Inmet Announces Second Quarter Earnings
TORONTO, CANADA -- (Marketwire) -- 07/27/10 -- All amounts in Canadian dollars unless indicated otherwise
Inmet (TSX: IMN) announces second quarter earnings.
Second quarter highlights
-- Foreign exchange losses reduce earnings
Inmet announces second quarter earnings of $0.86 per share compared with
earnings of $1.37 per share in the second quarter of 2009. Our net
income this quarter was $39 million lower ($0.69 per share) than the
same quarter last year because of foreign exchange. We recognized
foreign exchanges losses of $21 million this quarter on the repatriation
of cash from Cayeli and Pyhasalmi. In the same quarter of 2009, we
recognized foreign exchange gains of $18 million mainly from revaluing
Las Cruces' US dollar denominated debt under its credit facility.
-- Consistent earnings from operations
Earnings from operations were $87 million compared to $85 million last
year, even though Troilus contributed $10 million less. Higher copper
and zinc prices increased our operating earnings by $11 million compared
to the same quarter of 2009.
-- Strong performance at Cayeli and Pyhasalmi
Cayeli milled 295,000 tonnes this quarter, and Pyhasalmi milled 355,000
tonnes. Both operations remain on target to meet their annual throughput
objectives.
-- Higher zinc production and lower gold production
Zinc production was higher this quarter because grades at Cayeli were
higher. Gold production was significantly lower because Troilus
concluded operations during the quarter.
-- Las Cruces progressing on commissioning plan
While we have achieved increasing productivity rates, a number of
equipment failures and operational issues delayed the ramp-up of the
plant and limited our ability to operate continuously. As a result, we
produced 6,600 tonnes of copper cathode during the quarter compared to a
target of 12,400 tonnes. We believe we have identified the key
bottlenecks to production and we continue to take steps to significantly
increase our operating reliability. We will continue with the rigorous
implementation of the ramp up plan to achieve our goal of full
production by the end of the year and we are encouraged by the
capability that the plant has demonstrated in recent months.
-- Troilus concludes operations
After reaching the milestone of producing 2 million ounces of gold on
June 16th, Troilus concluded 13 years of operations at the end of June
after depletion of all remaining surface ore stockpiles. We would like
to thank all of the employees of Troilus for their tremendous dedication
and contributions as well as the Cree community for its support of this
project.
Key financial data
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June 30 six months ended June 30
2010 2009 change 2010 2009 change
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FINANCIAL HIGHLIGHTS
(thousands, except per
share amounts)
Sales
Gross sales $ 215,051 $ 213,042 +1% $ 466,610 $ 452,194 +3%
Net income
Net income $ 48,436 $ 66,528 -27% $ 128,307 $ 117,855 +9%
Net income per share $ 0.86 $ 1.37 -37% $ 2.29 $ 2.43 -6%
Cash flow
Cash flow provided by
operating activities $ 80,289 $ 90,596 -11% $ 171,866 $ 107,693 +60%
Cash flow provided by
operating activities
per share (1) $ 1.43 $ 1.86 -23% $ 3.06 $ 2.22 +38%
Capital spending (2) $ 11,014 $ 86,263 -87% $ 32,835 $ 181,122 -82%
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OPERATING HIGHLIGHTS
Production(3)
Copper (tonnes) 22,500 19,200 +17% 43,700 39,300 +11%
Zinc (tonnes) 20,600 17,500 +18% 39,300 32,800 +20%
Gold (ounces) 36,700 50,600 -27% 76,900 129,400 -41%
Pyrite (tonnes) 137,700 132,200 +4% 335,200 323,000 +4%
Copper cash cost (US $
per pound) (4) $ 0.47 $ 0.52 -10% $ 0.43 $ 0.55 -22%
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as at June as at December
30 31
FINANCIAL CONDITION 2010 2009
Current ratio 3.9 to 1 4.2 to 1
Gross debt to total equity (5) 1% 1%
Net working capital balance (millions) $ 502 $ 609
Cash balance including long-term bonds
(millions) $ 757 $ 634
Shareholders' equity (millions) $ 2,269 $ 2,238
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(1) Cash flow provided by operating activities divided by average shares
outstanding for the period.
(2) For the six months ended June 30, 2010, this includes capital spending
of $41 million at Cobre Panama and $29 million at Las Cruces reduced by
positive cash flow from pre-operating costs net of revenues and working
capital changes at Las Cruces of $53 million. For the six months ended June
30, 2009, this includes $119 million of capital spending at Las Cruces
(mainly for construction).
(3) Inmet's share.
(4) Copper cash cost per pound is a non-GAAP measure - see Supplementary
financial information on pages 31 to 33.
(5) Gross debt includes long-term debt and the current portion of long-term
debt, less the non-recourse note owing from Las Cruces to its non-
controlling shareholder.
Second quarter press release
Where to find it
Our financial results 4
Key changes in 2010 4
Understanding our performance 5
Earnings from operations 7
Corporate costs 11
Results of our operations 13
Cayeli 14
Las Cruces 16
Pyhasalmi 17
Troilus 20
Ok Tedi 22
Status of our development project 24
Cobre Panama 24
Managing our liquidity 25
Financial condition 28
Accounting changes 29
Supplementary financial information 31
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 June 30, 2010. Revised objective is as of July 27, 2010.
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) 2010 2009 change 2010 2009 change
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EARNINGS FROM
OPERATIONS (1)
Cayeli $ 24,472 $ 22,185 +10% $ 61,568 $ 37,086 +66%
Pyhasalmi 22,309 11,783 +89% 45,166 18,326 +146%
Troilus 6,252 16,032 -61% 17,299 70,516 -75%
Ok Tedi 33,905 35,530 -5% 74,873 53,115 +41%
Other (69) (508) -86% (1,011) (992) +2%
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86,869 85,022 +2% 197,895 178,051 +11%
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DEVELOPMENT AND
EXPLORATION
Corporate
development and
exploration (2,524) (2,727) -7% (5,303) (5,959) -11%
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CORPORATE COSTS
General and
administration (6,288) (4,785) +31% (11,798) (8,909) +32%
Investment and
other income (18,370) 16,466 -212% (18,448) 5,263 -451%
Asset impairment - - - - (6,419) -100%
Stand-by costs - - - (6,753) - +100%
Interest expense (421) (493) -15% (873) (985) -11%
Income and capital
taxes (15,249) (24,177) -37% (35,394) (43,192) -18%
Non-controlling not
interest 4,419 (2,778) -259% 8,981 5 meaningful
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(35,909) (15,767) +128% (64,285) (54,237) +19%
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Net income $ 48,436 $ 66,528 -27% $128,307 $117,855 +9%
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Basic net income
per share $ 0.86 $ 1.37 -37% $ 2.29 $ 2.43 -6%
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Diluted net income
per share $ 0.86 $ 1.36 -37% $ 2.28 $ 2.42 -6%
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Weighted average
shares
outstanding 56,107 48,712 +15% 56,107 48,498 +16%
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(1) Gross sales less smelter processing charges and freight, cost of sales,
depreciation and provisions for mine reclamation.
Key changes in 2010
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three
months six months
ended June ended June see
(millions) 30 30 page
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EARNINGS FROM OPERATIONS
Sales
Higher copper and zinc prices denominated
in Canadian dollars $ 11 $ 67 7
Higher (lower) sales volumes (3) 1
Costs
(Higher) lower smelter processing charges
and freight 3 (1) 9
Lower operating costs, including costs that
vary with income and cash flows 4 9 10
Lower operating earnings at Troilus (10) (53) 8
Other (3) (3)
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Higher earnings from operations, compared
to 2009 $ 2 $ 20
CORPORATE COSTS
Foreign exchange changes (39) (31) 11
Asset impairment in 2009 - 6 11
Lower income taxes 9 8
Non-controlling interest change 7 9
Stand-by costs - (6) 11
Other 3 4
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Higher (lower) net income, compared to 2009 ($18) $ 10
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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 (the prices we realize include finalization adjustments - see Gross sales on page 7).
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2010 2009 change 2010 2009 change
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US dollar metal prices
Copper (per pound) $ 2.86 $ 2.22 +29% $ 3.12 $ 2.14 +46%
Zinc (per pound) $ 0.81 $ 0.69 +17% $ 0.91 $ 0.60 +52%
Gold (per ounce) $ 1,208 $ 900 +34% $ 1,140 $ 932 +22%
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Canadian dollar metal
prices
Copper (per pound) $ 2.94 $ 2.60 +13% $ 3.23 $ 2.58 +25%
Zinc (per pound) $ 0.83 $ 0.81 +2% $ 0.94 $ 0.72 +31%
Gold (per ounce) $ 1,242 $ 1,050 +18% $ 1,179 $ 1,124 +5%
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Copper
Copper prices declined steadily this quarter, following the volatility of the first quarter of 2010. London Metals Exchange (LME) cash prices went down to US $2.88 per pound on July 1 - a drop of 19 percent from the peak of US $3.57 per pound at the beginning of the quarter. However, we believe that downward potential in the third quarter is limited by the strong supply side fundamentals and increasing consumption in industrialized countries. LME inventories dropped by 12 percent (63,000 tonnes) during the quarter, reflecting the pick-up in demand from countries other than China, as well as the continued strength in Chinese imports.
Zinc
Zinc has performed poorly during the first half of the year, and prices have been volatile. It is believed that high prices in 2009 encouraged zinc supply and resulted in a surplus of refined zinc in 2010, as the continuing rise in exchange stocks in the last six months has demonstrated. LME zinc stocks increased to 616,000 tonnes from 489,000 tonnes in January. The price of zinc followed other metals and fell to US $0.72 per pound - the lowest it has been since July 2009.
Gold
This quarter, the price of gold rose for the seventh consecutive quarter - the best performance in the last two and a half years. Prices have risen by 11 percent since the beginning of April - a period in which all base metals and other precious metals were significantly down - and on June 28, hit an all-time high of US $1,259 per ounce.
Pyrite
Sulphur and pyrite prices were down during the second quarter. In the first quarter of the year, sulphur prices had risen because demand for fertilizer was expected to be strong, and data indicated that production would be low. The price of sulphur is expected to continue to go down in the second half of the year because the seasonally high consumption period in China is finished.
Exchange rates
Exchange rates affect our revenue and earnings. The table below shows the average exchange rates we realized this quarter and for the year to June compared to 2009.
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three months ended
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2010 2009 change 2010 2009 change
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Exchange rates
1 US$ to C$ $ 1.03 $ 1.17 -12% $ 1.03 $ 1.21 -15%
1 euro to C$ $ 1.31 $ 1.59 -18% $ 1.37 $ 1.61 -15%
1 euro to US$ $ 1.28 $ 1.36 -6% $ 1.33 $ 1.33 -
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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 appreciated 12 percent relative to the US dollar, and 18 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 in Canada
-- translate US dollar sales at Troilus to Canadian dollars.
Treatment charges down for copper
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. We finalized our contract terms with zinc smelters this quarter. While treatment charges for zinc concentrates are higher than last year, price participation is lower. Results this quarter include adjustments we've made to first quarter charges, which were at 2009 rates.
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three months ended June 30 six months ended June 30
(US$) 2010 2009 change 2010 2009 change
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Treatment charges
Copper (per dry
metric tonne of
concentrate) US $52 US $66 -21% US $56 US $67 -16%
Zinc (per dry
metric tonne of
concentrate) US $284 US $131 +117% US $247 US $192 +29%
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Price participation
Copper (per pound) US $0.01 US $0.03 -67% US $0.01 US $0.03 -67%
Zinc (per pound) US ($0.11) US $0.05 -320% US ($0.02) US $0.01 -300%
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Freight charges
Copper (per dry
metric tonne of
concentrate) US $67 US $34 +97% US $68 US $30 +127%
Zinc (per dry
metric tonne of
concentrate) US $35 US $28 +25% US $32 US $26 +23%
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Statutory tax rates remain consistent
The table below shows the statutory tax rates for each of our taxable operating mines.
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2010 2009 Change
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Statutory tax rates
Cayeli 24% 24% -
Pyhasalmi 26% 26% -
Ok Tedi 37% 37% -
Las Cruces 30% 30% -
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Earnings from operations
Earnings from operations include:
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June 30 six months ended June 30
(thousands) 2010 2009 change 2010 2009 change
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Gross sales $215,051 $213,042 +1% $ 466,610 $ 452,194 +3%
Smelter processing
charges and freight (36,794) (40,589) -9% (81,123) (81,129) -
Cost of sales:
Direct production
costs (67,507) (71,935) -6% (139,059) (150,354) -8%
Inventory changes (2,825) 2,222 +227% (10,400) (1,673) +522%
Provisions for
mine
rehabilitation
and other non-
cash charges (2,105) (4,114) -49% (3,958) (11,704) -66%
Depreciation (18,951) (13,604) +39% (34,175) (29,283) +17%
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Earnings from
operations $ 86,869 $ 85,022 +2% $ 197,895 $ 178,051 +11%
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Gross sales were marginally higher
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three months ended June 30 six months ended June 30
(thousands) 2010 2009 change 2010 2009 change
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Gross sales by
operation
Cayeli $ 68,026 $ 63,711 +7% $ 150,432 $ 123,732 +22%
Pyhasalmi 44,006 43,001 +2% 95,446 76,982 +24%
Troilus 27,723 37,407 -26% 62,177 124,397 -50%
Ok Tedi (1) 75,296 68,923 +9% 158,555 127,083 +25%
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$ 215,051 $ 213,042 +1% $ 466,610 $ 452,194 +3%
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Gross sales by
metal
Copper $ 111,329 $ 105,260 +6% $ 253,927 $ 209,999 +21%
Zinc 39,598 33,028 +20% 86,271 60,052 +44%
Gold 50,520 55,711 -9% 99,860 148,725 -33%
Other 13,604 19,043 -29% 26,552 33,418 -20%
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$ 215,051 $ 213,042 +1% $ 466,610 $ 452,194 +3%
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(1) Our 18 percent share of Ok Tedi's sales.
Key components of the change in sales: higher copper prices, lower sales
volumes at Troilus
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(millions) ended June 30 ended June 30
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Higher copper prices, denominated in
Canadian dollars $ 10 $ 48
Higher zinc prices, denominated in
Canadian dollars 1 20
Higher gold prices, denominated in
Canadian dollars 3 4
Changes in other metal prices (4) (8)
Lower gross sales from Troilus (10) (62)
Higher sales volumes at our other mines 2 12
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Higher gross sales, compared to 2009 $ 2 $ 14
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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).
In the second quarter, we recorded $9 million in negative finalization adjustments from first quarter sales.
At the end of this quarter, the following sales had not been settled:
-- 23 million pounds of copper provisionally priced at US $2.95 per pound
-- 10 million pounds of zinc provisionally priced at US $0.81 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 it. We expect these sales to settle in the following months:
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(millions of pounds) copper zinc
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July 2010 16 10
August 2010 3 -
September 2010 3 -
December 2010 1 -
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Unsettled sales at June 30, 2010 23 10
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Lower gold sales volumes this year - Troilus concluded processing low-grade stockpiled ore
Our sales volumes are directly affected by the amount of production from our mines, and our ability to ship to our customers.
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three months ended June 30 six months ended June 30
2010 2009 change 2010 2009 change
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Sales volumes
Copper (tonnes) 21,800 18,300 +19% 43,300 36,800 +18%
Zinc (tonnes) 21,600 18,600 +16% 41,300 37,300 +11%
Gold (ounces) 40,000 52,500 -24% 83,400 131,900 -37%
Pyrite (tonnes) 108,300 121,000 -10% 199,100 197,000 +1%
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Production
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June 30 30 objective
Inmet's share(1) 2010 2009 change 2010 2009 change 2010
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Copper (tonnes)
Cayeli 7,100 7,500 -5% 14,200 14,600 -3% 30,500
Las Cruces
cathode 4,600 - +100% 7,800 - +100% 25,000
Las Cruces
copper
contained in
ore - - - - - - 12,300
Pyhasalmi 4,000 3,700 +8% 6,900 7,300 -5% 13,400
Troilus 700 1,100 -36% 2,000 3,900 -49% 2,000
Ok Tedi 6,100 6,900 -12% 12,800 13,500 -5% 29,300(2)
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22,500 19,200 +17% 43,700 39,300 +11% 112,500
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Zinc (tonnes)
Cayeli 15,000 11,800 +27% 26,500 23,600 +12% 51,700
Pyhasalmi 5,600 5,700 -2% 12,800 9,200 +39% 31,300
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20,600 17,500 +18% 39,300 32,800 +20% 83,000
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Gold (ounces)
Troilus 18,600 26,700 -30% 37,900 84,800 -55% 37,900
Ok Tedi 18,100 23,900 -24% 39,000 44,600 -13% 102,600(2)
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36,700 50,600 -27% 76,900 129,400 -41% 140,500
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Pyrite (tonnes)
Pyhasalmi 137,700 132,200 +4% 335,200 323,000 +4% 420,000
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(1) Inmet's share represents 100 percent for Cayeli, Pyhasalmi and Troilus,
18 percent for Ok Tedi and 70 percent for Las Cruces.
