national parks in the general project region, but outside the project
footprint area
-- continue to expand site access and infrastructure
-- complete additional drilling for geotechnical and hydrological purposes
and to improve our understanding of mineralization not currently
included in the project base case
-- complete basic engineering and prepare to begin site capture when we
receive the main permits
-- Work with SK Engineering and Construction, Co. Ltd. on the development
of the 300 megawatt thermal power plant to supply power for the project
-- develop a range of financing options including a project level limited
recourse facility, capital market alternatives and potential new
partners
-- spend the balance of our capital expenditures budget of $177 million to
carry out the work described. This budget represents a reduction of $47
million from our initial capital spending objective of $224 million, and
reflects the delay of $24 million of advance payments for mill equipment
and certain advance projects to early 2012.
After basic engineering is completed and we have received the appropriate approvals, site capture, preparation and construction should take approximately 48 months.
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 nine months ended
September 30 September 30
(millions) 2011 2010 2011 2010
----------------------------------------------------------------------------
CASH FROM OPERATING ACTIVITIES
Cayeli $ 57 $ 21 $ 148 $ 74
Las Cruces 50 32 149 26
Pyhasalmi 24 26 93 53
Other (Troilus) - 7 - 44
Corporate development and
exploration not incurred by
operations (4) (2) (17) (5)
General and administration (10) (4) (27) (16)
Foreign exchange gains on US
dollar cash 1 - (8) -
Other 3 - (6) (12)
----------------------------------------------------------------------------
121 80 332 164
----------------------------------------------------------------------------
CASH FROM INVESTING AND
FINANCING
Purchase of property, plant and
equipment (57) (44) (150) (69)
Purchase and maturing of long-
term investments, net 7 (77) (247) (296)
Foreign exchange on cash held in
foreign operations 14 4 18 (16)
Issuance of common shares - - 502 -
Other 4 8 2 12
----------------------------------------------------------------------------
(32) (109) 125 (369)
----------------------------------------------------------------------------
CASH FROM DISCONTINUED OPERATION
(OK TEDI) - 17 307 95
----------------------------------------------------------------------------
Increase (decrease) in cash 89 (12) 764 (110)
Cash and short-term investments
Beginning of period 1,001 436 326 534
----------------------------------------------------------------------------
End of period $ 1,090 $ 424 $ 1,090 $ 424
----------------------------------------------------------------------------
Our available liquidity also includes $648 million of held to maturity investments ($373 million at December 31, 2010), providing a total of $1,738 million in capital available to finance our growth strategy as at September 30, 2011.
OPERATING ACTIVITIES
Key components of the change in operating cash flows
----------------------------------------------------------------------------
three months nine months
ended ended
(millions) September 30 September 30
----------------------------------------------------------------------------
Higher earnings from operations (see page 4) $ 14 $ 83
Add back higher depreciation included in
earnings from operations 8 44
Higher tax expense (9) (19)
Changes in working capital (see note 20 on
page 75) 34 84
Realized foreign exchange gain (loss) on cash 1 (8)
Higher corporate development and exploration (2) (12)
Higher general and administrative costs (6) (11)
Stand-by costs in 2010 - 7
Other 1 -
----------------------------------------------------------------------------
Higher operating cash flow, compared to 2010 $ 41 $ 168
----------------------------------------------------------------------------
Operating cash flows this year were higher than 2010 because:
-- our operating earnings before depreciation were higher
-- working capital was lower this quarter and year to date mainly
reflecting lower accounts receivable at Cayeli and Pyhasalmi related to
the timing of collections from customers and lower metal prices.
2011 outlook for cash from operating activities
The table below shows expected operating cash flow from our key operations, based on our outlook for metal prices and production (see page 14), and on the assumptions in Results of our operations (starting on page 14).
2011 estimated operating cash flow by operation
----------------------------------------------------------------------------
(millions)
----------------------------------------------------------------------------
Cayeli $ 142
Las Cruces 207
Pyhasalmi 106
----------------------------------------------------------------------------
$ 455
----------------------------------------------------------------------------
INVESTING AND FINANCING
Capital spending
----------------------------------------------------------------------------
three months ended nine months ended revised
September 30 September 30 objective
(millions) 2011 2010 2011 2010 2011
----------------------------------------------------------------------------
Cayeli $ 2 $ 3 $ 10 $ 8 $ 15
Las Cruces 10 16 44 (8) 61
Pyhasalmi 2 1 6 3 8
Cobre Panama 43 24 90 66 177
----------------------------------------------------------------------------
$ 57 $ 44 $ 150 $ 69 $ 261
----------------------------------------------------------------------------
Please see Results of our operations and Status of our development project on page 21 for a discussion of actual results and our 2011 objective. Capital spending this year was mainly for Cobre Panama and for plant improvements at Las Cruces.
Purchase of long-term investments
We used 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.
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).
2011 outlook for investing and financing
Capital spending
We expect capital spending to be $261 million in 2011. The more significant items include:
-- $177 million for work on the development at Cobre Panama, including
basic engineering, advance payments for mill equipment and other costs
to advance development. This budget represents a reduction of $47
million from our initial capital spending objective of $224 million, and
reflects the delay of $24 million of advance payments for mill equipment
and certain advance projects to early 2012.
-- $61 million at Las Cruces, including $16 million for mine development
and $37 million for plant improvements.
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 September 30, 2011, we had $1,738 million in total funds, including $1,090 million in cash and short-term investments and $648 million invested in long-term bonds.
Cash
At September 30, 2011, cash and short-term investments of $1,090 million included cash and money market instruments that mature in 90 days or less.
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 September 30, 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 that are benefiting directly and
indirectly from support programs by various governments and central
banks.
See note 7 on page 69 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 September 30, 2011, the portfolio was $648 million (Held to maturity investments - note 9):
-- 58 percent US Treasury bonds
-- 5 percent Government of Canada bonds
-- 33 percent Canadian Provincial Government bonds
-- 4 percent corporate bonds.
The bonds mature between December 2011 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 $76 million as at September 30, 2011 included:
-- $17 million in cash collateralized letters of credit for Inmet
-- $57 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 September 30, 2011 69,332,492
----------------------------------------------------------------------------
Deferred share units outstanding as of September 30, 2011
(redeemable on a one-for-one basis for common shares) 117,388
----------------------------------------------------------------------------
Dividend declaration
Inmet's board of directors has declared an eligible dividend of $0.10 per common share payable on December 15, 2011 to common shareholders of record as of November 30, 2011.
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 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 and nine months ended September 30, 2010 and for the 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 of each of the most significant adjustments had on equity.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 1, September 30, December 31,
Notes 2010 2010 2010
----------------------------------------------------------------------------
Canadian GAAP equity $ 2,238,145 $ 2,392,961 $ 2,758,484
IFRS adjustments:
Reclassification of non-
controlling interest to
equity 78,005 73,597 -
Revenue recognition i 14,210 18,753 30,023
Reversal of impairment of
assets - Cayeli ii 42,395 36,589 34,005
Provision for asset
retirement obligations iii (38,349) (36,276) (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 12,989 12,175
Other 18,702 18,873 15,218
----------------------------------------------------------------------------
IFRS equity $ 2,361,412 $ 2,517,486 $ 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 is 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 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 IFRS determines asset retirement obligations.
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 30 and 31 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.
Third quarter conference call
Will be held on
-- Friday, October 28, 2011
-- 8:30 a.m. Eastern Time
-- webcast available at
http://events.digitalmedia.telus.com/inmet/102811/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, October 28, 2011, 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 nine months ended September 30
per pound of copper
-----------------------------------------------------
CAYELI LAS CRUCES PYHASALMI TOTAL
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 1.44 $ 1.72 $ 1.95 $ 1.67
Royalties and variable
compensation 0.21 0.08 - 0.11
Smelter processing
charges and freight 1.62 0.01 1.24 0.78
Metal credits (2.68) - (4.25) (1.68)
-----------------------------------------------------
Cash cost $ 0.59 $ 1.81 $ (1.06) $ 0.88
-----------------------------------------------------
-----------------------------------------------------
2010 For the nine months ended September 30
per pound of copper
-----------------------------------------------------
LAS CRUCES
CAYELI (1) PYHASALMI TOTAL
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 1.22 $ 1.54 $ 1.62 $ 1.38
Royalties and variable
compensation 0.11 0.06 - 0.07
Smelter processing
charges and freight 1.36 - 1.06 1.07
Metal credits (2.05) - (2.73) (1.93)
-----------------------------------------------------
Cash cost $ 0.64 $ 1.60 $ (0.05) $ 0.59
-----------------------------------------------------
-----------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of cash costs to statements of earnings
2011 For the nine months ended September 30
per pound of copper
-----------------------------------------------------
(millions of Canadian
dollars, except where
otherwise noted) CAYELI LAS CRUCES PYHASALMI TOTAL
----------------------------------------------------------------------------
