Inmet Announces Fourth Quarter Earnings of $2.53 Per Share Compared With Earnings of $1.60 Per Share in the Fourth Quarter of 2009
TORONTO, CANADA -- (Marketwire) -- 02/23/11 -- All amounts in Canadian dollars unless indicated otherwise
Inmet (TSX: IMN) announces fourth quarter earnings of $2.53 per share compared with earnings of $1.60 per share in the fourth quarter of 2009.
Fourth quarter highlights
-- Consolidation of ownership interest in Las Cruces to 100 percent
On December 15, 2010, we acquired Leucadia National Corporation's
(Leucadia's) 30 percent indirect equity interest and associated
subordinated sponsor loans in Las Cruces for value of $497 million,
significantly increasing our exposure to copper. The consideration we
paid included US $150 million in cash and 5.44 million Inmet common
shares.
-- Amendment of subscription agreement with Temasek and subsequent Panama
Mineral Resources Code amendment passed by National Assembly
On December 23, 2010, the subscription agreement with Temasek was
amended such that the subscription receipts purchased will now be
exchangeable for 7.78 million Inmet common shares (formerly 9.26 million
Inmet common shares), representing a subscription price per Inmet common
share of approximately $64. The subscription receipts will now be
automatically exchanged no later than 150 days after the coming into
effect of legislation 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. The legislation to amend the Code passed final reading in the
Panamanian Assembly and came into effect in February 2011. We expect to
exchange the Temasek subscription receipts for common shares before
June 30, 2011.
-- Sale of our interest in Ok Tedi
On December 2, 2010, we announced an agreement with Ok Tedi Mining
Limited for it to repurchase our 18 percent equity interest in Ok Tedi
for US $335 million. Our net proceeds after withholding taxes in Papua
New Guinea were US $307 million. The transaction closed on January 28,
2011.
-- Las Cruces progressing
We continued to improve plant throughput and leaching conditions,
significantly increased copper recoveries from 77 percent in the third
quarter to 86 percent and produced 9,000 tonnes of copper cathode this
quarter. We continue to implement the ramp up plan to achieve our goal
of full production rates in 2011.
-- Continuing strong performance at Cayeli and Pyhasalmi
Cayeli milled 288,000 tonnes and Pyhasalmi milled 350,000 tonnes with
both operations reaching near- record annual throughput in 2010.
-- Sale of non-core investment
We disposed of our investment in Premier Gold Mines Limited for $61.4
million in cash and recognized a gain of $50.5 million. This increased
earnings after tax by $0.90 per share.
Merger with Lundin Mining Corporation to create Symterra Corporation
On January 12, 2011, we entered into an arrangement agreement with Lundin Mining Corporation (Lundin) to merge, and create Symterra Corporation (Symterra), an international copper producer.
The proposed merger will be effected by way of a Plan of Arrangement completed under the Canada Business Corporations Act. It will feature a common share exchange through which Inmet common shareholders will receive 3.4918 common shares of the merged company for each common share of Inmet they own and Lundin common shareholders will receive 0.3333 common shares of the merged company for each common share of Lundin they own. The exchange ratio represents no premium to either party based on the 30 day volume weighted average price on the Toronto Stock Exchange for each of Inmet and Lundin to January 11, 2011.
Inmet and Lundin shareholders must both approve the proposed merger by two thirds of the votes cast at special shareholder meetings held to consider the transaction. The joint information circular was mailed to shareholders on February 18, 2011. The shareholder meetings will be held on March 14, 2011.
The arrangement agreement includes customary reciprocal deal protections. Each party has agreed not to solicit any alternative transactions and has furthermore agreed to pay the other a break fee of $120 million in certain circumstances. In addition, each company has granted the other a right to match any competing offer.
Both Boards of Directors have determined that the proposed merger is in the best interest of their respective companies based on a number of factors, including fairness opinions received from their financial advisors, and have unanimously approved the terms of the proposed merger and recommend that their respective shareholders vote in favour of the proposed merger.
The largest shareholder of each of Inmet (Leucadia, representing 17.94 percent of Inmet) and Lundin (Lukas Lundin and Lundin family trusts, representing 12.32 percent of Lundin) has executed an agreement to vote their shares in favour of the proposed merger subject to customary fiduciary waivers in the case of a superior offer. The directors of each company have agreed to vote their shares in favour of the merger.
We believe that the combination of the two companies will create a larger, financially stronger, diversified and more globally competitive base metals mining company with a balanced portfolio of five low-cost, long-life mines predominately located in Europe, substantial opening cash balances, a strong balance sheet and excellent growth prospects with two world class copper development projects. We believe that the business combination will create superior value from greater scale, greater management depth, a more diversified asset base and enhanced capital markets profile. We believe that the growth prospects for shareholders are greater through Symterra than Inmet could achieve on its own.
There is a risk that we may not realize the anticipated benefits of the arrangement and statements regarding the merger of Inmet and Lundin are subject to various risks and assumptions. See Forward- looking information on page 4.
Key financial data
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2010 2009 change 2010 2009 change
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FINANCIAL
HIGHLIGHTS
(thousands,
except per share
amounts)
Sales
Gross sales $ 318,128 $ 290,570 +9% $1,098,087 $ 983,885 +12%
Net income
Net income $ 144,505 $ 89,763 +61% $ 358,898 $ 269,169 +33%
Net income per
share $ 2.53 $ 1.60 +58% $ 6.37 $ 5.14 +24%
Cash flow
Cash flow
provided by
operating
activities $ 135,332 $ 125,781 +8% $ 409,333 $ 322,751 +27%
Cash flow
provided by
operating
activities per
share (1) $ 2.37 $ 2.24 +6% $ 7.26 $ 6.17 +18%
Capital spending
(2) $ 63,343 $ 63,353 - $ 143,963 $ 268,264 -46%
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OPERATING
HIGHLIGHTS
Production (3)
Copper (tonnes) 25,600 24,300 +5% 94,300 83,600 +13%
Zinc (tonnes) 21,300 23,500 -9% 81,400 78,000 +4%
Gold (ounces) 23,600 50,800 -54% 125,400 228,400 -45%
Pyrite (tonnes) 186,800 60,900 +207% 584,100 383,900 +52%
Copper cash cost
(US $ per pound)
(4) $ 0.53 $ 0.22 +141% $ 0.49 $ 0.44 +11%
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as at December 31 as at December 31
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FINANCIAL CONDITION 2010 2009
Current ratio(6) 3.4 to 1 4.2 to 1
Gross debt to total equity(5) 1% 1%
Net working capital balance
(millions) $ 611 $ 609
Cash balance including long-term
bonds (millions) $ 699 $ 634
Gross debt (millions) (5) $ 17 $ 17
Shareholders' equity (millions) $ 2,758 $ 2,238
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(1) Cash flow provided by operating activities divided by average shares
outstanding for the period.
(2) For the year ended December 31, 2010, this includes capital spending of
$85 million at Cobre Panama and $55 million at Las Cruces, less $31
million (positive cash flow from pre-operating costs, net of revenues
and working capital changes). For the year ended December 31, 2009,
this includes capital spending of $139 million at Las Cruces (mainly
for construction) and $85 million at Cobre Panama.
(3) Inmet's share.
(4) Copper cash cost per pound is a non-GAAP measure - see Supplementary
financial information on pages 33 to 35.
(5) Gross debt includes long-term debt and the current portion of long-term
debt. For comparative purposes, the 2009 balance excludes the non-
recourse note that was owed from Las Cruces to its non-controlling
shareholder.
(6) The decrease in our current ratio from 2009 is mainly due to our
investment in long-term bonds during the year.
Fourth quarter press release
Where to find it
Our financial results 5
Key changes in 2010 5
Understanding our performance 6
Earnings from operations 8
Corporate costs 13
Results of our operations 15
Cayeli 16
Las Cruces 18
Pyhasalmi 20
Ok Tedi 22
Status of our development project 24
Cobre Panama 24
Financial condition 29
Accounting changes 30
Supplementary financial information 33
In this press release, Inmet means Inmet Mining Corporation and we, us and our mean Inmet and/or its subsidiaries and joint ventures. This quarter refers to the three months ended December 31, 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. Our objectives and outlook have been prepared based on our existing operations, expectations and circumstances. If the proposed merger with Lundin occurs, actual results would be substantially different.
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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three months ended December 31 year ended December 31
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(thousands,
except per
share amounts) 2010 2009 change 2010 2009 change
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EARNINGS FROM
OPERATIONS (1)
Cayeli $ 31,753 $ 57,854 -45% $ 142,452 $ 123,729 +15%
Las Cruces 22,005 - +100% 42,619 - +100%
Pyhasalmi 41,642 24,106 +73% 116,287 63,232 +84%
Troilus (6,785) 20,033 -134% 15,601 104,645 -85%
Ok Tedi 69,582 48,168 +44% 188,784 150,257 +26%
Other (495) (6,193) -92% (2,018) (7,594) -73%
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157,702 143,968 +10% 503,725 434,269 +16%
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DEVELOPMENT AND
EXPLORATION
Corporate
development
and
exploration (3,975) (2,915) +36% (12,036) (10,837) +11%
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CORPORATE COSTS
General and
administration (4,767) (9,836) -52% (20,638) (23,892) -14%
Investment and
other income 50,331 280 +17,875% 35,416 9,131 +288%
Asset
impairment - (3,496) -100% - (9,915) -100%
Stand by costs - - - (6,753) - -100%
Interest
expense (2,520) (496) +408% (6,873) (1,977) +248%
Income and
capital taxes (54,307) (38,599) +41% (135,055) (121,779) +11%
Non-controlling
interest 2,041 857 +138% 1,112 (5,831) -119%
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(9,222) (51,290) -82% (132,791) (154,263) -14%
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Net income $ 144,505 $ 89,763 +61% $ 358,898 $ 269,169 +33%
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Basic net
income per
share $ 2.53 $ 1.60 +58% $ 6.37 $ 5.14 +24%
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Diluted net
income per
share $ 2.53 $ 1.60 +58% $ 6.35 $ 5.13 +24%
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Weighted
average shares
outstanding 57,053 56,107 +2% 56,345 52,334 +8%
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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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(millions) December 31 December 31 page
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EARNINGS FROM OPERATIONS
Sales
Higher copper prices
denominated in Canadian
dollars $ 26 $ 92 8
Higher (lower) zinc prices
denominated in Canadian
dollars (5) 11 8
Higher gold and other prices
denominated in Canadian
dollars 7 16 8
Lower sales volumes (17) (8) 8
Costs
(Higher) lower processing
charges and freight 4 (1) 10
Lower operating costs,
including costs that vary
with income and cash flows 3 9 11
Operating earnings at Las
Cruces 22 43 19
Lower operating earnings at
Troilus due to conclusion of
operations (27) (89)
Other 1 (4)
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Higher earnings from
operations compared to 2009 14 69
CORPORATE COSTS
Gain on sale of investment in
Premier Gold Mines Ltd. 51 51 13
Foreign exchange on Las Cruces
credit facility and
realization of related hedge
contracts in 2009 - (9) 13
Higher income taxes (16) (13) 14
Other foreign exchange changes 3 (22) 13
Asset impairment in 2009 3 10 14
Other - 4
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Higher net income compared to
2009 $ 55 $ 90
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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 8).
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2010 2009 change 2010 2009 change
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US dollar metal
prices
Copper (per pound) US $4.17 US $3.31 +26% US $3.55 US $2.63 +35%
Zinc (per pound) US $1.06 US $1.11 -5% US $0.96 US $0.81 +19%
Gold (per ounce) US $1,355 US $1,110 +22% US $1,194 US $980 +22%
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Canadian dollar
metal prices
Copper (per pound) C $4.23 C $3.51 +21% C $3.66 C $3.00 +22%
Zinc (per pound) C $1.07 C $1.18 -9% C $0.99 C $0.92 +8%
Gold (per ounce) C $1,373 C $1,177 +17% C $1,230 C $ 1,117 +10%
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Copper
Copper prices rose significantly from US $3.67 per pound at the beginning of the quarter, to a record high of US $4.42 per pound on December 31, and averaging US $3.92 per pound for the quarter. This quarter, London Metals Exchange (LME) inventories increased by 4,000 tonnes to 378,000 tonnes.
Zinc
Zinc prices averaged US $1.05 per pound this quarter, an increase of 15 percent from the third quarter of 2010, despite an increase in LME inventories to approximately 700,000 tonnes on December 31.
Gold
Gold prices rose for the ninth consecutive quarter, increasing by 12 percent, and reached a record high of US $1,423 per ounce early in December.
Pyrite
Sulphur prices rose steadily this quarter, driven mainly by increasing prices for agricultural products, which increased demand for sulphuric acid from agricultural product growing regions.
Exchange rates
Exchange rates affect our revenue and earnings. The table below shows the average exchange rates we realized this quarter and year to date compared to 2009.
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2010 2009 change 2010 2009 change
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Exchange rates
1 US$ to C$ $ 1.01 $ 1.06 -5% $ 1.03 $ 1.14 -10%
1 euro to C$ $ 1.38 $ 1.56 -12% $ 1.37 $ 1.59 -14%
1 euro to US$ $ 1.36 $ 1.48 -8% $ 1.33 $ 1.39 -4%
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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 5 percent relative to the US dollar, and 12 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.
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 for the year. While treatment charges for zinc concentrates were higher than last year, price participation was lower.
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(US$) 2010 2009 change 2010 2009 change
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Treatment charges
Copper (per dry
metric tonne of
concentrate) $ 35 $ 57 -39% $ 48 $ 64 -25%
Zinc (per dry metric
tonne of
concentrate) $ 253 $ 190 +33% $ 248 $ 189 +31%
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Price participation
Copper (per pound) $ 0.01 $ 0.01 - $ 0.01 $ 0.02 -50%
Zinc (per pound) $ - $ 0.13 -100% ($0.01) $ 0.06 -117%
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Freight charges
Copper (per dry
metric tonne of
concentrate) $ 84 $ 43 +95% $ 71 $ 37 +92%
Zinc (per dry metric
tonne of
concentrate) $ 15 $ 15 - $ 28 $ 21 +33%
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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% -
Las Cruces 30% 30% -
Pyhasalmi 26% 26% -
Ok Tedi 37% 37% -
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Earnings from operations
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three months ended year ended
December 31 December 31
(thousands) 2010 2009 change 2010 2009 change
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Gross sales $ 318,128 $ 290,570 +9% $1,098,087 $ 983,885 +12%
Smelter
processing
charges and
freight (38,440) (53,696) -28% (166,754) (176,432) -5%
Cost of sales:
Direct
production
costs (103,489) (78,612) +32% (330,594) (297,159) +11%
Inventory
changes 19,844 8,767 +126% 8,894 7,273 +22%
Provisions for
mine
rehabilitation
and other non-
cash charges (14,980) (5,150) +191% (24,064) (21,546) +12%
Depreciation (23,361) (17,911) +30% (81,844) (61,752) +33%
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Earnings from
operations $ 157,702 $ 143,968 +10% $ 503,725 $ 434,269 +16%
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Gross sales were higher
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(thousands) 2010 2009 change 2010 2009 change
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Gross sales by
operation
Cayeli $ 68,694 $ 113,747 -40% $ 312,723 $ 305,091 +3%
Las Cruces 66,794 - +100% 128,643 - +100%
Pyhasalmi 72,780 59,747 +22% 233,481 184,991 +26%
Troilus 1,756 41,203 -96% 73,826 199,879 -63%
Ok Tedi (1) 108,104 75,873 +42% 349,414 293,924 +19%
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$ 318,128 $ 290,570 +9% $1,098,087 $ 983,885 +12%
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Gross sales by
metal
Copper $ 225,836 $ 154,925 +46% $ 693,427 $ 503,242 +38%
Zinc 42,094 64,964 -35% 168,316 160,253 +5%
Gold 33,345 54,889 -39% 166,921 257,713 -35%
Other 16,853 15,792 +7% 69,423 62,677 +11%
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$ 318,128 $ 290,570 +9% $1,098,087 $ 983,885 +12%
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(1) Our 18 percent share of Ok Tedi's sales.
Key components of the change in sales: higher copper prices, new gross sales at Las Cruces, lower sales volumes at Troilus and Cayeli
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three months ended year ended
(millions) December 31 December 31
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Higher copper prices, denominated in
Canadian dollars $ 26 $ 92
Higher (lower) zinc prices,
denominated in Canadian dollars (5) 11
Higher gold prices, denominated in
Canadian dollars 4 12
Changes in other metal prices 3 4
Gross sales at Las Cruces 67 129
Lower gross sales from Troilus (39) (126)
Lower sales volumes at our other
mines (28) (8)
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Higher gross sales, compared to 2009 $ 28 $ 114
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We record sales that settle during the reporting period using the metal price on the day they settle. For sales that have not settled, we use an estimate based on the month we expect the sale to settle and the forward price of the metal at the end of the reporting period. We recognize the difference between our estimate and the final price by adjusting our gross sales in the period when we settle the sale (finalization adjustment).
This quarter, we recorded $6 million in positive finalization adjustments from third quarter sales.