(2) This production objective is subject to the possible exchange of our 18
percent equity interest in Ok Tedi for a 5 percent net smelter return
royalty, which is expected to occur in the third quarter of 2010.
Copper production this quarter and year to June was higher than 2009 because of new production at Las Cruces, offset somewhat by lower production at Ok Tedi as a result of the labour disruption.
Zinc production was up mainly because zinc grades and recoveries at Cayeli were higher.
Gold production was down because grades were lower at Troilus (as production was drawn from the last of its low grade stockpiles) and at Ok Tedi because of a labour disruption and lower grades.
2010 outlook for sales
We use our production objectives to estimate our sales target, except for copper contained in ore at Las Cruces that we intend to ship directly to smelters that may get shipped in 2011. We expect copper and zinc sales volumes this year to be higher than 2009 because we expect production to be higher. We expect gold sales volumes to be lower than 2009 because production ended at Troilus at the end of the second quarter of 2010.
We expect copper production to be about 33 percent higher than 2009 because of the incremental production at Las Cruces. We will begin recognizing Las Cruces' results in operating earnings as of July 1, 2010. We estimate our 70 percent share of 2010 production at Las Cruces to include 25,000 tonnes of copper cathode, and 12,300 tonnes of copper contained in ore that we intend to ship directly to smelters. We do not have the permits we need to ship the ore yet and therefore we have excluded this ore from our sales target, but we have begun mining and stockpiling it in anticipation of receiving the permits. We expect zinc production to increase because we plan to mine higher zinc grades at Pyhasalmi in 2010.
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. The overall outlook for copper demand is broadly positive in 2010 and copper is the most favoured base metal because of its strong fundamentals.
Lower smelter processing charges and freight for the quarter
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(thousands) 2010 2009 change 2010 2009 change
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Smelter processing
charges and freight
by operation
Cayeli $ 18,590 $ 18,438 +1% $38,695 $ 37,514 +3%
Pyhasalmi 8,550 12,326 -31% 20,055 21,317 -6%
Troilus 1,563 2,458 -36% 4,321 8,718 -50%
Ok Tedi (1) 8,091 7,367 +10% 18,052 13,580 +33%
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$ 36,794 $ 40,589 -9% $81,123 $ 81,129 -
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Smelter processing
charges and freight
by metal
Copper $ 15,660 $ 19,827 -21% $34,745 $ 38,343 -9%
Zinc 15,504 11,780 +32% 35,978 26,968 +33%
Other 5,630 8,982 -37% 10,400 15,818 -34%
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$ 36,794 $ 40,589 -9% $81,123 $ 81,129 -
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Smelter processing
charges by type and
freight
Copper treatment
and refining
charges $ 5,532 $ 8,882 -38% $12,377 $ 18,575 -33%
Zinc treatment
charges 12,794 5,602 +128% 20,863 17,281 +21%
Copper price
participation 410 1,275 -68% 1,120 2,738 -59%
Zinc price
participation (5,351) 2,407 -322% (1,438) 739 -295%
Content losses 12,302 10,660 +15% 26,936 21,400 +26%
Freight 10,095 9,724 +4% 18,559 16,386 +13%
Other 1,012 2,039 -50% 2,706 4,010 -33%
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$ 36,794 $ 40,589 -9% $81,123 $ 81,129 -
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(1) Our 18 percent share of Ok Tedi's smelter processing charges and
freight.
Our copper treatment and refining charges were lower than they were in 2009 because we have more favourable terms with smelters. Total zinc processing charges including price participation were higher than last year mainly because sales volumes were higher. Content losses were higher because metal prices are higher than they were last year.
2010 outlook for smelter processing charges and freight
We expect costs for copper treatment and refining to be lower in 2010 based on agreements we have signed with our customers. We sell approximately 90 percent of our copper concentrate under long-term contracts. We are estimating annual treatment costs of US $50 per dry metric tonne in 2010. We also expect price participation to be minimal.
We expect the zinc concentrate market to be dictated by zinc price levels and demand from China. We expect zinc processing charges to be lower than they were in 2009.
In 2010, Las Cruces may sell high grade crushed ore to smelters and incur smelter processing charges. We expect the cost to smelt and refine the ore to be higher than it is at our other operations, because copper grades in crushed ore are lower than they are in concentrates, and the level of impurities is higher.
Las Cruces sells its copper cathode production directly to buyers in the Spanish and Mediterranean markets.
We expect our ocean freight costs to be about 20 percent higher than they were in 2009 because of the expected recovery in global trade and associated shipping demand.
Direct production costs and cost of sales slightly lower than last year
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30 six months ended June 30
(thousands) 2010 2009 change 2010 2009 change
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Direct production
costs by operation
Cayeli $ 21,273 $ 19,834 +7% $ 43,009 $ 40,306 +7%
Pyhasalmi 12,853 15,711 -18% 27,831 31,365 -11%
Troilus 11,814 13,816 -14% 23,905 32,422 -26%
Ok Tedi (1) 21,567 22,574 -4% 44,314 46,261 -4%
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Total direct
production costs 67,507 71,935 -6% 139,059 150,354 -8%
Inventory changes 2,825 (2,222) +227% 10,400 1,673 +522%
Reclamation,
accretion and other
non-cash expenses 2,105 4,114 -49% 3,958 11,704 -66%
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Total cost of sales $ 72,437 $ 73,827 -2% $ 153,417 $ 163,731 -6%
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(1) Our 18 percent share of Ok Tedi's direct
production costs.
Direct production costs are lower in the quarter and year to date than they were in 2009, mainly because we finished mining at Troilus in April 2009 and at Pyhasalmi because of a stronger Canadian dollar relative to the euro.
2010 outlook for cost of sales
Our budget for 2010 assumes our costs will be similar to 2009 in local currency terms. Consolidated direct production costs should be higher because production costs at Las Cruces will no longer be capitalized as of July 1, 2010, somewhat offset by lower Canadian dollar costs at Pyhasalmi due to a stronger Canadian dollar relative to the euro.
Certain variable costs may continue to affect our earnings, depending on
metal prices:
-- royalties at Cayeli are affected by its net income
-- variable employee compensation costs at Ok Tedi are affected by its cash
flows
-- royalties at Las Cruces are affected by its net sales.
Depreciation higher this quarter
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(thousands) 2010 2009 change 2010 2009 change
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Depreciation by
operation
Cayeli $ 3,246 $ 3,373 -4% $ 6,470 $ 6,846 -5%
Pyhasalmi 1,903 2,162 -12% 3,712 4,764 -22%
Troilus 5,623 3,301 +70% 10,002 6,720 +49%
Ok Tedi 8,179 4,768 +72% 13,991 10,953 +28%
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$ 18,951 $ 13,604 +39% $ 34,175 $ 29,283 +17%
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Depreciation at Troilus and Ok Tedi was significantly higher this quarter and year to June because we increased their assets related to asset retirement obligations at the end of 2009. We also began amortizing the cost of underwater storage pits Ok Tedi uses to store sulphur concentrate the tailings management plant produces.
2010 outlook for depreciation
We expect depreciation to be higher in 2010 because we will begin to depreciate Las Cruces' operating assets starting July 1.
Corporate costs
Corporate costs include general and administration costs, taxes, interest and other income.
Investment and other income (expense)
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three months ended six months ended June
June 30 30
(thousands) 2010 2009 2010 2009
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Interest income $ 1,760 $ 701 $ 3,357 $ 2,743
Foreign exchange gain (loss) (20,738) 18,196 (23,153) 8,098
Dividend and royalty income 1,175 385 1,889 685
Mark to market on Ok Tedi
copper forward contracts - (1,007) - (2,426)
Other (567) (1,809) (541) (3,837)
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($18,370) $ 16,466 ($18,448) $ 5,263
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Foreign exchange gain (loss)
We have a foreign exchange gain or loss when we:
-- revalue certain foreign denominated assets and liabilities
-- distribute funds from our self-sustaining operations and recognize the
foreign exchange we previously deferred on our original investment and
on funds as they accumulated.
Our foreign exchange gains (losses) are from:
----------------------------------------------------------------------------
three months ended June six months ended June
30 30
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Translation of Las
Cruces' US dollar-
denominated bank credit
facility $ - $ 15,273 $ - $ 3,808
Translation of foreign -
denominated cash held
at corporate 202 149 (569) (1,446)
Translation of other -
monetary assets and
liabilities 381 (1,138) 72 1,824
Reduction in our net
investments (21,321) 3,912 (22,656) 3,912
----------------------------------------------------------------------------
($20,738) $ 18,196 ($23,153) $ 8,098
----------------------------------------------------------------------------
We recognized foreign exchanges losses of $21 million this quarter on the repatriation of cash from Cayeli and Pyhasalmi. In the same quarter of 2009, we recognized a total foreign exchange gain of $18 million mainly from revaluing Las Cruces' US dollar denominated debt under its credit facility.
2010 outlook for investment and other income
Investment and other income is affected by our cash and held to maturity investment balances, and by interest rates and exchange rates. For the remainder of the year, we expect to repatriate funds only from Ok Tedi. Because Ok Tedi distributes its earnings more frequently, the effect of repatriation is normally not significant.
Stand-by costs
In the first quarter of 2010, we could not mine ore at Las Cruces because of the water levels in the pit. We expensed $6.8 million in water plant operating and maintenance costs because they did not relate to production activities.
Asset impairment
We made a decision in 2008 not to proceed with the Cerattepe project. All work ceased on the project and we took a $34 million charge to write down the assets to its net realizable value. In the first quarter of 2009, we took an additional impairment charge of $6 million, as well as a $6 million tax recovery (reflected in income taxes), to adjust to current net realizable value.
Income tax expense (recovery)
----------------------------------------------------------------------------
three months ended June 30 six months ended June 30
(thousands) 2010 2009 change 2010 2009 change
----------------------------------------------------------------------------
Cayeli $ 4,953 $ 2,212 +124% $ 12,406 $ 1,631 +661%
Pyhasalmi 4,911 1,870 +163% 9,926 2,305 +331%
Ok Tedi 11,054 12,469 -11% 27,589 19,009 +45%
Las Cruces (7,067) 4,302 +264% (14,530) 267 -5,542%
Troilus and
corporate 1,316 3,199 -59% (161) 19,730 -101%
----------------------------------------------------------------------------
$ 15,167 $ 24,052 -37% $ 35,230 $ 42,942 -18%
----------------------------------------------------------------------------
Consolidated
effective tax
rate 24% 27% -3% 22% 27% -5%
----------------------------------------------------------------------------
Our tax expense changes as our earnings change.
The consolidated effective tax rate went down by 5 percent compared to 2009 mainly because 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 as there is no corresponding tax expense on the foreign exchange gain.
2010 outlook for income tax expense
We expect statutory tax rates at our operations in 2010 to remain the same as they were in 2009 unless a statutory tax rate change is enacted.
Results of our operations
2010 estimates
Our financial review by operation includes estimates for our 2010 operating earnings and operating cash flows. We used our 2010 objectives for production and cost per tonne of ore milled to build these estimates, along with the following assumptions for the remaining six months of the year:
----------------------------------------------------------------------------
Copper price US $3.00 per pound
Zinc price US $0.80 per pound
Gold price US $1,100 per ounce
Copper treatment cost US $50 per tonne for contracts and US $29 per
tonne for spot sales
Zinc treatment cost US $265 per tonne (basis US $2,500 per tonne)
and US $135 per tonne for spot sales
US $ to C$ exchange rate $1.05
euro to C$ exchange rate $1.29
Working capital Assume no changes for the year
----------------------------------------------------------------------------
Cayeli
-----------------------------------------------------------------
three months ended June
30
2010 2009 change
-----------------------------------------------------------------
Tonnes of ore milled (000's) 295 296 -
Tonnes of ore milled per day 3,200 3,300 -
-----------------------------------------------------------------
Grades (percent) copper 3.2 3.2 -
zinc 7.0 5.9 +19%
-----------------------------------------------------------------
Mill recoveries (percent) copper 76 80 -5%
zinc 73 68 +7%
-----------------------------------------------------------------
Production (tonnes) copper 7,100 7,500 -5%
zinc 15,000 11,800 +27%
-----------------------------------------------------------------
Cost per tonne of ore milled (C$) $72 $67 +7%
-----------------------------------------------------------------
---------------------------------------------------------------------------
six months ended June 30 objective
2010 2009 change 2010
---------------------------------------------------------------------------
Tonnes of ore milled (000's) 584 561 +4% 1,200
Tonnes of ore milled per day 3,200 3,100 +4% 3,300
---------------------------------------------------------------------------
Grades (percent) copper 3.2 3.3 -3% 3.3
zinc 6.3 6.0 +5% 6.1
---------------------------------------------------------------------------
Mill recoveries (percent) copper 77 79 -3% 78
zinc 72 70 +3% 70
---------------------------------------------------------------------------
Production (tonnes) copper 14,200 14,600 -3% 30,500
zinc 26,500 23,600 +12% 51,700
---------------------------------------------------------------------------
Cost per tonne of ore milled (C$) $74 $72 +3% $72
---------------------------------------------------------------------------
Production results on target
Production at Cayeli was strong this quarter, and in line with its annual 1.2 million tonne objective. Cayeli set several new records for milling this quarter including: best monthly feed rate (153 dry tonnes per hour), best daily tonnage processed (3,789 tonnes), and highest daily concentrate tonnes produced (1,042 tonnes).
Copper production was lower for the quarter and year to date compared to 2009 mainly due to lower recoveries because of variation in ore types. Zinc production was significantly higher than 2009 because grades and recoveries were higher.
There were four falls of ground during the quarter, and we continue to focus on ground support and rehabilitation. Additionally, we have significantly reduced the underground backfill void.
2010 outlook for production
Production levels should remain at 1.2 million tonnes in 2010, and we expect copper and zinc grades should be at 3.3 percent for copper and 6.1 percent for zinc.
Financial review
Higher earnings for the year because copper and zinc prices were higher
----------------------------------------------------------------------------
(millions of Canadian
dollars unless otherwise three months six months revised
stated) ended June 30 ended June 30 objective
2010 2009 2010 2009 2010
----------------------------------------------------------------------------
Sales analysis
Copper sales (tonnes) 5,600 6,800 12,100 13,300 30,500
Zinc sales (tonnes) 16,600 12,700 28,900 27,500 51,700
------------------------------------------------
Gross copper sales $ 35 $ 36 $ 85 $ 73 $ 214
Gross zinc sales 30 23 59 44 101
Other metal sales 3 5 6 7 14
------------------------------------------------
Gross sales 68 64 150 124 329
Smelter processing charges
and freight (18) (19) (38) (38) (77)
----------------------------------------------------------------------------
Net sales $ 50 $ 45 $ 112 $ 86 $ 252
----------------------------------------------------------------------------
Cost analysis
Tonnes of ore milled
(thousands) 295 296 584 561 1,200
Direct production costs ($
per tonne) $ 72 $ 67 $ 74 $ 72 $ 72
----------------------------------------------------------------------------
Direct production costs $ 21 $ 20 $ 43 $ 40 $ 86
Change in inventory - (1) (1) - -
Depreciation and other non-
cash costs 5 4 8 9 18
----------------------------------------------------------------------------
Operating costs $ 26 $ 23 $ 50 $ 49 $ 104
----------------------------------------------------------------------------
Operating earnings $ 24 $ 22 $ 62 $ 37 $ 148
----------------------------------------------------------------------------
Operating cash flow $ 24 $ 24 $ 53 $ 15 $ 128
----------------------------------------------------------------------------
The objective for 2010 uses the assumptions listed on page 13.
The table below shows what contributed to the change in operating earnings and operating cash flow between 2010 and 2009.
----------------------------------------------------------------------------
three months ended six months ended
(millions) June 30 June 30
----------------------------------------------------------------------------
Higher metal prices, denominated
in Canadian dollars $ 4 $ 31
Lower sales volumes (2) (4)
(Higher) lower smelter processing
charges 2 (1)
Higher operating costs (1) (3)
Other (1) 2
----------------------------------------------------------------------------
Higher operating earnings,
compared to 2009 $ 2 $ 25
Change in tax expense because of
change in taxable income (3) (5)
Changes in working capital (see
note 2 on page 44) - 19
Other 1 (1)
----------------------------------------------------------------------------
Higher operating cash flow,
compared to 2009 $ - $ 38
----------------------------------------------------------------------------
Capital spending expected to be lower due to timing
----------------------------------------------------------------------------
three months ended June revised
30 six months ended June 30 objective
2010 2009 change 2010 2009 change 2010
----------------------------------------------------------------------------
Capital
spending $ 3,100 $ 3,000 +3% $ 4,900 $ 6,600 -26% $ 19,000
----------------------------------------------------------------------------
2010 outlook for capital spending
We expect to spend $19 million in 2010 on mobile equipment, site water control, stope stability, additional mill upgrades and development. The second phase of the headframe realignment project is underway and should be completed in the third quarter. This will bring the headframe back to its design configuration. We have established a monitoring and correction program to ensure the facility remains stable for the remaining life of the mine. At the same time, we will implement several geotechnical recommendations to curtail surface instability.