GAAP reference page 16 page 18 page 20
Direct production costs $ 71 $ 109 $ 44 $ 224
Smelter processing
charges and freight 57 - 45 102
By product sales (107) - (118) (225)
Adjust smelter
processing and
freight, and sales to
production basis 5 - 5 10
-----------------------------------------------------
Operating costs net of
metal credits $ 26 $ 109 $ (24) $ 111
US $ to C$ exchange
rate $ 0.98 $ 0.98 $ 0.98 $ 0.98
Inmet's share of
production (000's) 44,300 61,800 23,100 129,200
-----------------------------------------------------
Cash cost $ 0.59 $ 1.81 $ (1.06) $ 0.88
-----------------------------------------------------
-----------------------------------------------------
2010 For the nine months ended September 30
per pound of copper
-----------------------------------------------------
(millions of Canadian
dollars, except where LAS CRUCES
otherwise noted) CAYELI (1) PYHASALMI TOTAL
----------------------------------------------------------------------------
GAAP reference page 16 page 18 page 20
Direct production costs $ 65 $ 31 $ 40 $ 136
Smelter processing
charges and freight 58 - 40 98
By product sales (93) - (82) (175)
Adjust smelter
processing and
freight, and sales to
production basis 1 - 1 2
-----------------------------------------------------
Operating costs net of
metal credits $ 31 $ 31 $ (1) $ 61
US $ to C$ exchange
rate $ 1.04 $ 1.04 $ 1.04 $ 1.04
Inmet's share of
production (000's) 47,500 18,400 23,900 89,800
-----------------------------------------------------
Cash cost $ 0.64 $ 1.60 $ (0.05) $ 0.59
-----------------------------------------------------
-----------------------------------------------------
(1) Las Cruces' results are included from July 1, 2010
Cash costs
2011 For the three months ended September 30
per pound of copper
---------------------------------------------------------
CAYELI LAS CRUCES PYHASALMI TOTAL
----------------------------------------------------------------------------
(US dollars)
Direct production
costs $ 1.35 $ 1.39 $ 2.06 $ 1.48
Royalties and
variable
compensation 0.29 0.07 - 0.13
Smelter processing
charges and
freight 1.65 0.02 1.36 0.75
Metal credits (2.72) - (5.25) (1.67)
---------------------------------------------------------
Cash cost $ 0.57 $ 1.48 $ (1.83) $ 0.69
---------------------------------------------------------
---------------------------------------------------------
2010 For the three months ended September 30
per pound of copper
---------------------------------------------------------
LAS CRUCES
CAYELI (1) PYHASALMI TOTAL
----------------------------------------------------------------------------
(US dollars)
Direct production
costs $ 1.20 $ 1.54 $ 1.45 $ 1.37
Royalties and
variable
compensation 0.12 0.06 - 0.07
Smelter processing
charges and
freight 1.34 - 1.14 0.84
Metal credits (2.04) - (2.78) (1.51)
---------------------------------------------------------
Cash cost $ 0.62 $ 1.60 $ (0.19) $ 0.77
---------------------------------------------------------
---------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of cash costs to statements of earnings
2011 For the three months ended September 30
per pound of copper
---------------------------------------------------------
(millions of
Canadian dollars,
except where
otherwise noted) CAYELI LAS CRUCES PYHASALMI TOTAL
----------------------------------------------------------------------------
GAAP reference page 16 page 18 page 20
Direct production
costs $ 25 $ 36 $ 14 $ 75
Smelter processing
charges and
freight 21 - 16 37
By product sales (38) - (47) (85)
Adjust smelter
processing and
freight, and sales
to production
basis 1 - 4 5
---------------------------------------------------------
Operating costs net
of metal credits $ 9 $ 36 $ (13) $ 32
US $ to C$ exchange
rate $ 0.98 $ 0.98 $ 0.98 $ 0.98
Inmet's share of
production (000's) 15,700 25,200 7,000 47,900
---------------------------------------------------------
Cash cost $ 0.57 $ 1.48 $ (1.83) $ 0.69
---------------------------------------------------------
---------------------------------------------------------
2010 For the three months ended September 30
per pound of copper
---------------------------------------------------------
(millions of
Canadian dollars,
except where LAS CRUCES
otherwise note) CAYELI (1) PYHASALMI TOTAL
----------------------------------------------------------------------------
GAAP reference page 16 page 18 page 20
Direct production
costs $ 22 $ 31 $ 12 $ 65
Smelter processing
charges and
freight 19 - 16 35
By product sales (27) - (31) (58)
Adjust smelter
processing and
freight, and sales
to production
basis (4) - 2 (2)
---------------------------------------------------------
Operating costs net
of metal credits $ 10 $ 31 $ (1) $ 41
US $ to C$ exchange
rate $ 1.04 $ 1.04 $ 1.04 $ 1.04
Inmet's share of
production (000's) 16,200 18,400 8,700 43,300
---------------------------------------------------------
Cash cost $ 0.62 $ 1.60 $ (0.19) $ 0.77
---------------------------------------------------------
---------------------------------------------------------
(1) Las Cruces' results are included from July 1, 2010
INMET MINING CORPORATION
Quarterly review
(unaudited)
Latest Four Quarters
----------------------------------------------------------------------------
(thousands of Canadian 2011 2011 2011 2010(1)
dollars, except per share Third Second First Fourth
amounts) quarter quarter quarter quarter
----------------------------------------------------------------------------
STATEMENTS OF EARNINGS
Gross sales $ 261,757 $ 221,952 $ 254,277 $ 230,269
Smelter processing charges
and freight (37,043) (33,870) (31,585) (35,733)
Cost of sales (excluding
depreciation) (81,144) (73,644) (79,150) (82,967)
Depreciation (27,321) (26,649) (27,040) (18,882)
-----------------------------------------------
116,249 87,789 116,502 92,687
Corporate development and
exploration (4,688) (4,562) (13,411) (5,434)
General and administration (9,987) (8,258) (8,422) (4,758)
Investment and other income 35,778 4,731 (5,773) 50,622
Finance costs (2,377) (2,386) (2,331) (4,294)
Income tax expense (33,770) (21,264) (27,160) (31,960)
-----------------------------------------------
Income from continuing
operations 101,205 56,050 59,405 96,863
Income from discontinued
operation (net of taxes) - - 83,439 47,993
-----------------------------------------------
Net income $ 101,205 $ 56,050 $ 142,844 $ 144,856
-----------------------------------------------
Net income attributable to:
Inmet equity holders $ 101,205 $ 56,050 $ 142,844 $ 146,932
Non-controlling interest - - - (2,076)
-----------------------------------------------
$ 101,205 $ 56,050 $ 142,844 $ 144,856
-----------------------------------------------
Income from continuing
operations per share
Basic $ 1.46 $ 0.86 $ 0.97 $ 1.73
Diluted $ 1.46 $ 0.86 $ 0.96 $ 1.73
Income from discontinuing
operations per share
Basic $ - $ - $ 1.36 $ 0.84
Diluted $ - $ - $ 1.35 $ 0.84
Net Income per share
Basic $ 1.46 $ 0.86 $ 2.33 $ 2.57
Diluted $ 1.46 $ 0.86 $ 2.31 $ 2.57
(1) Information from 2010 restated in accordance with IFRS, including
presentation of our share of Ok Tedi as discontinued operations.
Previous Four Quarters
----------------------------------------------------------------------------
(thousands of Canadian 2010(1) 2010(1) 2010(1) 2009(2)
dollars, except per share Third Second First fourth
amounts) quarter quarter quarter quarter
----------------------------------------------------------------------------
STATEMENTS OF EARNINGS
Gross sales $ 225,960 $ 161,165 $ 161,162 $ 290,570
Smelter processing charges
and freight (34,358) (35,272) (33,101) (53,696)
Cost of sales (excluding
depreciation) (70,503) (48,123) (52,266) (74,995)
Depreciation (19,062) (10,328) (7,716) (17,911)
-----------------------------------------------
102,037 67,442 68,079 143,968
Corporate development and
exploration (2,758) (2,524) (2,779) (2,915)
General and administration (3,985) (6,200) (5,421) (9,836)
Investment and other income 3,197 3,321 1,204 280
Asset impairment - - - (3,496)
Stand-by costs - - (6,753) -
Finance costs (5,239) (1,770) (1,873) (496)
Income tax expense (25,266) (8,775) (3,086) (38,599)
-----------------------------------------------
Income from continuing
operations 67,986 51,494 49,371 88,906
Income from discontinued
operation (net of taxes) 33,569 12,475 30,718 -
-----------------------------------------------
Net income $ 101,555 $ 63,969 $ 80,089 $ 88,906
-----------------------------------------------
Net income attributable to:
Inmet equity holders $ 91,678 $ 68,495 $ 84,771 $ 89,763
Non-controlling interest 9,877 (4,526) (4,682) (857)
-----------------------------------------------
$ 101,555 $ 63,969 $ 80,089 $ 88,906
-----------------------------------------------
Income from continuing
operations per share
Basic $ 1.04 $ 1.00 $ 0.96 $ 1.60
Diluted $ 1.04 $ 1.00 $ 0.96 $ 1.60
Income from discontinuing
operations per share
Basic $ 0.60 $ 0.22 $ 0.55 $ -
Diluted $ 0.60 $ 0.22 $ 0.55 $ -
Net Income per share
Basic $ 1.64 $ 1.22 $ 1.51 $ 1.60
Diluted $ 1.64 $ 1.22 $ 1.51 $ 1.60
(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 September 30, December 31, January 1,
dollars) reference 2011 2010(1) 2010(1)
----------------------------------------------------------------------------
Assets
Current assets:
Cash and short term
investments 7 $ 1,090,002 $ 326,425 $ 533,913
Restricted cash 8 777 617 15,130
Accounts receivable 99,837 119,426 155,761
Inventories 83,183 72,154 98,324
Current portion of
held to maturity
investments 9 152,553 53,915 9,993
Assets held for sale 10 92 319,082 -
--------------------------------------------
1,426,444 891,619 813,121
Restricted cash 8 75,235 70,059 101,589
Property, plant and
equipment 1,894,106 1,736,065 1,945,669
Investments in equity
securities 3,832 2,694 42,411
Held to maturity
investments 9 495,455 318,615 89,891
Deferred income tax
assets 1,935 8,721 2,360
Other assets 2,394 2,335 1,903
--------------------------------------------
Total assets $ 3,899,401 $ 3,030,108 $ 2,996,944
----------------------------------------------------------------------------
Liabilities
Current liabilities:
Accounts payable and
accrued liabilities 11 $ 168,637 $ 136,345 $ 170,524
Provisions 12 19,010 17,668 17,417
Derivatives - - 1,543
Liabilities
associated with
assets held for sale 10 - 111,896 -
--------------------------------------------
187,647 265,909 189,484
Long-term debt 18,042 16,619 200,026
Provisions 12 172,987 162,399 196,430
Other liabilities 18,669 18,117 20,695
Derivatives - - 3,165
Deferred income tax
liabilities 23,013 12,525 25,732
--------------------------------------------
Total liabilities 420,358 475,569 635,532
--------------------------------------------
Commitments and
contingencies 21
Equity
Share capital 13 1,591,744 1,089,576 669,952
Contributed surplus 66,601 66,131 64,809
Share based
compensation 14 7,071 6,542 5,170
Retained earnings 1,870,673 1,577,507 1,527,109
Accumulated other
comprehensive income
(loss) 15 (57,046) (185,217) 19,093
--------------------------------------------
Total equity
attributable to Inmet
equity holders 3,479,043 2,554,539 2,286,133
Non-controlling
interest - - 75,279
--------------------------------------------
Total equity 3,479,043 2,554,539 2,361,412
--------------------------------------------
Total liabilities and