At year end, the following sales had not been settled:
-- 3 million pounds of copper provisionally priced at US $4.37 per pound
-- 15 million pounds of zinc provisionally priced at US $1.11 per pound.
The finalization adjustment we record for these sales will depend on the actual price we receive when they settle, which can be up to five months from the time we initially record the sales. We expect these sales to settle in the following months:
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(millions of pounds) copper zinc
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January 2011 3 15
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Unsettled sales at December 31, 2010 3 15
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Significantly higher copper and pyrite sales volumes, lower gold sales volumes this year
Our sales volumes are directly affected by the amount of production from our mines, and our ability to ship to our customers.
Copper production and sales volumes were up this year mainly because of Las Cruces. Zinc production was lower this quarter but higher this year because of changes in zinc grades at Pyhasalmi. Copper and zinc sales volumes were lower than production volumes this quarter mainly because of the timing of shipments at Cayeli. Gold production and sales volumes were lower this year because Troilus ceased production in June 2010. Pyhasalmi realized higher pyrite sales volumes this year because of higher demand from China.
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2010 2009 change 2010 2009 change
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Sales volumes
Copper (tonnes) 22,200 21,700 +2% 90,100 79,300 +14%
Zinc (tonnes) 17,700 24,500 -28% 77,400 79,400 -3%
Gold (ounces) 23,500 45,800 -49% 133,600 228,900 -42%
Pyrite (tonnes) 90,200 116,900 -23% 485,300 412,500 +18%
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Production
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Inmet's share(1) 2010 2009 change 2010 2009 change 2011
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Copper (tonnes)
Cayeli 6,600 8,200 -20% 28,200 29,200 -3% 30,900
Las Cruces cathode 6,900 2,300 +200% 20,600 3,900 +428% 50,200
Pyhasalmi 3,900 3,600 +8% 14,700 14,600 +1% 13,300
Troilus - 1,000 -100% 2,000 5,900 -66% -
Ok Tedi 8,200 9,200 -11% 28,800 30,000 -4% -
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25,600 24,300 +5% 94,300 83,600 +13% 94,400
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Zinc (tonnes)
Cayeli 13,100 13,800 -5% 51,300 50,900 +1% 48,600
Pyhasalmi 8,200 9,700 -15% 30,100 27,100 +11% 31,900
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21,300 23,500 -9% 81,400 78,000 +4% 80,500
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Gold (ounces)
Troilus - 24,200 -100% 37,900 135,200 -72% -
Ok Tedi 23,600 26,600 -11% 87,500 93,200 -6% -
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23,600 50,800 -54% 125,400 228,400 -45% -
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Pyrite (tonnes)
Pyhasalmi 186,800 60,900 +207% 584,100 383,900 +52% 600,000
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(1) Inmet's share: 100 percent for Cayeli, Pyhasalmi and Troilus and 18
percent for Ok Tedi. Our share of Las Cruces is 70 percent until
December 15, 2010 and 100 percent thereafter.
2011 outlook for sales
We use our production objectives to estimate our sales target.
We expect copper production in 2011 to be slightly higher than it was this year. Our share of copper production at Las Cruces should more than double as the operation ramps up to its nameplate capacity of 72,000 tonnes of copper cathode, and because we increased our ownership in Las Cruces from 70 percent to 100 percent in December 2010. Higher production at Las Cruces should be mostly offset, however, by the divestment of our 18 percent equity interest in Ok Tedi in January 2011.
We expect 2011 zinc sales volumes to be similar to this year because zinc production should be approximately the same as it was in 2010.
With production ceasing at Troilus in 2010 and the sale of our 18 percent equity investment in Ok Tedi in January 2011, no gold sales are expected for 2011.
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.
We expect global copper supply to grow modestly in 2011. New production should be mostly offset by declining production at large existing copper mines and possible labour disruptions. We expect continued strong demand in China, increasing economic recovery in Europe and the United States, and continued interest from investors. Increasing demand, combined with tighter supply, should mean copper prices will remain close to all time highs during 2011.
For zinc, we expect modest increases in both market supply and demand, and a small market deficit, which should support prices in 2011 at levels consistent with those of 2010.
Lower smelter processing charges, higher freight this year
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Smelter processing
charges and
freight by
operation
Cayeli $ 14,593 $ 27,032 -46% $ 71,810 $ 82,126 -13%
Las Cruces 271 - +100% 298 - +100%
Pyhasalmi 13,876 17,094 -19% 53,685 50,896 +5%
Troilus - 2,750 -100% 4,526 13,740 -67%
Ok Tedi (1) 9,700 6,820 +42% 36,435 29,670 +23%
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$ 38,440 $ 53,696 -28% $166,754 $176,432 -5%
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Smelter processing
charges and
freight by metal
Copper $ 17,034 $ 18,880 -10% $ 70,678 $ 75,932 -7%
Zinc 16,063 28,421 -43% 68,212 74,295 -8%
Other 5,343 6,395 -16% 27,864 26,205 +6%
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$ 38,440 $ 53,696 -28% $166,754 $176,432 -5%
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Smelter processing
charges by type
and freight
Copper treatment
and refining
charges $ 3,808 $ 7,651 -50% $ 22,538 $ 34,914 -35%
Zinc treatment
charges 8,865 9,594 -8% 38,817 33,750 +15%
Copper price
participation 545 524 +4% 2,082 4,622 -55%
Zinc price
participation (122) 7,312 -102% (2,068) 11,164 -119%
Content losses 14,329 18,822 -24% 54,881 53,778 +2%
Freight 9,159 8,314 +10% 44,439 32,041 +39%
Other 1,856 1,479 +25% 6,065 6,163 -2%
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$ 38,440 $ 53,696 -28% $166,754 $176,432 -5%
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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 of more favourable terms with smelters. Our 2009 rates were negotiated at the end of 2008, amidst the global market downturn. Zinc treatment charges were higher for the year than for 2009 because of our terms with smelters, more than offset by lower price participation. Zinc treatment charges this quarter were lower than the fourth quarter of 2009 because sales volumes were lower. Content losses were higher because metal prices were higher than they were last year. Freight was higher this year mainly because pyrite shipments were higher.
2011 outlook for smelter processing charges and freight
We sell approximately 90 percent of our copper concentrate under long-term contracts. We expect our costs for copper treatment and refining to remain low in 2011. A tight concentrate supply should keep the copper market in a deficit position in 2011, and treatment costs close to this year's level. We expect copper price participation to be minimal.
We expect total zinc smelter processing charges, including price participation, to be lower than in 2010, and a small deficit to evolve in the zinc concentrate market.
Las Cruces sells its copper cathode production directly to buyers in the Spanish and Mediterranean markets and therefore does not incur smelting processing charges and has relatively low freight costs.
We expect our ocean freight costs to be similar to rates realized in 2010.
Direct production costs and cost of sales higher than last year
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(thousands) 2010 2009 change 2010 2009 change
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Direct production
costs by operation
Cayeli $ 25,584 $ 23,540 +9% $ 90,927 $ 82,429 +10%
Las Cruces 37,322 - +100% 68,119 - +100%
Pyhasalmi 14,534 16,694 -13% 54,590 62,085 -12%
Troilus - 12,915 -100% 23,905 56,503 -58%
Ok Tedi (1) 26,049 25,463 +2% 93,053 96,142 -3%
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Total direct
production costs 103,489 78,612 +32% 330,594 297,159 +11%
Inventory changes (19,844) (8,767) +126% (8,894) (7,273) +22%
Reclamation,
accretion and other
non-cash expenses 14,980 5,150 +191% 24,064 21,546 +12%
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Total cost of sales $ 98,625 $ 74,995 +32% $345,764 $311,432 +11%
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(1) Our 18 percent share of Ok Tedi's direct production costs.
Direct production costs
Direct production costs are higher this quarter and for the year than they were in 2009, mainly because we began recognizing operating results at Las Cruces in our consolidated income statement effective July 1, 2010, and because of higher labour and royalty costs at Cayeli. This was partly offset by the closure of Troilus, and lower costs at Pyhasalmi because of a stronger Canadian dollar relative to the euro.
Inventory changes
Inventory at Cayeli was higher this quarter end because of the timing of shipments, and at Las Cruces because we stockpiled ore before the rainy season. For the year, these increases were offset by the impact of the closure of Troilus in the second quarter of 2010.
Charges for reclamation, accretion and other non-cash charges
These charges include an accrual for asset retirement obligations, provisions for severance and retirement and other non-cash expenses. We recorded an additional $8 million this year for closure liabilities at Troilus to reflect the longer time we expect will be required for post-closure monitoring, as well as higher owner and other costs. In 2009, we recorded an additional $6 million for closure liabilities at our closed sites to reflect the longer time we expected to treat water at certain sites, and because of escalating costs.
2011 outlook for cost of sales
We expect consolidated direct production costs to be lower in 2011 because of the closure of Troilus mid-year in 2010 and the disposition of our 18 percent interest in Ok Tedi. These lower costs will be somewhat offset by production costs at Las Cruces that will be recognized in the income statement for the entire year.
Our budget for 2011 assumes our costs at Cayeli and Pyhasalmi will be similar to 2010.
Certain variable costs may continue to affect our earnings, depending on metal prices:
-- royalties at Cayeli are affected by its net income
-- royalties at Las Cruces are affected by its net sales.
Higher depreciation
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
(thousands) 2010 2009 change 2010 2009 change
----------------------------------------------------------------------------
Depreciation by
operation
Cayeli $ 2,051 $ 3,522 -42% $ 12,212 $ 13,348 -9%
Las Cruces 12,285 - +100% 22,613 - +100%
Pyhasalmi 2,041 1,983 +3% 7,678 8,220 -7%
Troilus 28 6,521 -100% 10,850 16,642 -35%
Ok Tedi 6,956 5,885 +18% 28,491 23,542 +21%
----------------------------------------------------------------------------
$ 23,361 $ 17,911 +30% $ 81,844 $ 61,752 +33%
----------------------------------------------------------------------------
Depreciation was higher this year mainly because Las Cruces began to depreciate its operating assets in the income statement on July 1, 2010. Depreciation decreased at Troilus because the mine concluded operations in June 2010. Depreciation at Ok Tedi was higher this year because it increased the assets related to asset retirement obligations at the end of 2009 and began amortizing the cost of storage pits it constructed to store the sulphur concentrate the tailings management plant produces.
2011 outlook for depreciation
We expect depreciation to be higher in 2011 mainly because we will recognize Las Cruces' operating results in earnings for the entire year. Depreciation will be higher at Cayeli as a result of the impact of adoption of IFRS (see Plan on transition to International Financial Reporting Standards - Impairment of assets on page 30). This will be offset somewhat by the closure of Troilus and the sale of our 18 percent share of Ok Tedi.
Corporate costs
Corporate costs include general and administration costs, taxes, interest and other income.
General and administration
General and administration costs are largely for management remuneration, governance and strategy. Costs in 2010 were $3 million lower than 2009 ($5 million in the fourth quarter) mainly because of the costs associated with the changes to the board and executive management in 2009. This was somewhat offset by higher human resource and other costs in 2010 in preparation for moving forward with Cobre Panama.
Investment and other income
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Interest income $ 2,887 $ 828 $ 8,234 $ 4,706
Foreign exchange loss (1,755) (4,836) (23,896) (14,155)
Dividend and royalty
income 634 350 3,173 1,335
Loss on settlement of
interest rate swap
contract - - - (14,823)
Gain on recognition
of settlement of
foreign currency
forward contract - - - 35,615
Mark to market on Ok
Tedi copper forward
contracts - (125) - (3,353)
Gain on sale of
investment in
Premier Gold Mines
Ltd. 50,505 - 50,505 -
Other (1,940) 4,063 (2,600) (194)
----------------------------------------------------------------------------
$ 50,331 $ 280 $ 35,416 $ 9,131
----------------------------------------------------------------------------
Gain on sale of investment in Premier Gold Mines Ltd
We sold 9.45 million common shares of Premier Gold Mines Ltd. this quarter for $61.4 million in cash and recognized a gain of $50.5 million, taking advantage of favourable market conditions.
Recognition of interest rate swap contract and foreign currency forward contract in 2009
In the third quarter of 2009, we repaid 100 percent of Las Cruces' US dollar denominated bank credit facility (see also Long-term debt repayments and settlement of interest rate swap contract - 2009 on page 27), and replaced it with intergroup debt using the proceeds from our equity offering earlier that year. In conjunction with this, Las Cruces terminated its interest rate swap contracts, paying out $16 million for early termination. This had the following effects on investment and other income in 2009:
-- when we converted the Las Cruces debt from euro to US dollars in 2008,
Las Cruces settled a foreign exchange forward contract and received
proceeds of $52 million. We deferred the proceeds in accumulated other
comprehensive income, and were amortizing them to income over the term
of the debt. When we repaid the debt, we realized the remaining deferred
gain of $36 million in investment and other income.
-- when we repaid the debt, we recorded the $15 million interest rate swap
loss that we had deferred in accumulated other comprehensive income in
investment and other income.
Foreign exchange loss
We have foreign exchange gains or losses when we:
-- revalue certain foreign denominated assets and liabilities
-- distribute funds from our self-sustaining operations and recognized the
foreign exchange we previously deferred on our original investment and
on funds as they accumulated.
Our foreign exchange gains (losses) were from:
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Translation of Las
Cruces' US dollar-
denominated bank
credit facility
prior to settlement $ - $ - $ - $ 2,460
Translation of
foreign denominated
cash held at
corporate 246 (895) (116) (18,655)
Translation of other
monetary assets and
liabilities (2,001) (292) (1,124) (353)
Reduction in our net
investments - (3,649) (22,656) (1,176)
----------------------------------------------------------------------------
$ (1,755) $ (4,836) $ (23,896) $ (14,155)
----------------------------------------------------------------------------
We recognized foreign exchanges losses of $23 million this year on the repatriation of cash from Cayeli, Pyhasalmi and Ok Tedi. In 2009, we recognized foreign exchange losses of $14 million from revaluing US dollar denominated cash we held at Corporate to repay Las Cruces' US dollar denominated debt under its credit facility.
2011 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. In 2011, we will stop recognizing foreign exchange gains and losses when we repatriate funds that represent the accumulation of earnings at our operations. See Plans on transition to International Financial Reporting Standards on page 30 for more information. We also expect to recognize a significant gain as a result of the disposition of our 18 percent investment in Ok Tedi.
Stand-by costs
We could not mine ore at Las Cruces in the first quarter of 2010 because of the water levels in the pit. We expensed $6.8 million in operating and maintenance costs for the water purification plant 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 2009, we took an additional impairment charge of $10 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 year ended
December 31 December 31
(thousands) 2010 2009 change 2010 2009 change
----------------------------------------------------------------------------
Cayeli $ 10,646 $ 12,516 $ 32,379 $ 19,788
Las Cruces (192) (2,354) (3,894) 5,595
Pyhasalmi 10,968 5,372 27,868 12,016
Ok Tedi 25,880 18,480 70,807 56,413
Troilus and
corporate 6,878 4,654 7,522 27,042
----------------------------------------------------------------------------
$ 54,180 $ 38,668 $134,682 $120,854
----------------------------------------------------------------------------
Consolidated
effective tax
rate 27% 30% -3% 27% 31% -4%
----------------------------------------------------------------------------
Our tax expense changes as our earnings change.
The consolidated effective tax rate fell this year 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. Additionally, mining duties for Troilus were lower as operations concluded during 2010.
2011 outlook for income tax expense
We expect statutory tax rates at our operations to remain the same as they were in 2010 unless a statutory tax rate change is enacted.
Results of our operations
2011 estimates
Our financial review by operation includes estimates for 2011 operating earnings and operating cash flows. We used our 2011 objectives for production and cost per tonne of ore milled to build these estimates, as well as the following assumptions:
----------------------------------------------------------------------------
Copper price US $4.30 per pound
Zinc price US $1.00 per pound
Copper treatment cost US $56 per tonne for contracts and US $20 per
tonne for spot sales
Zinc treatment cost US $210 per tonne (basis US $2,000 per tonne) and
US $170 per tonne for spot sales
US $ to C$ exchange rate $1.05
euro to C$ exchange rate $1.37
Working capital Assume no changes for the year
----------------------------------------------------------------------------
Cayeli
----------------------------------------------------------------
three months ended
December 31
2010 2009 change
----------------------------------------------------------------
Tonnes of ore milled
(000's) 288 300 -4%
Tonnes of ore milled
per day 3,100 3,300 -4%
----------------------------------------------------------------
Grades (percent) copper 3.2 3.5 -9%
zinc 6.5 6.5 -
----------------------------------------------------------------
Mill recoveries
(percent) copper 73 79 -8%
zinc 70 71 -1%
----------------------------------------------------------------
Production (tonnes) copper 6,600 8,200 -20%
zinc 13,100 13,800 -5%
----------------------------------------------------------------
Cost per tonne of ore
milled (C$) $ 89 $ 78 +14%
----------------------------------------------------------------
----------------------------------------------------------------------------
year ended
December 31 objective
2010 2009 change 2011
----------------------------------------------------------------------------
Tonnes of ore milled
(000's) 1,147 1,151 - 1,200
Tonnes of ore milled
per day 3,150 3,150 - 3,300
----------------------------------------------------------------------------
Grades (percent) copper 3.2 3.3 -3% 3.2
zinc 6.3 6.3 - 5.6
----------------------------------------------------------------------------
Mill recoveries
(percent) copper 76 77 -1% 80
zinc 71 71 - 73
----------------------------------------------------------------------------
Production (tonnes) copper 28,200 29,200 -3% 30,900
zinc 51,300 50,900 +1% 48,600
----------------------------------------------------------------------------
Cost per tonne of ore
milled (C$) $ 79 $ 72 +10% $ 81
----------------------------------------------------------------------------
Another year of strong production
Cayeli's mine production reached a record 1.16 million tonnes this year, and set several new records in the fourth quarter of 2010 for milling, including best daily tonnage of 3,850 tonnes, and best weekly tonnage of 26,600 tonnes. The mine also placed a record amount of pastefill and shotcrete during the year.