Las Cruces
----------------------------------------------------------------------
three months ended June 30
(100 percent) 2010 2009 change
----------------------------------------------------------------------
Tonnes of ore processed (000's) 111,000 - +100%
Tonnes of unprocessed ore (000's) - - -
----------------------------------------------------------------------
Copper grades (percent) cathode 7.2 - +100%
unprocessed
ore - - -
----------------------------------------------------------------------
Plant recoveries (percent) 84 - +100%
----------------------------------------------------------------------
Copper production (tonnes) cathode 6,600 - +100%
unprocessed
ore - - -
----------------------------------------------------------------------
Cost per tonne of ore processed
(subsequent to July 1, 2010) (C$) - - -
----------------------------------------------------------------------
----------------------------------------------------------------------------
revised
six months ended June 30 objective
(100 percent) 2010 2009 change 2010
----------------------------------------------------------------------------
Tonnes of ore processed (000's) 188,000 - +100% 566,000
Tonnes of unprocessed ore (000's) - - - 128,000
----------------------------------------------------------------------------
Copper grades (percent) cathode 7.0 - +100% 7.2
unprocessed
ore - - - 13.7
----------------------------------------------------------------------------
Plant recoveries (percent) 84 - +100% 89
----------------------------------------------------------------------------
Copper production (tonnes) cathode 11,100 - +100% 35,700
unprocessed
ore - - - 17,600
----------------------------------------------------------------------------
Cost per tonne of ore processed
(subsequent to July 1, 2010) (C$) - - - $ 135
----------------------------------------------------------------------------
Fatality at Las Cruces
On May 25, 2010, a contractor at Las Cruces suffered fatal injuries in a workplace accident. As a result, Las Cruces commissioned an independent investigation to determine the cause of this tragic accident and to recommend and implement measures to minimize the potential for this kind of accident from happening again. Las Cruces remains committed to pursuing all measures necessary to provide its workers and contractors with a safe working environment.
Progress update
During the second quarter, cathode production has improved by approximately 44 percent compared to the previous quarter and the plant demonstrated during consecutive running days its ability to reach the currently available plant capacity. However, a number of equipment failures and operational issues delayed the ramp-up of the plant and limited our ability to operate continuously. As a result, we produced 6,600 tonnes of copper cathode during the second quarter as compared to a target of 12,400 tonnes. This represents approximately 37 percent of design capacity (72,000 tonnes of copper cathode per year) or 55 percent of available capacity. Available capacity reflects the temporary constraint of having only two of the three leach residue filters available as one is dedicated to the neutralization plant. Installation of the new neutralization filter is on track and the necessary additional filtration capacity should be available by the end of July. Excluding the impact of production days lost due to mechanical failures, we produced at approximately 46 percent of design capacity for the quarter or 69 percent of available capacity. During the quarter, we achieved production for single days nearing 100 percent of design capacity and for extended periods we operated at over 60 percent of design capacity.
In May, production ran very well as we produced at an average daily rate of 104 tonnes of copper cathode or 52 percent of design capacity and 78 percent of available capacity while operating 28 days during the month. This encouraged us to believe we were moving towards commercial production rates by the end of the second quarter.
We experienced a set-back during June because of unexpected non-corrosion related equipment failures mostly related to the grinding and leach thickeners causing 10 days of lost production time.
After one year since the start up of the plant, we have confirmed the exceptional quality of a high grade ore body, a sound leaching and electrowinning process and that we have completed or initiated the necessary technical improvements to the plant to improve reliability. We believe that our ramp up pattern is typical of hydrometallurgical plants and other complex processes and that the critical step to achieving full production at this point is to improve reliability and operational uptime.
2010 outlook
In July, we have continued to focus on increasing available plant capacity and reducing the causes of equipment failures and downtime as we identified these to be the root causes of our ramp up challenges. The most important steps are:
-- installed an additional pressure filter and completed commissioning of
the filter to increase capacity and remove a significant bottleneck to
throughput
-- adding permanent water treatment capacity which will be commissioned in
the third quarter. This will allow for a more consistent discharge into
the aquifer and maintain water balance throughout the process
-- completing phase two of the Dewatering and Reinjection System which will
reduce the quantity of water flowing into the pit and the resulting
water treatment load in both the plant and water treatment facility
-- adding a large surge tank between leaching and filtration to further
smooth out the leaching operation toward the end of this year
-- applying a disciplined and systematic problem solving process to
identify and address root causes of downtime.
We believe we have identified the key bottlenecks to production. All of these steps and improvements should significantly add to our operating reliability. July month to date has demonstrated further signs of improvement and we have returned to production rates similar to those in May, with total copper cathode production of 2,300 tonnes as of July 25.
We believe there will be continuing challenges in the ramping up process and we are encouraged by the improved capability of our operating teams to address those as they have demonstrated in recent months. We will continue with the rigorous implementation of the ramp up plan to achieve our goal of full production by the end of the year. We require a period of continuous operation to accurately predict the timing of achieving our performance but believe a range for our 70 percent share of production of 20,000 to 30,000 tonnes of copper cathode is achievable.
We have begun mining high grade ore and stockpiling it in preparation for shipping to smelters. We have not yet received the necessary permit from the regulators to move the material off-site and cannot determine when this will occur.
Taking all factors into account, we believe it is appropriate to cease capitalizing Las Cruces' pre-operating costs net of sales and to begin recognizing these results in operating earnings and operating cash flow in our consolidated statements. This will be done as of July 1, 2010.
The table below shows estimated earnings and cash flow for 100 percent of Las Cruces using production estimates and the estimates on page 13.
----------------------------------------------------------------------------
revised objective
(millions of Canadian dollars unless otherwise stated) 2010
----------------------------------------------------------------------------
Sales analysis
----------------------------------------------------------------------------
Copper cathode sales subsequent to July 1, 2010 (tonnes) 24,800
----------------------------------------------------------------------------
Gross copper sales $ 173 (1)
Smelter processing charges and freight (1)
----------------------------------------------------------------------------
Net sales $ 172
----------------------------------------------------------------------------
Cost analysis
Tonnes of ore processed subsequent to July 1, 2010
(thousands) 378
Direct production costs ($ per tonne) $ 135
----------------------------------------------------------------------------
Direct production costs $ 51
Depreciation and other non-cash costs 31
----------------------------------------------------------------------------
Operating costs $ 82
----------------------------------------------------------------------------
Operating earnings $ 90
----------------------------------------------------------------------------
Operating cash flow $ 98
----------------------------------------------------------------------------
(1) excludes copper contained in ore that we intend to ship directly to
smelters
Capital spending
----------------------------------------------------------------------------
(100 percent
and millions
of Canadian three months ended June six months ended June revised
dollars) 30 30 objective
2010 2009 change 2010 2009 change 2010
----------------------------------------------------------------------------
Capital $ 19 $ 45 -58% $ 29 $ 98 -70% $ 97
Pre-operating
costs
capitalized,
net of
sales,
working
capital and
other (40) 9 -544% (53) 21 -352% (36)
----------------------------------------------------------------------------
Capital
spending ($21) $ 54 -139% ($24) $ 119 -120% $ 61
----------------------------------------------------------------------------
In 2010, capital spending was mainly for the permanent water treatment plant and mine development. In 2009 it was mainly for construction capital.
2010 outlook for capital spending
We expect to spend $97 million on capital in 2010. This includes $33 million on a water treatment plant and other water management projects, $18 million for mine development and $21 million for plant improvements.
Pyhasalmi
-------------------------------------------------------------------
three months ended June 30
2010 2009 change
-------------------------------------------------------------------
Tonnes of ore milled (000's) 355 355 -
Tonnes of ore milled per day 3,900 3,900 -
-------------------------------------------------------------------
Grades (percent) copper 1.2 1.1 +9%
zinc 1.8 1.8 -
sulphur 45 42 +7%
-------------------------------------------------------------------
Mill recoveries (percent) copper 96 96 -
zinc 88 88 -
-------------------------------------------------------------------
Production (tonnes) copper 4,000 3,700 +8%
zinc 5,600 5,700 -2%
pyrite 137,700 132,200 +4%
-------------------------------------------------------------------
Cost per tonne of ore milled
(C$) $ 36 $ 44 -25%
-------------------------------------------------------------------
----------------------------------------------------------------------------
six months ended June 30 objective
2010 2009 change 2010
----------------------------------------------------------------------------
Tonnes of ore milled (000's) 700 704 -1% 1,370
Tonnes of ore milled per day 3,900 3,900 -1% 3,750
----------------------------------------------------------------------------
Grades (percent) copper 1.0 1.1 -9% 1.0
zinc 2.0 1.5 +33% 2.5
sulphur 44 43 +2% 42
----------------------------------------------------------------------------
Mill recoveries (percent) copper 96 95 +1% 94
zinc 90 87 +3% 90
----------------------------------------------------------------------------
Production (tonnes) copper 6,900 7,300 -5% 13,400
zinc 12,800 9,200 +39% 31,300
pyrite 335,200 323,000 +4% 420,000
----------------------------------------------------------------------------
Cost per tonne of ore milled
(C$) $ 40 $ 45 -11% $ 36
----------------------------------------------------------------------------
Higher copper grades increase copper production
Pyhasalmi processed at an annualized rate of 1.4 million tonnes this quarter, maintaining its strong production record.
In the second quarter, copper production was higher than last year because grades were higher, while zinc production was consistent with last year. Year to date, zinc grades and production were significantly higher than 2009 because we mined several zinc rich stopes on the periphery of the ore body in the first quarter of 2010.
We are making several technological improvements, using electronic detonators to improve blasting fragmentation and reduce wall damage, and automating full fan longhole drilling to increase productivity.
Cost per tonne of ore milled was significantly lower than last year mainly because the value of the Canadian dollar increased relative to the euro.
2010 outlook for production and costs
Pyhasalmi expects to mine 1.4 million tonnes of 1 percent copper and 2.5 percent zinc in 2010, to produce 13,400 tonnes of copper and 31,300 tonnes of zinc.
Pyrite sales enhance Pyhasalmi's financial performance and we have been in discussions with companies in Finland and China to secure sales of over 500,000 tonnes of pyrite per year.
Financial review
Higher earnings because of higher metal prices and lower Canadian dollar
production costs
----------------------------------------------------------------------------
(millions of Canadian three months six months ended revised
dollars unless ended June 30 June 30 objective
otherwise stated) 2010 2009 2010 2009 2010
----------------------------------------------------------------------------
Sales analysis
Copper sales (tonnes) 3,600 3,500 6,800 7,100 13,400
Zinc sales (tonnes) 5,000 5,900 12,400 9,800 31,300
Pyrite sales (tonnes) 108,300 121,000 199,100 197,000 420,000
----------------------------------------------------
Gross copper sales $ 26 $ 20 $ 52 $ 37 $ 98
Gross zinc sales 9 11 27 17 63
Other metal sales 8 12 16 23 36
----------------------------------------------------
Gross sales 43 43 95 77 197
Smelter processing
charges and freight (8) (12) (20) (21) (45)
----------------------------------------------------------------------------
Net sales $ 35 $ 31 $ 75 $ 56 $ 152
----------------------------------------------------------------------------
Cost analysis
Tonnes of ore milled
(thousands) 355 355 700 704 1,370
Direct production costs
($ per tonne) $ 36 $ 44 $ 40 $ 45 $ 36
----------------------------------------------------------------------------
Direct production costs $ 13 $ 16 $ 28 $ 31 $ 49
Change in inventory (2) - (2) - -
Depreciation and other
non-cash costs 2 3 4 7 12
----------------------------------------------------------------------------
Operating costs $ 13 $ 19 $ 30 $ 38 $ 61
----------------------------------------------------------------------------
Operating earnings $ 22 $ 12 $ 45 $ 18 $ 91
----------------------------------------------------------------------------
Operating cash flow $ 13 $ 23 $ 28 $ 21 $ 77
----------------------------------------------------------------------------
The objective for 2010 uses the assumptions listed on page 13.
The table below shows what contributed to the change in operating earnings and operating cash flow between 2010 and 2009.
----------------------------------------------------------------------------
three
months six months
ended June ended June
(millions) 30 30
----------------------------------------------------------------------------
Higher metal prices, denominated in Canadian
dollars $ 3 $ 16
Higher (lower) sales volumes (1) 2
Lower smelting processing and freight charges 3 2
Lower operating costs 5 6
Other - 1
----------------------------------------------------------------------------
Higher operating earnings, compared to 2009 $ 10 $ 27
Change in tax expense because of change in
earnings (4) (9)
Changes in working capital (see note 2 on page 44) (18) (15)
Other 2 4
----------------------------------------------------------------------------
Higher (lower) operating cash flow, compared to
2009 ($10) $ 7
----------------------------------------------------------------------------
Capital spending lower than expected due to timing
----------------------------------------------------------------------------
three months ended June six months ended June revised
30 30 objective
2010 2009 change 2010 2009 change 2010
----------------------------------------------------------------------------
Capital
spending $ 2,000 $ 3,000 -30% $ 2,500 $ 3,800 -34% $ 5,000
----------------------------------------------------------------------------
2010 outlook for capital spending
Capital spending in 2010 is mainly to replace mobile equipment and the secondary cone crusher.
Troilus
three months ended June
30
-------------------------------------------------------------------
2010 2009 change
-------------------------------------------------------------------
Tonnes of ore milled (000's) 1,364 1,542 -12%
Tonnes of ore milled per day 15,000 16,900 -12%
-------------------------------------------------------------------
Strip ratio - - -
-------------------------------------------------------------------
Grades gold
(grams/tonne) 0.52 0.65 -20%
copper (percent) 0.06 0.08 -25%
-------------------------------------------------------------------
Mill recoveries (percent) Gold 81 83 -2%
Copper 87 88 -1%
-------------------------------------------------------------------
Production gold (ounces) 18,600 26,700 -30%
copper (tonnes) 700 1,100 -36%
-------------------------------------------------------------------
Cost per tonne of ore milled (C$) $9 $9 -
-------------------------------------------------------------------
six months ended June revised
30 objective
----------------------------------------------------------------------------
2010 2009 change 2010
----------------------------------------------------------------------------
Tonnes of ore milled (000's) 2,783 3,019 -8% 2,783
Tonnes of ore milled per day 15,500 16,700 -8% 15,500
----------------------------------------------------------------------------
Strip ratio - 0.1 -100% -
----------------------------------------------------------------------------
Grades gold
(grams/tonne) 0.52 1.03 -50% 0.52
copper (percent) 0.08 0.14 -43% 0.08
----------------------------------------------------------------------------
Mill recoveries (percent) Gold 81 84 -4% 81
Copper 89 93 -4% 89
----------------------------------------------------------------------------
Production gold (ounces) 37,900 84,800 -55% 37,900
copper (tonnes) 2,000 3,900 -49% 2,000
----------------------------------------------------------------------------
Cost per tonne of ore milled (C$) $9 $11 -18% $9
----------------------------------------------------------------------------
Troilus successfully concludes operations shortly after 2 million ounces of gold produced
Troilus continued to process ore from its low-grade stockpile after it finished mining the 87 pit in April 2009. This lowered gold grades and production compared to 2009, and reduced the cost per tonne of ore milled.
Ore stockpiles were frozen well into May requiring drilling and blasting and therefore affected mill throughput. Troilus reached the milestone of producing 2 million ounces of gold on June 16 and ceased milling operations at the end of June due to the depletion of all surface ore stockpiles.
Production was at a record high in the first two months of 2009 because of the high grade of the ore mined from the bottom of the main 87 pit.
2010 outlook
Troilus had 5,600 ounces of gold and 50 tonnes of copper in inventory at June 30, 2010, which it will sell in the third quarter.
A small group of workers remains onsite to oversee closure activities and we are proceeding with asset sales.