equity $ 3,899,401 $ 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)
2011 As at September CORPORATE &
30 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Assets
Cash and short-term
investments $ 684,798 $ 139,643 $ 125,316 $ 111,373
Other current assets 160,002 36,456 77,138 59,835
Restricted cash 16,795 - 56,720 1,720
Property, plant and
equipment 996 154,021 978,352 68,832
Investments in
equity securities 3,832 - - -
Held to maturity
investments 410,897 84,558 - -
Other non-current
assets 1,177 3,152 - -
--------------------------------------------------------
$ 1,278,497 $ 417,830 $ 1,237,526 $ 241,760
--------------------------------------------------------
Liabilities
Current liabilities $ 25,540 $ 62,413 $ 62,851 $ 21,950
Long-term debt 18,042 - - -
Provisions 52,088 23,114 68,828 28,957
Other liabilities 676 - 17,993 -
Deferred income tax
liabilities 38 - 10,353 12,622
--------------------------------------------------------
$ 96,384 $ 85,527 $ 160,025 $ 63,529
--------------------------------------------------------
DISCONTINUED
2011 As at September OPERATIONS -
30 COBRE PANAMA OK TEDI TOTAL
--------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Panama) Guinea)
Assets
Cash and short-term
investments $ 28,872 $ - $ 1,090,002
Other current assets 3,011 - 336,442
Restricted cash - - 75,235
Property, plant and
equipment 691,905 - 1,894,106
Investments in
equity securities - - 3,832
Held to maturity
investments - - 495,455
Other non-current
assets - - 4,329
------------------------------------------
$ 723,788 $ - $ 3,899,401
------------------------------------------
Liabilities
Current liabilities $ 14,893 $ - $ 187,647
Long-term debt - - 18,042
Provisions - - 172,987
Other liabilities - - 18,669
Deferred income tax
liabilities - - 23,013
------------------------------------------
$ 14,893 $ - $ 420,358
------------------------------------------
2010 As at December CORPORATE &
31 OTHER CAYELI LAS 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
2010 As at December OPERATIONS -
31 COBRE PANAMA OK TEDI TOTAL
--------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Panama) 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
------------------------------------------
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
--------------------------------------------------------
DISCONTINUED
OPERATIONS -
2010 As at January 1 COBRE PANAMA OK TEDI TOTAL
--------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Panama) 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 Retained Contributed Share based
dollars) Share Capital earnings surplus compensation
----------------------------------------------------------------------------
Balance as at
January 1,
2010(1) $ 669,952 $ 1,527,109 $ 64,809 $ 5,170
Comprehensive
income - 244,944 - -
Equity settled
share-based
compensation
plans - - 990 1,125
Dividends on
common shares - (5,610) - -
Other - - - -
------------------------------------------------------------
Balance as at
September 30,
2010(1) $ 669,952 $ 1,766,443 $ 65,799 $ 6,295
------------------------------------------------------------
Comprehensive
income - 146,932 - -
Equity settled
share-based
compensation
plans - - 332 247
Dividends on
common shares - (5,600) - -
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 - $ 300,099 - -
Equity settled
share-based
compensation
plans - - 470 529
Dividends on
common shares - (6,933) - -
Issuance of
common shares 502,168 - - -
------------------------------------------------------------
Balance as at
September 30,
2011 $ 1,591,744 $ 1,870,673 $ 66,601 $ 7,071
------------------------------------------------------------
----------------------------------------------------------------------------
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 (81,566) 163,378 (3,720) 159,658
Equity settled
share-based
compensation
plans - 2,115 - 2,115
Dividends on
common shares - (5,610) - (5,610)
Other - - (89) (89)
------------------------------------------------------------
Balance as at
September 30,
2010(1) $ (62,473) $ 2,446,016 $ 71,470 $ 2,517,486
------------------------------------------------------------
Comprehensive
income (115,839) 31,093 (4,592) 26,501
Equity settled
share-based
compensation
plans - 579 - 579
Dividends on
common shares - (5,600) - (5,600)
Acquisition of
non-controlling
interest in Las
Cruces (6,905) 82,451 (66,847) 15,604
Other - - (31) (31)
------------------------------------------------------------
Balance as at
December 31,
2010(1) $ (185,217) $ 2,554,539 $ - $ 2,554,539
------------------------------------------------------------
Comprehensive
income 128,171 428,270 - 428,270
Equity settled
share-based
compensation
plans - 999 - 999
Dividends on
common shares - (6,933) - (6,933)
Issuance of
common shares - 502,168 - 502,168
------------------------------------------------------------
Balance as at
September 30,
2011 $ (57,046) $ 3,479,043 $ - $ 3,479,043
------------------------------------------------------------
(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 Nine Months Ended
September 30 September 30
(thousands of
Canadian dollars
except per share Note
amounts) reference 2011 2010(1) 2011 2010(1)
----------------------------------------------------------------------------
Gross sales $ 261,757 225,960 $ 737,986 $ 548,287
Smelter processing
charges and
freight (37,043) (34,358) (102,498) (102,731)
Cost of sales
(excluding
depreciation) (81,144) (70,503) (233,938) (170,892)
Depreciation (27,321) (19,062) (81,010) (37,106)
----------------------------------------------------------------------------
Earnings from
operations 116,249 102,037 320,540 237,558
Corporate
development and
exploration (4,688) (2,758) (22,661) (8,061)
General and
administration (9,987) (3,985) (26,667) (15,606)
Investment and
other income 16 35,778 3,197 34,736 7,722
Stand-by charges - - - (6,753)
Finance costs 17 (2,377) (5,239) (7,094) (8,882)
----------------------------------------------------------------------------
Income before
taxation 134,975 93,252 298,854 205,978
Income tax expense 18 (33,770) (25,266) (82,194) (37,127)
----------------------------------------------------------------------------
Income from
continuing
operations $ 101,205 $ 67,986 $ 216,660 $ 168,851
Income from
discontinued
operation (net of
taxes) 10 - 33,569 83,439 76,762
----------------------------------------------------------------------------
Net income $ 101,205 $ 101,555 $ 300,099 $ 245,613
----------------------------------------------------------------------------
Net income
attributable to:
Inmet equity
holders $ 101,205 91,678 $ 300,099 $ 244,944
Non-controlling
interest - 9,877 - 669
----------------------------------------------------------------------------
$ 101,205 $ 101,555 $ 300,099 $ 245,613
----------------------------------------------------------------------------
Earnings per common
share 19
Income from
continuing
operations
Basic $ 1.46 $ 1.04 $ 3.31 $ 3.00
Diluted $ 1.46 $ 1.04 $ 3.30 $ 2.99
----------------------------------------------------------------------------
Income from
discontinued
operation
Basic $ - $ 0.60 $ 1.27 $ 1.37
Diluted $ - $ 0.60 $ 1.27 $ 1.37
----------------------------------------------------------------------------
Net income
Basic $ 1.46 $ 1.64 $ 4.58 $ 4.37
Diluted $ 1.46 $ 1.64 $ 4.57 $ 4.36
----------------------------------------------------------------------------
(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
nine months
ended September CORPORATE &
30 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of
Canadian
dollars) (Turkey) (Spain) (Finland)
Gross sales $ - $ 274,050 $ 255,977 $ 207,959
Smelter
processing
charges and
freight - (56,859) (864) (44,775)
Cost of sales
(excluding
depreciation) - (76,831) (112,796) (44,311)
Depreciation - (16,469) (57,635) (6,906)
------------------------------------------------------------
Earnings from
operations - 123,891 84,682 111,967
Corporate
development and
exploration (16,654) (1,276) (6) (2,496)
General and
administration (26,667) - - -
Investment and
other income 26,459 7,272 802 301
Finance costs (2,871) (436) (3,117) (670)
Income tax
expense 735 (42,866) (15,174) (24,889)
------------------------------------------------------------
Net income from
continuing
operations $ (18,998) $ 86,585 $ 67,187 $ 84,213
Income from
discontinued
operation (net
of taxes) - - - -
------------------------------------------------------------
Net income
(loss) $ (18,998) $ 86,585 $ 67,187 $ 84,213
------------------------------------------------------------
2011 For the
nine months DISCONTINUED
ended September OPERATIONS -
30 COBRE PANAMA OK TEDI TOTAL
------------------------------------------------------------
(thousands of
Canadian (Papua New
dollars) (Panama) Guinea)
Gross sales $ - $ - $ 737,986
Smelter
processing
charges and
freight - - (102,498)
Cost of sales
(excluding
depreciation) - - (233,938)
Depreciation - - (81,010)
--------------------------------------------
Earnings from
operations - - 320,540
Corporate
development and
exploration (2,229) - (22,661)
General and
administration - - (26,667)
Investment and
other income (98) - 34,736
Finance costs - - (7,094)
Income tax
expense - - (82,194)
--------------------------------------------
Net income from
continuing
operations $ (2,327) $ - $ 216,660
Income from
discontinued
operation (net
of taxes) - 83,439 83,439
--------------------------------------------
Net income
(loss) $ (2,327) $ 83,439 $ 300,099
--------------------------------------------
2010 For the
nine months
ended September CORPORATE &
30 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of
Canadian
dollars) (Turkey) (Spain) (Finland)
Gross sales $ 72,070 $ 253,667 $ 61,849 $ 160,701
Smelter
processing
charges and
freight (4,526) (58,369) (27) (39,809)
Cost of sales
(excluding
depreciation) (33,844) (67,172) (29,889) (39,987)
Depreciation (4,034) (16,432) (10,552) (6,088)
------------------------------------------------------------
Earnings from
operations 29,666 111,694 21,381 74,817
Corporate
development and
exploration (4,721) (451) - (2,889)
General and
administration (15,606) - - -
Investment and
other income 6,355 898 469 -
Stand-by charges - - (6,753) -
Finance costs (2,862) (445) (5,046) (529)
Income tax
expense (1,396) (23,022) 4,074 (16,783)
------------------------------------------------------------
Net income from
continuing
operations $ 11,436 $ 88,674 $ 14,125 $ 54,616
Income from
discontinued
operation (net
of taxes) - - - -
------------------------------------------------------------
Net income $ 11,436 $ 88,674 $ 14,125 $ 54,616
------------------------------------------------------------
2010 For the
nine months DISCONTINUED
ended September OPERATIONS -
30 COBRE PANAMA OK TEDI TOTAL
-----------------------------------------------------------
(thousands of
Canadian (Papua New
dollars) (Panama) Guinea)
Gross sales $ - $ - $ 548,287
Smelter
processing
charges and
freight - - (102,731)
Cost of sales
(excluding
depreciation) - - (170,892)
Depreciation - - (37,106)
-------------------------------------------
Earnings from
operations - - 237,558
Corporate
development and
exploration - - (8,061)
General and
administration - - (15,606)
Investment and
other income - - 7,722
Stand-by charges - - (6,753)
Finance costs - - (8,882)
Income tax
expense - - (37,127)
-------------------------------------------