Despite this, mill production was slightly lower than 2009 production as well as our objective for 2010 of 1.2 million tonnes. This was due to higher rehabilitation requirements in the highest producing areas during July, and two lesser ground falls this quarter.
Copper grades were consistent with our 2010 target and zinc grades were slightly above our 2010 target despite the mine plan changes incurred due to the July rehabilitation requirements.
Copper recoveries for 2010 were below our target and last year's recoveries due to more difficult metallurgy from the increased presence of secondary copper minerals and less than optimal blending conditions from low blending stockpile volumes during several periods over the course of the year.
Copper production was therefore below 2009 and our target this year, while zinc production was essentially on target.
Over the year, we conducted a thorough ground control audit evaluating all aspects of the mine's ground control program. We also completed a shotcrete ground support audit, continued developing a life of mine sequence stress model and commissioned a microseismic event analysis, all to reduce the geotechnical risks associated with a maturing ore body.
We completed the second and final phase to correct the misalignment of the Cayeli headframe this year (the result of local ground movement over the years). The headframe is now aligned with the concrete collar and under normal stresses. A formal program has been established to monitor the facility in the future and adjust it, if necessary.
Cost per tonne of ore milled was higher this year mainly because of higher royalties from higher realized metals prices and labour cost increases.
2011 outlook for production
In 2011, production levels should remain at approximately 1.2 million tonnes, and the copper grades should remain essentially unchanged at 3.2 percent. We expect zinc grades to decrease to 5.6 percent, reflecting lower zinc grades in the deeper areas of the mine.
With the commissioning of the new copper column flotation cell and high quality copper concentrate thickener, we expect improvements in copper and zinc recoveries as well as improved zinc depression in the copper concentrate. We therefore expect recoveries to increase to 80 percent for copper and 73 percent for zinc.
Financial review
Lower earnings for the quarter because sales volumes were lower due to timing of shipments
----------------------------------------------------------------------------
(millions of
Canadian three months ended year ended
dollars unless December 31 December 31 objective
otherwise stated) 2010 2009 2010 2009 2011
----------------------------------------------------------------------------
Sales analysis
Copper sales
(tonnes) 4,800 8,900 25,400 29,000 30,900
Zinc sales (tonnes) 9,400 15,000 47,900 52,400 48,600
---------------------------------------------------------
Gross copper sales $ 42 $ 69 $ 194 $ 185 $ 308
Gross zinc sales 21 39 101 102 113
Other metal sales 6 6 18 18 14
---------------------------------------------------------
Gross sales 69 114 313 305 435
Smelter processing
charges and
freight (15) (27) (72) (82) (79)
----------------------------------------------------------------------------
Net sales $ 54 $ 87 $ 241 $ 223 $ 356
----------------------------------------------------------------------------
Cost analysis
Tonnes of ore
milled (thousands) 288 300 1,147 1,151 1,200
Direct production
costs ($ per
tonne) $ 89 $ 78 $ 79 $ 72 $ 81
----------------------------------------------------------------------------
Direct production
costs $ 26 $ 24 $ 91 $ 83 $ 97
Change in inventory (6) 1 (8) - -
Depreciation and
other non-cash
costs 2 4 16 16 18
----------------------------------------------------------------------------
Operating costs $ 22 $ 29 $ 99 $ 99 $ 115
----------------------------------------------------------------------------
Operating earnings $ 32 $ 58 $ 142 $ 124 $ 241
----------------------------------------------------------------------------
Operating cash flow $ 42 $ 51 $ 117 $ 96 $ 200
----------------------------------------------------------------------------
The objective for 2011 uses the assumptions listed on page 15.
The table below shows what contributed to the change in operating earnings and operating cash flow between 2010 and 2009.
----------------------------------------------------------------------------
three months ended year ended
(millions) December 31 December 31
----------------------------------------------------------------------------
Higher metal prices, denominated in
Canadian dollars $ 1 $ 40
Lower sales volumes (29) (17)
Higher operating costs (3) (8)
Lower smelter processing charges 3 3
Other 2 -
----------------------------------------------------------------------------
Higher (lower) operating earnings,
compared to 2009 (26) 18
Change in tax expense because of
change in taxable income (2) (8)
Changes in working capital (see note
3 on page 47) 20 11
Other (1) -
----------------------------------------------------------------------------
Higher (lower) operating cash flow,
compared to 2009 $ (9) $ 21
----------------------------------------------------------------------------
Capital spending consistent with 2009
We spent $15 million to upgrade underground mobile equipment, remediate the headframe, install a new double deck screen for the crusher and a copper column flotation cell and thickener in the mill and add to our mine development. In 2009, we spent $15 million to upgrade underground mobile equipment, remediate the headframe and continue mine development.
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31 objective
2010 2009 change 2010 2009 change 2011
----------------------------------------------------------------------------
Capital spending $ 6,700 $ 4,200 +60% $14,900 $14,900 - $ 19,000
----------------------------------------------------------------------------
2011 outlook for capital spending
We expect to spend $19 million on capital in 2011 for underground development, ore pass rehabilitation, mobile equipment, a shotcrete delivery line extension, a new concrete batch plant and additional mill improvements.
Las Cruces
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31 objective
(100 percent) 2010 2009 2010 2009 2011
----------------------------------------------------------------------------
Tonnes of ore processed
(000's) 164 65 495 107 750
----------------------------------------------------------------------------
Copper grades cathode
(percent) 6.4 6.2 7.0 6.3 7.5
unprocessed
ore - - - - -
----------------------------------------------------------------------------
Plant
recoveries
(percent) 86 82 83 82 89
----------------------------------------------------------------------------
Copper cathode
production
(tonnes) 9,000 3,400 28,500 5,600 50,200
----------------------------------------------------------------------------
Cost per tonne
of ore
processed
(subsequent
to July 1, not not
2010) (C$) $ 219 applicable $ 217 applicable $ 168
----------------------------------------------------------------------------
Progress update
Significant progress has been made to date with the production process. Initially, our efforts were directed at correcting equipment deficiencies and materials selection for the plant. During this '1st Phase' of commissioning, frequent breakdowns prevented the ramp up and stable operation of the plant until April 2010. Plant reliability has since greatly improved and no substantial mechanical downtime was experienced in the second half of the year. In a '2nd Phase', we addressed bottlenecks in the plant design and shifted our main focus to increasing throughput while working to balance plant runtime with the process chemistry. In July and August 2010, throughput rose to 50 percent of design capacity.
In mid-September, we entered the '3rd Phase' dedicated to metallurgical optimization. We made a strategic decision to lower plant throughput to implement measures to reach and maintain our design recovery rates (above 90 percent). This was a necessary step to achieve the proper leaching conditions before further increasing the copper feed and potentially sacrificing copper recoveries. In the fourth quarter, we reached recovery levels of over 86 percent and we plan to continue to raise throughput in step with maintaining recovery levels. We are now focused on two key remaining issues:
-- copper recovery through sulphide leaching is dependent on achieving and
maintaining the correct chemical and physical conditions to effectively
leach the copper from the ore during the leach cycle. Late in the year,
we succeeded in improving oxygen distribution with new distributors in
the bottom of two of the eight leach reactors. We plan to install
distributors in the remaining six leach reactors in 2011 and we
anticipate maintaining the required iron levels as we increase the
cooper feed rate into the plant.
-- to reach maximum throughput, Las Cruces must also operate the grinding
thickener reliably at the design underflow density. Design work is
underway to modify the thickener in mid-2011. This modification will
triple the available torque in the thickener and improve the rake
geometry to prevent the temporary blockages that have hampered operating
at high solids density. To improve near-term thickener performance, we
have adjusted the slope of the rakes and put in place a new distribution
system which has had encouraging results with minimal process
interruptions, which were common before the change.
We produced 28,500 tonnes of copper cathode this year. Cathode quality remains excellent and we are working towards our LME Grade A certification. Notwithstanding the significant improvements achieved this year, production fell short of our target.
Consolidation of ownership interest in Las Cruces to 100 percent
On December 15, 2010, we acquired Leucadia National Corporation's 30 percent indirect equity interest and subordinated sponsor loans in Las Cruces for value of $497 million. This included US $150 million in cash and US $330 million in Inmet common shares (5.4 million shares). At the same time, Leucadia was released from its guarantee of US $72 million of the debt Las Cruces took on in 2009 to re-finance its project facility. The loan is owed to an Inmet affiliate. Beginning December 15, 2010, we have included 100 percent of Las Cruces' results in our consolidated statement of earnings.
2011 outlook
We expect throughput and recoveries to continue to improve in 2011 and that production will follow a 'saw-toothed' pattern. By the end of the year, we expect to be producing at a rate of 6,000 tonnes per month - full plant production capacity - and we expect to produce a total of 50,200 tonnes of copper cathode in 2011.
A number of process improvements are underway and will be completed in 2011 including:
-- adding a large surge tank between leaching and filtration to further
smooth out the leaching operation
-- adding a clarifier to remove solids from the leach solution, greatly
reducing maintenance requirements
-- redesigning and installing grinding thickener components to improve
underflow density to the leaching process
-- improved filtration performance through the removal of fines prior to
grinding
-- improved reactor reliability with the addition of 8 stainless steel
agitators.
Las Cruces has mined and stockpiled high grade ore to ship directly to smelters. We have not received the permit we need to move the material offsite and, therefore, have not included any direct ore shipments in our objectives. We will use this high grade ore for blending with lower grade ore to optimize feed grades processed through the plant during the first half of 2011. We anticipate mining additional high grade ore in 2011 which could be utilized for direct ore shipments if a permit is received.
Financial review
New operating earnings and operating cash flow at Las Cruces this year
----------------------------------------------------------------------------
(millions of Canadian Three
dollars unless months ended Year ended
otherwise stated) December 31 December 31 objective
2010 2010 2011
---------------------------------------------
Sales analysis (1)
Copper sales (tonnes) 7,600 15,600 50,200
---------------------------------------------
Gross copper sales $ 67 $ 129 $ 505
Smelter processing charges and
freight - - (2)
----------------------------------------------------------------------------
Net sales $ 67 $ 129 $ 503
----------------------------------------------------------------------------
Cost analysis (1)
Tonnes of ore processed
(thousands) 164 307 750
Direct production costs ($ per
tonne) $ 219 $ 217 $ 168
----------------------------------------------------------------------------
Direct production costs $ 37 $ 68 $ 126
Change in inventory (10) (11) -
Depreciation and other non-cash
costs 18 29 64
----------------------------------------------------------------------------
Operating costs $ 45 $ 86 $ 190
----------------------------------------------------------------------------
Operating earnings $ 22 $ 43 $ 313
----------------------------------------------------------------------------
Operating cash flow $ 34 $ 59 $ 378
----------------------------------------------------------------------------
(1) Subsequent to July 1, 2010 and at 100 percent
The objective for 2011 uses the assumptions listed on page 15.
Capital spending
----------------------------------------------------------------------------
(100 percent
and millions
of Canadian three months ended year ended
dollars) December 31 December 31 objective
2010 2009 change 2010 2009 change 2011
----------------------------------------------------------------------------
Capital $ 28 $ 23 +22% $ 80 $ 133 -40% $ 52
Pre-operating
costs
capitalized,
net of sales,
working
capital and
other 4 8 -50% (56) 6 -1033% -
----------------------------------------------------------------------------
Capital
spending $ 32 $ 31 +3% $ 24 $ 139 -83% $ 52
----------------------------------------------------------------------------
Capital spending this year was mainly on the permanent water purification plant, plant improvements and mine development. In 2009 it was mainly for construction capital.
2011 outlook for capital spending
We expect to spend $52 million on capital projects in 2011 including $18 million for mine development and $25 million for plant improvements.
Pyhasalmi
-----------------------------------------------------------------
three months ended
December 31
2010 2009 change
-----------------------------------------------------------------
Tonnes of ore milled
(000's) 350 349 -
Tonnes of ore milled
per day 3,800 3,800 -
-----------------------------------------------------------------
Grades (percent) copper 1.2 1.1 +9%
zinc 2.6 3.1 -16%
sulphur 43 39 +10%
-----------------------------------------------------------------
Mill recoveries copper
(percent) 96 97 -1%
zinc 89 92 -3%
-----------------------------------------------------------------
Production (tonnes) copper 3,900 3,600 +8%
zinc 8,200 9,700 -15%
pyrite 186,800 60,900 +207%
-----------------------------------------------------------------
Cost per tonne of
ore milled (C$) $ 42 $ 48 -13%
-----------------------------------------------------------------
----------------------------------------------------------------------------
year ended
December 31 objective
2010 2009 change 2011
----------------------------------------------------------------------------
Tonnes of ore milled
(000's) 1,401 1,396 - 1,370
Tonnes of ore milled
per day 3,800 3,800 - 3,750
----------------------------------------------------------------------------
Grades (percent) copper 1.1 1.1 - 1.0
zinc 2.4 2.2 +9% 2.6
sulphur 43 41 +5% 43
----------------------------------------------------------------------------
Mill recoveries copper
(percent) 96 96 - 95
zinc 90 90 - 90
----------------------------------------------------------------------------
Production (tonnes) copper 14,700 14,600 +1% 13,300
zinc 30,100 27,100 +11% 31,900
pyrite 584,100 383,900 +52% 600,000
----------------------------------------------------------------------------
Cost per tonne of
ore milled (C$) $ 39 $ 44 -11% $ 40
----------------------------------------------------------------------------
Higher zinc and pyrite production this year
Throughput continued at record levels in 2010 - Pyhasalmi processed 1.4 million tonnes of ore through the mill, and had an excellent 96 percent availability with copper recoveries of 96 percent and zinc recoveries of 90 percent. It also successfully reduced the amount of open void by 10 percent year over year, improving geotechnical stability. Additionally, we improved the reliability of the backfill supply by keeping the fill raise system full, increasing stability and minimizing raise failures and blockages.
Copper production in 2010 was higher than target and higher than 2009 because grades were higher. Zinc production was higher than 2009 but lower than target because we moved some higher zinc grade stopes that were due to be mined late in the year into 2011. We produced 40 percent more pyrite this year than planned to meet increasing demand.
Cost per tonne of ore milled was significantly lower than last year mainly because of Canadian dollar appreciation against the euro.
2011 outlook
Pyhasalmi expects to mine 1.4 million tonnes of 1 percent copper and 2.6 percent zinc in 2011, and produce 13,300 tonnes of copper and 31,900 tonnes of zinc. Zinc production will increasingly come from fewer higher grade zinc stopes on the periphery of the orebody and this may result in zinc grade fluctuations if mine plans are modified during the year to respond to operational factors.
Pyrite sales enhance Pyhasalmi's financial performance, so we will continue our efforts to enter new markets in Europe and Asia. Combined with a long term agreement reached with a Finnish customer this year, we are well positioned for ongoing pyrite sales for the longer term.
Financial review
Higher earnings because of higher metal prices and sales volumes
----------------------------------------------------------------------------
(millions of
Canadian
dollars unless
otherwise three months ended year ended
stated) December 31 December 31 objective
2010 2009 2010 2009 2011
----------------------------------------------------------------------------
Sales analysis
Copper sales
(tonnes) 4,500 3,300 14,800 14,200 13,300
Zinc sales
(tonnes) 8,300 9,600 29,500 27,000 31,900
Pyrite sales
(tonnes) 90,200 117,000 485,300 413,000 600,000
-------------------------------------------------------------
Gross copper
sales $ 42 $ 26 $ 121 $ 89 $ 133
Gross zinc
sales 21 25 67 58 74
Other metal
sales 9 9 45 38 44
-------------------------------------------------------------
Gross sales 73 60 233 185 251
Smelter
processing
charges and
freight (14) (17) (54) (51) (49)
----------------------------------------------------------------------------
Net sales $ 59 $ 43 $ 179 $ 134 $ 202
----------------------------------------------------------------------------
Cost analysis
Tonnes of ore
milled
(thousands) 350 349 1,401 1,396 1,370
Direct
production
costs ($ per
tonne) $ 42 $ 48 $ 39 $ 44 $ 40
----------------------------------------------------------------------------
Direct
production
costs $ 15 $ 17 $ 55 $ 62 $ 54
Change in
inventory - - (1) (1) -
Depreciation
and other non-
cash costs 2 2 9 10 8
----------------------------------------------------------------------------
Operating costs $ 17 $ 19 $ 63 $ 71 $ 62
----------------------------------------------------------------------------
Operating
earnings $ 42 $ 24 $ 116 $ 63 $ 140
----------------------------------------------------------------------------
Operating cash
flow $ 27 $ 16 $ 80 $ 61 $ 112
----------------------------------------------------------------------------
The objective for 2011 uses the assumptions listed on page 15.
