Inmet Announces Third Quarter Earnings of $1.53 Per Share Compared With Earnings of $1.10 Per Share in the Third Quarter of 2009
26.10.2010 | Marketwired
TORONTO, CANADA -- (Marketwire) -- 10/26/10 -- All amounts in Canadian dollars unless indicated otherwise
Inmet (TSX: IMN) announces third quarter earnings of $1.53 per share compared with earnings of $1.10 per share in the third quarter of 2009.
Third quarter highlights
-- Strong earnings from operations
Earnings from operations were $148 million compared to $112 million in
the third quarter of last year- a result of higher metal prices and
earnings from Las Cruces.
-- Operating earnings at Las Cruces
Las Cruces began recognizing its results from operations in operating
earnings and operating cash flows effective July 1, 2010. This increased
consolidated operating earnings by $21 million and operating cash flows
by $32 million.
-- Las Cruces progressing on commissioning plan
We produced 8,400 tonnes of copper cathode this quarter, an increase of
27 percent compared to the second quarter of 2010. Overall, plant
reliability has improved significantly and no substantial mechanical
downtime was experienced in the third quarter. We are now in the process
of ramping up throughput and production. Our ramp up pattern is typical
of hydrometallurgical plants and other complex processes, and the
critical next step to achieving full production is to maintain optimum
recovery while increasing feed into the plant. We will continue to
rigorously implement the ramp up plan to achieve our goal of full
production, and are encouraged by the capability that the plant has
demonstrated in recent months. Notwithstanding the significant
improvements achieved during the third quarter, production fell short of
our forecast. We have revised our copper production objective for 2010
to 20,000 tonnes for our 70 percent share to reflect the slower ramp up
and the deferral of direct ore shipments.
-- Submission of Cobre Panama Environmental and Social Impact Assessment
and selection process for the Engineering, Procurement and Construction
Management contractor
Minera Panama submitted its environmental and social impact assessment
(ESIA) to the Autoridad Nacional del Ambiente (ANAM), the Panamanian
environmental regulatory authority in September. In addition, we have
completed our selection of an Engineering, Procurement and Construction
Management (EP+CM) contractor and, subject to board approvals, will move
into the basic engineering phase of the Cobre Panama project in the
fourth quarter. These represent significant milestones in the
development of the project.
Key financial data
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three months ended nine months ended
September 30 September 30
2010 2009 change 2010 2009 change
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FINANCIAL HIGHLIGHTS
(thousands, except
per share amounts)
Sales
Gross sales $ 313,349 $ 241,121 +30% $ 779,959 $ 693,315 +12%
Net income
Net income 86,086 $ 61,551 +40% $ 214,393 $ 179,406 +20%
Net income per share $ 1.53 $ 1.10 +40% $ 3.82 $ 3.51 +9%
Cash flow
Cash flow provided
by operating
activities $ 102,135 $ 89,277 +14% $ 274,001 $ 196,970 +39%
Cash flow provided
by operating
activities per
share (1) $ 1.82 $ 1.59 +14% $ 4.88 $ 3.86 +26%
Capital spending (2) $ 47,785 $ 23,789 +101% $ 80,620 $ 204,911 -61%
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OPERATING HIGHLIGHTS
Production (3)
Copper (tonnes) 24,800 19,900 +25% 68,500 59,200 +16%
Zinc (tonnes) 20,800 21,700 -4% 60,100 54,500 +10%
Gold (ounces) 24,900 48,200 -48% 101,800 177,600 -43%
Pyrite (tonnes) 62,000 - +100% 397,000 323,000 +23%
Copper cash cost (US
$ per pound) (4) $ 0.49 $ 0.46 +7% $ 0.46 $ 0.54 -15%
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as at September 30 as at December 31
FINANCIAL CONDITION 2010 2009
Current ratio 3.9 to 1 4.2 to 1
Gross debt to total equity(5) 1% 1%
Net working capital balance
(millions) $ 527 $ 609
Cash balance including long-term
bonds (millions) $ 823 $ 634
Gross debt (5) $ 17 $ 18
Shareholders' equity (millions) $ 2,393 $ 2,238
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(1) Cash flow provided by operating activities divided by average shares
outstanding for the period.
(2) For the nine months ended September 30, 2010, this includes capital
spending of $65 million at Cobre Panama and $52 million at Las Cruces
reduced by positive cash flow from pre-operating costs net of revenues
and working capital changes at Las Cruces of $60 million. For the nine
months ended September 30, 2009 this includes $108 million of capital
spending at Las Cruces (mainly for construction) and $70 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 30 to 32.
(5) Gross debt includes long-term debt and the current portion of long-term
debt, less the non-recourse note owing from Las Cruces to its non-
controlling shareholder.
Third quarter press release
Where to find it
Our financial results 4
Key changes in 2010 4
Understanding our performance 5
Earnings from operations 7
Corporate costs 11
Results of our operations 13
Cayeli 14
Las Cruces 16
Pyhasalmi 17
Ok Tedi 20
Status of our development project 22
Cobre Panama 22
Managing our liquidity 23
Financial condition 27
Accounting changes 28
Supplementary financial information 30
In this press release, Inmet means Inmet Mining Corporation and we, us and our mean Inmet and/or its subsidiaries and joint ventures. This quarter refers to the three months ended September 30, 2010. Revised objective is as of October 26, 2010.