Net income from
continuing
operations $ - $ - $ 168,851
Income from
discontinued
operation (net
of taxes) - 76,762 76,762
-------------------------------------------
Net income $ - $ 76,762 $ 245,613
-------------------------------------------
INMET MINING CORPORATION
Segmented statements of earnings
(unaudited)
2011 For the
three months
ended September CORPORATE &
30 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of
Canadian
dollars) (Turkey) (Spain) (Finland)
Gross sales $ - $ 93,168 $ 86,364 $ 82,225
Smelter
processing
charges and
freight - (20,615) (388) (16,040)
Cost of sales
(excluding
depreciation) - (29,191) (34,549) (17,404)
Depreciation - (6,215) (18,796) (2,310)
------------------------------------------------------------
Earnings from
operations - 37,147 32,631 46,471
Corporate
development and
exploration (3,511) (345) (1) (831)
General and
administration (9,987) - - -
Investment and
other income 30,014 4,935 712 101
Finance costs (967) (146) (1,040) (224)
Income tax
expense 1,235 (19,274) (5,240) (10,491)
------------------------------------------------------------
Net income from
continuing
operations $ 16,784 $ 22,317 $ 27,062 $ 35,026
Income from
discontinued
operation (net
of taxes) - - - -
------------------------------------------------------------
Net income
(loss) $ 16,784 $ 22,317 $ 27,062 $ 35,026
------------------------------------------------------------
2011 For the
three months DISCONTINUED
ended September OPERATIONS -
30 COBRE PANAMA OK TEDI TOTAL
-----------------------------------------------------------
(thousands of
Canadian (Papua New
dollars) (Panama) Guinea)
Gross sales $ - $ - $ 261,757
Smelter
processing
charges and
freight - - (37,043)
Cost of sales
(excluding
depreciation) - - (81,144)
Depreciation - - (27,321)
-------------------------------------------
Earnings from
operations - - 116,249
Corporate
development and
exploration - - (4,688)
General and
administration - - (9,987)
Investment and
other income 16 - 35,778
Finance costs - - (2,377)
Income tax
expense - - (33,770)
-------------------------------------------
Net income from
continuing
operations $ 16 $ - $ 101,205
Income from
discontinued
operation (net
of taxes) - - -
-------------------------------------------
Net income
(loss) $ 16 $ - $ 101,205
-------------------------------------------
2010 For the
three months
ended September CORPORATE &
30 OTHER CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of
Canadian
dollars) (Turkey) (Spain) (Finland)
Gross sales $ 9,893 $ 96,204 $ 61,849 $ 58,014
Smelter
processing
charges and
freight (205) (18,672) (27) (15,454)
Cost of sales
(excluding
depreciation) (3,593) (23,518) (29,889) (13,503)
Depreciation (820) (5,618) (10,552) (2,072)
------------------------------------------------------------
Earnings from
operations 5,275 48,396 21,381 26,985
Corporate
development and
exploration (1,474) (373) - (911)
General and
administration (3,985) - - -
Investment and
other income 2,301 605 291 -
Finance costs (956) (149) (3,961) (173)
Income tax
expense (793) (7,418) (10,782) (6,273)
------------------------------------------------------------
Net income from
continuing
operations $ 368 $ 41,061 $ 6,929 $ 19,628
Income from
discontinued
operation (net
of taxes) - - - -
------------------------------------------------------------
Net income $ 368 $ 41,061 $ 6,929 $ 19,628
------------------------------------------------------------
2010 For the
three months DISCONTINUED
ended September OPERATIONS -
30 COBRE PANAMA OK TEDI TOTAL
-----------------------------------------------------------
(thousands of
Canadian (Papua New
dollars) (Panama) Guinea)
Gross sales $ - $ - $ 225,960
Smelter
processing
charges and
freight - - (34,358)
Cost of sales
(excluding
depreciation) - - (70,503)
Depreciation - - (19,062)
-------------------------------------------
Earnings from
operations - - 102,037
Corporate
development and
exploration - - (2,758)
General and
administration - - (3,985)
Investment and
other income - - 3,197
Finance costs - - (5,239)
Income tax
expense - - (25,266)
-------------------------------------------
Net income from
continuing
operations $ - $ - $ 67,986
Income from
discontinued
operation (net
of taxes) - 33,569 33,569
-------------------------------------------
Net income $ - $ 33,569 $ 101,555
-------------------------------------------
INMET MINING CORPORATION
Consolidated statements of comprehensive income
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
(thousands of Canadian Note
dollars) reference 2011 2010(1) 2011 2010(1)
----------------------------------------------------------------------------
Net income $ 101,205 $ 101,555 $ 300,099 $ 245,613
--------------------------------------------
Other comprehensive
income for the
period:
Continuing operations
Changes in fair
value of
investments (362) 6,013 (2,998) 13,313
Currency translation
adjustments 85,354 40,540 114,778 (93,406)
Income tax recovery
related to
investments - other
comprehensive
income 13 (874) 16 (1,306)
--------------------------------------------
85,005 45,679 111,796 (81,399)
--------------------------------------------
Other comprehensive
income from
discontinued
operation (net of
taxes) - (4,997) 16,375 (4,556)
--------------------------------------------
Comprehensive income $ 186,210 $ 142,237 $ 428,270 $ 159,658
----------------------------------------------------------------------------
Comprehensive income
attributable to:
Inmet equity holders $ 186,210 $ 129,092 $ 428,270 $ 163,378
Non-controlling
interests - 13,145 - (3,720)
--------------------------------------------
$ 186,210 $ 142,237 $ 428,270 $ 159,658
----------------------------------------------------------------------------
(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 Nine Months Ended
September 30 September 30
(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 $ 101,205 $ 67,986 $ 216,660 $ 168,851
Add (deduct) items
not affecting
cash:
Depreciation 27,321 19,062 81,010 37,106
Deferred income
taxes 18 6,035 6,654 16,805 (9,458)
Accretion
expense on
provisions and
capital leases 1,908 1,757 5,720 4,510
Foreign exchange
loss (gain) (32,049) (1,219) (27,283) (833)
Other 420 5,252 (2,594) 6,367
Settlement of
asset retirement
obligations (3,056) (4,577) (6,507) (6,098)
Net change in non-
cash working
capital 20 18,866 (15,330) 47,946 (36,042)
------------------------------------------------
120,650 79,585 331,757 164,403
------------------------------------------------
Cash provided by
(used in)
investing
activities
Purchase of
property, plant
and equipment (57,034) (44,327) (149,565) (68,757)
Acquisition of
held to maturity
investments 9 (1,296) (76,748) (299,408) (295,846)
Maturing of held
to maturity
investments 9 8,300 - 52,567 -
Funding received
under Cobre
Panama option
agreement 3,922 4,154 12,714 10,362
Sale (purchase) of
short-term
investments (324,941) - (342,581) 26,996
Other 1,289 5,502 (22) 5,502
------------------------------------------------
(369,760) (111,419) (726,295) (321,743)
------------------------------------------------
Cash provided by
(used in)
financing
activities
Issuance of common
shares - - 502,168 -
Dividends on
commons shares - - (6,933) (5,610)
Other (975) (915) (4,685) 1,061
------------------------------------------------
(975) (915) 490,550 (4,549)
------------------------------------------------
Foreign exchange
on cash held in
foreign
currencies 14,276 3,621 18,170 (16,228)
------------------------------------------------
Cash provided by
discontinued
operation 10 - 16,566 306,982 94,956
------------------------------------------------
Increase
(decrease) in
cash: (235,809) (12,562) 421,164 (83,161)
Cash:
Beginning of
period 976,102 436,318 319,129 506,917
------------------------------------------------
End of period $ 740,293 $ 423,756 $ 740,293 423,756
Short term
investments 349,709 - 349,709 -
------------------------------------------------
Cash and short-
term investments $ 1,090,002 $ 423,756 $ 1,090,002 $ 423,756
----------------------------------------------------------------------------
(1) Refer to note
6 for effects of
adoption of IFRS
(See accompanying
notes)
(2) Supplementary
cash flow
information:
Cash interest
paid $ 593 $ 546 $ 1,155 $ 1,146
Cash taxes paid $ 22,613 $ 10,901 $ 65,135 $ 63,120
----------------------------------------------------------------------------
INMET MINING CORPORATION
Segmented statements of cash flows
(unaudited)
2011 For the
nine months
ended September CORPORATE &
30 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 $ (50,591) $ 101,642 $ 143,138 $ 91,949
Net change in
non-cash
working capital (6,210) 46,716 5,972 1,468
------------------------------------------------------------
(56,801) 148,358 149,110 93,417
------------------------------------------------------------
Cash provided by
(used in)
investing
activities
Purchase of
property, plant
and equipment (733) (9,576) (43,657) (5,278)
Funding received
under Cobre
Panama option
agreement - - - -
Acquisition of
held to
maturity
investments (284,050) (15,358) - -
Maturity of
held-to-
maturity
investments 52,567 - - -
Sale (purchase)
of short-term
investments (349,859) - 7,278 -
Other (993) 971 - -
------------------------------------------------------------
(583,068) (23,963) (36,379) (5,278)
------------------------------------------------------------
------------------------------------------------------------
Cash provided by
(used in)
financing
activities 495,121 - (4,571) -
------------------------------------------------------------
Foreign exchange
on cash held in
foreign
currencies - 6,263 5,046 4,768
------------------------------------------------------------
Cash provided by
discontinued
operation 306,982 - - -
------------------------------------------------------------
Intergroup
funding
(distributions) 119,671 (98,765) (40,460) (78,590)
------------------------------------------------------------
Increase
(decrease) in
cash 281,905 31,893 72,746 14,317
Cash:
Beginning of
year 53,184 107,750 52,570 97,056
------------------------------------------------------------
End of period 335,089 139,643 125,316 111,373
Short term
investments 349,709 - - -
------------------------------------------------------------
Cash and short-
term
investments $ 684,798 $ 139,643 $ 125,316 $ 111,373
------------------------------------------------------------
------------------------------------------------------------
2011 For the
nine months DISCONTINUED
ended September OPERATIONS -
30 COBRE 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 $ (2,327) $ - $ 283,811
Net change in
non-cash
working capital - - 47,946
--------------------------------------------
(2,327) - 331,757
--------------------------------------------
Cash provided by
(used in)
investing
activities
Purchase of
property, plant
and equipment (90,321) - (149,565)
Funding received
under Cobre
Panama option
agreement 12,714 - 12,714
Acquisition of
held to
maturity
investments - - (299,408)
Maturity of
held-to-
maturity
investments - - 52,567
Sale (purchase)
of short-term
investments - - (342,581)
Other - - (22)
--------------------------------------------
(77,607) - (726,295)
--------------------------------------------
--------------------------------------------
Cash provided by
(used in)
financing
activities - - 490,550
--------------------------------------------