The table below shows what contributed to the change in operating earnings and operating cash flow between 2010 and 2009.
----------------------------------------------------------------------------
three months ended year ended
(millions) December 31 December 31
----------------------------------------------------------------------------
Higher metal prices, denominated in
Canadian dollars $9 $35
Higher sales volumes 5 12
(Higher) lower smelter processing and
freight charges 3 (1)
Lower operating costs 1 7
----------------------------------------------------------------------------
Higher operating earnings, compared to
2009 18 53
Change in tax expense because of change
in earnings (5) (16)
Changes in working capital (see note 3
on page 47) - (17)
Other (2) (1)
----------------------------------------------------------------------------
Higher operating cash flow, compared to
2009 $11 $19
----------------------------------------------------------------------------
Capital spending lower
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31 objective
2010 2009 change 2010 2009 change 2011
----------------------------------------------------------------------------
Capital spending $ 700 $ 2,100 -67% $ 4,000 $ 7,900 -49% $ 8,000
----------------------------------------------------------------------------
2011 outlook for capital spending
Capital spending in 2011 is mainly to replace underground mobile equipment.
Ok Tedi
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
(100 percent) 2010 2009 change 2010 2009 change
----------------------------------------------------------------------------
Tonnes of ore
milled
(000's) 5,600 6,200 -10% 22,200 22,600 -2%
Tonnes of ore
milled per
day 60,000 68,000 -12% 61,000 62,000 -2%
----------------------------------------------------------------------------
Strip ratio 0.9 1.6 -44% 1.2 1.8 -33%
----------------------------------------------------------------------------
Grades copper
(percent) 0.9 0.9 - 0.9 0.9 -
gold
(grams/
tonne) 1.0 1.0 - 1.0 1.0 -
----------------------------------------------------------------------------
Mill copper
recoveries
(percent) 86 87 -1% 86 86 -
gold 72 71 +1% 71 69 +3%
----------------------------------------------------------------------------
Production copper
(tonnes) 45,400 50,900 -11% 159,800 166,700 -4%
gold
(ounces) 131,000 147,600 -11% 486,400 517,800 -6%
----------------------------------------------------------------------------
Cost per tonne
of ore milled
(C$) $ 26 $ 23 +13% $ 23 $ 24 -4%
----------------------------------------------------------------------------
Production lower for quarter due to lower mill throughput
Mill throughput was lower this quarter compared with the fourth quarter of 2009 because Ok Tedi carried out mill maintenance that had originally been scheduled for early 2011, which reduced copper and gold production. Mill throughput, copper and gold production for the year were slightly lower than 2009.
Gold grades and production in 2010 continued to be lower than plan because of deferrals made in the mine plan to avoid processing high sulphur, high gold areas of the mine. Although the mine waste management plant has been significantly redesigned and modified, its performance continues to be challenged. To control sulphur, the ore is blended in the mine before it goes to the mill. Ok Tedi mined lower benches that contain more copper and less sulphur and gold. The higher grade gold ore can be mined but will not be processed until after the mine waste management plant is performing to expectations. A 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.
Our involvement in Ok Tedi
On December 2, 2010, we announced an agreement with Ok Tedi Mining Limited for it to repurchase our 18 percent equity interest in Ok Tedi for US $335 million. Our net proceeds after withholding taxes in Papua New Guinea were US $307 million. The transaction closed on January 28, 2011. At December 31, 2010, our interest in Ok Tedi was classified as held for sale on our consolidated balance sheet.
Financial review
Higher earnings this quarter due to higher copper and gold prices
----------------------------------------------------------------------------
(millions of Canadian three months ended year ended
dollars unless December 31 December 31
otherwise stated) 2010 2009 2010 2009
----------------------------------------------------------------------------
Sales analysis at 18%
Copper sales (tonnes) 7,400 6,100 28,500 26,600
Gold sales (ounces) 22,300 19,500 86,300 88,900
------------------------------------------------------
Gross copper sales $ 75 $ 51 $ 234 $ 189
Gross gold sales 31 24 110 101
Other metal sales 2 1 5 4
------------------------------------------------------
Gross sales $ 108 $ 76 $ 349 $ 294
Smelter processing
charges and freight (9) (7) (36) (30)
----------------------------------------------------------------------------
Net sales $ 99 $ 69 $ 313 $ 264
----------------------------------------------------------------------------
Cost analysis at 18%
Tonnes of ore milled
(thousands) 1,000 1,100 4,000 4,100
Direct production
costs ($ per tonne) $ 26 $ 23 $ 23 $ 24
----------------------------------------------------------------------------
Direct production
costs $ 26 $ 25 $ 93 $ 96
Change in inventory (5) (11) 1 (9)
Depreciation and other
non-cash costs 8 7 30 27
----------------------------------------------------------------------------
Operating costs $ 29 $ 21 $ 124 $ 114
----------------------------------------------------------------------------
Operating earnings $ 70 $ 48 $ 189 $ 150
----------------------------------------------------------------------------
Operating cash flow $ 45 $ 42 $ 154 $ 103
----------------------------------------------------------------------------
The table below shows what contributed to the change in operating earnings and operating cash flow between 2010 and 2009.
----------------------------------------------------------------------------
three months ended year ended
(millions) December 31 December 31
----------------------------------------------------------------------------
Higher copper prices, denominated in
Canadian dollars $ 13 $ 32
Higher gold prices, denominated in
Canadian dollars 4 12
Higher (lower) sales volumes 7 (3)
Higher smelter processing and freight
charges (1) (4)
Lower (higher) operating costs (2) 5
Other 1 (3)
----------------------------------------------------------------------------
Higher operating earnings, compared
to 2009 22 39
Change in tax expense because of
change in taxable income - (20)
Changes in net working capital (see
note 3 on page 47) (20) 27
Change in depreciation 1 5
----------------------------------------------------------------------------
Higher operating cash flow, compared
to 2009 $ 3 $ 51
----------------------------------------------------------------------------
Capital spending
In 2010, Ok Tedi spent $91 million (our share is $16 million), mainly on a mining fleet specifically designed for limestone mining, and to construct storage pits for sulphur concentrate produced by the tailings management plant. In 2009, spending was mainly on the pit drainage project.
----------------------------------------------------------------------------
Three months ended year ended
December 31 December 31
(18 percent) 2010 2009 change 2010 2009 change
----------------------------------------------------------------------------
Capital spending $ 4,400 $ 11,300 -61% $ 16,300 $ 21,200 -23%
----------------------------------------------------------------------------
Status of our development project
Cobre Panama
Environmental and community affairs
Autoridad Nacional del Ambiente (ANAM), the Panamanian environmental regulatory authority, continued its review of Minera Panama's Environmental and Social Impact Assessment (ESIA) this quarter, on schedule. ANAM has engaged external experts to assist in its review of the ESIA and they are fully deployed.
We held a public forum in November to present the ESIA to the local community, as required by legislation. More than 1,000 people from all over Panama, but mostly from local communities, attended the five-hour forum, which we held in the village of Coclecito, close to the project site. We provided all of the time necessary to respond to written questions and listen to presentations from interested parties, and the forum was well received by all participants.
We received the first formal request from ANAM for additional information in early February as expected, and we are preparing responses. We continue to estimate that approval for the ESIA and permitting to begin construction could take as long as 15 months from the time the ESIA report was submitted in September 2010. After we receive the approvals, site capture, preparation and construction should take approximately 48 months.
Engineering
In November, Minera Panama awarded a contract for engineering, procurement and construction management (EP+CM) to Joint Venture Panama Inc. (JVP), a joint venture led by SNC-Lavalin Group Inc. (70%) with partners GyM S.A. (a member of Grana y Montero Group) (15%) and Techint International Construction Corp. (15%).
The award concluded an eight-month competitive process involving a team of more than 60 professionals from Inmet, Minera Panama and external consulting firms who performed a detailed and exhaustive evaluation of bidders. The initial phase of the EP+CM contract will involve basic engineering for all facilities except the power plant, and should take approximately 12 months to complete. The power plant, as previously announced, is to be developed under a separate agreement with GDF Suez Central America.
Work also continued to upgrade and improve access roads to the site. We completed two new bridges by year end, over rivers that are prone to flooding, and continued routine road maintenance. The bridges will benefit both the project and local communities. Additional improvements to access roads are in the engineering and permitting stage.
Drilling
We drilled a total of 20,000 metres this year in 119 holes. More than half of these holes were for geotechnical purposes, while most of the remaining holes focused on further defining existing resources. We have also begun testing additional exploration targets on the property.
2011 outlook for development
We plan to:
-- continue our dialogue with stakeholders at the community, regional and
national levels, to enhance understanding of the project and its
benefits to Panama, and the concerns of stakeholders
-- continue to work with ANAM to ensure a thorough ESIA review process
-- continue to improve site access and infrastructure
-- complete additional drilling for geotechnical and hydrological purposes
and to improve our understanding of mineralization not currently
included in the project base case
-- complete basic engineering and prepare to initiate site capture upon
receipt of the main permits
-- continue to 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 $224 million to carry out the work described.
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 ended year ended
December 31 December 31
(millions) 2010 2009 2010 2009
----------------------------------------------------------------------------
CASH FROM OPERATING
ACTIVITIES
Cayeli $ 42 $ 51 $ 117 $ 96
Las Cruces 34 - 59 -
Pyhasalmi 27 16 80 61
Troilus - 25 44 119
Ok Tedi 45 42 154 103
Corporate development
and exploration not
incurred by
operations (3) (1) (7) (6)
General and
administration (5) (10) (21) (24)
Settlement of asset
retirement
obligations,
excluding
Troilus (1) (2) (3) (3)
Investment income and
other (4) 5 (14) (23)
----------------------------------------------------------------------------
135 126 409 323
----------------------------------------------------------------------------
CASH FROM INVESTING
AND FINANCING
Purchase of property,
plant and equipment (63) (63) (144) (268)
Purchase and maturing
of long-term
investments, net 26 - (270) (100)
Acquisition of non-
controlling interest
in Las Cruces (151) - (151) -
Proceeds from
issuance of common
shares, net of
transaction costs - - - 334
Sale of investment in
Premier Gold Mines
Ltd. 61 - 61 -
Sale of assets -
Troilus - - 6 -
Long-term debt
repayments - - - (315)
Financial assurance
receipts (deposits) 2 (11) 1 (63)
Dividends paid on
common shares (6) (5) (11) (10)
Funding by non-
controlling
shareholder - 1 3 51
Subsidies received 1 - 1 71
Settlement of
interest rate swap
contract - - - (16)
Foreign exchange on
cash held in foreign
currency (14) (13) (32) (47)
Reclassification of
our share of Ok Tedi
cash to assets held
for sale (93) - (93) -
Other 4 2 12 1
----------------------------------------------------------------------------
(233) (89) (617) (362)
----------------------------------------------------------------------------
Increase (decrease)
in cash (98) 37 (208) (39)
Cash and short-term
investments
Beginning of period 424 497 534 573
----------------------------------------------------------------------------
End of period $ 326 $ 534 $ 326 $ 534
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Key components of the change in operating cash flows
----------------------------------------------------------------------------
three months ended year ended
(millions) December 31 December 31
----------------------------------------------------------------------------
Higher earnings from operations (see
page 5) $ 14 $ 69
Add back higher non-cash charges
included in earnings from operations 5 20
Higher tax expense (5) (35)
Changes in working capital (see note
3 on page 47) (7) 21
Realized foreign exchange loss on
cash held at Corporate 1 19
Higher settlement of asset retirement
obligations (2) (3)
Other 3 (5)
----------------------------------------------------------------------------
Higher operating cash flow, compared
to 2009 $ 9 $ 86
----------------------------------------------------------------------------
Operating cash flows this year were higher than in 2009 because our operating earnings and depreciation were both higher. This was partly offset by the payment of more taxes.
2011 outlook for cash from operating activities
The table below shows expected operating cash flow from our key operations, based on our outlook for metal prices and production listed on page 15, and the assumptions in Results of our operations, which starts on page 15.
2011 estimated operating cash flow by operation
----------------------------------------------------------------------------
(millions)
----------------------------------------------------------------------------
Cayeli $ 200
Las Cruces 378
Pyhasalmi 112
----------------------------------------------------------------------------
$ 690
----------------------------------------------------------------------------
INVESTING AND FINANCING
Capital spending
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31 objective
(millions) 2010 2009 2010 2009 2011
----------------------------------------------------------------------------
Cayeli $ 7 $ 4 $ 15 $ 15 $ 19
Las Cruces 32 31 24 139 52
Pyhasalmi 1 2 4 8 8
Ok Tedi 4 11 16 21 -
Cobre Panama 19 15 85 85 224
----------------------------------------------------------------------------
$ 63 $ 63 $ 144 $ 268 $ 303
----------------------------------------------------------------------------
Please see Results of our operations and Status of our development project for a discussion of actual results and our 2011 objective. Capital spending in 2010 was mainly for Cobre Panama.
Purchase of long-term investments
We bought $229 million in medium-term Canadian government and corporate bonds with credit ratings of A to AAA this year. The bonds mature between February 2011 and December 2015 and have a weighted average annual yield of 1.8 percent. This will increase our return on the cash we have set aside for capital spending at Cobre Panama.
Cayeli also bought $67 million in US Treasury bonds with credit ratings of AAA, for a higher return on cash that we believe will not be repatriated within the next 5 years. The bonds mature in 2015 and have a weighted average annual yield to maturity of 1.24 percent.
Acquisition of non-controlling interest in Las Cruces
We paid $151 million in cash this quarter as part of our acquisition of Leucadia's 30 percent indirect equity interest and subordinated sponsor loans in Las Cruces.
Sale of investment in Premier Gold
We sold our 9.45 million common shares of Premier Gold for $61.4 million in cash this quarter.
Proceeds from public offering - 2009
In the second quarter of 2009, we completed a public offering of 7.825 million common shares of Inmet Mining, for total gross proceeds of $348 million ($334 million net of transaction costs).
Long-term debt repayments and settlement of interest rate swap contract - 2009
In the first half of 2009, Las Cruces made its first 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).
In July 2009, Las Cruces repaid the remaining US $203 million under Tranche A, EUR5 million under Tranche B and cash collateralized $32 million in letters of credit that had been secured under the credit facility. This eliminated the Las Cruces project credit facility. We funded 100 percent of the repayment through an intercompany loan.
Las Cruces also paid $16 million in July 2009 to terminate its interest rate swap contract, in connection with the decision to repay the credit facility.
Government subsidies - 2009
Las Cruces received $71 million in subsidy grants in 2009 to build the mine and process plant, under government assistance programs in the European Union.
2011 outlook for investing and financing
We expect capital spending to be $303 million in 2011. The more significant items include:
-- $224 million for work on the development at Cobre Panama, including
basic engineering, advance payments for mill equipment and other costs
to advance development
-- $52 million at Las Cruces, including $18 million for mine development
and $25 million for plant improvements.
On March 31, 2010, we entered into a subscription agreement with a subsidiary of Temasek Holdings (Private) Limited (Temasek), under which Temasek agreed to buy 9.26 million subscription receipts at a price of $54.0049 each, exchangeable on a one-for-one basis for Inmet common shares, for total proceeds of $500 million.
On December 23, 2010, the agreement was amended such that each subscription receipt will now be exchangeable for 0.840283 of an Inmet common share, representing a subscription price per Inmet common share of $64.2699, or a 15 percent discount to the five day volume-weighted average price of Inmet common shares on the Toronto Stock Exchange as at December 22, 2010. The subscription receipts will now be automatically exchanged no later than 150 days after the coming into effect of legislation to amend the Code as described below. Upon exchange of the subscription receipts, Inmet's issued and outstanding shares will increase to 69.3 million common shares. Temasek will receive 7.78 million Inmet common shares, that would represent approximately 11.2 percent of Inmet's issued and outstanding common shares at that time, on a non-diluted basis.
The subscription receipts are exchangeable into Inmet common shares, subject to the satisfaction of certain conditions, including the coming into effect of legislation passed by the legislative assembly of the Republic of Panama amending Panama's Mineral Resources Code (the '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 and Temasek have also amended the investor rights agreement previously executed between them that will take effect upon exchange of the subscription receipts for common shares. Under the amended investor rights agreements, subject to certain conditions and exceptions, Temasek and members of its group will now be permitted to divest their Inmet common shares (or economic interest therein), or increase their ownership of Inmet common shares, after a period of four months following the exchange of the subscription receipts for Inmet common shares.