Financial review
Lower volumes sold reduces earnings
----------------------------------------------------------------------------
(millions of
Canadian dollars
unless otherwise three months ended six months ended revised
stated) June 30 June 30 objective
2010 2009 2010 2009 2010
----------------------------------------------------------------------------
Sales analysis
Gold sales (ounces) 18,100 28,200 39,300 88,300 44,900
Copper sales
(tonnes) 800 1,100 2,200 4,000 2,200
--------------------------------------------------------
Gross gold sales $ 23 $ 29 $ 46 $ 99 $ 52
Gross copper sales 4 8 15 24 16
Other metal sales 1 - 1 1 1
--------------------------------------------------------
Gross sales 28 37 62 124 69
Smelter processing
charges and freight (2) (2) (4) (8) (5)
----------------------------------------------------------------------------
Net sales $ 26 $ 35 $ 58 $ 116 $ 64
----------------------------------------------------------------------------
Cost analysis
Tonnes of ore milled
(thousands) 1,364 1,542 2,783 3,019 2,783
Direct production
costs ($ per tonne) $ 9 $ 9 $ 9 $ 11 $ 9
----------------------------------------------------------------------------
Direct production
costs $ 12 $ 14 $ 24 $ 33 $ 24
Change in inventory 2 - 5 2 9
Depreciation and
other non-cash
costs 6 5 12 10 14
----------------------------------------------------------------------------
Operating costs $ 20 $ 19 $ 41 $ 45 $ 47
----------------------------------------------------------------------------
Operating earnings $ 6 $ 16 $ 17 $ 71 $ 17
----------------------------------------------------------------------------
Operating cash flow $ 18 $ 29 $ 37 $ 78 $ 34
----------------------------------------------------------------------------
The objective for 2010 uses the assumptions listed on page 13.
The table below shows what contributed to the change in operating earnings and operating cash flow between 2010 and 2009.
----------------------------------------------------------------------------
three months six months
ended June ended June
(millions) 30 30
----------------------------------------------------------------------------
Higher gold price denominated in Canadian
dollars $ 4 $ 2
Lower sales volumes (14) (65)
Lower operating costs 2 9
Other (2) -
----------------------------------------------------------------------------
Lower operating earnings, compared to 2009 ($10) ($54)
Changes in working capital (see note 2 on page
44) (4) 9
Change in depreciation 2 3
Other 1 1
----------------------------------------------------------------------------
Lower operating cash flow, compared to 2009 ($11) ($41)
----------------------------------------------------------------------------
Ok Tedi
-----------------------------------------------------------------
three months ended June 30
(100 percent) 2010 2009 change
-----------------------------------------------------------------
Tonnes of ore milled (000's) 4,900 5,400 -9%
Tonnes of ore milled per day 53,800 59,300 -9%
-----------------------------------------------------------------
Strip ratio 1.4 1.9 -26%
-----------------------------------------------------------------
Grades copper
(percent) 0.8 0.8 -
gold
(grams/tonne) 0.9 1.1 -18%
-----------------------------------------------------------------
Mill recoveries
(percent) copper 84 86 -2%
gold 69 71 -3%
-----------------------------------------------------------------
Production copper
(tonnes) 33,800 38,200 -12%
gold (ounces) 100,600 132,800 -24%
-----------------------------------------------------------------
Cost per tonne of ore milled (C$) $24 $23 +4%
-----------------------------------------------------------------
---------------------------------------------------------------------------
revised
six months ended June 30 objective
(100 percent) 2010 2009 change 2010
---------------------------------------------------------------------------
Tonnes of ore milled (000's) 10,500 10,500 - 23,900
Tonnes of ore milled per day 58,300 58,300 - 65,000
---------------------------------------------------------------------------
Strip ratio 1.4 1.7 -18% 1.2
---------------------------------------------------------------------------
Grades copper
(percent) 0.8 0.8 - 0.8
gold
(grams/tonne) 0.9 1.1 -18% 1.1
---------------------------------------------------------------------------
Mill recoveries
(percent) copper 86 86 - 85
gold 70 68 +3% 66
---------------------------------------------------------------------------
Production copper
(tonnes) 71,000 75,100 -5% 163,000
gold (ounces) 217,000 248,000 -13% 570,000
---------------------------------------------------------------------------
Cost per tonne of ore milled (C$) $23 $24 -4% $22
---------------------------------------------------------------------------
Production lower due to illegal strike action
Copper and gold production this quarter and for the year to June were significantly lower than planned, and the same quarter in 2009.
Production during the quarter was interrupted by an illegal work stoppage for the first 17 days of April. Members of the Ok Tedi Mining and Allied Workers Union (OTMAWU) took action over concerns about distributions under an employee retention bonus arrangement that is not part of Ok Tedi's industrial agreement with the OTMAWU.
Gold grades were lower in the first six months due to adjustments in the mine plan to avoid processing high sulphur, high gold areas of the mine. Despite the significant redesign and modification of the mine waste management plant, its performance continues to be challenged, requiring control of sulphur by blending the ore in the mine before it goes to the mill. This is being accomplished by mining lower benches that contain more copper and less sulphur and gold. The higher grade gold ore is available to be mined but will not be processed until the mine waste management plant is performing to expectations. A dedicated team of in-house and consulting specialists are working on the plant's technical and operational issues. Ok Tedi is also exploring other alternatives for neutralizing the impact of sulphur.
Last year, we entered into a non-binding draft term sheet with PNG Sustainable Development Programme Limited, the 52 percent majority shareholder of Ok Tedi to exchange our 18 percent equity interest in Ok Tedi for a 5 percent net smelter return royalty. During May, the relevant Papua New Guinea tax legislation was passed. Work is proceeding to finalize definitive documentation and the transaction could close in the third quarter, although there can be no assurance until definitive documentation has been completed and signed by all parties.
2010 outlook for production and costs
Ok Tedi's labour contract expires on August 31. The work stoppage in April added some uncertainty to the outcome of future negotiations. However we remain optimistic that a settlement can be reached without a strike. Ok Tedi was able to complete significant scheduled maintenance work planned for later in the year during the strike action. This, along with other productivity improvements, should allow Ok Tedi to make up most of the production lost in April. Ok Tedi expects to process 23.9 million tonnes of ore in 2010, at a grade of 0.8 percent copper and containing 1.1 grams per tonne of gold. This should produce 163,000 tonnes of copper and 570,000 ounces of gold. To meet its gold production forecast for the year, Ok Tedi needs to successfully operate the mine waste management plant.
Financial review
Higher earnings year to date due to higher copper and gold prices
----------------------------------------------------------------------------
(millions of Canadian
dollars unless otherwise three months six months revised
stated) ended June 30 ended June 30 objective
2010 2009 2010 2009 2010
----------------------------------------------------------------------------
Sales analysis at 18%
Copper sales (tonnes) 7,300 6,900 14,600 12,400 29,300
Gold sales (ounces) 21,900 24,400 44,100 43,700 102,600
------------------------------------------------
Gross copper sales $ 47 $ 41 $ 103 $ 76 $ 204
Gross gold sales 28 27 54 49 126
Other metal sales 1 1 2 2 4
------------------------------------------------
Gross sales 76 69 159 127 334
Smelter processing charges
and freight (8) (7) (18) (14) (40)
----------------------------------------------------------------------------
Net sales $ 68 $ 62 $ 141 $ 113 $ 294
----------------------------------------------------------------------------
Cost analysis at 18%
Tonnes of ore milled
(thousands) 881 967 1,881 1,898 4,300
Direct production costs ($
per tonne) $ 24 $ 23 $ 23 $ 24 $ 22
----------------------------------------------------------------------------
Direct production costs $ 21 $ 23 $ 44 $ 46 $ 95
Change in inventory 3 (1) 7 - -
Depreciation and other non-
cash costs 10 4 15 14 27
----------------------------------------------------------------------------
Operating costs $ 34 $ 26 $ 66 $ 60 $ 122
----------------------------------------------------------------------------
Operating earnings $ 34 $ 36 $ 75 $ 53 $ 172
----------------------------------------------------------------------------
Operating cash flow $ 41 $ 29 $ 87 $ 15 $ 135
----------------------------------------------------------------------------
The objective for 2010 uses the assumptions listed on page 13.
The table below shows what contributed to the change in operating earnings and operating cash flow between 2010 and 2009.
----------------------------------------------------------------------------
three months six months
(millions) ended June 30 ended June 30
----------------------------------------------------------------------------
Higher copper prices, denominated in
Canadian dollars $ - $ 13
Higher gold prices, denominated in Canadian
dollars 3 4
Higher sales volumes - 4
Higher smelter processing and freight
charges (1) (2)
Lower operating costs (1) 6
Higher depreciation (3) (3)
----------------------------------------------------------------------------
Higher (lower) operating earnings, compared
to 2009 ($2) $ 22
Change in tax expense because of change in
earnings (6) (22)
Changes in net working capital (see note 2
on page 44) 16 70
Change in depreciation 3 3
Other 1 (1)
----------------------------------------------------------------------------
Higher operating cash flow, compared to 2009 $ 12 $ 72
----------------------------------------------------------------------------
Capital spending
In 2010, Ok Tedi spent $47 million (our share is $8 million), mainly on a mining fleet specifically designed for limestone mining and the construction of underwater storage pits for sulphur concentrate produced by the tailings management plant. In 2009, spending was primarily for the pit drainage project.
----------------------------------------------------------------------------
three months ended June six months ended June
30 30 objective
(18 percent) 2010 2009 change 2010 2009 change 2010
----------------------------------------------------------------------------
Capital
spending $ 4,100 $ 3,300 +24% $ 8,400 $ 6,600 +27% $ 21,000
----------------------------------------------------------------------------
2010 outlook for capital spending
Spending in 2010 will be on a mining fleet specifically designed for limestone mining, the construction of underwater storage pits for sulphur concentrate produced by the tailings management plant, and earthworks.
Status of our development project
Cobre Panama
Environmental and community affairs
We made significant progress in moving the project environmental and social impact assessment (ESIA) study to completion. The ESIA will cover all environmental and social interactions associated with the project, comply with Panamanian requirements, and will conform with the requirements of the International Finance Corporation (IFC) Performance Standards (PS) on social and environmental sustainability. We expect to submit the ESIA to the Panamanian regulatory authorities in the third quarter for their review, comment and approval. We are working closely with the Panamanian authorities to ensure there is coordination to facilitate a timely review process. While the Panamanian authorities review the ESIA, we expect that it will also be reviewed by external financing agencies to ensure compliance with the IFC PS and the Equator Principles. We continue our on-going stakeholder engagement and community development activities to build social license for the project.
Engineering
Engineering this quarter focused on obtaining additional geotechnical information in advance of basic engineering, and on the Engineering, Procurement and Construction (EPC) procurement process.
Geotechnical work, which includes rock and overburden characterization, site-specific seismic analysis and hydrology, is being undertaken at the plant and port sites, the tailings management facility, eastern infrastructure and along the coast road. It will also include seafloor investigations in the port area. At the end of the quarter, the land based program was 60 percent complete and we expect to begin the seafloor drilling in late July. All work is expected to be complete by the fourth quarter.
We have put considerable effort into selecting an EPC contractor. We sent out requests for proposal to pre-qualified consortia in April and at the end of June had received proposals. The proposals are under careful review and due diligence by Inmet and our consultants, and we expect a recommendation by mid August.
2010 outlook for development
In 2010 we plan to:
-- submit the ESIA to the Panamanian environmental authorities in the third
quarter
-- continue our dialogue with stakeholders at the community, regional and
national levels, to enhance understanding of the project and its
benefits to Panama
-- continue to pursue the amendment to Panama's Mineral Resources Code to
permit entities in which foreign governmental bodies or authorities have
an interest, to hold direct or indirect interests in mining concessions
in Panama
-- continue to improve site access and infrastructure
-- carry out additional drilling for geotechnical and hydrological purposes
and to improve our understanding of mineralization not currently
included in the project base case
-- enter into an agreement with an EPC contractor and start basic
engineering
-- work with GDF Suez Energy Central America to select an EPC contractor
for the development of a 300 megawatt thermal power plant to supply
power for the project
-- spend $122 million to carry out the work described.
We estimate that approval for the ESIA and permitting to begin construction could take as much as 15 months from the time the ESIA report is submitted. After we receive the approvals, site capture, preparation and construction should take approximately 48 months.
We continue to engage with other companies as part of our overall partnering and financing strategy for the project, and will consider reducing our interest in the project. We are also in discussions about other financing options for the project at this time.
Managing our liquidity
We develop our financing strategy by looking at 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 six months ended
ended June 30 June 30
(millions) 2010 2009 2010 2009
----------------------------------------------------------------------------
CASH FROM OPERATING ACTIVITIES
Cayeli $ 23 $ 24 $ 53 $ 15
Pyhasalmi 13 23 28 21
Troilus 18 29 37 78
Ok Tedi 41 29 87 15
Las Cruces - - (7) -
Corporate development and
exploration not incurred by
operations (1) (2) (3) (3)
General and administration (6) (5) (12) (9)
Other (8) (7) (11) (9)
----------------------------------------------------------------------------
80 91 172 108
----------------------------------------------------------------------------
CASH FROM INVESTING AND FINANCING
Purchase of property, plant and
equipment (11) (86) (33) (181)
Purchase of long-term investments (117) - (219) -
Proceeds from issuance of common
shares, net of transaction costs - 334 - 334
Long-term debt repayments - (74) - (83)
Funding by non-controlling
shareholder - 28 3 44
Subsidies received - 58 - 66
Foreign exchange on cash held in
foreign currency (3) (18) (19) (13)
Other (2) (5) (2) (13)
----------------------------------------------------------------------------
(133) 237 (270) 154
----------------------------------------------------------------------------
Increase (decrease) in cash (53) 328 (98) 262
Cash and short-term investments
Beginning of period 489 507 534 573
----------------------------------------------------------------------------
End of period $ 436 $ 835 $ 436 $ 835
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Key components of the change in operating cash flows
----------------------------------------------------------------------------
three months six months
ended June ended June
(millions) 30 30
----------------------------------------------------------------------------
Higher earnings from operations (see page 4) $ 2 $ 20
Higher depreciation 5 5
Higher tax expense (11) (28)
Stand-by and corporate costs - (7)
Changes in working capital (see note 2 on page
44) (8) 73
Other 1 1
----------------------------------------------------------------------------
Higher (lower) operating cash flow, compared
to 2009 ($11) $ 64
----------------------------------------------------------------------------
Operating cash flows this quarter were lower than the same quarter last year because we paid more taxes. Year to date, operating cash flows were higher than in 2009 because our operating earnings were higher, and in the first quarter of 2009 there was a large outflow of cash related to working capital, which included $48 million to repay smelters for the excess provisional payments they made in 2008, before copper prices dropped because of the global financial crisis.
2010 outlook for cash from operating activities
The table below shows expected operating cash flow from our operations, based on our outlook for metal prices and production listed on page 13, and the assumptions in Results of our operations, which starts on page 13.
2010 estimated operating cash flow by operation
----------------------------------------------------------------------------
(millions)
----------------------------------------------------------------------------
Cayeli $ 128
Las Cruces 98
Pyhasalmi 77
Troilus 34
Ok Tedi 135
----------------------------------------------------------------------------
$ 472
----------------------------------------------------------------------------
INVESTING AND FINANCING
Capital spending
----------------------------------------------------------------------------
three months ended six months ended revised
June 30 June 30 objective
(millions) 2010 2009 2010 2009 2010
----------------------------------------------------------------------------
Cayeli $ 3 $ 3 $ 5 $ 6 $ 19
Las Cruces (21) 54 (24) 119 61
Pyhasalmi 2 3 3 4 5
Ok Tedi 4 3 8 7 21
Cobre Panama 23 23 41 45 122
----------------------------------------------------------------------------
$ 11 $ 86 $ 33 $ 181 $ 228
----------------------------------------------------------------------------
Please see Results of our operations and Status of our development project for a discussion of actual results and our 2010 objective. Capital spending in 2010 was mainly for work to advance Cobre Panama.
Acquisition of long-term investments
In 2010, we bought $219 million ($117 million in the second quarter) in medium-term Canadian government and corporate bonds with credit ratings of A to AAA. The bonds mature between July 2010 and August 2015 and have a weighted average annual yield of 2.0 percent. This will increase our return on the cash we have set aside for capital spending at Cobre Panama.
Proceeds from public offering
In the second quarter of 2009, we completed a public offering of 7.825 million common shares of Inmet Mining, for aggregate gross proceeds of $348 million ($334 million net of transaction costs).
Long-term debt repayments
In the first half of 2009, Las Cruces made a scheduled repayment of US $12 million under Tranche A of its credit facility. It also repaid EUR42 million under Tranche B (an amount equal to the subsidies received).
2010 outlook for investing and financing
We expect capital spending to be $228 million in 2010. The more significant
items include:
-- $61 million at Las Cruces, including $33 million on a water treatment
plant and other water management projects, $18 million for mine
development and $21 million for plant improvements, reduced by working
capital changes and pre-operating costs capitalized net of sales.
-- $122 million for work on the development at Cobre Panama, including
basic engineering, advance payments for mill equipment and other costs
to advance development
-- $10 million at Ok Tedi for the construction of underwater storage pits
for sulphur concentrate produced by the tailings management plant.