Foreign exchange
on cash held in
foreign
currencies 2,093 - 18,170
--------------------------------------------
Cash provided by
discontinued
operation - - 306,982
--------------------------------------------
Intergroup
funding
(distributions) 98,144 - -
--------------------------------------------
Increase
(decrease) in
cash 20,303 - 421,164
Cash:
Beginning of
year 8,569 - 319,129
--------------------------------------------
End of period 28,872 - 740,293
Short term
investments - - 349,709
--------------------------------------------
Cash and short-
term
investments $ 28,872 $ - $ 1,090,002
--------------------------------------------
--------------------------------------------
2010 For the nine
months ended CORPORATE &
September 30 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 $ 7,424 $ 105,945 $ 25,495 $ 61,581
Net change in
non-cash working
capital 3,474 (31,485) 58 (8,089)
-----------------------------------------------------------
10,898 74,460 25,553 53,492
-----------------------------------------------------------
Cash provided by
(used in)
investing
activities
Purchase of
property, plant
and equipment (132) (8,229) 7,834 (3,264)
Acquisition of
held to maturity
investments (228,500) (67,346) - -
Funding received
under Cobre
Panama option
agreement - - - -
Sale of short-
term investments 26,996 - - -
Other 5,502 - - -
-----------------------------------------------------------
(196,134) (75,575) 7,834 (3,264)
-----------------------------------------------------------
-----------------------------------------------------------
Cash provided by
(used in)
financing
activities (6,109) - 1,560 -
-----------------------------------------------------------
Foreign exchange
on cash held in
foreign
currencies - (6,556) 44 (9,728)
-----------------------------------------------------------
Cash provided by
discontinued
operation - - - -
-----------------------------------------------------------
Intergroup
funding
(distributions) 113,752 (75,881) 5,282 (27,984)
-----------------------------------------------------------
Increase
(decrease) in
cash (77,593) (83,552) 40,273 12,516
Cash:
Beginning of
year 224,574 158,631 10,039 66,314
-----------------------------------------------------------
End of period 146,981 75,079 50,312 78,830
Short term
investments - - - -
-----------------------------------------------------------
Cash and short-
term investments $ 146,981 $ 75,079 $ 50,312 $ 78,830
-----------------------------------------------------------
-----------------------------------------------------------
2010 For the nine DISCONTINUED
months ended OPERATIONS -
September 30 COBRE 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 $ - $ - $ 200,445
Net change in
non-cash working
capital - - (36,042)
---------------------------------------------
- - 164,403
---------------------------------------------
Cash provided by
(used in)
investing
activities
Purchase of
property, plant
and equipment (64,966) - (68,757)
Acquisition of
held to maturity
investments - - (295,846)
Funding received
under Cobre
Panama option
agreement 10,362 - 10,362
Sale of short-
term investments - - 26,996
Other - - 5,502
---------------------------------------------
(54,604) - (321,743)
---------------------------------------------
---------------------------------------------
Cash provided by
(used in)
financing
activities - - (4,549)
---------------------------------------------
Foreign exchange
on cash held in
foreign
currencies 12 - (16,228)
---------------------------------------------
Cash provided by
discontinued
operation - 94,956 94,956
---------------------------------------------
Intergroup
funding
(distributions) 51,585 (66,754) -
---------------------------------------------
Increase
(decrease) in
cash (3,007) 28,202 (83,161)
Cash:
Beginning of
year 10,728 36,631 506,917
---------------------------------------------
End of period 7,721 64,833 423,756
Short term
investments - - -
---------------------------------------------
Cash and short-
term investments $ 7,721 $ 64,833 $ 423,756
---------------------------------------------
---------------------------------------------
INMET MINING CORPORATION
Segmented statements of cash flows
(unaudited)
2011 For the
three months
ended September CORPORATE &
30 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 $ (10,874) $ 25,686 $ 49,355 $ 37,601
Net change in
non-cash
working capital 588 31,222 985 (13,929)
------------------------------------------------------------
(10,286) 56,908 50,340 23,672
------------------------------------------------------------
Cash provided by
(used in)
investing
activities
Purchase of
property, plant
and equipment (357) (1,915) (9,600) (2,491)
Funding received
under Cobre
Panama option
agreement - - - -
Purchase of
held-to-
maturity
investments (806) (490) - -
Maturity of
held-to-
maturity
investments 8,300 - - -
Purchase of
short-term
investments (324,941) - - -
Other 813 476 - -
------------------------------------------------------------
(316,991) (1,929) (9,600) (2,491)
------------------------------------------------------------
------------------------------------------------------------
Cash provided by
(used in)
financing
activities (120) - (855) -
------------------------------------------------------------
Foreign exchange
on cash held in
foreign
currencies - 10,220 1,083 572
------------------------------------------------------------
Intergroup
funding
(distributions) (33,182) (77) (11,379) (5,289)
------------------------------------------------------------
Increase
(decrease) in
cash (360,579) 65,122 29,589 16,464
Cash:
Beginning of
year 695,668 74,521 95,727 94,909
------------------------------------------------------------
End of period 335,089 139,643 125,316 111,373
Short term
investments 349,709 - - -
------------------------------------------------------------
Cash and short-
term
investments $ 684,798 $ 139,643 $ 125,316 $ 111,373
------------------------------------------------------------
------------------------------------------------------------
2011 For the
three months DISCONTINUED
ended September OPERATIONS -
30 COBRE 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 $ 16 $ - $ 101,784
Net change in
non-cash
working capital - - 18,866
--------------------------------------------
16 - 120,650
--------------------------------------------
Cash provided by
(used in)
investing
activities
Purchase of
property, plant
and equipment (42,671) - (57,034)
Funding received
under Cobre
Panama option
agreement 3,922 - 3,922
Purchase of
held-to-
maturity
investments - - (1,296)
Maturity of
held-to-
maturity
investments - - 8,300
Purchase of
short-term
investments - - (324,941)
Other - - 1,289
--------------------------------------------
(38,749) - (369,760)
--------------------------------------------
--------------------------------------------
Cash provided by
(used in)
financing
activities - - (975)
--------------------------------------------
Foreign exchange
on cash held in
foreign
currencies 2,401 - 14,276
--------------------------------------------
Intergroup
funding
(distributions) 49,927 -
--------------------------------------------
Increase
(decrease) in
cash 13,595 - (235,809)
Cash:
Beginning of
year 15,277 - 976,102
--------------------------------------------
End of period 28,872 - 740,293
Short term
investments - - 349,709
--------------------------------------------
Cash and short-
term
investments $ 28,872 $ - $ 1,090,002
--------------------------------------------
--------------------------------------------
2010 For the
three months
ended September CORPORATE &
30 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 $ (4,565) $ 45,915 $ 32,248 $ 21,317
Net change in
non-cash
working capital 5,055 (24,899) 58 4,456
------------------------------------------------------------
490 21,016 32,306 25,773
------------------------------------------------------------
Cash provided by
(used in)
investing
activities
Purchase of
property, plant
and equipment (44) (3,347) (16,487) (743)
Purchase of
held-to-
maturity
investments (9,402) (67,346) - -
Funding received
under Cobre
Panama option
agreement - - - -
Other 5,502 - - -
------------------------------------------------------------
(3,944) (70,693) (16,487) (743)
------------------------------------------------------------
------------------------------------------------------------
Cash provided by
(used in)
financing
activities (681) - (234) -
------------------------------------------------------------
Foreign exchange
on cash held in
foreign
currencies - (3,966) 3,085 4,869
------------------------------------------------------------
Cash provided by
discontinued
operation - - - -
------------------------------------------------------------
Intergroup
funding
(distributions) (11,378) 130 1,563 (3,978)
------------------------------------------------------------
Increase
(decrease) in
cash (15,513) (53,513) 20,233 25,921
Cash:
Beginning of
year 162,494 128,592 30,079 52,909
------------------------------------------------------------
End of period 146,981 75,079 50,312 78,830
Short term
investments - - - -
------------------------------------------------------------
Cash and short-
term
investments $ 146,981 $ 75,079 $ 50,312 $ 78,830
------------------------------------------------------------
------------------------------------------------------------
2010 For the
three months DISCONTINUED
ended September OPERATIONS -
30 COBRE 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 $ - $ - $ 94,915
Net change in
non-cash
working capital - - (15,330)
---------------------------------------------
- - 79,585
---------------------------------------------
Cash provided by
(used in)
investing
activities
Purchase of
property, plant
and equipment (23,706) - (44,327)
Purchase of
held-to-
maturity
investments - - (76,748)
Funding received
under Cobre
Panama option
agreement 4,154 - 4,154
Other - - 5,502
---------------------------------------------
(19,552) - (111,419)
---------------------------------------------
---------------------------------------------
Cash provided by
(used in)
financing
activities - - (915)
---------------------------------------------
Foreign exchange
on cash held in
foreign
currencies (367) - 3,621
---------------------------------------------
Cash provided by
discontinued
operation - 16,566 16,566
---------------------------------------------
Intergroup
funding
(distributions) 14,044 (381) -
---------------------------------------------
Increase
(decrease) in
cash (5,875) 16,185 (12,562)
Cash:
Beginning of
year 13,596 48,648 436,318
---------------------------------------------
End of period 7,721 64,833 423,756
Short term
investments - - -
---------------------------------------------
Cash and short-
term
investments $ 7,721 $ 64,833 $ 423,756
---------------------------------------------
---------------------------------------------
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 in 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 will make this statement when we issue 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 2010 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, where 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 mine and plant operation 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 Corp owns an option to acquire a 20 percent interest
in Cobre Panama.