The subscription receipt proceeds will remain in escrow pending exchange of the subscription receipts for common shares. On completion of the exchange, the escrowed funds will be released to Inmet and the proceeds will be used by Inmet for the development of its Cobre Panama project and for general corporate purposes.
The legislation to amend the Code passed final reading in the Panamanian Assembly and came into effect in February 2011. We expect to exchange the Temasek subscription receipts for common shares before June 30, 2011.
Financial condition
Our strategy is to make sure we have sufficient liquidity (including cash and committed credit facilities) to finance our operating requirements as well as our growth projects. At December 31, 2010, we had $699 million in cash, including $326 million of cash and short-term investments and $373 million invested in long-term bonds.
Cash
At December 31, 2010, our cash and short-term investments of $326 million included cash and money market instruments that mature in 90 days or less, and short-term investments that mature in 91 days to a year.
Our policy is to invest excess cash in highly liquid investments of the highest credit quality, and to limit our exposure to individual counterparties to minimize the risk associated with these investments. We base our decisions about the length of maturities on our cash flow requirements, rates of return and other factors.
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 December 31, 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 4 on page 48 in the consolidated financial statements for more details about where our cash is invested.
Long-term bonds
As at December 31, 2010, the bond portfolio of $373 million (Held to maturity investments), comprised 17 percent US Treasury bonds, 8 percent Government of Canada bonds, 65 percent Provincial Government bonds and 10 percent corporate bonds. The bonds mature between February 2011 and December 2015.
Restricted cash
Our restricted cash balance of $71 million as at December 31, 2010 included:
-- $17 million in cash collateralized letters of credit for Inmet
-- $52 million related to issuing letters of credit to suppliers and the
local water authority at Las Cruces, for 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 December 31, 2010 and
February 23, 2011 61,549,172
----------------------------------------------------------------------------
Deferred share units outstanding as of December 31, 2010
(redeemable on a one-for-one basis for common shares) 107,947
----------------------------------------------------------------------------
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 determined all of our significant accounting policies, prepared sample financial statements and assessed the impacts on our systems and processes. We have put a dual reporting solution in place to maintain our accounting records according to both Canadian GAAP and IFRS for our 2010 dual reporting year. We have been working alongside our auditors while determining 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. While 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 and for our financial statements for the first, second and third quarters of 2010. We will focus next on preparing financial statements for the year ended December 31, 2010 in accordance with our expected IFRS accounting policies.
We do not expect our key controls to change during and after our transition to IFRS. We believe our training program and the preparation of reconciliations to IFRS, have given our staff an appropriate understanding of IFRS as it applies to our financial reporting.
The paragraphs that follow list 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. We have also provided quantification for the most significant differences in our balance sheet as at January 1, 2010 and our statement of earnings for the nine months ended September 30, 2010. We currently expect these changes will 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. 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.
The standard-setting bodies that determine IFRS also 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 depend on circumstances at the time. 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.
Under Canadian GAAP, companies that acquire an additional interest in an entity they already control must account for it as a step acquisition. Under IFRS, acquiring a non-controlling interest is not considered a business combination, and is instead accounted for as an equity transaction.
Under IFRS, we will account for our acquisition of the remaining 30 percent interest in Las Cruces, which closed in December 2010, as an equity transaction, because we already controlled it. We will recognize the difference between the non-controlling interest (as determined under IFRS) and the fair value of the consideration paid, in retained earnings.
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, Pyhasalmi and Ok Tedi, we transfer title when we receive the first provisional payment, which is later than the transfer point for risks and rewards of ownership.
Under IFRS, we 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. For the nine months ended September 30, 2010, we expect to reverse foreign exchange losses of $23 million related to the repatriation of accumulated earnings from our operations as a result of our transition to IFRS.
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 at
January 1, 2010) 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 on transition to IFRS.
Supplementary financial information
Pages 34 and 35 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 and zinc. We have interests in three mining operations in locations around the world: Cayeli, Las Cruces and Pyhasalmi. We also have a 100 percent interest in Cobre Panama, a development property in Panama.
This press release is also available at www.inmetmining.com.
Fourth quarter conference call
Will be held on
- Thursday, February 24, 2011
- 8:30 a.m. Eastern Time
- webcast available at http://events.digitalmedia.telus.com/inmet/022411/index.php or www.inmetmining.com
You can also dial in by calling
- Local or international: +1.416.340.9432
- Toll-free within North America: +1.877.440.9795
Starting at approximately 10:00 a.m. (ET) Thursday, February 24, 2011, a conference call replay will be available
- Local or international: +1.905.694.9451 passcode 6763143
- Toll-free within North America: +1.800.408.3053 passcode 6763143
INMET MINING CORPORATION
Supplementary financial information
Cash costs
2010 For the year ended December 31
per pound of copper
----------------------------------------------------
LAS
CRUCES TOTAL
CAYELI (1) PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 1.28 $ 1.64 $ 1.63 $ 1.32 $ 1.41
Royalties and variable
compensation 0.14 0.06 - 0.10 0.09
Smelter processing
charges and freight 1.41 0.01 1.11 0.56 0.86
Metal credits (2.19) - (2.95) (1.85) (1.87)
----------------------------------------------------
Cash cost $ 0.64 $ 1.71 ($0.21) $ 0.13 $ 0.49
----------------------------------------------------
----------------------------------------------------
2009 For the year ended December 31
per pound of copper
----------------------------------------------------
LAS TOTAL
CAYELI CRUCES PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 1.02 $ - $ 1.71 $ 1.23 $ 1.24
Royalties and variable
compensation 0.10 - - 0.05 0.06
Smelter processing
charges and freight 1.24 - 1.08 0.43 0.88
Metal credits (1.73) - (2.26) (1.49) (1.74)
----------------------------------------------------
Cash cost $ 0.63 $ - $ 0.53 $ 0.22 $ 0.44
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of cash costs to statements of earnings
2010 For the year ended December 31
per pound of copper
----------------------------------------------------
(millions of Canadian LAS
dollars, except where CRUCES TOTAL
otherwise noted) CAYELI (1) PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
GAAP reference page 17 page 19 page 21 page 23
Direct production costs $ 91 $ 67 $ 55 $ 93 $ 306
Smelter processing
charges and freight 72 - 54 36 162
By product sales (119) - (112) (115) (346)
Adjust smelter
processing and freight,
and sales to production
basis (3) - (4) (6) (13)
----------------------------------------------------
Operating costs net of
metal credits $ 41 $ 67 ($7) $ 8 $ 109
US $ to C$ exchange rate $ 1.03 $ 1.03 $ 1.03 $ 1.03 $ 1.03
Inmet's share of
production (000's) 62,100 38,300 32,400 63,400 196,200
----------------------------------------------------
Cash cost $ 0.64 $ 1.71 ($0.21) $ 0.13 $ 0.49
----------------------------------------------------
----------------------------------------------------
2009 For the year ended December 31
per pound of copper
----------------------------------------------------
(millions of Canadian
dollars, except where LAS TOTAL
otherwise noted) CAYELI CRUCES PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
GAAP reference page 17 page 19 page 21 page 23
Direct production costs $ 83 $ - $ 62 $ 96 $ 241
Smelter processing
charges and freight 82 - 51 30 163
By product sales (120) - (96) (105) (321)
Adjust smelter
processing and freight,
and sales to production
basis 1 - 2 (4) (1)
----------------------------------------------------
Operating costs net of
metal credits $ 46 $ - $ 19 $ 17 $ 82
US $ to C$ exchange rate $ 1.14 $ - $ 1.14 $ 1.14 $ 1.14
Inmet's share of
production (000's) 63,900 - 33,100 66,100 163,100
----------------------------------------------------
Cash cost $ 0.63 $ - $ 0.53 $ 0.22 $ 0.44
----------------------------------------------------
----------------------------------------------------
(1) Las Cruces' results are included from July 1, 2010
INMET MINING CORPORATION
Supplementary financial information
Cash costs
2010 For the three months ended December 31
per pound of copper
----------------------------------------------------
LAS
CRUCES TOTAL
CAYELI (1) PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 1.50 $ 1.75 $ 1.69 $ 1.33 $ 1.54
Royalties and variable
compensation 0.22 0.06 - 0.09 0.10
Smelter processing
charges and freight 1.61 0.01 1.24 0.57 0.79
Metal credits (2.76) - (3.61) (2.00) (1.90)
----------------------------------------------------
Cash cost $ 0.57 $ 1.82 ($0.68) ($0.01) $ 0.53
----------------------------------------------------
----------------------------------------------------
2009 For the three months ended December 31
per pound of copper
----------------------------------------------------
LAS TOTAL
CAYELI CRUCES PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
(US dollars)
Direct production costs $ 1.06 $ - $ 2.05 $ 1.11 $ 1.25
Royalties and variable
compensation 0.15 - - 0.08 0.09
Smelter processing
charges and freight 1.45 - 1.70 0.47 1.06
Metal credits (2.26) - (3.57) (1.58) (2.18)
----------------------------------------------------
Cash cost $ 0.40 $ - $ 0.18 $ 0.08 $ 0.22
----------------------------------------------------
----------------------------------------------------
Reconciliation of cash costs to statements of earnings
2010 For the three months ended December 31
per pound of copper
----------------------------------------------------
(millions of Canadian LAS
dollars, except where CRUCES TOTAL
otherwise noted) CAYELI (1) PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
GAAP reference page 17 page 19 page 21 page 23
Direct production costs $ 26 $ 36 $ 15 $ 26 $ 103
Smelter processing
charges and freight 15 - 14 9 38
By product sales (27) - (30) (33) (90)
Adjust smelter
processing and freight,
and sales to production
basis (5) - (5) (3) (13)
----------------------------------------------------
Operating costs net of
metal credits $ 9 $ 36 ($6) ($1) $ 38
US $ to C$ exchange rate $ 1.01 $ 1.01 $ 1.01 $ 1.01 $ 1.01
Inmet's share of
production (000's) 14,600 19,900 8,500 18,000 61,000
----------------------------------------------------
Cash cost $ 0.57 $ 1.82 ($0.68) ($0.01) $ 0.53
----------------------------------------------------
----------------------------------------------------
2009 For the three months ended December 31
per pound of copper
----------------------------------------------------
(millions of Canadian
dollars, except where LAS TOTAL
otherwise noted) CAYELI CRUCES PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
GAAP reference page 17 page 19 page 21 page 23
Direct production costs $ 24 $ - $ 17 $ 25 $ 66
Smelter processing
charges and freight 27 - 17 7 51
By product sales (45) - (34) (25) (104)
Adjust smelter
processing and freight,
and sales to production
basis 2 - 2 (5) (1)
----------------------------------------------------
Operating costs net of
metal credits $ 8 - $ 2 $ 2 $ 12
US $ to C$ exchange rate $ 1.06 - $ 1.06 $ 1.06 $ 1.06
Inmet's share of
production (000's) 18,100 - 7,900 20,200 46,200
----------------------------------------------------
Cash cost $ 0.40 $ - $ 0.18 $ 0.08 $ 0.22
----------------------------------------------------
----------------------------------------------------
(1) Las Cruces' results are included from July 1, 2010
INMET MINING CORPORATION
Quarterly review
(unaudited)
Latest Four Quarters
----------------------------------------------------------------------------
(thousands of Canadian 2010 2010 2010 2010
dollars, except per Fourth Third Second First
share amounts) quarter quarter quarter quarter
----------------------------------------------------------------------------
STATEMENTS OF EARNINGS
Gross sales $ 318,128 $ 313,349 $ 215,051 $ 251,559
Smelter processing
charges and freight (38,440) (47,191) (36,794) (44,329)
Cost of sales (98,625) (93,722) (72,437) (80,980)
Depreciation (23,361) (24,308) (18,951) (15,224)
----------------------------------------------------
157,702 148,128 86,869 111,026
Corporate development
and exploration (3,975) (2,758) (2,524) (2,779)
General and
administration (4,767) (4,073) (6,288) (5,510)
Investment and other
income 50,331 3,533 (18,370) (78)
Stand-by costs - - - (6,753)
Interest expense (2,520) (3,480) (421) (452)
Capital tax expense (127) (82) (82) (82)
Income tax expense (54,180) (45,272) (15,167) (20,063)
Non-controlling interest 2,041 (9,910) 4,419 4,562
----------------------------------------------------
Net income $ 144,505 $ 86,086 $ 48,436 $ 79,871
----------------------------------------------------
Net income per common
share $ 2.53 $ 1.53 $ 0.86 $ 1.42
----------------------------------------------------
Diluted net income per
common share $ 2.53 $ 1.53 $ 0.86 $ 1.42
----------------------------------------------------
Previous Four Quarters
----------------------------------------------------------------------------
(thousands of Canadian 2009 2009 2009 2009
dollars, except per Fourth Third Second First
share amounts) quarter quarter quarter quarter
----------------------------------------------------------------------------
STATEMENTS OF EARNINGS
Gross sales $ 290,570 $ 241,121 $ 213,042 $ 239,152
Smelter processing
charges and freight (53,696) (41,607) (40,589) (40,540)
Cost of sales (74,995) (72,706) (73,827) (89,904)
Depreciation (17,911) (14,558) (13,604) (15,679)
----------------------------------------------------
143,968 112,250 85,022 93,029
Corporate development
and exploration (2,915) (1,963) (2,727) (3,232)
General and
administration (9,836) (5,147) (4,785) (4,124)
Investment and other
income 280 3,588 16,466 (11,203)
Asset impairment (3,496) - - (6,419)
Interest expense (496) (496) (493) (492)
Capital tax expense 69 (744) (125) (125)
Income tax expense (38,668) (39,244) (24,052) (18,890)
Non-controlling interest 857 (6,693) (2,778) 2,783
----------------------------------------------------
Net income $ 89,763 $ 61,551 $ 66,528 $ 51,327
----------------------------------------------------
Net income per common
share $ 1.60 $ 1.10 $ 1.37 $ 1.06
----------------------------------------------------
Diluted net income per
common share $ 1.60 $ 1.09 $ 1.36 $ 1.06
----------------------------------------------------
INMET MINING CORPORATION
Consolidated balance sheets
Note December 31 December 31
(thousands of Canadian dollars) reference 2010 2009
----------------------------------------------------------------------------
(unaudited)
Assets
Current assets:
Cash and short-term investments 4 $ 326,425 $ 533,913
Restricted cash 5 617 15,130
Accounts receivable 91,893 129,987
Inventories 84,077 103,108
Current portion of held to
maturity investments 8 53,915 9,993
Future income tax asset 27,614 8,466
Assets Held for Sale 6 282,255 -
-------------------------------
866,796 800,597
Restricted cash 5 70,059 101,589
Property, plant and equipment 1,921,843 1,860,616
Investments in equity securities 7 2,694 42,411
Held to maturity investments 8 318,615 89,891
Future income tax asset 1,336 6,151
Goodwill 76,368 -
Other assets 4,865 2,894
-------------------------------
$ 3,262,576 $ 2,904,149
----------------------------------------------------------------------------
Liabilities
Current liabilities:
Accounts payable and accrued
liabilities $ 153,111 $ 185,145
Derivatives - 1,543
Future income tax liabilities - 4,612
Liabilities associated with
assets held for sale 6 102,447 -
-------------------------------
255,558 191,300
Long-term debt 9 16,619 200,026
Asset retirement obligations 10 108,592 145,038
Derivatives - 3,165
Other liabilities 28,123 32,113
Future income tax liabilities 95,200 16,357
Non-controlling interest - 78,005
-------------------------------
504,092 666,004
-------------------------------
Commitments 11
Shareholders' equity
Share capital 1,015,698 669,952
Contributed surplus 64,972 63,296
Stock based compensation 6,542 5,170
Retained earnings 1,889,491 1,541,803
Accumulated other comprehensive
loss 13 (218,219) (42,076)
-------------------------------
2,758,484 2,238,145
-------------------------------
$ 3,262,576 $ 2,904,149
----------------------------------------------------------------------------
(see accompanying notes)
INMET MINING CORPORATION
Segmented balance sheets
2010 As at December 31
(unaudited) CORPORATE CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Assets
Cash and short-term
investments $ 53,184 $ 107,750 $ 59,866 $ 97,056
Other current assets 59,956 52,215 81,214 63,268
Restricted cash 16,906 - 51,521 1,632