On March 31, 2010, we entered into a subscription agreement with a subsidiary of Temasek Holdings (Private) Limited (Temasek), under which Temasek has agreed to buy 9.26 million subscription receipts for total proceeds of $500 million. We issued the subscription receipts on April 23, 2010 and the proceeds are being held in escrow. The subscription receipts are exchangeable for an equivalent number of Inmet common shares as long as certain conditions are met on or before September 30, 2010, including:
-- The coming into effect of legislation passed by the legislative assembly
of the Republic of Panama to amend Panama's Mineral Resources Code to
permit entities in which foreign governmental bodies or authorities have
an interest, to hold direct or indirect interests in mining concessions
in Panama.
-- Inmet's or Cobre Panama's ability to use or exploit their rights under
Cobre Panama's mining concession for the mining project are not impaired
in any material way.
If the conditions are met, the subscription receipts will be exchanged for Inmet common shares equal to approximately 14 percent of our outstanding common shares. The proceeds will then be released from escrow and we will use them to fund the development of Cobre Panama and for general corporate purposes. If the conditions are not met, the subscription receipts will automatically terminate and the escrowed funds will be returned to Temasek.
Financial condition
CASH
Our cash and cash equivalents balance at June 30, 2010 was $436 million. This included cash and money market instruments that mature in 90 days or less, and short-term investments that mature in 91 days to a year.
Our policy is to invest excess cash in highly liquid investments of the highest credit quality, and to limit our exposure to individual counterparties to minimize the risk associated with these investments. We base our decisions about the length of maturities on our cash flow requirements, rates of return and other factors.
The economic downturn appears to be reversing, but we are still monitoring the potential for a second downturn. We have moved some of our government funds to prime funds and have created a bond portfolio that should provide better yields with little change to our investment risk. At June 30, 2010, we held cash and short-term investments in the following:
-- 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 3 on page 45 in the consolidated financial statements for more details about where our cash is invested.
The bond portfolio (Held to maturity investments) totalling $321 million, comprises 13 percent Government of Canada bonds, 75 percent Provincial Government bonds and 12 percent corporate bonds, and the bonds mature between July 2010 and August 2015.
Our restricted cash balance of $108 million as at June 30, 2010 included:
-- $28 million in trust for future reclamation at Ok Tedi
-- $16 million of cash collateralized letters of credit for Inmet
-- $62 million related to issuing letters of credit to suppliers and the
local water authority at Las Cruces, a reclamation bond and for its
labour bond to the government
-- $2 million for future reclamation at Pyhasalmi.
COMMON SHARES
----------------------------------------------------------------------------
Common shares outstanding as of June 30, 2010 56,106,759
----------------------------------------------------------------------------
Deferred share units outstanding as of June 30, 2010 100,394
(redeemable on a one-for-one basis for common shares)
----------------------------------------------------------------------------
Accounting changes
Plans on transition to International Financial Reporting Standards (IFRS):
The Accounting Standards Board has confirmed that International Financial Reporting Standards (IFRS) will replace current Canadian GAAP for financial periods beginning on and after January 1, 2011. IFRS is based on a conceptual framework similar to Canadian GAAP, but there are significant differences in recognition, measurement and disclosure.
While the adoption of IFRS will not change our business activities, it will result in changes to our reported financial position and net income.
We have prepared a comprehensive IFRS convergence plan that addresses the changes in accounting policy, restatement of comparative periods, internal control over financial reporting, modification of existing systems, the training and awareness of staff, and other related items. Senior financial management, who report to and are overseen by Inmet's Audit Committee, are responsible for planning and implementing the conversion.
To date, we have made an initial determination of all of our significant accounting policies, prepared sample financial statements and assessed the impacts on our systems and processes. We have identified and put in place a dual reporting solution to maintain our accounting records according to Canadian GAAP and IFRS for our 2010 dual reporting year. We have been working alongside our auditors while drafting our accounting policies, to ensure they agree with our choices, and that we are choosing policies that are consistent with our peers in the industry. Concurrently with documenting our new policies, we have documented the related internal controls. We have prepared a reconciliation of our historical Canadian GAAP balance sheet to IFRS balance sheet as at January 1, 2010.
We do not expect our key controls to change during and after our transition to IFRS. As a result of our training program and the preparation of a reconciliation to IFRS, we believe that our applicable personnel have obtained an appropriate understanding of IFRS as it applies to our financial reporting.
We have noted below the major differences between our current accounting policies under Canadian GAAP and the accounting policies we currently expect to apply when we transition to IFRS, and have provided quantification for the most significant differences as at January 1, 2010. We may choose to adopt different IFRS accounting policies, or we may choose to apply them only to certain transactions or circumstances, so our conversion to IFRS may be different from what we are currently expecting.
Furthermore, the standard-setting bodies that determine IFRS have significant ongoing projects that could affect the ultimate differences between Canadian GAAP and IFRS, and their impact on our consolidated financial statements. The impact IFRS has in future years will also depend on circumstances at the time. An exposure draft on accounting for joint venture interests (including our investment in Ok Tedi) could have significant effects on our financial statements. We will continue to monitor changes to IFRS and adjust our convergence plan as necessary.
Impairment of assets
Under Canadian GAAP, we use 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).
IFRS uses a one step approach to test for and measure impairment, and compares asset carrying values directly with the higher of fair value less costs to sell and value in use (which uses discounted future cash flows).
This approach will lead to write-downs when carrying values of assets supported under Canadian GAAP on an undiscounted basis are not supported on a discounted basis under IFRS. IFRS also requires a full or partial reversal of previous impairment losses when circumstances have changed and the impairments have been reduced. Impairment losses cannot be reversed under Canadian GAAP.
We expect to increase 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 result in a higher ongoing depreciation expense for Cayeli.
Business combinations
Under Canadian GAAP, mining companies that are acquired in the early development stage often do not constitute a business, and instead are accounted for as an acquisition of assets without any goodwill. The definition of a business under IFRS is broader, and most acquisitions represent business combinations, so goodwill is recognized more frequently.
In addition, most identifiable assets, liabilities, non-controlling interests and goodwill acquired in a business combination are recorded at full fair value under IFRS. Under Canadian GAAP, only the ownership percentage acquired is recorded. Non-controlling interests are recognized at book value.
Asset retirement obligations
Under Canadian GAAP, we use a credit adjusted risk free interest rate and are not required to update the rate when market rates change.
Under IFRS, we will measure asset retirement obligations using a risk free interest rate and revalue when market risk free interest rates change. We expect to increase January 1, 2010 asset retirement obligations by approximately $40 million on transition to IFRS.
Revenue
Under Canadian GAAP, we recognize revenue when title is legally transferred to the purchaser. For certain shipments at Cayeli, Ok Tedi and Las Cruces, 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 will recognize revenue when all significant risks and rewards of ownership of our products are transferred to the purchaser. We expect to increase January 1, 2010 accounts receivable by approximately $25 million and decrease inventories by $6 million on transition to IFRS.
Foreign exchange gains and 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 recognize the deferred foreign exchange gains or losses on these amounts in investment and other income.
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.
Future income taxes
We will need to recognize the corresponding tax asset or liability based on the resultant differences between the new carrying value of assets and liabilities under IFRS and their associated tax bases.
First time adoption of IFRS
First time adoption of International Financial Reporting Standards (IFRS 1) lists specific exemptions that we can use when we first adopt IFRS. The most significant exemptions we expect to apply are as follows:
-- Business combinations - for business combinations that occurred before
the transition date, we can choose to restate all of them under IFRS,
restate all of them after a particular date, or not restate any of them.
We expect to use this exemption and not restate any business
combinations under IFRS.
-- Cumulative translation adjustment - IFRS requires an entity to determine
the translation differences in accordance with IFRS from the date a
subsidiary was formed or acquired. IFRS 1 allows an entity to consider
the cumulative translation differences for all foreign operations to be
zero at the date of transition, and to reclassify the previous amount to
retained earnings. We expect to use this exemption and reset our
cumulative translation adjustment (unrealized losses of $61 million) to
zero on transition to IFRS with a corresponding reduction in retained
earnings.
-- Property, plant and equipment associated with asset retirement
obligations - 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
will be different from the amount determined under Canadian GAAP because
of the different way IFRS determines asset retirement obligations.
We can use an optional transitional calculation to determine the
property, plant and equipment associated with our provision for asset
retirement obligations. Under the transitional calculation, we measure
the provision at the transition date and discount it to the date the
liability first arose. The result becomes the initial asset value.
Depreciation is applied to this value. We expect to apply this exemption
for certain mines and not determine property, plant and equipment
associated with asset retirement obligations retrospectively and
anticipate an increase of approximately $10 million to property, plant
and equipment.
We currently expect to increase the equity attributable to common shareholders of Inmet Mining on our January 1, 2010 opening balance sheet under IFRS by approximately $50 million, or $0.90 per common share, compared to our December 31, 2009 balance sheet under Canadian GAAP.
Supplementary financial information
Pages 32 and 33 includes supplementary financial information about cash costs. These measures do not fall into the category of generally accepted accounting principles.
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 measures under Canadian generally accepted accounting principles 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 gold. We have interests in five mining operations in locations around the world: Cayeli, Las Cruces, Pyhasalmi, Troilus and Ok Tedi. 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
Second quarter conference call
Will be held on
-- Wednesday, July 28, 2010
-- 8:30 a.m. Eastern Time
-- webcast available at
http://events.digitalmedia.telus.com/inmet/072810/index.php or
www.inmetmining.com
You can also dial in by calling
-- Local or international: +1.416.695.6623
-- Toll-free within North America: +1.800.565.0813
Starting 10:00 a.m. (ET) Wednesday, July 28, 2010, conference call replay
will be available
-- Local or international: +1.416.695.5800 passcode 6305255
-- Toll-free within North America: +1.800.408.3053 passcode 6305255
INMET MINING CORPORATION
Supplementary financial information
Cash costs
2010 For the six months ended June 30
per pound of copper
------------------------------------------------
TOTAL
CAYELI PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 1.22 $ 1.72 $ 1.36 $ 1.38
Royalties and variable
compensation 0.11 - 0.15 0.10
Smelter processing charges
and freight 1.37 1.02 0.55 0.99
Metal credits (2.06) (2.55) (1.75) (2.04)
------------------------------------------------
Cash cost $ 0.64 $ 0.19 $ 0.31 $ 0.43
------------------------------------------------
------------------------------------------------
2009 For the six months ended June 30
per pound of copper
------------------------------------------------
TOTAL
CAYELI PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 0.98 $ 1.63 $ 1.27 $ 1.23
Royalties and variable
compensation 0.07 - 0.01 0.03
Smelter processing charges
and freight 1.06 0.74 0.40 0.74
Metal credits (1.28) (1.79) (1.46) (1.45)
------------------------------------------------
Cash cost $ 0.83 $ 0.58 $ 0.22 $ 0.55
------------------------------------------------
------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of cash costs to statements of earnings
2010 For the six months ended June 30
per pound of copper
------------------------------------------------
(millions of Canadian
dollars, except where TOTAL
otherwise noted) CAYELI PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
GAAP reference page 15 page 19 page 23
Direct production costs $ 43 $ 28 $ 44 $ 115
Smelter processing charges
and freight 39 20 18 77
By product sales (65) (43) (56) (164)
Adjust smelter processing
and freight, and sales to
production basis 4 (2) 3 5
------------------------------------------------
Operating costs net of metal
credits $ 21 $ 3 $ 9 $ 33
US $ to C$ exchange rate $ 1.03 $ 1.03 $ 1.03 $ 1.03
Inmet's share of production
(000's) 31,300 15,200 28,200 74,700
------------------------------------------------
Cash cost $ 0.64 $ 0.19 $ 0.31 $ 0.43
------------------------------------------------
------------------------------------------------
2009 For the six months ended June 30
per pound of copper
------------------------------------------------
(millions of Canadian
dollars, except where TOTAL
otherwise noted) CAYELI PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
GAAP reference page 15 page 19 page 23
Direct production costs $ 40 $ 31 $ 46 $ 117
Smelter processing charges
and freight 38 21 14 73
By product sales (50) (40) (51) (141)
Adjust smelter processing
and freight, and sales to
production basis 4 (1) (1) 2
------------------------------------------------
Operating costs net of metal
credits $ 32 $ 11 $ 8 $ 51
US $ to C$ exchange rate $ 1.21 $ 1.21 $ 1.21 $ 1.21
Inmet's share of production
(000's) 32,200 16,100 29,800 78,100
------------------------------------------------
Cash cost $ 0.83 $ 0.58 $ 0.22 $ 0.55
------------------------------------------------
------------------------------------------------
INMET MINING CORPORATION
Supplementary financial information
Cash costs
2010 For the three months ended June 30
per pound of copper
-------------------------------------------------
TOTAL
CAYELI PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 1.25 $ 1.37 $ 1.44 $ 1.35
Royalties and variable
compensation 0.08 - 0.15 0.09
Smelter processing charges
and freight 1.40 0.73 0.54 0.94
Metal credits (2.10) (1.69) (1.84) (1.91)
-------------------------------------------------
Cash cost $ 0.63 $ 0.41 $ 0.29 $ 0.47
-------------------------------------------------
-------------------------------------------------
2009 For the three months ended June 30
per pound of copper
-------------------------------------------------
TOTAL
CAYELI PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 0.98 $ 1.65 $ 1.23 $ 1.21
Royalties and variable
compensation 0.04 - 0.07 0.04
Smelter processing charges
and freight 1.10 0.82 0.39 0.77
Metal credits (1.46) (1.54) (1.53) (1.50)
-------------------------------------------------
Cash cost $ 0.66 $ 0.93 $ 0.16 $ 0.52
-------------------------------------------------
-------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of cash costs to statements of earnings
2010 For the three months ended June 30
per pound of copper
-------------------------------------------------
(millions of Canadian
dollars, except where TOTAL
otherwise noted) CAYELI PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
GAAP reference page 15 page 19 page 23
Direct production costs $21 $ 13 $ 21 $ 12
Smelter processing charges
and freight 19 8 8 35
By product sales (32) (17) (29) (78)
Adjust smelter processing
and freight, and sales to
production basis 2 - 4 6
-------------------------------------------------
Operating costs net of
metal credits $ 10 $ 4 $ 4 $ 18
US $ to C$ exchange rate $ 1.03 $ 1.03 $ 1.03 $ 1.03
Inmet's share of production
(000's) 15,600 8,800 13,500 37,900
-------------------------------------------------
Cash cost $ 0.63 $ 0.41 $ 0.29 $ 0.47
-------------------------------------------------
-------------------------------------------------
2009 For the three months ended June 30
per pound of copper
-------------------------------------------------
(millions of Canadian
dollars, except where TOTAL
otherwise note) CAYELI PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
GAAP reference page 15 page 19 page 23
Direct production costs $ 20 $ 16 $ 23 $ 59
Smelter processing charges
and freight 18 12 7 37
By product sales (27) (22) (28) (77)
Adjust smelter processing
and freight, and sales to
production basis 2 3 1 6
-------------------------------------------------
Operating costs net of
metal credits $ 13 $ 9 $ 3 $ 25
US $ to C$ exchange rate $ 1.17 $ 1.17 $ 1.17 $ 1.17
Inmet's share of production
(000's) 16,700 8,200 15,200 40,100
-------------------------------------------------
Cash cost $ 0.66 $ 0.93 $ 0.16 $ 0.52
-------------------------------------------------
-------------------------------------------------
INMET MINING CORPORATION
Quarterly review
(unaudited)
Latest Four Quarters
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands of Canadian
dollars, except per 2010 Second 2010 First 2009 Fourth 2009 Third