-- 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
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 period. 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
financial period.
-- 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.
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.
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 that is not a business
combination and that, at the time of the transaction, does not affect
accounting profit or loss, or taxable profit or loss
-- a deferred tax liability related 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 when
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.
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 finance costs.
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 future income 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 September 30, 2011, and could have an impact in future periods:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
IFRS 9 Financial IFRS 9 simplifies the current measurement
instruments 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.
----------------------------------------------------------------------------
IFRS 10 Consolidated IFRS 10 provides a definition of control
financial statements 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.
----------------------------------------------------------------------------
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.
----------------------------------------------------------------------------
IFRS 12 Disclosure of IFRS 12 enhances, and replaces the disclosure
interests in other requirements for subsidiaries, joint
entities 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
----------------------------------------------------------------------------
IFRS 13 Fair value IFRS 13 defines fair value, sets a framework
measurement 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
----------------------------------------------------------------------------
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
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----------------------------------------------------------------------------
These standards and amendments are effective for financial periods beginning January 1, 2013, although early adoption is permitted. We are currently assessing the impact these changes in accounting 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 2010 comparative information from what was previously reported under Canadian GAAP 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 before 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
----------------------------------------------------------------------------
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) -
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------
$ 2,904,149 $ (3,390) $ 2,900,759
----------------------------------------------------------------------------
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) -
----------------------------------------------------------------------------
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) -
----------------------------------------------------------------------------
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)
----------------------------------------------------------------------------
Total equity
attributable to
Inmet equity
holders 2,238,145 - 2,238,145
----------------------------------------------------------------------------
Non-controlling
interest - 78,005 78,005
----------------------------------------------------------------------------
Total equity 2,238,145 78,005 2,316,150
----------------------------------------------------------------------------
Total liabilities
and equity $ 2,904,149 $ (3,390) $ 2,900,759
----------------------------------------------------------------------------
Adjustments Notes IFRS
----------------------------------------------------------------------------
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 - -
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------
$ 96,185 $ 2,996,944
----------------------------------------------------------------------------
Liabilities
Current
liabilities:
Accounts payable
and accrued
liabilities $ 426 i $ 170,524
Provisions - 17,417
Derivatives - 1,543
Deferred income
tax liabilities - -
----------------------------------------------------------------------------
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 - -
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------
Total equity
attributable to
Inmet equity
holders 47,988 2,286,133
----------------------------------------------------------------------------
Non-controlling
interest (2,726) 75,279
----------------------------------------------------------------------------
Total equity 45,262 2,361,412
----------------------------------------------------------------------------
Total liabilities
and equity $ 96,185 $ 2,996,944
----------------------------------------------------------------------------
The schedule below reconciles our Canadian GAAP and IFRS balance sheets as at September 30, 2010.
Canadian GAAP Reclassifications Subtotal
----------------------------------------------------------------------------
Assets
Current assets:
Cash and short-
term
investments $ 423,756 $ - $ 423,756
Restricted cash 12,435 - 12,435
Accounts
receivable 115,722 - 115,722
Inventories 85,414 - 85,414
Current portion
of held to
maturity
investments 64,449 - 64,449
Deferred income
tax assets 7,956 (7,956) -
Assets held for
sale 525 525
----------------------------------------------------------------------------
710,257 (7,956) 702,301
Restricted cash 101,531 - 101,531
Property, plant
and equipment 1,813,634 - 1,813,634
Investments in
equity securities 55,725 - 55,725
Held to maturity
investments 334,385 - 334,385
Deferred income
tax assets 14,855 2,214 17,069
Other assets 4,745 - 4,745
----------------------------------------------------------------------------
$ 3,035,132 $ (5,742) $ 3,029,390
----------------------------------------------------------------------------
Liabilities
Current
liabilities:
Accounts payable
and accrued
liabilities $ 178,282 $ (15,648) $ 162,634
Provisions - 16,044 16,044
Derivatives 2,012 - 2,012
Deferred income
tax liabilities 3,330 (3,330) -
----------------------------------------------------------------------------
183,624 (2,934) 180,690
Long-term debt 198,713 - 198,713
Asset retirement
obligations 141,358 (141,358) -
Provisions - 154,102 154,102
Other liabilities 32,032 (12,744) 19,288
Derivatives 3,357 - 3,357
Deferred income
tax liabilities 9,490 (2,808) 6,682
Non-controlling
interest 73,597 (73,597) -
----------------------------------------------------------------------------
642,171 (79,339) 562,832
Equity
Share capital 669,952 - 669,952
Contributed
surplus 64,551 - 64,551
Stock based
compensation 6,295 - 6,295
Retained earnings 1,750,586 - 1,750,586
Accumulated other
comprehensive
income (loss) (98,423) - (98,423)
----------------------------------------------------------------------------
Total equity
attributable to
Inmet equity
holders 2,392,961 - 2,392,961
----------------------------------------------------------------------------
Non-controlling
interest - 73,597 73,597
----------------------------------------------------------------------------
Total equity 2,392,961 73,597 2,466,558
----------------------------------------------------------------------------
Total liabilities
and equity $ 3,035,132 $ (5,742) $ 3,029,390
----------------------------------------------------------------------------
Adjustments Notes IFRS
----------------------------------------------------------------------------
Assets
Current assets:
Cash and short-
term
investments $ - $ 423,756
Restricted cash - 12,435
Accounts
receivable 33,261 i 148,983
Inventories (6,475) i, ii 78,939
Current portion
of held to
maturity
investments - 64,449
Deferred income
tax assets - -
Assets held for
sale 525
----------------------------------------------------------------------------
26,786 729,087
Restricted cash - 101,531
Property, plant
and equipment 82,573 ii, iii, iv, v 1,896,207
Investments in
equity securities - 55,725
Held to maturity
investments - 334,385
Deferred income
tax assets (9,491) vii, viii 7,578
Other assets (991) 3,754
----------------------------------------------------------------------------
$ 98,877 $ 3,128,267
----------------------------------------------------------------------------
Liabilities
Current
liabilities:
Accounts payable
and accrued
liabilities $ 764 i $ 163,398
Provisions - 16,044
Derivatives - 2,012
Deferred income
tax liabilities - -
----------------------------------------------------------------------------
764 181,454
Long-term debt - 198,713
Asset retirement
obligations - -
Provisions 37,780 vi 191,882
Other liabilities - 19,288
Derivatives - 3,357
Deferred income
tax liabilities 9,405 vii, viii 16,087
Non-controlling
interest - -
----------------------------------------------------------------------------
47,949 610,781
Equity
Share capital - 669,952
Contributed
surplus 1,248 65,799
Stock based
compensation - 6,295
Retained earnings 15,857 1,766,443
Accumulated other
comprehensive
income (loss) 35,950 ix (62,473)
----------------------------------------------------------------------------
Total equity
attributable to
Inmet equity
holders 53,055 2,446,016
----------------------------------------------------------------------------
Non-controlling
interest (2,127) 71,470
----------------------------------------------------------------------------
Total equity 50,928 2,517,486
----------------------------------------------------------------------------
Total liabilities
and equity $ 98,877 $ 3,128,267
----------------------------------------------------------------------------
The schedule below reconciles our Canadian GAAP and IFRS balance sheets as at December 31, 2010.
Canadian GAAP Reclassifications Subtotal
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------
$ 3,262,576 $ (14,832) $ 3,247,744
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------
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)
----------------------------------------------------------------------------
Total equity 2,758,484 - 2,758,484
----------------------------------------------------------------------------
Total liabilities
and equity $ 3,262,576 $ (14,832) $ 3,247,744
----------------------------------------------------------------------------
Adjustments Notes IFRS
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------
52,437 891,619
Restricted cash - 70,059
Property, plant
and equipment (185,778) ii, iii, iv, v, 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, September 30, 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 (September 30, 2010 - $33.3 million,
December 31, 2010 - $27.5 million) and reduced inventory by $5.6
million (September 30, 2010 - $7.2 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 (September 30, 2010 -
$44.8 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 two
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 that the
extensive uncertainties underlying the original impairment no
longer apply, and that Cayeli's recoverable amount exceeded 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 (September 30, 2010
- $16.0 million). For plant and equipment that was purchased after
our initial proportionate consolidation of Ok Tedi, we used Ok
Tedi's accumulated depreciation, which Ok Tedi has used
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 (September 30, 2010 - $14.0 million,
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 (September 30, 2010 - $12.3 million, 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.