Property, plant and
equipment 779 114,277 1,171,800 60,772
Investments in equity
securities 2,694 - - -
Held to maturity
investments 253,749 64,866 - -
Goodwill - - 76,368 -
Other non-current assets 3,482 2,719 - -
----------------------------------------------------
$ 390,750 $ 341,827 $ 1,440,769 $ 222,728
----------------------------------------------------
Liabilities
Current liabilities $ 15,788 $ 38,981 $ 47,220 $ 28,684
Long-term debt 16,619 - - -
Asset retirement
obligations 27,368 8,807 47,129 19,907
Other liabilities 4,478 6,204 17,441 -
Future income tax
liabilities - - 84,376 10,824
----------------------------------------------------
$ 64,253 $ 53,992 $ 196,166 $ 59,415
----------------------------------------------------
2010 As at December 31
(unaudited) TROILUS OK TEDI COBRE PANAMA TOTAL
----------------------------------------------------------------------------
(thousands of Canadian (Papua New
dollars) (Canada) Guinea) (Panama)
Assets
Cash and short-term
investments $ - $ - $ 8,569 $ 326,425
Other current assets 890 282,142 686 540,371
Restricted cash - - - 70,059
Property, plant and
equipment - - 574,215 1,921,843
Investments in equity
securities - - - 2,694
Held to maturity
investments - - - 318,615
Goodwill - - - 76,368
Other non-current assets - - - 6,201
----------------------------------------------------
$ 890 $ 282,142 $ 583,470 $ 3,262,576
----------------------------------------------------
Liabilities
Current liabilities $ 14,498 $ 102,447 $ 7,940 $ 255,558
Long-term debt - - - 16,619
Asset retirement
obligations 5,381 - - 108,592
Other liabilities - - - 28,123
Future income tax
liabilities - - - 95,200
----------------------------------------------------
$ 19,879 $ 102,447 $ 7,940 $ 504,092
----------------------------------------------------
2009 As at December 31
CORPORATE CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Assets
Cash and short-term
investments $ 251,570 $ 158,631 $ 10,039 $ 66,314
Other current assets 14,504 42,356 73,501 49,882
Restricted cash 16,492 - 56,878 1,854
Property, plant and
equipment 920 119,669 1,013,490 66,217
Investments in equity
securities 42,411 - - -
Held to maturity
investments 89,891 - - -
Other non-current assets 1,720 248 3,554 -
----------------------------------------------------
$ 417,508 $ 320,904 $ 1,157,462 $ 184,267
----------------------------------------------------
Liabilities
Current liabilities $ 22,416 $ 32,348 $ 29,173 $ 27,665
Long-term debt 18,094 - 181,932 -
Asset retirement
obligations 28,606 8,805 44,291 15,293
Derivatives - - - -
Other liabilities 4,714 5,541 20,019 -
Future income tax
liabilities 4,240 2,024 196 9,897
Non-controlling interest - - 78,005 -
----------------------------------------------------
$ 78,070 $ 48,718 $ 353,616 $ 52,855
----------------------------------------------------
2009 As at December 31
TROILUS OK TEDI COBRE PANAMA TOTAL
----------------------------------------------------------------------------
(thousands of Canadian (Papua New
dollars) (Canada) Guinea) (Panama)
Assets
Cash and short-term
investments $ - $ 36,631 $ 10,728 $ 533,913
Other current assets 24,030 61,943 468 266,684
Restricted cash - 26,365 - 101,589
Property, plant and
equipment 19,376 103,693 537,251 1,860,616
Investments in equity
securities - - - 42,411
Held to maturity
investments - - - 89,891
Other non-current assets - 3,523 - 9,045
----------------------------------------------------
$ 43,406 $ 232,155 $ 548,447 $ 2,904,149
----------------------------------------------------
Liabilities
Current liabilities $ 19,862 $ 48,981 $ 10,855 $ 191,300
Long-term debt - - - 200,026
Asset retirement
obligations 8,497 39,546 - 145,038
Derivatives - 3,165 - 3,165
Other liabilities - 1,839 - 32,113
Future income tax
liabilities - - - 16,357
Non-controlling interest - - - 78,005
----------------------------------------------------
$ 28,359 $ 93,531 $ 10,855 $ 666,004
----------------------------------------------------
INMET MINING CORPORATION
Consolidated statements of earnings
(unaudited)
Three Months Ended Year Ended
December 31 December 31
(thousands of
Canadian dollars
except per share Note
amounts) reference 2010 2009 2010 2009
----------------------------------------------------------------------------
Gross sales $ 318,128 $ 290,570 $1,098,087 $ 983,885
Smelter processing
charges and freight (38,440) (53,696) (166,754) (176,432)
Cost of sales (98,625) (74,995) (345,764) (311,432)
Depreciation (23,361) (17,911) (81,844) (61,752)
----------------------------------------------------------------------------
157,702 143,968 503,725 434,269
Corporate development
and exploration (3,975) (2,915) (12,036) (10,837)
General and
administration (4,767) (9,836) (20,638) (23,892)
Investment and other
income 14 50,331 280 35,416 9,131
Asset impairment - (3,496) - (9,915)
Stand-by costs - - (6,753) -
Interest expense (2,520) (496) (6,873) (1,977)
Capital tax expense (127) 69 (373) (925)
Income tax expense 15 (54,180) (38,668) (134,682) (120,854)
Non-controlling
interest 2,041 857 1,112 (5,831)
----------------------------------------------------------------------------
Net income $ 144,505 $ 89,763 $ 358,898 $ 269,169
----------------------------------------------------------------------------
Basic net income per
common share 16 $ 2.53 $ 1.60 $ 6.37 $ 5.14
----------------------------------------------------------------------------
Diluted net income
per common share 16 $ 2.53 $ 1.60 $ 6.35 $ 5.13
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average
shares outstanding
(000's) 57,053 56,107 56,345 52,334
----------------------------------------------------------------------------
(see accompanying notes)
INMET MINING CORPORATION
Segmented statements of earnings
(unaudited)
2010 For the year
ended December 31
CORPORATE CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Gross sales $ - $ 312,723 $ 128,643 $ 233,481
Smelter processing
charges and freight - (71,810) (298) (53,685)
Cost of sales (2,018) (86,249) (63,113) (55,831)
Depreciation - (12,212) (22,613) (7,678)
--------------------------------------------------------
(2,018) 142,452 42,619 116,287
Corporate
development and
exploration (7,340) (700) - (3,996)
General and
administration (20,638) - - -
Investment and other
income 36,815 (385) (423) -
Stand-by costs - - (6,753) -
Interest expense (1,766) - (5,107) -
Capital tax expense (373) - - -
Income tax (expense)
recovery (7,522) (32,379) 3,894 (27,868)
Non-controlling
interest - - 1,112 -
--------------------------------------------------------
Net income (loss) ($2,842) $ 108,988 $ 35,342 $ 84,423
--------------------------------------------------------
--------------------------------------------------------
2010 For the year
ended December 31
TROILUS OK TEDI COBRE PANAMA TOTAL
---------------------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Canada) Guinea) (Panama)
Gross sales $ 73,826 $ 349,414 $ - $ 1,098,087
Smelter processing
charges and freight (4,526) (36,435) - (166,754)
Cost of sales (42,849) (95,704) - (345,764)
Depreciation (10,850) (28,491) - (81,844)
-------------------------------------------------------
15,601 188,784 - 503,725
Corporate
development and
exploration - - - (12,036)
General and
administration - - - (20,638)
Investment and other
income (514) (77) - 35,416
Stand-by costs - - - (6,753)
Interest expense - - - (6,873)
Capital tax expense - - - (373)
Income tax (expense)
recovery - (70,807) - (134,682)
Non-controlling
interest - - - 1,112
-------------------------------------------------------
Net income (loss) $ 15,087 $ 117,900 $ - $ 358,898
-------------------------------------------------------
-------------------------------------------------------
2009 For the year
ended December 31
CORPORATE CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Gross sales $ - $ 305,091 $ - $ 184,991
Smelter processing
charges and freight - (82,126) - (50,896)
Cost of sales (7,594) (85,888) - (62,643)
Depreciation - (13,348) - (8,220)
--------------------------------------------------------
(7,594) 123,729 - 63,232
Corporate
development and
exploration (6,131) (1,458) - (3,248)
General and
administration (23,892) - - -
Investment and other
income (9,229) 631 20,861 (420)
Asset impairment
charges - (9,915) - -
Interest expense (1,977) - - -
Capital tax expense (925) - - -
Income tax expense (27,042) (19,788) (5,595) (12,016)
Non-controlling
interest - - (5,831) -
--------------------------------------------------------
Net income (loss) ($76,790) $ 93,199 $ 9,435 $ 47,548
--------------------------------------------------------
2009 For the year
ended December 31
TROILUS OK TEDI COBRE PANAMA TOTAL
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Canada) Guinea) (Panama)
Gross sales $ 199,879 $ 293,924 $ - $ 983,885
Smelter processing
charges and freight (13,740) (29,670) - (176,432)
Cost of sales (64,852) (90,455) - (311,432)
Depreciation (16,642) (23,542) - (61,752)
------------------------------------------------------
104,645 150,257 - 434,269
Corporate
development and
exploration - - - (10,837)
General and
administration - - - (23,892)
Investment and other
income 677 (3,389) - 9,131
Asset impairment
charges - - - (9,915)
Interest expense - - - (1,977)
Capital tax expense - - - (925)
Income tax expense - (56,413) - (120,854)
Non-controlling
interest - - - (5,831)
------------------------------------------------------
Net income (loss) $ 105,322 $ 90,455 $ - $ 269,169
------------------------------------------------------
INMET MINING CORPORATION
Segmented statements of earnings
(unaudited)
2010 For the three
months ended
December 31
CORPORATE CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Gross sales $ - $ 68,694 $ 66,794 $ 72,780
Smelter processing
charges and freight - (14,593) (271) (13,876)
Cost of sales (495) (20,297) (32,233) (15,221)
Depreciation - (2,051) (12,285) (2,041)
--------------------------------------------------------
--------------------------------------------------------
(495) 31,753 22,005 41,642
Corporate
development and
exploration (2,619) (249) - (1,107)
General and
administration (4,767) - - -
Investment and other
income 52,635 (1,335) (892) -
Interest expense (454) - (2,066) -
Capital tax expense (127) - - -
Income tax (expense)
recovery (6,878) (10,646) 192 (10,968)
Non-controlling
interest - - 2,041 -
--------------------------------------------------------
Net income (loss) $ 37,295 $ 19,523 $ 21,280 $ 29,567
--------------------------------------------------------
--------------------------------------------------------
2010 For the three
months ended
December 31
TROILUS OK TEDI COBRE PANAMA TOTAL
--------------------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Canada) Guinea) (Panama)
Gross sales $ 1,756 $ 108,104 $ - $ 318,128
Smelter processing
charges and freight - (9,700) - (38,440)
Cost of sales (8,513) (21,866) - (98,625)
Depreciation (28) (6,956) - (23,361)
------------------------------------------------------
------------------------------------------------------
(6,785) 69,582 - 157,702
Corporate
development and
exploration - - - (3,975)
General and
administration - - - (4,767)
Investment and other
income (33) (44) - 50,331
Interest expense - - - (2,520)
Capital tax expense - - - (127)
Income tax (expense)
recovery - (25,880) - (54,180)
Non-controlling
interest - - - 2,041
------------------------------------------------------
Net income (loss) ($6,818) $ 43,658 $ - $ 144,505
------------------------------------------------------
------------------------------------------------------
2009 For the three
months ended
December 31
CORPORATE CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Gross sales $ - $ 113,747 $ - $ 59,747
Smelter processing
charges and freight - (27,032) - (17,094)
Cost of sales (6,193) (25,339) - (16,564)
Depreciation - (3,522) - (1,983)
-------------------------------------------------------
(6,193) 57,854 - 24,106
Corporate development
and exploration (1,550) (487) - (878)
General and
administration (9,836) - - -
Investment and other
income 1,569 (191) (1,041) 1
Asset impairment
charges - (3,496) - -
Interest expense (496) - - -
Capital tax expense 69 - - -
Income tax (expense)
recovery (4,654) (12,516) 2,354 (5,372)
Non-controlling
interest - - 857 -
-------------------------------------------------------
Net income (loss) ($21,091) $ 41,164 $ 2,170 $ 17,857
-------------------------------------------------------
-------------------------------------------------------
2009 For the three
months ended
December 31
TROILUS OK TEDI COBRE PANAMA TOTAL
---------------------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Canada) Guinea) (Panama)
Gross sales $ 41,203 $ 75,873 $ - $ 290,570
Smelter processing
charges and freight (2,750) (6,820) - (53,696)
Cost of sales (11,899) (15,000) - (74,995)
Depreciation (6,521) (5,885) - (17,911)
------------------------------------------------------
20,033 48,168 - 143,968
Corporate development
and exploration - - - (2,915)
General and
administration - - - (9,836)
Investment and other
income 32 (90) - 280
Asset impairment
charges - - - (3,496)
Interest expense - - - (496)
Capital tax expense - - - 69
Income tax (expense)
recovery - (18,480) - (38,668)
Non-controlling
interest - - - 857
------------------------------------------------------
Net income (loss) $ 20,065 $ 29,598 $ - $ 89,763
------------------------------------------------------
------------------------------------------------------
INMET MINING CORPORATION
Consolidated statements of cash flows
(unaudited)
Three Months Ended
December 31 Year Ended December 31
(thousands of Note
Canadian dollars) reference 2010 2009 2010 2009
----------------------------------------------------------------------------
Cash provided by
(used in)
operating
activities (1)
Net income $ 144,505 $ 89,763 $ 358,898 $ 269,169
Add (deduct) items
not affecting
cash:
Depreciation 23,361 17,911 81,844 61,752
Future income tax 8,051 (2,393) (7,087) 14,353
Accretion expense
on asset
retirement
obligations and
capital leases 2,301 889 7,128 4,544
Non-controlling
interest (2,041) (857) (1,112) 5,831
Asset impairment - 3,496 - 9,915
Foreign exchange
loss (gain) 568 4,874 22,421 (1,023)
Gain on
recognition of
foreign currency
forward contract
settlement - - - (35,615)
Loss on
recognition of
interest rate
swap contract
settlement - - - 14,823
Increase in asset
retirement
obligations at
closed
properties 10 7,803 5,672 7,803 5,672
Gain on
disposition of
equity
securities (50,280) - (50,280) -
Other 2,820 (469) 9,448 10,339
Settlement of
asset retirement
obligations (3,621) (1,565) (9,719) (6,414)
Net change in non-
cash working
capital 3 1,865 8,460 (10,011) (30,595)
------------------------------------------------
135,332 125,781 409,333 322,751
------------------------------------------------
Cash provided by
(used in)
investing
activities
Purchase of
property, plant
and equipment (63,343) (63,353) (143,963) (268,264)
Acquisition of
non-controlling
interest in Las
Cruces 2 (150,600) - (150,600) -
Funding received
under Cobre
Panama option
agreement 4,065 3,425 14,427 3,425
Purchase of held
to maturity
investments 8 - - (295,846) (100,000)
Maturing of held
to maturity
investments 26,097 - 26,097 -
Sale of equity
securities 14 61,827 - 61,827 -
Sale (purchase) of
short-term
investments (7,296) (29) 19,700 8,678
Sale of assets -
Troilus 348 - 5,850 -
Other (842) - (842) -
------------------------------------------------
(129,744) (59,957) (463,350) (356,161)
------------------------------------------------
Cash provided by
(used in)
financing
activities
Long-term debt
repayments - - - (314,603)
Issuance of common
shares - - - 334,284
Funding by non-
controlling
shareholder - 1,398 2,835 51,015
Financial
assurance
deposits 2,166 (11,539) 944 (63,357)
Dividends paid on
common shares (5,600) (5,612) (11,210) (10,440)
Settlement of
interest rate
swap contract - - - (15,982)
Subsidies received 578 - 938 70,939
Other (579) (541) (2,779) (1,882)
------------------------------------------------
------------------------------------------------
(3,435) (16,294) (9,272) 49,974
------------------------------------------------
------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency (13,927) (12,271) (31,646) (46,706)
------------------------------------------------
Reclassification
of our share of
Ok Tedi cash to
assets held for
sale 6 (92,853) - (92,853) -
------------------------------------------------
Increase
(decrease) in
cash (104,627) 37,259 (187,788) (30,142)
Cash:
Beginning of
period 423,756 469,658 506,917 537,059
------------------------------------------------
End of period 319,129 506,917 319,129 506,917
Short-term
investments 7,296 26,996 7,296 26,996
------------------------------------------------
------------------------------------------------
Cash and short-
term investments $ 326,425 $ 533,913 $ 326,425 $ 533,913
----------------------------------------------------------------------------
(see accompanying
notes)
(1) Supplementary
cash flow
information:
Cash interest
paid $ - $ - $ 1,146 $ 10,867
Cash taxes paid $ 32,362 $ 20,192 $ 129,928 $ 38,020
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INMET MINING CORPORATION
Segmented statements of cash flows
(unaudited)
2010 For the year
ended December 31
CORPORATE CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Cash provided by
(used in) operating
activities
Before net change
in non-cash
working capital $ (33,475) $ 118,705 $ 60,636 $ 94,656
Net change in non-
cash working
capital (11,585) (1,867) (1,157) (14,550)
--------------------------------------------------------
(45,060) 116,838 59,479 80,106
--------------------------------------------------------
--------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment (222) (14,911) (23,978) (3,974)
Acquisition of non-
controlling
interest in Las
Cruces (150,600)
Funding received-
Cobre Panama
option agreement - - - -
Purchase of held to
maturity
investments (228,500) (67,346) - -
Maturing of held to
maturity
investments 26,097 - - -
Sale of equity
investments 61,827 - - -
Sale (purchase) of
short-term
investments 26,996 - (7,296) -
Sale of assets - - - -
Other (842) - - -
--------------------------------------------------------
--------------------------------------------------------