share amounts) quarter quarter quarter quarter
----------------------------------------------------------------------------
----------------------------------------------------------------------------
STATEMENTS OF EARNINGS
Gross sales $ 215,051 $ 251,559 $ 290,570 $ 241,121
Smelter processing
charges and freight (36,794) (44,329) (53,696) (41,607)
Cost of sales (72,437) (80,980) (74,995) (72,706)
Depreciation (18,951) (15,224) (17,911) (14,558)
----------------------------------------------------
86,869 111,026 143,968 112,250
Corporate development
and exploration (2,524) (2,779) (2,915) (1,963)
General and
administration (6,288) (5,510) (9,836) (5,147)
Investment and other
income (expense) (18,370) (78) 280 3,588
Asset impairment - - (3,496) -
Stand-by costs - (6,753) - -
Interest expense (421) (452) (496) (496)
Capital tax expense (82) (82) 69 (744)
Income tax expense (15,167) (20,063) (38,668) (39,244)
Non-controlling interest 4,419 4,562 857 (6,693)
----------------------------------------------------
Net income 48,436 79,871 $ 89,763 $ 61,551
----------------------------------------------------
Net income per common
share $ 0.86 $ 1.42 $ 1.60 $ 1.10
----------------------------------------------------
Diluted net income per
common share $ 0.86 $ 1.42 $ 1.60 $ 1.09
----------------------------------------------------
Previous Four Quarters
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands of Canadian 2009 2008
dollars, except per Second 2009 First Fourth 2008 Third
share amounts) quarter quarter quarter quarter
----------------------------------------------------------------------------
----------------------------------------------------------------------------
STATEMENTS OF EARNINGS
Gross sales $ 213,042 $ 239,152 $ 139,626 $ 247,495
Smelter processing
charges and freight (40,589) (40,540) (32,870) (49,502)
Cost of sales (73,827) (89,904) (91,715) (84,948)
Depreciation (13,604) (15,679) (14,844) (11,395)
----------------------------------------------------
85,022 93,029 197 101,650
Corporate development
and exploration (2,727) (3,232) (1,971) (3,548)
General and
administration (4,785) (4,124) (3,289) (3,411)
Investment and other
income (expense) 16,466 (11,203) 8,057 (5,467)
Asset impairment - (6,419) (36,275) -
Interest expense (493) (492) (490) (476)
Capital tax expense (125) (125) (1,304) (125)
Income tax expense (24,052) (18,890) 767 (17,379)
Non-controlling interest (2,778) 2,783 1,794 3,813
----------------------------------------------------
Net income (loss) $ 66,528 $ 51,327 ($32,514) $ 75,057
----------------------------------------------------
Net income (loss) per
common share $ 1.37 $ 1.06 ($0.67) $ 1.55
----------------------------------------------------
Diluted net income
(loss) per common share $ 1.36 $ 1.06 ($0.67) $ 1.55
----------------------------------------------------
INMET MINING CORPORATION
Consolidated balance sheets
Note December 31
(thousands of Canadian dollars) reference June 30 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(unaudited)
Assets
Current assets:
Cash and short-term investments 3 $ 436,318 $ 533,913
Restricted cash 4 11,905 15,130
Accounts receivable 86,793 129,987
Inventories 78,163 103,108
Current portion of held to
maturity investments 6 43,632 9,993
Future income tax asset 8,464 8,466
Assets held for sale 7 9,000 -
--------------------------------
674,275 800,597
Restricted cash 4 96,210 101,589
Property, plant and equipment 1,743,229 1,860,616
Investments in equity securities 5 49,712 42,411
Held to maturity investments 6 277,424 89,891
Future income tax asset 21,006 6,151
Other assets 2,998 2,894
--------------------------------
$ 2,864,854 $ 2,904,149
----------------------------------------------------------------------------
Liabilities
Current liabilities:
Accounts payable and accrued
liabilities $ 168,077 $ 185,145
Derivatives 1,857 1,543
Future income tax liabilities 2,084 4,612
--------------------------------
172,018 191,300
Long-term debt 8 181,338 200,026
Asset retirement obligations 142,063 145,038
Derivatives 3,544 3,165
Other liabilities 29,451 32,113
Future income tax liabilities 8,810 16,357
Non-controlling interest 58,926 78,005
--------------------------------
596,150 666,004
--------------------------------
Commitments 9
Shareholders' equity
Share capital 669,952 669,952
Contributed surplus 64,130 63,296
Stock based compensation 6,058 5,170
Retained earnings 1,664,500 1,541,803
Accumulated other comprehensive
loss 11 (135,936) (42,076)
--------------------------------
2,268,704 2,238,145
--------------------------------
$ 2,864,854 $ 2,904,149
----------------------------------------------------------------------------
(see accompanying notes)
INMET MINING CORPORATION
Segmented balance sheets
2010 As at June 30
(unaudited) CORPORATE CAYELI PYHASALMI TROILUS
----------------------------------------------------------------------------
(thousands of Canadian (Turkey) (Finland) (Canada)
dollars)
Assets
Cash and short-term
investments $ 162,495 $ 128,592 $ 52,909 $ -
Other current assets 47,875 38,502 43,601 22,791
Restricted cash 16,219 - 1,595 -
Property, plant and
equipment 833 119,252 56,037 -
Investments in equity
securities 49,712 - - -
Held to maturity
investments 277,424 - - -
Other non-current assets 1,801 834 - -
-------------------------------------------------
$ 556,359 $ 287,180 $ 154,142 $ 22,791
-------------------------------------------------
Liabilities
Current liabilities $ 13,942 $ 27,110 $ 14,842 $ 18,482
Long-term debt 15,939 - - -
Asset retirement
obligations 28,486 9,174 13,612 8,411
Derivatives - - - -
Other liabilities 4,588 6,020 - -
Future income tax
liabilities - - 8,641 -
Non-controlling interest - - - -
-------------------------------------------------
$ 62,955 $ 42,304 $ 37,095 $ 26,893
-------------------------------------------------
2010 As at June 30
COBRE
(unaudited) OK TEDI LAS CRUCES PANAMA TOTAL
--------------------------------------------------------------- ------------
(thousands of Canadian (Papua New (Spain) (Panama)
dollars) Guinea)
Assets
Cash and short-term
investments $ 48,648 $ 30,078 $ 13,596 $ 436,318
Other current assets 41,085 43,634 469 237,957
Restricted cash 28,014 50,382 - 96,210
Property, plant and
equipment 98,615 890,936 577,556 1,743,229
Investments in equity
securities - - - 49,712
Held to maturity
investments - - - 277,424
Other non-current assets 4,529 16,840 - 24,004
------------------------------------ ------------
$ 220,891 $1,031,870 $ 591,621 $2,864,854
------------------------------------ ------------
Liabilities
Current liabilities $ 55,255 $ 34,071 $ 8,316 $ 172,018
Long-term debt - 165,399 - 181,338
Asset retirement
obligations 40,637 41,743 - 142,063
Derivatives 3,544 - - 3,544
Other liabilities 1,916 16,927 - 29,451
Future income tax
liabilities - 169 - 8,810
Non-controlling interest - 58,926 - 58,926
------------------------------------ ------------
$ 101,352 $ 317,235 $ 8,316 $ 596,150
------------------------------------ ------------
2009 As at December 31
CORPORATE CAYELI PYHASALMI TROILUS
----------------------------------------------------------------------------
(thousands of Canadian (Turkey) (Finland) (Canada)
dollars)
Assets
Cash and short-term
investments $ 251,570 $ 158,631 $ 66,314 $ -
Other current assets 14,504 42,356 49,882 24,030
Restricted cash 16,492 - 1,854 -
Property, plant and
equipment 920 119,669 66,217 19,376
Investments in equity
securities 42,411 - - -
Held to maturity
investments 89,891 - - -
Other non-current assets 1,720 248 - -
-------------------------------------------------
$ 417,508 $ 320,904 $ 184,267 $ 43,406
-------------------------------------------------
Liabilities
Current liabilities $ 22,416 $ 32,348 $ 27,665 $ 19,862
Long-term debt 18,094 - - -
Asset retirement
obligations 28,606 8,805 15,293 8,497
Derivatives - - - -
Other liabilities 4,714 5,541 - -
Future income tax
liabilities 4,240 2,024 9,897 -
Non-controlling interest - - - -
-------------------------------------------------
$ 78,070 $ 48,718 $ 52,855 $ 28,359
-------------------------------------------------
2009 As at December 31
COBRE
OK TEDI LAS CRUCES PANAMA TOTAL
--------------------------------------------------------------- ------------
(thousands of Canadian (Papua New (Spain) (Panama)
dollars) Guinea)
Assets
Cash and short-term
investments $ 36,631 $ 10,039 $ 10,728 $ 533,913
Other current assets 61,943 73,501 468 266,684
Restricted cash 26,365 56,878 - 101,589
Property, plant and
equipment 103,693 1,013,490 537,251 1,860,616
Investments in equity
securities - - - 42,411
Held to maturity
investments - - - 89,891
Other non-current assets 3,523 3,554 - 9,045
------------------------------------ ------------
$ 232,155 $1,157,462 $ 548,447 $2,904,149
------------------------------------ ------------
Liabilities
Current liabilities $ 48,981 $ 29,173 $ 10,855 $ 191,300
Long-term debt - 181,932 - 200,026
Asset retirement
obligations 39,546 44,291 - 145,038
Derivatives 3,165 - - 3,165
Other liabilities 1,839 20,019 - 32,113
Future income tax
liabilities - 196 - 16,357
Non-controlling interest - 78,005 - 78,005
------------------------------------ ------------
$ 93,531 $ 353,616 $ 10,855 $ 666,004
------------------------------------ ------------
INMET MINING CORPORATION
Consolidated statements of earnings
(unaudited)
Three Months Ended Six Months Ended
June 30 June 30
(thousands of
Canadian dollars
except per share Note
amounts) reference 2010 2009 2010 2009
------------------------------------------------------ ---------------------
------------------------------------------------------ ---------------------
Gross sales $ 215,051 $ 213,042 $ 466,610 $ 452,194
Smelter processing
charges and freight (36,794) (40,589) (81,123) (81,129)
Cost of sales (72,437) (73,827) (153,417) (163,731)
Depreciation (18,951) (13,604) (34,175) (29,283)
------------------------------------------------------ ---------------------
86,869 85,022 197,895 178,051
Corporate development
and exploration (2,524) (2,727) (5,303) (5,959)
General and
administration (6,288) (4,785) (11,798) (8,909)
Investment and other
income (expense) 12 (18,370) 16,466 (18,448) 5,263
Asset impairment - - - (6,419)
Stand-by costs - - (6,753) -
Interest expense (421) (493) (873) (985)
Capital tax expense (82) (125) (164) (250)
Income tax expense 13 (15,167) (24,052) (35,230) (42,942)
Non-controlling
interest 4,419 (2,778) 8,981 5
------------------------------------------------------ ---------------------
Net income $ 48,436 $ 66,528 $ 128,307 $ 117,855
------------------------------------------------------ ---------------------
Basic net income per
common share 14 $ 0.86 $ 1.37 $ 2.29 $ 2.43
------------------------------------------------------ ---------------------
Diluted net income
per common share 14 $ 0.86 $ 1.36 $ 2.28 $ 2.42
------------------------------------------------------ ---------------------
Weighted average
shares outstanding
(000's) 56,107 48,712 56,107 48,498
------------------------------------------------------ ---------------------
(see accompanying notes)
INMET MINING CORPORATION
Segmented statements of earnings
(unaudited)
2010 For the six months ended June 30
CORPORATE CAYELI PYHASALMI TROILUS
----------------------------------------------------------------------------
(thousands of Canadian (Turkey) (Finland) (Canada)
dollars)
Gross sales $ - $ 150,432 $ 95,446 $ 62,177
Smelter processing charges
and freight - (38,695) (20,055) (4,321)
Cost of sales (1,011) (43,699) (26,513) (30,555)
Depreciation - (6,470) (3,712) (10,002)
--------------------------------------------------
(1,011) 61,568 45,166 17,299
Corporate development and
exploration (3,247) (78) (1,978) -
General and administration (11,798) - - -
Investment and other
income (expense) (18,765) (7) - 164
Stand-by costs - - - -
Interest expense (873) - - -
Capital tax expense (164) - - -
Income tax (expense)
recovery 161 (12,406) (9,926) -
Non-controlling interest - - - -
--------------------------------------------------
Net income ($35,697) $ 49,077 $ 33,262 $ 17,463
--------------------------------------------------
--------------------------------------------------
2010 For the six months ended June 30
COBRE
OK TEDI LAS CRUCES PANAMA TOTAL
--------------------------------------------------------------- ------------
(thousands of Canadian (Papua New (Spain) (Panama)
dollars) Guinea)
Gross sales $ 158,555 $ - $ - $ 466,610
Smelter processing charges
and freight (18,052) - - (81,123)
Cost of sales (51,639) - - (153,417)
Depreciation (13,991) - - (34,175)
------------------------------------- ------------
74,873 - - 197,895
Corporate development and
exploration - - - (5,303)
General and administration - - - (11,798)
Investment and other
income (expense) (18) 178 - (18,448)
Stand-by costs - (6,753) - (6,753)
Interest expense - - - (873)
Capital tax expense - - - (164)
Income tax (expense)
recovery (27,589) 14,530 - (35,230)
Non-controlling interest - 8,981 - 8,981
------------------------------------- ------------
Net income $ 47,266 $ 16,936 $ - $ 128,307
------------------------------------- ------------
------------------------------------- ------------
2009 For the six months ended June 30
CORPORATE CAYELI PYHASALMI TROILUS
----------------------------------------------------------------------------
(thousands of Canadian (Turkey) (Finland) (Canada)
dollars)
Gross sales $ - $ 123,732 $ 76,982 $ 124,397
Smelter processing charges
and freight - (37,514) (21,317) (8,718)
Cost of sales (992) (42,286) (32,575) (38,443)
Depreciation - (6,846) (4,764) (6,720)
--------------------------------------------------
(992) 37,086 18,326 70,516
Corporate development and
exploration (3,374) (901) (1,684) -
General and administration (8,909) - - -
Investment and other
income (expense) 6,420 1,070 (422) 361
Asset impairment charges - (6,419) - -
Interest expense (985) - - -
Capital tax expense (250) - - -
Income tax expense (19,730) (1,631) (2,305) -
Non-controlling interest - - - -
--------------------------------------------------
Net income ($27,820) $ 29,205 $ 13,915 $ 70,877
--------------------------------------------------
--------------------------------------------------
2009 For the six months ended June 30
COBRE
OK TEDI LAS CRUCES PANAMA TOTAL
--------------------------------------------------------------- ------------
(thousands of Canadian (Papua New (Spain) (Panama)
dollars) Guinea)
Gross sales $ 127,083 $ - $ - $ 452,194
Smelter processing charges
and freight (13,580) - - (81,129)
Cost of sales (49,435) - - (163,731)
Depreciation (10,953) - - (29,283)
------------------------------------- ------------
53,115 - - 178,051
Corporate development and
exploration - - - (5,959)
General and administration - - - (8,909)
Investment and other
income (expense) (2,486) 320 - 5,263
Asset impairment charges - - - (6,419)
Interest expense - - - (985)
Capital tax expense - - - (250)
Income tax expense (19,009) (267) - (42,942)
Non-controlling interest - 5 - 5
------------------------------------- ------------
Net income $ 31,620 $ 58 $ - $ 117,855
------------------------------------- ------------
------------------------------------- ------------
INMET MINING CORPORATION
Segmented statements of earnings
(unaudited)
2010 For the three months ended June 30
CORPORATE CAYELI PYHASALMI TROILUS
----------------------------------------------------------------------------
(thousands of Canadian (Turkey) (Finland) (Canada)
dollars)
Gross sales $ - $ 68,026 $ 44,006 $ 27,723
Smelter processing charges
and freight - (18,590) (8,550) (1,563)
Cost of sales (69) (21,718) (11,244) (14,285)
Depreciation - (3,246) (1,903) (5,623)
--------------------------------------------------
(69) 24,472 22,309 6,252
Corporate development and
exploration (1,369) (12) (1,143) -
General and administration (6,288) - - -
Investment and other
income (expense) (18,690) (106) - 294
Interest expense (421) - - -
Capital tax expense (82) - - -
Income tax (expense)
recovery (1,316) (4,953) (4,911) -
Non-controlling interest - - - -
--------------------------------------------------
Net income ($28,235) $ 19,401 $ 16,255 $ 6,546
--------------------------------------------------
2010 For the three months ended June 30
COBRE
OK TEDI LAS CRUCES PANAMA TOTAL
--------------------------------------------------------------- ------------
(thousands of Canadian (Papua New (Spain) (Panama)
dollars) Guinea)
Gross sales $ 75,296 $ - $ - $ 215,051
Smelter processing charges
and freight (8,091) - - (36,794)
Cost of sales (25,121) - - (72,437)
Depreciation (8,179) - - (18,951)
------------------------------------- ------------
33,905 - - 86,869
Corporate development and
exploration - - - (2,524)
General and administration - - - (6,288)
Investment and other
income (expense) (90) 222 - (18,370)
Interest expense - - - (421)
Capital tax expense - - - (82)
Income tax (expense)
recovery (11,054) 7,067 - (15,167)
Non-controlling interest - 4,419 - 4,419
------------------------------------- ------------
Net income $ 22,761 $ 11,708 $ - $ 48,436
------------------------------------- ------------
2009 For the three months ended June 30
CORPORATE CAYELI PYHASALMI TROILUS
----------------------------------------------------------------------------
(thousands of Canadian (Turkey) (Finland) (Canada)
dollars)
Gross sales $ - $ 63,711 $ 43,001 $ 37,407
Smelter processing charges
and freight - (18,438) (12,326) (2,458)
Cost of sales (508) (19,715) (16,730) (15,616)
Depreciation - (3,373) (2,162) (3,301)
--------------------------------------------------
(508) 22,185 11,783 16,032
Corporate development and
exploration (1,526) (407) (794) -
General and administration (4,785) - - -
Investment and other
income (expense) 5,969 (1,797) (422) 77
Interest expense (493) - - -
Capital tax expense (125) - - -
Income tax expense (3,199) (2,212) (1,870) -
Non-controlling interest - - - -
--------------------------------------------------
Net income ($4,667) $ 17,769 $ 8,697 $ 16,109
--------------------------------------------------
2009 For the three months ended June 30
COBRE
OK TEDI LAS CRUCES PANAMA TOTAL
--------------------------------------------------------------- ------------
(thousands of Canadian (Papua New (Spain) (Panama)
dollars) Guinea)
Gross sales $ 68,923 $ - $ - $ 213,042
Smelter processing charges
and freight (7,367) - - (40,589)
Cost of sales (21,258) - - (73,827)
Depreciation (4,768) - - (13,604)
------------------------------------- ------------
35,530 - - 85,022
Corporate development and
exploration - - - (2,727)
General and administration - - - (4,785)
Investment and other
income (expense) (1,114) 13,753 - 16,466
Interest expense - - - (493)
Capital tax expense - - - (125)
Income tax expense (12,469) (4,302) - (24,052)
Non-controlling interest - (2,778) - (2,778)
------------------------------------- ------------
Net income $ 21,947 $ 6,673 $ - $ 66,528
------------------------------------- ------------
INMET MINING CORPORATION
Consolidated statements of cash flows
(unaudited)
Three Months Ended Six Months Ended June
June 30 30
(thousands of Note 2010 2009 2010 2009
Canadian dollars) reference