While 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 reclassified 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 (September 30, 2010 - $37.6 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 (September 30, 2010 - $2.0 million, December 31, 2010 -
$1.0 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 at January 1, 2010 (September 30, 2010 -
$11.4 million, December 31, 2010 - $6.4 million) and increased
deferred income tax liabilities by $10.7 million (September 30,
2010 - $11.2 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, September 30, December 31,
Notes 2010 2010 2010
----------------------------------------------------------------------------
Canadian GAAP equity $ 2,238,145 $ 2,392,961 $ 2,758,484
IFRS adjustments:
Reclassification of
non-controlling
interest to equity 78,005 73,597 -
Revenue recognition i 14,210 18,753 30,023
Reversal of impairment
of assets - Cayeli ii 42,395 36,589 34,005
Plant and equipment -
Ok Tedi iii 10,184 11,192 11,179
Property, plant and
equipment associated
with asset retirement
obligations iv 8,304 12,989 12,175
Foreign exchange
forward contract - Las
Cruces v 9,386 8,606 8,034
Provision for asset
retirement obligations vi (38,349) (36,276) (41,310)
Deferred income taxes vii 3,481 3,780 2,870
Acquisition of the non-
controlling interest
in Las Cruces x - - (254,056)
Other (4,349) (4,705) (6,865)
----------------------------------------------------------------------------
IFRS equity $ 2,361,412 $ 2,517,486 $ 2,554,539
----------------------------------------------------------------------------
The schedule below reconciles our Canadian GAAP and IFRS net income for the three months ended September 30, 2010. The Canadian GAAP statement of earnings is presented in an IFRS format.(1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canadian
GAAP Reclassifications Ok Tedi
----------------------------------------------------------------------------
Gross sales $ 313,349 $ - $ (88,402)
Smelter processing
charges and
freight (47,191) - 8,811
Cost of sales
(excluding
depreciation) (93,722) 2,087 22,133
Depreciation (24,308) - 7,039
----------------------------------------------------------------------------
Earnings from
operations 148,128 2,087 (50,419)
Corporate
development and
exploration (2,758) - -
General and
administration (4,073) - -
Investment and
other income 3,533 - (103)
Stand-by costs - - -
Finance costs (3,480) (2,287) 215
----------------------------------------------------------------------------
Income before
taxation 141,350 (200) (50,307)
Income tax expense (45,354) 200 16,738
----------------------------------------------------------------------------
Income from
continuing
operations $ 95,996 $ - $ (33,569)
Income from
discontinued
operation (net of
taxes) - - 33,569
----------------------------------------------------------------------------
Net income $ 95,996 $ - $ -
----------------------------------------------------------------------------
Attributable to:
Inmet equity
holders $ 86,086 $ - $ -
Non-controlling
interest 9,910 - -
----------------------------------------------------------------------------
$ 95,996 $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjustments Notes IFRS
----------------------------------------------------------------------------
Gross sales $ 1,013 i $ 225,960
Smelter processing
charges and
freight 4,022 i (34,358)
Cost of sales
(excluding
depreciation) (1,001) i (70,503)
Depreciation (1,793) iii, iv (19,062)
----------------------------------------------------------------------------
Earnings from
operations 2,241 102,037
Corporate
development and
exploration - (2,758)
General and
administration 88 (3,985)
Investment and
other income (233) ii 3,197
Stand-by costs - -
Finance costs 313 (5,239)
----------------------------------------------------------------------------
Income before
taxation 2,409 93,252
Income tax expense 3,150 vi (25,266)
----------------------------------------------------------------------------
Income from
continuing
operations $ 5,559 $ 67,986
Income from
discontinued
operation (net of
taxes) - 33,569
----------------------------------------------------------------------------
Net income $ 5,559 $ 101,555
----------------------------------------------------------------------------
Attributable to:
Inmet equity
holders $ 5,592 $ 91,678
Non-controlling
interest (33) 9,877
----------------------------------------------------------------------------
$ 5,559 $ 101,555
----------------------------------------------------------------------------
(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 nine months ended September 30, 2010. The Canadian GAAP statement of earnings is presented in an IFRS format.(1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canadian
GAAP Reclassifications Ok Tedi
----------------------------------------------------------------------------
Gross sales $ 779,959 $ - $ (240,047)
Smelter processing
charges and
freight (128,314) - 26,228
Cost of sales
(excluding
depreciation) (247,139) 4,304 72,601
Depreciation (58,483) - 20,564
----------------------------------------------------------------------------
Earnings from
operations 346,023 4,304 (120,654)
Corporate
development and
exploration (8,061) - -
General and
administration (15,871) - -
Investment and
other income (14,915) - (13)
Stand-by costs (6,753) - -
Finance costs (4,353) (4,842) 686
----------------------------------------------------------------------------
Income before
taxation 296,070 (538) (119,981)
Income tax expense (80,748) 538 43,219
----------------------------------------------------------------------------
Income from
continuing
operations $ 215,322 $ - $ (76,762)
Income from
discontinued
operation (net of
taxes) - - 76,762
----------------------------------------------------------------------------
Net income $ 215,322 $ - $ -
----------------------------------------------------------------------------
Attributable to:
Inmet equity
holders $ 214,393 $ - $ -
Non-controlling
interest 929 - -
----------------------------------------------------------------------------
$ 215,322 $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjustments Notes IFRS
----------------------------------------------------------------------------
Gross sales $ 8,375 i $ 548,287
Smelter processing
charges and
freight (645) i (102,731)
Cost of sales
(excluding
depreciation) (658) i (170,892)
Depreciation 813 i, iii, iv (37,106)
----------------------------------------------------------------------------
Earnings from
operations 7,885 237,558
Corporate
development and
exploration - (8,061)
General and
administration 265 (15,606)
Investment and
other income 22,650 ii 7,722
Stand-by costs - (6,753)
Finance costs (373) (8,882)
----------------------------------------------------------------------------
Income before
taxation 30,427 205,978
Income tax expense (136) vi (37,127)
----------------------------------------------------------------------------
Income from
continuing
operations $ 30,291 $ 168,851
Income from
discontinued
operation (net of
taxes) - 76,762
----------------------------------------------------------------------------
Net income $ 30,291 $ 245,613
----------------------------------------------------------------------------
Attributable to:
Inmet equity
holders $ 30,551 $ 244,944
Non-controlling
interest (260) 669
----------------------------------------------------------------------------
$ 30,291 $ 245,613
----------------------------------------------------------------------------
(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 and nine months ended September 30, 2010 and the 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 September 30, 2010 we increased
revenue by $1.0 million (nine months ended September 30, 2010 - $8.4
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
September 30, 2010, we reversed foreign exchange losses recognized
under Canadian GAAP, which increased investment and other income by
$nil million (nine months ended September 30, 2010 - $22.7 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 $2.1 million for the three
months ended September 30, 2010 (nine months ended September 30, 2010
- $6.1 million, year ended December 31, 2010 - $7.9 million).
(iv) Depreciation of property, plant and equipment associated with asset
retirement obligations - we recognized a $0.1 million increase in
depreciation for the three months ended September 30, 2010 (nine
months ended September 30, 2010 - $6.5 million decrease, 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 decreased income
tax expense by $2.8 million for the three months ended September 30,
2010 (nine months ended September 30, 2010 - $0.5 million increase,
year ended December 31, 2010 - $4.8 million increase)
The schedule below reconciles our Canadian GAAP and IFRS comprehensive income for the three and nine months ended September 30, 2010 and the year ended December 31, 2010. The Canadian GAAP statement of comprehensive income is presented in an IFRS format.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months nine months
ended ended year ended
September 30, September 30, December 31,
Notes 2010 2010 2010
----------------------------------------------------------------------------
Comprehensive income
reported under
Canadian GAAP $ 133,509 $ 158,975 $ 181,643
Total adjustments to
net income 5,559 30,291 32,683
Adjustments to other
comprehensive income
(loss):
Currency translation
adjustments i, ii 3,169 (29,608) (28,167)
----------------------------------------------------------------------------
Comprehensive income
under IFRS $ 142,237 $ 159,658 $ 186,159
----------------------------------------------------------------------------
Notes to the reconciliation of the statement of comprehensive income for the three and nine months ended September 30, 2010 and the year ended December 31, 2010
Adjustments
(i) Currency translation adjustments - for the three months ended
September 30, 2010, we reversed foreign exchange losses previously
recognized in the statement of earnings under Canadian GAAP, which
decreased other comprehensive income by $nil million (nine months
ended September 30, 2010 - $22.7 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 increased other comprehensive income by $3.1 million for the
three months ended September 30, 2010 (nine months ended September 30,
2010- $6.9 million, 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
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30, December 31, January 1,
2011 2010 2010
----------------------------------------------------------------------------
Cash and cash equivalents:
Liquidity funds $ 479,949 $ 194,603 $ 205,190
Term deposits 10,163 52,991 40,140
Overnight deposits 47,190 4,319 54,435
Bankers acceptances - - 92,200
Money market funds 40,116 40,048 19,951
Corporate 10,074 - -
Bank deposits 61,343 27,168 95,001
Provincial short-term notes 91,458 - -
----------------------------------------------------------------------------
740,293 319,129 506,917
----------------------------------------------------------------------------
Short-term investments:
Corporate 63,179 - 26,996
Term deposits - 7,296 -
Provincial short term notes 271,479 - -
Bankers acceptances 15,051 - -
----------------------------------------------------------------------------
349,709 7,296 26,996
----------------------------------------------------------------------------
Total cash and short-term
instruments $ 1,090,002 $ 326,425 $ 533,913
----------------------------------------------------------------------------
----------------------------------------------------------------------------
8. Restricted cash
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30, December 31, January 1,
2011 2010 2010
----------------------------------------------------------------------------
Collateralized cash for letter
of credit facility - Inmet
Mining $ 16,795 $ 16,906 $ 16,492
In trust for Ok Tedi reclamation - - 26,365
Collateralized cash for letters
of credit - Las Cruces 57,497 52,138 72,008
Collateralized cash for
Pyhasalmi reclamation 1,720 1,632 1,854
--------------------------------------------
76,012 70,676 116,719
Less current portion:
Collateralized cash for
letters of credit - Las
Cruces (777) (617) (15,130)
----------------------------------------------------------------------------
$ 75,235 $ 70,059 $ 101,589
----------------------------------------------------------------------------
9. Held to maturity investments
Year to date, we purchased US $284 million of US Treasury bonds with credit ratings of AA. The bonds mature between March 2012 and January 2016 and have a weighted average annual yield to maturity of 1.2 percent. Additionally, we purchased Canadian government and corporate bonds for $15 million with credit ratings of AA, maturity between June 2014 and March 2016 and an annual yield to maturity of 1.6 percent. $53 million of bonds have matured this year.
We have designated these bonds as held to maturity, measuring them initially at fair value and subsequently at amortized cost.
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, but we have reduced our tax-effected Canadian tax loss pools by about $2 million. The following tables provide a breakdown of our share of the earnings and cash flows at Ok Tedi for the three and nine months ended September 30, 2010 and 2011.