(265,244) (82,257) (31,274) (3,974)
--------------------------------------------------------
Cash provided by
(used in) financing
activities (11,919) - 13,201 -
--------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (9,954) (2,768) (14,388)
Reclassification of
Ok Tedi cash to
assets held for
sale - - - -
--------------------------------------------------------
Intergroup funding
(distributions) 150,833 (75,508) 3,893 (31,002)
--------------------------------------------------------
Increase (decrease)
in cash (171,390) (50,881) 42,531 30,742
Cash:
Beginning of period 224,574 158,631 10,039 66,314
--------------------------------------------------------
End of period 53,184 107,750 52,570 97,056
Short-term
investments - - 7,296 -
--------------------------------------------------------
Cash and short-term
investments $ 53,184 $ 107,750 $ 59,866 $ 97,056
--------------------------------------------------------
--------------------------------------------------------
2010 For the year
ended December 31
TROILUS OK TEDI COBRE PANAMA TOTAL
----------------------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Canada) Guinea) (Panama)
Cash provided by
(used in) operating
activities
Before net change
in non-cash
working capital $ 30,614 $ 148,208 $ - $ 419,344
Net change in non-
cash working
capital 12,941 6,207 - (10,011)
--------------------------------------------------------
43,555 154,415 - 409,333
--------------------------------------------------------
--------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment - (16,344) (84,534) (143,963)
Acquisition of non-
controlling
interest in Las
Cruces (150,600)
Funding received-
Cobre Panama
option agreement - - 14,427 14,427
Purchase of held to
maturity
investments - - - (295,846)
Maturing of held to
maturity
investments - - - 26,097
Sale of equity
investments - - - 61,827
Sale (purchase) of
short-term
investments - - - 19,700
Sale of assets 5,850 - - 5,850
Other - - - (842)
--------------------------------------------------------
--------------------------------------------------------
5,850 (16,344) (70,107) (463,350)
--------------------------------------------------------
Cash provided by
(used in) financing
activities - (10,554) - (9,272)
--------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (4,177) (359) (31,646)
Reclassification of
Ok Tedi cash to
assets held for
sale - (92,853) - (92,853)
--------------------------------------------------------
Intergroup funding
(distributions) (49,405) (67,118) 68,307 -
--------------------------------------------------------
Increase (decrease)
in cash - (36,631) (2,159) (187,788)
Cash:
Beginning of period - 36,631 10,728 506,917
--------------------------------------------------------
End of period - - 8,569 319,129
Short-term
investments - - - 7,296
--------------------------------------------------------
Cash and short-term
investments $ - $ - $ 8,569 $ 326,425
--------------------------------------------------------
--------------------------------------------------------
2009 For the year
ended December 31
CORPORATE CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Cash provided by
(used in) operating
activities
Before net change
in non-cash
working capital $ (58,561) $ 109,148 $ - $ 59,423
Net change in non-
cash working
capital 1,634 (12,846) - 2,017
--------------------------------------------------------
(56,927) 96,302 - 61,440
--------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment (304) (14,855) (138,769) (7,870)
Purchase of long-
term investments (100,000) - - -
Funding received
under Cobre Panama
option agreement - - -
Purchase of short-
term investments 8,678 - - -
--------------------------------------------------------
--------------------------------------------------------
(91,626) (14,855) (138,769) (7,870)
--------------------------------------------------------
Cash provided by
(used in) financing
activities 323,524 - (261,874) -
--------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (25,418) (1,219) (8,757)
--------------------------------------------------------
Intergroup funding
(distributions) (155,961) (90,279) 377,920 (44,475)
--------------------------------------------------------
Increase (decrease)
in cash 19,010 (34,250) (23,942) 338
Cash:
Beginning of period 205,564 192,881 33,981 65,976
--------------------------------------------------------
End of period 224,574 158,631 10,039 66,314
Short-term
investments 26,996 - - -
--------------------------------------------------------
Cash and short-term
investments $ 251,570 $ 158,631 $ 10,039 $ 66,314
--------------------------------------------------------
--------------------------------------------------------
2009 For the year
ended December 31
TROILUS OK TEDI COBRE PANAMA TOTAL
----------------------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Canada) Guinea) (Panama)
Cash provided by
(used in) operating
activities
Before net change
in non-cash
working capital $ 119,404 $ 123,932 $ - $ 353,346
Net change in non-
cash working
capital (830) (20,570) - (30,595)
--------------------------------------------------------
118,574 103,362 - 322,751
--------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment - (21,236) (85,230) (268,264)
Purchase of long-
term investments - - - (100,000)
Funding received
under Cobre Panama
option agreement - - 3,425 3,425
Purchase of short-
term investments - - - 8,678
--------------------------------------------------------
--------------------------------------------------------
- (21,236) (81,805) (356,161)
--------------------------------------------------------
Cash provided by
(used in) financing
activities - (11,676) - 49,974
--------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (10,270) (1,042) (46,706)
--------------------------------------------------------
Intergroup funding
(distributions) (118,574) (61,096) 92,465 -
--------------------------------------------------------
Increase (decrease)
in cash - (916) 9,618 (30,142)
Cash:
Beginning of period - 37,547 1,110 537,059
--------------------------------------------------------
End of period - 36,631 10,728 506,917
Short-term
investments - - - 26,996
--------------------------------------------------------
Cash and short-term
investments $ - $ 36,631 $ 10,728 $ 533,913
--------------------------------------------------------
--------------------------------------------------------
INMET MINING CORPORATION
Segmented statements of cash flows
(unaudited)
2010 For the three
months ended
December 31
CORPORATE CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Cash provided by
(used in) operating
activities
Before net change
in non-cash
working capital $ (9,430) $ 19,766 $ 35,141 $ 33,074
Net change in non-
cash working
capital (2,767) 22,612 (1,215) (6,460)
--------------------------------------------------------
(12,197) 42,378 33,926 26,614
--------------------------------------------------------
--------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment (90) (6,682) (31,812) (710)
Acquisition of non-
controlling
interest in Las
Cruces (150,600) - - -
Funding received-
Cobre Panama
option agreement - - - -
Maturing of Held to
maturity
investments 26,097 - - -
Sale of short-term
investments - - (7,296) -
Sale of equity
investments 61,827 - - -
Other (842) - - -
--------------------------------------------------------
(63,608) (6,682) (39,108) (710)
--------------------------------------------------------
Cash used in
financing
activities (5,810) - 11,641 -
--------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (3,398) (2,812) (4,660)
Reclassification of
Ok Tedi cash to
assets held for
sale - - - -
--------------------------------------------------------
Intergroup funding
(distributions) (12,182) 373 (1,389) (3,018)
--------------------------------------------------------
--------------------------------------------------------
Increase (decrease)
in cash (93,797) 32,671 2,258 18,226
Cash:
Beginning of period 146,981 75,079 50,312 78,830
--------------------------------------------------------
End of period 53,184 107,750 52,570 97,056
Short-term
investments - - 7,296 -
--------------------------------------------------------
Cash and short-term
investments $ 53,184 $ 107,750 $ 59,866 $ 97,056
--------------------------------------------------------
--------------------------------------------------------
2010 For the three
months ended
December 31
TROILUS OK TEDI COBRE PANAMA TOTAL
----------------------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Canada) Guinea) (Panama)
Cash provided by
(used in) operating
activities
Before net change
in non-cash
working capital $ (855) $ 55,771 $ - $ 133,467
Net change in non-
cash working
capital 649 (10,954) - 1,865
--------------------------------------------------------
(206) 44,817 - 135,332
--------------------------------------------------------
--------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment - (4,481) (19,568) (63,343)
Acquisition of non-
controlling
interest in Las
Cruces - - - (150,600)
Funding received-
Cobre Panama
option agreement - - 4,065 4,065
Maturing of Held to
maturity
investments - - - 26,097
Sale of short-term
investments - - - (7,296)
Sale of equity
investments - - - 61,827
Other 348 - - (494)
--------------------------------------------------------
348 (4,481) (15,503) (129,744)
--------------------------------------------------------
Cash used in
financing
activities - (9,266) - (3,435)
--------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (2,686) (371) (13,927)
Reclassification of
Ok Tedi cash to
assets held for
sale - (92,853) - (92,853)
--------------------------------------------------------
Intergroup funding
(distributions) (142) (364) 16,722 -
--------------------------------------------------------
--------------------------------------------------------
Increase (decrease)
in cash - (64,833) 848 (104,627)
Cash:
Beginning of period - 64,833 7,721 423,756
--------------------------------------------------------
End of period - - 8,569 319,129
Short-term
investments - - - 7,296
--------------------------------------------------------
Cash and short-term
investments $ - $ - $ 8,569 $ 326,425
--------------------------------------------------------
--------------------------------------------------------
2009 For the three
months ended
December 31
CORPORATE CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Cash provided by
(used in) operating
activities
Before net change
in non-cash
working capital $ (8,729) $ 48,435 $ - $ 21,537
Net change in non-
cash working
capital 687 2,766 - (5,992)
--------------------------------------------------------
(8,042) 51,201 - 15,545
--------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment (26) (4,224) (30,622) (2,047)
Purchase of short-
term investments (29) - - -
Funding received-
Cobre Panama
option agreement - - - -
--------------------------------------------------------
(55) (4,224) (30,622) (2,047)
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
Cash used in
financing
activities (5,677) - (10,906) -
--------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (4,906) (488) (3,295)
--------------------------------------------------------
--------------------------------------------------------
Intergroup funding
(distributions) 85,411 (939) (1,018) (34,552)
--------------------------------------------------------
Increase (decrease)
in cash 71,637 41,132 (43,034) (24,349)
Cash:
Beginning of period 152,937 117,499 53,073 90,663
--------------------------------------------------------
End of period 224,574 158,631 10,039 66,314
Short-term
investments 26,996 - - -
--------------------------------------------------------
Cash and short-term
investments $ 251,570 $ 158,631 $ 10,039 $ 66,314
--------------------------------------------------------
2009 For the three
months ended
December 31
TROILUS OK TEDI COBRE PANAMA TOTAL
----------------------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Canada) Guinea) (Panama)
Cash provided by
(used in) operating
activities
Before net change
in non-cash
working capital $ 23,291 $ 32,787 $ - $ 117,321
Net change in non-
cash working
capital 1,665 9,334 - 8,460
--------------------------------------------------------
24,956 42,121 - 125,781
--------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment - (11,329) (15,105) (63,353)
Purchase of short-
term investments - - - (29)
Funding received-
Cobre Panama
option agreement - - 3,425 3,425
--------------------------------------------------------
- (11,329) (11,680) (59,957)
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
Cash used in
financing
activities - 289 - (16,294)
--------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (2,658) (924) (12,271)
--------------------------------------------------------
--------------------------------------------------------
Intergroup funding
(distributions) (24,956) (42,872) 18,926 -
--------------------------------------------------------
Increase (decrease)
in cash - (14,449) 6,322 37,259
Cash:
Beginning of period - 51,080 4,406 469,658
--------------------------------------------------------
End of period - 36,631 10,728 506,917
Short-term
investments - - - 26,996
--------------------------------------------------------
Cash and short-term
investments $ - $ 36,631 $ 10,728 $ 533,913
--------------------------------------------------------
INMET MINING CORPORATION
Consolidated statements of retained earnings
(unaudited)
Three Months Ended Year Ended
Dec 31 Dec 31
(thousands of
Canadian dollars) 2010 2009 2010 2009
----------------------------------------------------------------------------
Retained earnings,
beginning of
period $1,750,586 $1,457,652 $1,541,803 $1,283,074
Net income 144,505 89,763 358,898 269,169
Dividends on
common shares (5,600) (5,612) (11,210) (10,440)
----------------------------------------------------------------------------
Retained earnings,
end of period $1,889,491 $1,541,803 $1,889,491 $1,541,803
----------------------------------------------------------------------------
(see accompanying
notes)
Consolidated statements of comprehensive income (loss)
(unaudited)
Three Months Ended Year Ended
Dec 31 Dec 31
(thousands of Note
Canadian dollars) reference 2010 2009 2010 2009
----------------------------------------------------------------------------
Net income $ 144,505 $ 89,763 $ 358,898 $ 269,169
------------------------------------------------
Other
comprehensive
income (loss) for
the period:
Changes in fair
value of gold
forward sales
contracts (435) (1,404) (1,372) (3,284)
Changes in fair
value of
interest rate
swap contracts - - 3,903
Changes in fair
value of
investments 7,855 14,214 21,168 24,601
Currency
translation
adjustments (83,239) (58,206) (173,593) (233,004)
Reclassification
to net income of
gains/losses
realized:
Gain on
disposition of
equity
investments (50,280) - (50,280) -
Amortization of
gain on foreign
exchange forward
contracts - - - (5,657)
Recognition of
gain on foreign
exchange forward
contract - - - (28,158)
Recognition of
loss on interest
rate swap
contract - - - 11,711
Foreign exchange
loss on
reduction of net
investment in
self-sustaining
foreign
operations 14 - 3,649 22,656 1,176
Income tax expense
related to other
comprehensive
income 17 6,303 (1,960) 5,278 3,725
------------------------------------------------
------------------------------------------------
(119,796) (43,707) (176,143) (224,987)
------------------------------------------------
Comprehensive
income $ 24,709 $ 46,056 $ 182,755 $ 44,182
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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. Acquisition
On December 15, 2010, we acquired Leucadia National Corporation's (Leucadia's) 30 percent indirect equity interest and subordinated sponsor loans in Las Cruces for total value of $496.9 million. The purchase consideration was comprised of $150.6 million cash and the issuance of 5.4 million Inmet common shares. In addition, Leucadia was released from its guarantee of US $72 million debt owed by Las Cruces to an affiliate of Inmet as a result of the re-financing of its project facility in 2009.
The tables below show the fair value of the assets we acquired and the liabilities we assumed on the date of acquisition based on the consideration paid.
Consideration:
Common shares issued(1) $ 345,916
Cash 150,600
Transaction costs 384
----------------------------------------------------------------------------
Cost of acquisition $ 496,900
----------------------------------------------------------------------------
Consideration for sponsor loans (note 9) $ 173,662
Consideration for 30 percent of Las Cruces $ 323,238
----------------------------------------------------------------------------
(1) Based on the average closing Inmet share price for the three days
before and after announcement.
----------------------------------------------------------------------------
Assets acquired:
Cash $ 20,911
Other current assets 21,303
Property, plant and equipment 546,276
Other assets 17,606
Goodwill 76,368
----------------------------------------------------------------------------
682,464
Liabilities assumed:
Other current liabilities (17,651)
Loans to affiliates (247,664)
Future income tax liability (74,490)
Other liabilities (19,421)
----------------------------------------------------------------------------
(359,226)
----------------------------------------------------------------------------
Net assets acquired $ 323,238
----------------------------------------------------------------------------
----------------------------------------------------------------------------
We recognized goodwill of $76.4 million as a result of the requirement to record future income tax liabilities calculated as the difference between the tax effect of the fair value of the assets and liabilities acquired and their tax bases. This goodwill will not be deductible for tax purposes and has been allocated to the Las Cruces segment.
We have included 70 percent of Las Cruces' earnings in our consolidated statement of earnings to December 15, 2010 and 100 percent thereafter.
3. Statement of cash flows
The following tables show the components of our net change in non-cash working capital by segment.