----------------------------------------------------- ----------------------
----------------------------------------------------- ----------------------
Cash provided by
(used in) operating
activities (1)
Net income $ 48,436 $ 66,528 $ 128,307 $ 117,855
Add (deduct) items
not affecting cash:
Depreciation 18,951 13,604 34,175 29,283
Future income tax (6,578) 13,552 (23,963) 11,319
Accretion expense
on asset
retirement
obligations 1,222 1,208 2,527 2,475
Non-controlling
interest (4,359) 2,778 (8,981) (5)
Asset impairment - - - 6,419
Foreign exchange
loss (gain) 20,927 (19,788) 22,961 (8,848)
Other 511 5,114 1,246 7,610
Settlement of asset
retirement
obligations (948) (2,309) (1,521) (2,756)
Net change in non-
cash working
capital 2 2,127 9,909 17,115 (55,659)
---------------------- ----------------------
80,289 90,596 171,866 107,693
---------------------- ----------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant and
equipment (11,014) (86,263) (32,835) (181,122)
Purchase of long-
term investments 6 (116,718) - (219,098) -
Sale of short-term
investments - (47,682) 26,996 (45,251)
Funding received
under Cobre Panama
option agreement 4,069 - 6,208 -
---------------------- ----------------------
(123,663) (133,945) (218,729) (226,373)
---------------------- ----------------------
Cash provided by
(used in) financing
activities
Long-term debt
repayments - (74,174) - (82,502)
Issuance of common
shares - 334,284 - 334,284
Funding by non-
controlling
shareholder 40 28,269 2,835 43,941
Financial assurance
deposits 325 700 (354) (8,740)
Dividends paid on
common shares (5,610) (4,828) (5,610) (4,828)
Subsidies received - 57,600 360 66,209
Other (1,023) (45) (1,510) (90)
---------------------- ----------------------
(6,268) 341,806 (4,279) 348,274
---------------------- ----------------------
Foreign exchange
change on cash
heldin foreign
currency (3,320) (18,400) (19,457) (12,900)
---------------------- ----------------------
Increase (decrease)
in cash (52,962) 280,057 (70,599) 216,694
Cash:
Beginning of
period 489,280 473,696 506,917 537,059
---------------------- ----------------------
End of period 436,318 753,753 436,318 753,753
Short-term
investments - 80,925 - 80,925
---------------------- ----------------------
Cash and short-term
investments $ 436,318 $ 834,678 $ 436,318 $ 834,678
----------------------------------------------------- ----------------------
(see accompanying
notes)
(1) Supplementary
cash flow
information:
Cash interest paid $ - $ 5,170 $ 600 $ 9,895
Cash taxes paid $ 54,206 $ 4,792 $ 74,037 $ 10,640
----------------------------------------------------- ----------------------
INMET MINING CORPORATION
Segmented statements of cash flows
(unaudited)
2010 For the six months ended June 30
CORPORATE CAYELI PYHASALMI TROILUS
----------------------------------------------------------------------------
(thousands of Canadian (Turkey) (Finland) (Canada)
dollars)
Cash provided by (used
in) operating activities
Before net change in
non-cash working
capital ($16,706) $ 54,090 $ 37,713 $ 28,696
Net change in non-cash
working capital (9,829) (646) (9,995) 8,248
---------------------------------------------------
(26,535) 53,444 27,718 36,944
---------------------------------------------------
Cash provided by (used
in) investing activities
Purchase of property,
plant and equipment (88) (4,882) (2,521) -
Purchase of long-term
investments (219,098) - - -
Sale of short-term
investments 26,996 - - -
Funding received-Cobre
Panama option
agreement - - - -
---------------------------------------------------
(192,190) (4,882) (2,521) -
---------------------------------------------------
---------------------------------------------------
Cash provided by (used
in) financing activities (5,428) - - -
---------------------------------------------------
Foreign exchange change
on cash held in
foreign currency - (2,590) (14,596) -
---------------------------------------------------
Intergroup funding
(distributions) 162,074 (76,011) (24,006) (36,944)
---------------------------------------------------
Increase (decrease) in
cash (62,079) (30,039) (13,405) -
Cash:
Beginning of period 224,574 158,631 66,314 -
---------------------------------------------------
End of period 162,495 128,592 52,909 -
Short-term investments - - - -
---------------------------------------------------
Cash and short-term
investments $ 162,495 $ 128,592 $ 52,909 $ -
---------------------------------------------------
2010 For the six months ended June 30
COBRE
OK TEDI LAS CRUCES PANAMA TOTAL
--------------------------------------------------------------- ------------
(thousands of Canadian (Papua New (Spain) (Panama)
dollars) Guinea)
Cash provided by (used
in) operating activities
Before net change in
non-cash working
capital $ 57,711 ($6,753) $ - $ 154,751
Net change in non-cash
working capital 29,337 - - 17,115
-------------------------------------- ------------
87,048 (6,753) - 171,866
-------------------------------------- ------------
Cash provided by (used
in) investing activities
Purchase of property,
plant and equipment (8,405) 24,321 (41,260) (32,835)
Purchase of long-term
investments - - - (219,098)
Sale of short-term
investments - - - 26,996
Funding received-Cobre
Panama option
agreement - - 6,208 6,208
-------------------------------------- ------------
(8,405) 24,321 (35,052) (218,729)
-------------------------------------- ------------
-------------------------------------- ------------
Cash provided by (used
in) financing activities (645) 1,794 - (4,279)
-------------------------------------- ------------
Foreign exchange change
on cash held in
foreign currency 392 (3,042) 379 (19,457)
-------------------------------------- ------------
Intergroup funding
(distributions) (66,373) 3,719 37,541 -
-------------------------------------- ------------
Increase (decrease) in
cash 12,017 20,039 2,868 (70,599)
Cash:
Beginning of period 36,631 10,039 10,728 506,917
-------------------------------------- ------------
End of period 48,648 30,078 13,596 436,318
Short-term investments - - - -
-------------------------------------- ------------
Cash and short-term
investments $ 48,648 $ 30,078 $ 13,596 $ 436,318
-------------------------------------- ------------
2009 For the six months ended June 30
CORPORATE CAYELI PYHASALMI TROILUS
----------------------------------------------------------------------------
(thousands of Canadian (Turkey) (Finland) (Canada)
dollars)
Cash provided by (used
in) operating activities
Before net change in
non-cash working
capital ($21,139) $ 34,967 $ 15,368 $ 78,859
Net change in non-cash
working capital 79 (19,786) 5,873 (1,173)
---------------------------------------------------
(21,060) 15,181 21,241 77,686
---------------------------------------------------
Cash provided by (used
in) investing activities
Purchase of property,
plant and equipment (261) (6,555) (3,778) -
Purchase of short-term
investments (45,251) - - -
---------------------------------------------------
(45,512) (6,555) (3,778) -
---------------------------------------------------
---------------------------------------------------
Cash provided by (used
in) financing activities 329,264 - - -
---------------------------------------------------
Foreign exchange change
on cash held in
foreign currency - (10,675) (1,652) -
---------------------------------------------------
Intergroup funding
(distributions) 7,067 (90,167) 12,955 (77,686)
---------------------------------------------------
Increase (decrease) in
cash 269,759 (92,216) 28,766 -
Cash:
Beginning of period 205,564 192,881 65,976 -
---------------------------------------------------
End of period 475,323 100,665 94,742 -
Short-term investments 80,925 - - -
---------------------------------------------------
Cash and short-term
investments $ 556,248 $ 100,665 $ 94,742 $ -
---------------------------------------------------
2009 For the six months ended June 30
COBRE
OK TEDI LAS CRUCES PANAMA TOTAL
--------------------------------------------------------------- ------------
(thousands of Canadian (Papua New (Spain) (Panama)
dollars) Guinea)
Cash provided by (used
in) operating activities
Before net change in
non-cash working
capital $ 55,297 $ - $ - $ 163,352
Net change in non-cash
working capital (40,652) - - (55,659)
-------------------------------------- ------------
14,645 - - 107,693
-------------------------------------- ------------
Cash provided by (used
in) investing activities
Purchase of property,
plant and equipment (6,590) (118,550) (45,388) (181,122)
Purchase of short-term
investments - - - (45,251)
-------------------------------------- ------------
(6,590) (118,550) (45,388) (226,373)
-------------------------------------- ------------
-------------------------------------- ------------
Cash provided by (used
in) financing activities (749) 19,759 - 348,274
-------------------------------------- ------------
Foreign exchange change
on cash held in
foreign currency (1,951) 1,371 7 (12,900)
-------------------------------------- ------------
Intergroup funding
(distributions) (105) 98,743 49,193 -
-------------------------------------- ------------
Increase (decrease) in
cash 5,250 1,323 3,812 216,694
Cash:
Beginning of period 37,547 33,981 1,110 537,059
-------------------------------------- ------------
End of period 42,797 35,304 4,922 753,753
Short-term investments - - - 80,925
-------------------------------------- ------------
Cash and short-term
investments $ 42,797 $ 35,304 $ 4,922 $ 834,678
-------------------------------------- ------------
INMET MINING CORPORATION
Segmented statements of cash flows
(unaudited)
2010 For the three months ended June 30
CORPORATE CAYELI PYHASALMI TROILUS
----------------------------------------------------------------------------
(thousands of Canadian (Turkey) (Finland) (Canada)
dollars)
Cash provided by (used
in) operating activities
Before net change in
non-cash working
capital ($8,552) $ 23,357 $ 18,430 $ 12,899
Net change in non-cash
working capital (6,575) 343 (5,729) 5,518
---------------------------------------------------
(15,127) 23,700 12,701 18,417
---------------------------------------------------
Cash provided by (used
in) investing activities
Purchase of property,
plant and equipment (80) (3,063) (2,064) -
Purchase of long-term
investments (116,718) - - -
Funding received-Cobre
Panama option
agreement - - - -
---------------------------------------------------
(116,798) (3,063) (2,064) -
---------------------------------------------------
---------------------------------------------------
Cash provided by (used
in) financing activities (5,373) - - -
---------------------------------------------------
Foreign exchange change
on cash held in
foreign currency - 3,436 (8,204) -
---------------------------------------------------
Intergroup funding
(distributions) 127,564 (75,992) (19,884) (18,417)
---------------------------------------------------
Increase (decrease) in
cash (9,734) (51,919) (17,451) -
Cash:
Beginning of period 172,229 180,511 70,360 -
---------------------------------------------------
End of period 162,495 128,592 52,909 -
Short-term investments - - - -
---------------------------------------------------
Cash and short-term
investments $ 162,495 $ 128,592 $ 52,909 $ -
---------------------------------------------------
---------------------------------------------------
2010 For the three months ended June 30
COBRE
OK TEDI LAS CRUCES PANAMA TOTAL
--------------------------------------------------------------- ------------
(thousands of Canadian (Papua New (Spain) (Panama)
dollars) Guinea)
Cash provided by (used
in) operating activities
Before net change in
non-cash working
capital $ 32,028 $ - $ - $ 78,162
Net change in non-cash
working capital 8,570 - - 2,127
-------------------------------------- ------------
40,598 - - 80,289
-------------------------------------- ------------
Cash provided by (used
in) investing activities
Purchase of property,
plant and equipment (4,125) 21,669 (23,351) (11,014)
Purchase of long-term
investments - - - (116,718)
Funding received-Cobre
Panama option
agreement - - 4,069 4,069
-------------------------------------- ------------
(4,125) 21,669 (19,282) (123,663)
-------------------------------------- ------------
-------------------------------------- ------------
Cash provided by (used
in) financing activities 3 (898) - (6,268)
-------------------------------------- ------------
Foreign exchange change
on cash held in
foreign currency 2,572 (1,707) 583 (3,320)
-------------------------------------- ------------
Intergroup funding
(distributions) (33,207) (456) 20,392 -
-------------------------------------- ------------
Increase (decrease) in
cash 5,841 18,608 1,693 (52,962)
Cash:
Beginning of period 42,807 11,470 11,903 489,280
-------------------------------------- ------------
End of period 48,648 30,078 13,596 436,318
Short-term investments - - - -
-------------------------------------- ------------
Cash and short-term
investments $ 48,648 $ 30,078 $ 13,596 $ 436,318
-------------------------------------- ------------
-------------------------------------- ------------
2009 For the three months ended June 30
CORPORATE CAYELI PYHASALMI TROILUS
----------------------------------------------------------------------------
(thousands of Canadian (Turkey) (Finland) (Canada)
dollars)
Cash provided by (used
in) operating activities
Before net change in
non-cash working
capital ($7,607) $ 23,370 $ 9,708 $ 19,143
Net change in non-cash
working capital (6,900) 757 13,319 9,817
---------------------------------------------------
(14,507) 24,127 23,027 28,960
---------------------------------------------------
Cash provided by (used
in) investing activities
Purchase of property,
plant and equipment (445) (2,988) (3,006) -
Purchase of short-term
investments (47,682) - - -
---------------------------------------------------
(48,127) (2,988) (3,006) -
---------------------------------------------------
---------------------------------------------------
Cash provided by (used
in) financing activities 329,374 - - -
---------------------------------------------------
Foreign exchange change
on cash held in
foreign currency - (17,356) (509) -
---------------------------------------------------
Intergroup funding
(distributions) 14,696 (90,562) 17,107 (28,960)
---------------------------------------------------
Increase (decrease) in
cash 281,436 (86,779) 36,619 -
Cash:
Beginning of period 193,887 187,444 58,123 -
---------------------------------------------------
End of period 475,323 100,665 94,742 -
Short-term investments 80,925 - - -
---------------------------------------------------
Cash and short-term
investments $ 556,248 $ 100,665 $ 94,742 $ -
---------------------------------------------------
---------------------------------------------------
2009 For the three months ended June 30
COBRE
OK TEDI LAS CRUCES PANAMA TOTAL
--------------------------------------------------------------- ------------
(thousands of Canadian (Papua New (Spain) (Panama)
dollars) Guinea)
Cash provided by (used
in) operating activities
Before net change in
non-cash working
capital $ 36,073 $ - $ - $ 80,687
Net change in non-cash
working capital (7,084) - - 9,909
-------------------------------------- ------------
28,989 - - 90,596
-------------------------------------- ------------
Cash provided by (used
in) investing activities
Purchase of property,
plant and equipment (3,269) (53,999) (22,556) (86,263)
Purchase of short-term
investments - - - (47,682)
-------------------------------------- ------------
(3,269) (53,999) (22,556) (133,945)
-------------------------------------- ------------
-------------------------------------- ------------
Cash provided by (used
in) financing activities 24 12,408 - 341,806
-------------------------------------- ------------
Foreign exchange change
on cash held in
foreign currency (3,037) 3,039 (537) (18,400)
-------------------------------------- ------------
Intergroup funding
(distributions) (299) 64,149 23,869 -
-------------------------------------- ------------
Increase (decrease) in
cash 22,408 25,597 776 280,057
Cash:
Beginning of period 20,389 9,707 4,146 473,696
-------------------------------------- ------------
End of period 42,797 35,304 4,922 753,753
Short-term investments - - - 80,925
-------------------------------------- ------------
Cash and short-term
investments $ 42,797 $ 35,304 $ 4,922 $ 834,678
-------------------------------------- ------------
-------------------------------------- ------------
INMET MINING CORPORATION
Consolidated statements of retained earnings
(unaudited)
Three Months Ended June Six Months Ended June
30 30
(thousands of
Canadian
dollars) 2010 2009 2010 2009
--------------------------------------------------- ------------------------
--------------------------------------------------- ------------------------
Retained
earnings,
beginning of
period $1,621,674 $1,334,401 $1,541,803 $1,283,074
Net income 48,436 66,528 128,307 117,855
Dividends on
common shares (5,610) (4,828) (5,610) (4,828)
--------------------------------------------------- ------------------------
Retained
earnings, end of
period $1,664,500 $1,396,101 $1,664,500 $1,396,101
--------------------------------------------------- ------------------------
(see accompanying
notes)
Consolidated statements of comprehensive income (loss)
(unaudited)
Three Months Ended Six Months Ended June
June 30 30
(thousands of Note
Canadian dollars) reference 2010 2009 2010 2009
----------------------------------------------------- ----------------------
Net income $ 48,436 $ 66,528 $ 128,307 $ 117,855
---------------------- ----------------------
Other comprehensive
income (loss) for
the period :
Changes in fair
value of gold
forward sales
contracts (1,019) (344) (801) (1,105)
Changes in fair
value of interest
rate swap
contracts - 3,244 - 4,984
Changes in fair
value of
investments 7,128 5,781 7,300 9,401
Currency
translation
adjustments 34,342 (98,622) (77,511) (71,577)
Reclassification to
net income of
gains/losses
realized:
Amortization of
gain on foreign
exchange forward
contracts - (1,523) - (3,031)
Foreign exchange
loss on reduction
of net investment
in self-sustaining
foreign operations 12 (21,321) (3,912) (22,656) (3,912)
Income tax expense
related to other
comprehensive income 15 (732) (2,098) (192) (3,137)
---------------------- ---------------------
18,398 (97,474) (93,860) (68,377)
---------------------- ----------------------
Comprehensive income
(loss) $ 66,834 ($30,946) $ 34,447 $ 49,478
----------------------------------------------------- ----------------------
(see accompanying
notes)
INMET MINING CORPORATION
Notes to the consolidated financial statements
1. Significant accounting policies
Our interim consolidated financial statements do not include all of the disclosure required for annual financial statements under generally accepted accounting principles (GAAP). These statements do, however, follow the same accounting policies and methods of application used in our most recent annual consolidated financial statements. You should read our interim statements in conjunction with our annual statements, which you can find in our 2009 Annual Report.