Statements of earnings
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Gross sales $ - $ 88,402 $ 44,865 $ 240,047
Smelter processing charges
and freight - (8,811) (4,051) (26,228)
Cost of sales (excluding
depreciation) - (22,133) (12,116) (72,601)
Depreciation - (7,039) (2,272) (20,564)
-------------------------------------------------
- 50,419 26,426 120,654
Investment and other income - 103 (80) 13
Finance costs - (215) (33) (686)
Income tax expense - (16,738) (9,670) (43,219)
-------------------------------------------------
- 33,569 16,643 76,762
Gain on sale of our
interest - - 79,029 -
Income tax expense on sale
of our interest - - (12,233) -
----------------------------------------------------------------------------
Net income from
discontinued operation $ - $ 33,569 $ 83,439 $ 76,762
----------------------------------------------------------------------------
Statements of cash flow
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Cash provided by operating
activities
Before net change in non-
cash working capital $ - $ 40,245 $ - $ 92,614
Net change in non-cash
working capital - (17,694) - 16,984
-----------------------------------------------
- 22,551 - 109,598
Cash provided by (used in)
investing activities
Cash proceeds on sale, net
of withholding tax - - 306,982 -
Purchase of property, plant
and equipment - (3,458) - (11,863)
-----------------------------------------------
- (3,458) 306,982 (11,863)
Cash used in financing
activities - (643) - (1,288)
-----------------------------------------------
Foreign exchange change on
cash held in foreign
currency - (1,884) - (1,491)
----------------------------------------------------------------------------
Net cash from discontinued
operation $ - $ 16,566 $ 306,982 $ 94,956
----------------------------------------------------------------------------
11. Accounts payable and accrued liabilities
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30, December 31, January 1,
2011 2010 2010
----------------------------------------------------------------------------
Accounts payable and accrued
liabilities $ 112,007 $ 94,792 $ 106,701
Amounts payable related to metal
sales 23,219 592 103
Income taxes payable 33,411 40,961 63,720
----------------------------------------------------------------------------
$ 168,637 $ 136,345 $ 170,524
----------------------------------------------------------------------------
12. Provisions
The table below shows the significant components of our provisions.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30, December 31, January 1,
2011 2010 2010
----------------------------------------------------------------------------
Asset retirement obligations $ 179,273 $ 168,589 $ 198,291
Employee benefits and other 12,724 11,478 15,556
--------------------------------------------
191,997 180,067 213,847
Less current portion:
Asset retirement obligations (16,847) (16,417) (13,500)
Employee benefits and other (2,163) (1,251) (3,917)
--------------------------------------------
(19,010) (17,668) (17,417)
----------------------------------------------------------------------------
$ 172,987 $ 162,399 $ 196,430
----------------------------------------------------------------------------
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, 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. The Board grants performance share units (PSUs) at its sole discretion with PSU 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 1.9%.
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 nine months ended
September 30 September 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Stock option plan $ 1,428 $ - $ 2,380 $ -
Performance share unit
plan 116 - 305 -
Long-term incentive plan - - 759 382
Deferred share unit plan 224 237 798 743
Share award plan 168 333 470 990
----------------------------------------------------------------------------
$ 1,936 $ 570 $ 4,713 $ 2,115
----------------------------------------------------------------------------
15. Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss) includes:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30, 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)) (3,434) (452) 23,794
Currency translation adjustment (53,612) (179,104) -
----------------------------------------------------------------------------
Accumulated other comprehensive
income (loss) $ (57,046) $ (185,217) $ 19,093
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Currency translation adjustments
The table below is breakdown of our currency translation adjustments.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30, December 31, January 1,
2011 2010 2010
----------------------------------------------------------------------------
Pyhasalmi (euro functional
currency) $ (14,549) $ (24,354) $ -
Las Cruces (euro functional
currency) (40,274) (93,427) -
Cayeli (US dollar functional
currency) (5,443) (20,908) -
Cobre Panama (US dollar
functional currency) 6,654 (29,701) -
Ok Tedi (US dollar functional
currency) - (10,714) -
----------------------------------------------------------------------------
$ (53,612) $ (179,104) $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Canadian dollar to US dollar exchange rate was $1.05 at September 30, 2011, $0.99 at December 31, 2010 and $1.05 at January 1, 2010. The Canadian dollar to euro exchange rate was $1.40 at September 30, 2011, $1.33 at December 31, 2010 and $1.50 at January 1, 2010.
16. Investment and other income
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Interest income $ 4,829 $ 1,990 $ 11,806 $ 5,347
Dividend and royalty income 466 650 1,533 2,539
Foreign exchange gain 30,483 661 19,390 463
Other - (104) 2,007 (627)
----------------------------------------------------------------------------
$ 35,778 $ 3,197 $ 34,736 $ 7,722
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Foreign exchange gain is a result of:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Translation of US dollar cash
and held-to-maturity
investments $ 23,406 $ 35 $ 12,367 $ 25
Translation of Turkish lira
taxes payable at Cayeli 3,187 780 4,314 459
Translation of other monetary
assets and liabilities 3,890 (154) 2,709 (21)
----------------------------------------------------------------------------
$ 30,483 $ 661 $ 19,390 $ 463
----------------------------------------------------------------------------
----------------------------------------------------------------------------
17. Finance costs
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
2011 2010 2011 2010
----------------------------------------------------------------------------
Interest on note payable $ 292 $ 283 $ 864 $ 856
Accretion on note payable 177 156 510 456
Interest on loans from non-
controlling shareholder
In Las Cruces - 3,041 - 3,041
Accretion on provisions and
capital lease obligations 1,908 1,759 5,720 4,529
----------------------------------------------------------------------------
$ 2,377 $ 5,239 $ 7,094 $ 8,882
----------------------------------------------------------------------------
----------------------------------------------------------------------------
18. Income tax
For the three months ended September 30, 2011:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Current
income
taxes $ (1,188) $ 18,230 $ 66 $ 10,627 $ 27,735
Deferred
income
taxes (47) 1,044 5,174 (136) 6,035
----------------------------------------------------------------------------
Income tax
expense $ (1,235) $ 19,274 $ 5,240 $ 10,491 $ 33,770
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended September 30, 2010:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Current
income
taxes $ 2,935 $ 8,698 $ - $ 6,979 $ 18,612
Deferred
income
taxes (2,142) (1,280) 10,782 (706) 6,654
----------------------------------------------------------------------------
Income tax
expense $ 793 $ 7,418 $ 10,782 $ 6,273 $ 25,266
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine months ended September 30, 2011:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Current
income
taxes $ (613) $ 40,212 $ 543 $ 25,247 $ 65,389
Deferred
income
taxes (122) 2,654 14,631 (358) 16,805
----------------------------------------------------------------------------
Income tax
expense $ (735) $ 42,866 $ 15,174 $ 24,889 $ 82,194
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine months ended September 30, 2010:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Current
income
taxes $ 5,842 $ 23,878 $ - $ 16,865 $ 46,585
Deferred
income
taxes (4,446) (856) (4,074) (82) (9,458)
----------------------------------------------------------------------------
Income tax
expense $ 1,396 $ 23,022 $ (4,074) $ 16,783 $ 37,127
----------------------------------------------------------------------------
----------------------------------------------------------------------------
19. Net income per share
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
(thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Income from continuing
operations available to common
shareholders $ 101,205 $ 58,109 $ 216,660 $ 168,182
Income from discontinued
operations available to common
shareholders - 33,569 83,439 76,762
Net income available to common
shareholders $ 101,205 $ 91,678 $ 300,099 $ 244,944
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
(thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Weighted average common shares
outstanding 69,331 56,107 65,454 56,107
Plus incremental shares from assumed
conversions:
Deferred share units 117 105 117 105
Long term incentive plan units - 43 25 43
----------------------------------------------------------------------------
Diluted weighted average common
shares outstanding 69,448 56,255 65,596 56,255
----------------------------------------------------------------------------
The table below shows our earnings per common share for the three months ended September 30.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
three months ended September 30
(Canadian dollars per share) 2011 2010
----------------------------------------------------------------------------
Basic Diluted Basic Diluted
Net income from continuing
operations per share $ 1.46 $ 1.46 $ 1.04 $ 1.04
Income from discontinued
operations per share - - 0.60 0.60
----------------------------------------------------------------------------
Net income per share $ 1.46 $ 1.46 $ 1.64 $ 1.64
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The table below shows our earnings per common share for the nine months ended September 30.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
nine months ended September 30
(Canadian dollars per share) 2011 2010
----------------------------------------------------------------------------
Basic Diluted Basic Diluted
Net income from continuing
operations per share $ 3.31 $ 3.30 $ 3.00 $ 2.99
Income from discontinued
operations per share 1.27 1.27 1.37 1.37
----------------------------------------------------------------------------
Net income per share $ 4.58 $ 4.57 $ 4.37 $ 4.36
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 September 30, 2011:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Accounts
receivable $ 595 $ 10,397 $ 2,989 $ (11,887) $ 2,094
Inventories - 2,834 (5,999) 2,928 (237)
Accounts
payable and
accrued
liabilities 1,989 7,744 4,643 (69) 14,307
Taxes
payable (1,872) 10,105 (648) (4,901) 2,684
Provisions (124) - - - (124)
Other - 142 - - 142
----------------------------------------------------------------------------
$ 588 $ 31,222 $ 985 $ (13,929) $ 18,866
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the three months ended September 30, 2010:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Accounts
receivable $ 6,260 $ (28,082) $ (677) $ 1,266 $ (21,233)
Inventories 3,190 (261) (2,131) (234) 564
Accounts
payable and
accrued
liabilities (5,278) 1,234 2,866 327 (851)
Taxes payable 150 3,553 - 3,097 6,800
Provisions 734 - - - 734
Other (1) (1,343) - - (1,344)
----------------------------------------------------------------------------
$ 5,055 $ (24,899) $ 58 $ 4,456 $ (15,330)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine months ended September 30, 2011:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Accounts
receivable $ (540) $ 31,541 $ (4,291) $ 9,874 $ 36,584
Inventories - 1,950 (2,819) (43) (912)
Accounts payable
and accrued
liabilities (1,147) 7,022 13,253 (1,776) 17,352
Taxes payable (3,864) 5,980 (171) (6,587) (4,642)
Provisions (659) - - - (659)
Other - 223 - - 223
----------------------------------------------------------------------------
$ (6,210) $ 46,716 $ 5,972 $ 1,468 $ 47,946
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the nine months ended September 30, 2010:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate Cayeli Las Cruces Pyhasalmi
and other (Turkey) (Spain) (Finland) Total
----------------------------------------------------------------------------
Accounts
receivable $ 9,316 $ (26,230) $ (677) $ (524) $ (18,115)
Inventories 9,792 (847) (2,131) (1,394) 5,420
Accounts
payable and
accrued
liabilities (4,725) (2,658) 2,866 (5,241) (9,758)
Taxes payable (10,905) (473) - (930) (12,308)
Provisions - - - - -
Other (4) (1,277) - - (1,281)
----------------------------------------------------------------------------
$ 3,474 $ (31,485) $ 58 $ (8,089) $ (36,042)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
21. Capital commitments
Our operations had the following capital commitments as at September 30, 2011:
-- Las Cruces committed $1.9 million for the purchase of plant equipment.
-- Cobre Panama committed $221.3 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.
-- Pyhasalmi committed $1.3 million for the purchase of mill equipment.
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