For the twelve months ended December 31, 2010
----------------------------------------------------------------------------
(thousands) Corporate Cayeli Las Cruces Pyhasalmi
----------------------------------------------------------------------------
Accounts receivable $ (2,281) $ 2,151 $ (1,290) $ (18,318)
Inventories - (8,657) (11,232) (537)
Accounts payable and
accrued liabilities (281) (2,291) 11,802 (1,442)
Taxes (8,853) 8,118 (222) 5,747
Other (170) (1,188) (215) -
----------------------------------------------------------------------------
$ (11,585) $ (1,867) $ (1,157) $ (14,550)
----------------------------------------------------------------------------
-------------------------------------------------------------
(thousands) Troilus Ok Tedi Total
-------------------------------------------------------------
Accounts receivable $ 12,570 $ (5,377) $ (12,545)
Inventories 9,881 530 (10,015)
Accounts payable and
accrued liabilities (9,510) 2,440 718
Taxes - 10,560 15,350
Other - (1,946) (3,519)
-------------------------------------------------------------
$ 12,941 $ 6,207 $ (10,011)
-------------------------------------------------------------
For the twelve months ended December 31, 2009
(thousands) Corporate Cayeli Las Cruces Pyhasalmi
----------------------------------------------------------------------------
Accounts receivable $ (554) $ (19,217) $ - $ (24,839)
Inventories - (75) - (604)
Accounts payable and
accrued liabilities (718) (3,903) - 10,948
Taxes 6,551 10,193 - 16,512
Other (3,645) 156 - -
----------------------------------------------------------------------------
$ 1,634 $ (12,846) $ - $ 2,017
----------------------------------------------------------------------------
(thousands) Troilus Ok Tedi Total
---------------------------------------------------------------
Accounts receivable $ (3,644) $ (47,400) $ (95,654)
Inventories 7,871 (9,531) (2,339)
Accounts payable and
accrued liabilities (5,057) 5,401 6,671
Taxes - 29,971 63,227
Other - 989 (2,500)
---------------------------------------------------------------
$ (830) $ (20,570) $ (30,595)
---------------------------------------------------------------
For the three months ended December 31, 2010
----------------------------------------------------------------------------
(thousands) Corporate Cayeli Las Cruces Pyhasalmi
----------------------------------------------------------------------------
Accounts receivable $ (806) $ 19,545 $ (613) $ (17,793)
Inventories - (6,329) (9,101) 857
Accounts payable and
accrued liabilities (3,847) 716 8,936 3,799
Taxes 2,052 8,591 (222) 6,677
Other (166) 89 (215) -
----------------------------------------------------------------------------
$ (2,767) $ 22,612 $ (1,215) $ (6,460)
----------------------------------------------------------------------------
-------------------------------------------------------------
(thousands) Troilus Ok Tedi Total
-------------------------------------------------------------
Accounts receivable $ 1,779 $ (8,601) $ (6,489)
Inventories 89 (4,963) (19,447)
Accounts payable and
accrued liabilities (1,219) 2,617 11,002
Taxes - (26) 17,072
Other - 19 (273)
-------------------------------------------------------------
$ 649 $ (10,954) $ 1,865
-------------------------------------------------------------
For the three months ended December 31, 2009
----------------------------------------------------------------------------
(thousands) Corporate Cayeli Las Cruces Pyhasalmi
----------------------------------------------------------------------------
Accounts receivable $ (282) $ (1,543) $ - $ (16,731)
Inventories - 510 - (229)
Accounts payable and
accrued liabilities 601 (4,931) - 8,323
Taxes 1,304 8,572 - 2,645
Other (936) 158 - -
----------------------------------------------------------------------------
$ 687 $ 2,766 $ - $ (5,992)
----------------------------------------------------------------------------
---------------------------------------------------------------
(thousands) Troilus Ok Tedi Total
---------------------------------------------------------------
Accounts receivable $ (2,464) $ 5,908 $ (15,112)
Inventories 2,443 (10,680) (7,956)
Accounts payable and
accrued liabilities 1,686 6,200 11,879
Taxes - 6,125 18,646
Other - 1,781 1,003
---------------------------------------------------------------
$ 1,665 $ 9,334 $ 8,460
---------------------------------------------------------------
4. Cash and short-term investments
----------------------------------------------------------------------------
December 31 December 31
(thousands) 2010 2009
----------------------------------------------------------------------------
Cash:
Liquidity funds $ 194,603 $ 205,190
Bankers' acceptances - 92,200
Money market funds 40,048 19,951
Term deposits 52,991 40,140
Overnight deposits 4,319 54,435
Bank deposits 27,168 95,001
----------------------------------------------------------------------------
319,129 506,917
Short-term investments:
Corporate - 26,996
Term deposits 7,296 -
----------------------------------------------------------------------------
7,296 26,996
----------------------------------------------------------------------------
Total cash and short-term investments $ 326,425 $ 533,913
----------------------------------------------------------------------------
5. Restricted cash
----------------------------------------------------------------------------
December 31 December 31
(thousands) 2010 2009
----------------------------------------------------------------------------
Collateralized cash for letter of
credit facility - Inmet Mining $ 16,906 $ 16,492
In trust for Ok Tedi reclamation - 26,365
Collateralized cash for letters of
credit - Las Cruces 52,138 72,008
Collateralized cash for Pyhasalmi
reclamation 1,632 1,854
----------------------------------------------------------------------------
70,676 116,719
Less current portion:
Collateralized cash for letters of
credit - Las Cruces (617) (15,130)
----------------------------------------------------------------------------
$ 70,059 $ 101,589
----------------------------------------------------------------------------
6. Sale of our interest in Ok Tedi
On December 2, 2010, we reached an agreement with Ok Tedi Mining Limited for it to repurchase our 18 percent equity interest in Ok Tedi for US $335 million. Our net proceeds after withholding taxes in Papua New Guinea were US $307 million. The transaction closed on January 28, 2011. At December 31, 2010, we have recognized our interest in Ok Tedi as held for sale.
The table below shows the components of our assets held for sale relating to Ok Tedi at December 31, 2010:
Cash and short term investments 92,853
Accounts receivable 29,413
Inventories 34,934
Restricted cash 36,556
Property, plant and equipment 85,200
Future income tax asset 1,693
Other assets 1,493
----------------------------------------------------------------------------
282,142
----------------------------------------------------------------------------
The table below shows the components of our liabilities associated with assets held for sale relating to Ok Tedi at December 31, 2010:
Accounts payable and accrued liabilities 53,003
Future income tax liability 4,102
Asset retirement obligations 38,505
Derivative liabilities 5,656
Other liabilities 1,181
----------------------------------------------------------------------------
102,447
----------------------------------------------------------------------------
7. Investments in equity securities
----------------------------------------------------------------------------
December 31 December 31
(thousands) 2010 2009
----------------------------------------------------------------------------
Available-for-sale equity securities:
Premier Gold Mines Ltd (9.5 million
shares) $ - $ 39,501
Other 2,694 2,910
----------------------------------------------------------------------------
$ 2,694 $ 42,411
----------------------------------------------------------------------------
8. Held to maturity investments
In 2010, we purchased $229 million of long-term Canadian and Provincial government bonds, Cayeli purchased $67 million of US Treasury bonds, and bonds with a face value of $26.1 million matured and were converted to cash. The bonds, with credit ratings of A to AAA, mature between February 2011 and December 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.
9. Long-term debt
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, December 31,
2010 2009
----------------------------------------------------------------------------
Promissory note $ 16,619 $ 18,094
Loans from non-controlling shareholder - 181,932
----------------------------------------------------------------------------
$ 16,619 $ 200,026
----------------------------------------------------------------------------
On December 15, 2010, we acquired Leucadia's portion of these loans for $173.7 million, eliminating these loans from our consolidated balance sheet (note 2). Prior to this, we classified Leucadia's portion of the advances as long-term debt.
10. Asset retirement obligations
In 2010, we recorded additional liabilities at Las Cruces of $5.7 million mainly as a result of mining and pit development activities during the year. We also recognized additional liabilities at Pyhasalmi of $5.7 million mainly as a result of a change in our mine waste and tailings reclamation approach.
In 2010, we concluded operations at Troilus and this operation is accounted for as a closed site. We recognized additional liabilities of $7.8 million at Troilus mainly for environmental monitoring, owner and other closure costs.
11. Commitments
Capital commitments
Our operations have the following capital commitments as at December 31, 2010:
-- Las Cruces committed $5.1 million for the purchase of plant equipment.
-- Cobre Panama committed $136.5 million for the design and supply of two
SAG mills, four ball mills and the related gearless drives, and for
basic engineering.
12. 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 agreed to buy 9.26 million subscription receipts at a price of $54.0049 each, exchangeable on a one-for-one basis for Inmet common shares, for total proceeds of $500 million.
On December 23, 2010, the agreement was amended such that each subscription receipt will now be exchangeable for 0.840283 of an Inmet common share, representing a subscription price per Inmet common share of $64.2699, or a 15 percent discount to the five day volume-weighted average price of Inmet common shares on the Toronto Stock Exchange as at December 22, 2010. The subscription receipts will now be automatically exchanged no later than 150 days after the coming into effect of legislation to amend the Code as described below. Upon exchange of the subscription receipts, Inmet's issued and outstanding shares will increase to 69.3 million common shares. Temasek will receive 7.78 million Inmet common shares, that would represent approximately 11.2 percent of Inmet's issued and outstanding common shares at that time, on a non-diluted basis.
The subscription receipts are exchangeable into Inmet common shares, subject to the satisfaction of certain conditions, including the coming into effect of legislation passed by the legislative assembly of the Republic of Panama amending Panama's Mineral Resources Code (the '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 and Temasek have also amended the investor rights agreement previously executed between them that will take effect upon exchange of the subscription receipts for common shares. Under the amended investor rights agreements, subject to certain conditions and exceptions, Temasek and members of its group will now be permitted to divest their Inmet common shares (or economic interest therein), or increase their ownership of Inmet common shares, after a period of four months following the exchange of the subscription receipts for Inmet common shares.
The subscription receipt proceeds will remain in escrow pending exchange of the subscription receipts for common shares. On completion of the exchange, the escrowed funds will be released to Inmet and the proceeds will be used by Inmet for the development of its Cobre Panama project and for general corporate purposes.
The legislation to amend the Code passed final reading in the Panamanian Assembly and came into effect in February 2011. We expect to exchange the Temasek subscription receipts for common shares before June 30, 2011.
13. 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 twelve months ending December
31, 2010 (176,143)
----------------------------------------------------------------------------
AOCL, December 31, 2010 $ (218,219)
----------------------------------------------------------------------------
AOCL December 31, 2010 comprises:
Unrealized losses on gold forward sales contracts (net of tax
$2,427) $ (5,661)
Unrealized gains on investments (net of tax of $54) (452)
Currency translation adjustment (212,106)
----------------------------------------------------------------------------
AOCL, December 31, 2010 $ (218,219)
----------------------------------------------------------------------------
The table below shows the breakdown of the currency translation adjustments included in AOCL.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, December 31,
2010 2009
----------------------------------------------------------------------------
Pyhasalmi (euro functional currency) $ (24,413) $ (5,308)
Las Cruces (euro functional currency) (100,247) (8,793)
Cayeli (US dollar functional
currency) (23,277) (20,901)
Ok Tedi (US dollar functional
currency) (22,053) (13,751)
Cobre Panama (US dollar functional
currency) (42,116) (12,416)
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$ (212,106) $ (61,169)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Canadian dollar to US dollar exchange rate was $0.99 at December 31, 2010 and $1.05 at December 31, 2009. The Canadian dollar to euro exchange rate was $1.33 at December 31, 2010 and $1.50 at December 31, 2009.
14. Investment and other income
Investment and other income are summarized as follows:
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Interest income $ 2,887 $ 828 $ 8,234 $ 4,706
Foreign exchange gain
(loss) (1,755) (4,836) (23,896) (14,155)
Loss on recognition
of settlement of Las
Cruces interest rate
swap contract - - - (14,823)
Gain on recognition
of settlement of Las
Cruces foreign
exchange forward
contract - - - 35,615
Dividend and royalty
income 634 350 3,173 1,335
Mark to market on Ok
Tedi copper forward
contracts - (125) - (3,353)
Sale of investment in
Premier Gold Mines
Ltd. 50,505 - 50,505 -
Other (1,940) 4,063 (2,600) (194)
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$ 50,331 $ 280 $ 35,416 $ 9,131
----------------------------------------------------------------------------
On November 12, 2010 we sold our 9.5 million shares of Premier Gold Mines Ltd. for cash proceeds of $61.4 million.
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 (loss) is a result of:
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Translation of Las
Cruces' US dollar-
denominated bank
credit facility $ - $ - $ - $ 2,460
Translation of
foreign -
denominated cash
held at corporate 246 (895) (116) (18,655)
Translation of other
monetary assets and
liabilities (2,001) (292) (1,124) 3,216
Reduction in our net
investments - (3,649) (22,656) (1,176)
----------------------------------------------------------------------------
$ (1,755) $ (4,836) $ (23,896) $ (14,155)
----------------------------------------------------------------------------
15. Income tax expense
For the year ended December 31, 2010
----------------------------------------------------------------------------
Las
(thousands) Corporate Cayeli Cruces Pyhasalmi Ok Tedi Total
----------------------------------------------------------------------------
Current
income
taxes $ 6,013 $ 38,706 $ (223) $ 26,765 $ 70,508 $141,769
Future
income
taxes 1,509 (6,327) (3,671) 1,103 299 (7,087)
----------------------------------------------------------------------------
$ 7,522 $ 32,379 $ (3,894) $ 27,868 $ 70,807 $134,682
----------------------------------------------------------------------------
For the year ended December 31, 2009
----------------------------------------------------------------------------
Las
(thousands) Corporate Cayeli Cruces Pyhasalmi Ok Tedi Total
----------------------------------------------------------------------------
Current income
taxes $ 14,591 $ 30,745 $ - $ 10,186 $ 50,979 $106,501
Future income
taxes 12,451 (10,957) 5,595 1,830 5,434 14,353
----------------------------------------------------------------------------
$ 27,042 $ 19,788 $ 5,595 $ 12,016 $ 56,413 $120,854
----------------------------------------------------------------------------
For the three months ended December 31, 2010
----------------------------------------------------------------------------
Las
(thousands) Corporate Cayeli Cruces Pyhasalmi Ok Tedi Total
----------------------------------------------------------------------------
Current income
taxes $ 417 $ 14,829 $ (223) $ 9,900 $ 21,206 $ 46,129
Future income
taxes 6,461 (4,183) 31 1,068 4,674 8,051
----------------------------------------------------------------------------
$ 6,878 $ 10,646 $ (192) $ 10,968 $ 25,880 $ 54,180
----------------------------------------------------------------------------
For the three months ended December 31, 2009
----------------------------------------------------------------------------
Las
(thousands) Corporate Cayeli Cruces Pyhasalmi Ok Tedi Total
----------------------------------------------------------------------------
Current
income
taxes $ 2,371 $ 13,091 $ - $ 4,072 $ 21,527 $ 41,061
Future
income
taxes 2,283 (575) (2,354) 1,300 (3,047) (2,393)
----------------------------------------------------------------------------
$ 4,654 $ 12,516 $ (2,354) $ 5,372 $ 18,480 $ 38,668
----------------------------------------------------------------------------
16. Net income per share
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net income available to
common shareholders $144,505 $89,763 $ 358,898 $ 269,169
----------------------------------------------------------------------------
(thousands)
----------------------------------------------------------------------------
Weighted average common
shares outstanding 57,053 56,107 56,345 52,334
Plus incremental shares
from assumed
conversions:
Deferred share units 108 91 108 91
Long term incentive plan
units 43 43 43 43
----------------------------------------------------------------------------
Diluted weighted average
common shares
outstanding 57,204 56,241 56,496 52,468
----------------------------------------------------------------------------
(Canadian dollars per
share)
----------------------------------------------------------------------------
Basic net income per
common share $ 2.53 $ 1.60 $ 6.37 $ 5.14
Dilutive effect from
assumed conversions of
deferred share units and
long term incentive plan
units per common share $ - $ - $ (0.02) $ (0.01)
----------------------------------------------------------------------------
Diluted net income per
common share $ 2.53 $ 1.60 $ 6.35 $ 5.13
----------------------------------------------------------------------------
17. Income tax recovery (expense) included in other comprehensive income
----------------------------------------------------------------------------
three months ended year ended
December 31 December 31
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Changes in fair value
of gold forward
sales contracts $ 131 $ 421 $ 412 $ 985
Changes in fair value
of interest rate
swap contracts - - (1,482)
Changes in fair value
of investments (1,141) (2,381) (2,447) (4,121)
Amortization of gain
on foreign exchange
forward contract - - - 2,140
Recognition of gain
on foreign exchange
forward contract - - 10,652
Recognition of loss
on interest rate
swap contract - - (4,449)
Recognition of gain
on sale of
investments 7,313 7,313 -
----------------------------------------------------------------------------
$ 6,303 $ (1,960) $ 5,278 $ 3,725
----------------------------------------------------------------------------
18. Subsequent event
On January 12, 2011, we entered into an arrangement agreement with Lundin Mining Corporation (Lundin) to merge, and create Symterra Corporation (Symterra), an international copper producer.
The proposed merger will be effected by way of a Plan of Arrangement completed under the Canada Business Corporations Act. It will feature a common share exchange through which Inmet common shareholders will receive 3.4918 common shares of the merged company for each common share of Inmet they own and Lundin common shareholders will receive 0.3333 common shares of the merged company for each common share of Lundin they own. The exchange ratio represents no premium to either party based on the 30 day volume weighted average price on the Toronto Stock Exchange for each of Inmet and Lundin to January 11, 2011.
Inmet and Lundin shareholders must both approve the proposed merger by two thirds of the votes cast at special shareholder meetings held to consider it. The joint information circular was mailed to shareholders on February 18, 2011. The shareholder meetings will be held on March 14, 2011.
The arrangement agreement includes customary reciprocal deal protections. Each party has agreed not to solicit any alternative transactions, and furthermore has agreed to pay the other a break fee of $120 million in certain circumstances. In addition, each company has granted the other a right to match any competing offer.
Contacts:
Inmet Mining Corporation
Jochen Tilk
President and Chief Executive Officer
+1.416.860.3972
Inmet Mining Corporation
Flora Wood
Director, Investor Relations
+1.416.361.4808
www.inmetmining.com