These statements have been approved by Inmet's board of directors and have been reviewed by our external auditors.
2. Statement of cash flows
The following tables show the components of our net change in non-cash working capital by segment.
For the six months ended June 30, 2010
----------------------------------------------------------------------------
(thousands) Corporate Cayeli Pyhasalmi Troilus Ok Tedi Total
----------------------------------------------------------------------------
Accounts
receivable ($678) $ 8,267 $ 1,150 $ 3,734 $13,901 $ 26,374
Inventories - (677) (1,549) 6,602 7,748 12,124
Accounts payable
and accrued
liabilities 1,907 (4,276) (5,569) (2,088) 2,154 (7,872)
Taxes (11,055) (4,026) (4,027) - 6,179 (12,929)
Other (3) 66 - - (645) (582)
----------------------------------------------------------------------------
(9,829) ($646) ($9,995) $ 8,248 $29,337 $ 17,115
----------------------------------------------------------------------------
For the six months ended June 30, 2009
----------------------------------------------------------------------------
(thousands) Corporate Cayeli Pyhasalmi Troilus Ok Tedi Total
----------------------------------------------------------------------------
Accounts
receivable $ 66 ($15,678) ($6,203) ($495) ($48,400) ($70,710)
Inventories - 219 390 3,938 (12) 4,535
Accounts payable
and accrued
liabilities (2,871) (5,522) 1,257 (4,616) 382 (11,370)
Taxes 5,342 1,172 10,429 - 7,671 24,614
Other (2,458) 23 - - (293) (2,728)
----------------------------------------------------------------------------
$ 79 ($19,786) $ 5,873 ($1,173) ($40,652) ($55,659)
----------------------------------------------------------------------------
For the three months ended June 30, 2010
----------------------------------------------------------------------------
(thousands) Corporate Cayeli Pyhasalmi Troilus Ok Tedi Total
----------------------------------------------------------------------------
Accounts
receivable ($83) $ 8,663 $ 225 $ 3,476 $ 14,163 $ 26,444
Inventories - (513) (2,131) 2,450 4,361 4,167
Accounts payable
and accrued
liabilities 5,138 (5,218) 970 (408) 435 917
Taxes (11,631) (2,578) (4,793) - (9,803) (28,805)
Other 1 (11) - - (586) (596)
----------------------------------------------------------------------------
($6,575) $ 343 ($5,729) $ 5,518 $ 8,570 $ 2,127
----------------------------------------------------------------------------
For the three months ended June 30, 2009
----------------------------------------------------------------------------
(thousands) Corporate Cayeli Pyhasalmi Troilus Ok Tedi Total
----------------------------------------------------------------------------
Accounts receivable $ 214 $ 8,839 ($7,323) $13,290 ($8,967) $ 6,053
Inventories - (999) 797 998 (1,400) (604)
Accounts payable
and accrued
liabilities (2,137) (3,671) 1,478 (6,162) 1,801 (8,691)
Taxes (2,530) (3,381) 18,367 - 2,467 14,923
Other (2,447) (31) - 1,691 (985) (1,772)
----------------------------------------------------------------------------
($6,900) $ 757 $ 13,319 $ 9,817 ($7,084) $ 9,909
----------------------------------------------------------------------------
3. Cash and short-term investments
----------------------------------------------------------------------------
(thousands) June 30 2010 December 31 2009
----------------------------------------------------------------------------
Cash:
Liquidity funds $ 161,429 $ 205,190
Bankers' acceptances 34,125 92,200
Money market funds 29,571 19,951
Term deposits 64,684 40,140
Overnight deposits 24,639 54,435
Bank deposits 121,870 95,001
-------------------------------------
436,318 506,917
Short-term investments:
Corporate - 26,996
----------------------------------------------------------------------------
Total cash and short-term investments 436,318 $ 533,913
----------------------------------------------------------------------------
4. Restricted cash
----------------------------------------------------------------------------
(thousands) June 30 2010 December 31 2009
----------------------------------------------------------------------------
Collateralized cash for letter of credit
facility - Inmet Mining $ 16,219 $ 16,492
In trust for Ok Tedi reclamation 28,014 26,365
Collateralized cash for letters of credit
- Las Cruces 62,287 72,008
Collateralized cash for Pyhasalmi
reclamation 1,595 1,854
----------------------------------------------------------------------------
108,115 116,719
Less current portion:
Collateralized cash for letters of
credit - Las Cruces (11,905) (15,130)
----------------------------------------------------------------------------
$ 96,210 $ 101,589
----------------------------------------------------------------------------
5. Investments in equity securities
----------------------------------------------------------------------------
(thousands) June 30 2010 December 31 2009
----------------------------------------------------------------------------
Available-for-sale equity securities:
Premier Gold Mines Ltd (9.5 million
shares) $ 47,628 $ 39,501
Other 2,084 2,910
----------------------------------------------------------------------------
$ 49,712 $ 42,411
----------------------------------------------------------------------------
6. Held to maturity investments
We invested an additional $219 million in long-term Canadian and Provincial government bonds with credit ratings of A to AAA. The bonds mature between July 2010 and August 2015 and have a weighted average annual yield to maturity of 2.0 percent. We have designated these bonds as held to maturity, measuring them initially at fair value and subsequently at amortized cost.
7. Assets held for sale
During the second quarter, Troilus concluded operations after the depletion of all surface ore stockpiles. We have begun to sell the remaining plant and equipment with a total carrying value as at June 30, 2010 of $9 million, which we expect will occur within the next 12 months.
8. Long-term debt
----------------------------------------------------------------------------
----------------------------------------------------------------------------
June 30, 2010 December 31, 2009
----------------------------------------------------------------------------
(thousands)
Promissory note $ 15,939 $ 18,094
Loans from non-controlling shareholder 165,399 181,932
----------------------------------------------------------------------------
$ 181,338 $ 200,026
----------------------------------------------------------------------------
Loans from non-controlling shareholder
Las Cruces received intercompany loan advances of EUR6.4 million in 2010 and EUR40 million in 2009. These loans bear interest at EURIBOR plus 6.1 percent and are due to be repaid on February 25, 2020. The non-controlling portion of these loans, EUR127.1 million, was reflected in long-term debt at June 30, 2010. Loans from non-controlling shareholders approximate fair value because the loans accrue interest at prevailing market rates.
9. Commitments
Capital commitments
Our operations have the following capital commitments as at June 30, 2010:
-- Ok Tedi committed approximately $90.6 million (our proportionate share
is $16.3 million) mainly for mobile equipment and the construction of
underwater storage pits for sulphur concentrate produced by the mine
waste tailings plant.
-- Las Cruces committed $25.9 million primarily for the purchase of a
permanent water treatment plant.
-- Cobre Panama committed $126.3 million for the design and supply of two
SAG mills, four ball mills and the related gearless drives.
10. Subscription agreement with Temasek Holdings
On March 31, 2010, we entered into a subscription agreement with a subsidiary of Temasek Holdings (Private) Limited (Temasek), under which Temasek has agreed to buy 9.26 million subscription receipts for total proceeds of $500 million. We issued the subscription receipts on April 23, 2010 and the proceeds are being held in escrow. The subscription receipts are exchangeable for an equivalent number of Inmet common shares as long as certain conditions are met on or before September 30, 2010, including:
-- The coming into effect of legislation passed by the legislative assembly
of the Republic of Panama to amend Panama's Mineral Resources Code to
permit entities in which foreign governmental bodies or authorities have
an interest, to hold direct or indirect interests in mining concessions
in Panama.
-- Inmet's or Cobre Panama's ability to use or exploit their rights under
Cobre Panama's mining concession for the mining project are not impaired
in any material way.
If the conditions are met, the subscription receipts will be exchanged for Inmet common shares equal to approximately 14 percent of our outstanding common shares. The proceeds will then be released from escrow and we will use them to fund the development of Cobre Panama and for general corporate purposes. If the conditions are not met, the subscription receipts will automatically terminate and the escrowed funds will be returned to Temasek.
11. Accumulated other comprehensive loss (AOCL)
The table below shows the components of the beginning and ending balances of
AOCL.
----------------------------------------------------------------------------
(thousands)
----------------------------------------------------------------------------
Unrealized losses on gold forward sales contracts (net of tax of
$2,015) ($4,701)
Unrealized gains on investments (net of tax of $4,788) 23,794
Currency translation adjustment (61,169)
----------------------------------------------------------------------------
AOCL, December 31, 2009 ($42,076)
Other comprehensive loss for the six months ending June 30, 2010 (93,860)
----------------------------------------------------------------------------
AOCL, June 30, 2010 ($135,936)
----------------------------------------------------------------------------
AOCL June 30, 2010 comprises:
Unrealized losses on gold forward sales contracts (net of tax
$2,255) ($5,262)
Unrealized gains on investments (net of tax of $5,220) 30,662
Currency translation adjustment (161,336)
----------------------------------------------------------------------------
AOCL, June 30, 2010 ($135,936)
----------------------------------------------------------------------------
The table below shows the breakdown of the currency translation adjustments
included in AOCL.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands) June 30, 2010 December 31, 2009
----------------------------------------------------------------------------
Pyhasalmi (euro functional currency) ($26,514) ($5,308)
Las Cruces (euro functional currency) (113,274) (8,793)
Cayeli (US dollar functional currency) (5,119) (20,901)
Ok Tedi (US dollar functional currency) (11,922) (13,751)
Cobre Panama (US dollar functional
currency) (4,507) (12,416)
----------------------------------------------------------------------------
($161,336) ($61,169)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Canadian dollar to US dollar exchange rate was $1.06 at June 30, 2010 and $1.05 at December 31, 2009. The Canadian dollar to euro exchange rate was $1.30 at June 30, 2010 and $1.50 at December 31, 2009.
12. Investment and other income
Investment and other income are summarized as follows:
----------------------------------------------------------------------------
Three months ended June Six months ended June
30 30
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Interest income $ 1,760 $ 701 $ 3,357 $ 2,743
Foreign exchange gain (loss) (20,738) 18,196 (23,153) 8,098
Dividend and royalty income 1,175 385 1,889 685
Mark to market on Ok Tedi
copper forward contracts - (1,007) - (2,426)
Other (567) (1,809) (541) (3,837)
----------------------------------------------------------------------------
($18,370) $ 16,466 ($18,448) $ 5,263
----------------------------------------------------------------------------
Foreign exchange
For transactions with foreign currencies we use the exchange rates in effect:
-- at period-end for monetary assets and liabilities
-- on the date of the transaction for non-monetary assets and liabilities
-- on the date of the transaction for income and expenses
Foreign exchange gain (loss) is a result of:
----------------------------------------------------------------------------
Three months ended June Six months ended June
30 30
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Translation of Las Cruces'
US dollar-denominated bank
credit facility $ - $ 15,273 $ - $ 3,808
Translation of foreign -
denominated cash held at
corporate 202 149 (569) (1,446)
Translation of other-
monetary assets and
liabilities 381 (1,138) 72 1,824
Reduction in our net
investments (21,321) 3,912 (22,656) 3,912
----------------------------------------------------------------------------
($20,738) $ 18,196 ($23,153) $ 8,098
----------------------------------------------------------------------------
13. Income tax expense
For the six months ended June 30, 2010
----------------------------------------------------------------------------
(thousands) Corporate Cayeli Pyhasalmi Ok Tedi Las Cruces Total
----------------------------------------------------------------------------
Current income
taxes $ 2,743 $ 15,180 $ 9,887 $ 31,383 $ - $ 59,193
Future income
taxes (2,904) (2,774) 39 (3,794) (14,530) (23,963)
----------------------------------------------------------------------------
($161) $ 12,406 $ 9,926 $ 27,589 ($14,530) $ 35,230
----------------------------------------------------------------------------
For the six months ended June 30, 2009
----------------------------------------------------------------------------
(thousands) Corporate Cayeli Pyhasalmi Ok Tedi Las Cruces Total
----------------------------------------------------------------------------
Current income
taxes $ 10,164 $ 10,606 $ 1,758 $ 9,095 $ - $ 31,623
Future income
taxes 9,566 (8,975) 547 9,914 267 11,319
----------------------------------------------------------------------------
$ 19,730 $ 1,631 $ 2,305 $ 19,009 $ 267 $ 42,942
----------------------------------------------------------------------------
For the three months ended June 30, 2010
----------------------------------------------------------------------------
(thousands) Corporate Cayeli Pyhasalmi Ok Tedi Las Cruces Total
----------------------------------------------------------------------------
Current income
taxes $ 1,582 $ 5,374 $ 4,945 $ 9,844 $ - $ 21,745
Future income
taxes (266) (421) (34) 1,210 (7,067) (6,578)
----------------------------------------------------------------------------
$ 1,316 $ 4,953 $ 4,911 $ 11,054 ($7,067) $ 15,167
----------------------------------------------------------------------------
For the three months ended June 30, 2009
----------------------------------------------------------------------------
(thousands) Corporate Cayeli Pyhasalmi Ok Tedi Las Cruces Total
----------------------------------------------------------------------------
Current income
taxes $ 2,509 $ 2,800 $ 1,330 $ 3,861 $ - $ 10,500
Future income
taxes 690 (588) 540 8,608 4,302 13,552
----------------------------------------------------------------------------
$ 3,199 $ 2,212 $ 1,870 $ 12,469 $ 4,302 $ 24,052
----------------------------------------------------------------------------
14. Net income per share
----------------------------------------------------------------------------
Three months ended June Six months ended June
30 30
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net income available to
common shareholders $ 48,436 $ 66,528 $ 128,307 $ 117,855
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands)
----------------------------------------------------------------------------
Weighted average common
shares outstanding 56,107 48,712 56,107 48,498
Plus incremental shares from
assumed conversions:
Deferred share units 100 83 100 83
Long term incentive plan
units 43 43 43 43
----------------------------------------------------------------------------
Diluted weighted average
common shares outstanding 56,250 48,838 56,250 48,624
----------------------------------------------------------------------------
(Canadian dollars per share)
----------------------------------------------------------------------------
Basic net income per common
share $ 0.86 $ 1.37 $ 2.29 $ 2.43
Dilutive effect from assumed
conversions of deferred
share units and long term
incentive plan units per
common share - ($0.01) ($0.01) ($0.01)
----------------------------------------------------------------------------
Diluted net income per common
share $ 0.86 $ 1.36 $ 2.28 $ 2.42
----------------------------------------------------------------------------
15. Income taxes recovery (expense) included in other comprehensive income
----------------------------------------------------------------------------
Three months ended June Six months ended June
30 30
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Changes in fair value of
gold forward sales
contracts $ 305 $ 104 $ 240 $ 331
Changes in fair value of
interest rate swap
contracts - (1,233) - (1,893)
Changes in fair value of
investments (1,037) (969) (432) (1,575)
----------------------------------------------------------------------------
($732) ($2,098) ($192) ($3,137)
----------------------------------------------------------------------------
Contacts:
Inmet Mining Corporation
Jochen Tilk
President and Chief Executive Officer
+1.416.860.3972
www.inmetmining.com