Forward looking information
Securities regulators encourage companies to disclose forward-looking information to help investors understand a company's future prospects. This press release contains statements about our future financial condition, results of operations and business.
These are 'forward-looking' because we have used what we know and expect today to make a statement about the future. Forward-looking statements usually include words such as may, expect, anticipate, believe or other similar words. We believe the expectations reflected in these forward-looking statements are reasonable. However, actual events and results could be substantially different because of the risks and uncertainties associated with our business or events that happen after the date of this press release. You should not place undue reliance on forward-looking statements. As a general policy, we do not update forward-looking statements except as required by securities laws and regulations.
Our financial results
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(thousands, except
per share three months ended nine months ended
amounts) September 30 September 30
2010 2009 change 2010 2009 change
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EARNINGS FROM
OPERATIONS (1)
Cayeli $ 49,131 $ 28,789 +71% $ 110,699 $ 65,875 +68%
Las Cruces 20,614 - +100% 20,614 - +100%
Pyhasalmi 29,479 20,800 +42% 74,645 39,126 +91%
Troilus 5,087 14,096 -64% 22,386 84,612 -74%
Ok Tedi 44,329 48,974 -9% 119,202 102,089 +17%
Other (512) (409) +25% (1,523) (1,401) +9%
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148,128 112,250 +32% 346,023 290,301 +19%
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DEVELOPMENT AND
EXPLORATION
Corporate
development and
exploration (2,758) (1,963) +40% (8,061) (7,922) +2%
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CORPORATE COSTS
General and
administration (4,073) (5,147) -21% (15,871) (14,056) +13%
Investment and
other income 3,533 3,588 -2% (14,915) 8,851 -269%
Asset impairment - - - - (6,419) -100%
Stand-by costs - - - (6,753) - +100%
Interest expense (3,480) (496) +602% (4,353) (1,481) +194%
Income and capital
taxes (45,354) (39,988) +13% (80,748) (83,180) -3%
Non-controlling
interest (9,910) (6,693) +48% (929) (6,688) -86%
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(59,284) (48,736) +22% (123,569) (102,973) +20%
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Net income $ 86,086 $ 61,551 +40% $ 214,393 $ 179,406 +20%
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Basic net income
per share $ 1.53 $ 1.10 +40% $ 3.82 $ 3.51 +9%
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Diluted net income
per share $ 1.53 $ 1.09 +40% $ 3.81 $ 3.50 +9%
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Weighted average
shares
outstanding 56,107 56,107 - 56,107 51,062 +10%
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(1) Gross sales less smelter processing charges and freight, cost of sales,
depreciation and provisions for mine reclamation.
Key changes in 2010
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three months nine months
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EARNINGS FROM OPERATIONS
Sales
Higher copper and zinc prices
denominated in Canadian dollars $ 37 $ 99 7
Higher (lower) sales volumes (1) 3 7
Costs
Higher freight charges (9) (12) 9
(Higher) lower operating costs,
including costs that vary with
income and cash flows (4) 6 10
Operating earnings at Las Cruces 21 21 16
Lower operating earnings at Troilus (9) (62)
Other 1 1
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Higher earnings from operations
compared to 2009 36 56
CORPORATE COSTS
Foreign exchange changes 18 (13) 11
Settlement and realization of hedge
contracts in 2009 (21) (21) 11
Asset impairment in 2009 - 6 12
(Higher) lower income taxes (5) 2 12
Non-controlling interest change (3) 6
Stand-by costs - (7) 12
Other - 6
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Higher net income compared to 2009 $ 25 $ 35
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Understanding our performance
Metal prices
The table below shows the average metal prices we realized in US dollars and Canadian dollars (the prices we realize include finalization adjustments - see Gross sales on page 7).
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three months ended nine months ended
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2010 2009 change 2010 2009 change
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US dollar metal prices
Copper (per pound) $ 3.46 $ 2.83 +22% $ 3.25 $ 2.39 +36%
Zinc (per pound) $ 0.95 $ 0.83 +14% $ 0.92 $ 0.68 +35%
Gold (per ounce) $ 1,216 $ 957 +27% $ 1,157 $ 945 +22%
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Canadian dollar metal
prices
Copper (per pound) $ 3.60 $ 3.11 +16% $ 3.37 $ 2.80 +20%
Zinc (per pound) $ 0.99 $ 0.91 +9% $ 0.96 $ 0.80 +20%
Gold (per ounce) $ 1,263 $ 1,050 +20% $ 1,199 $ 1,105 +9%
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Copper
Copper prices increased from US $2.88 per pound at the start of the quarter to US $3.65 per pound on September 30. London Metals Exchange (LME) inventories continued to fall in the third quarter to below 400,000 tonnes for the first time since early November 2009.
Zinc
Zinc prices increased 27 percent this quarter, from US $0.78 per pound at the start of the quarter to US $0.99 per pound on September 30. LME inventories of zinc have remained essentially consistent since May 2010, and were 617,000 tonnes at the end of the quarter.
Gold
Gold prices rose 5 percent this quarter with eight consecutive quarters of price gains. In late September gold prices closed at US $1,300 per ounce for the first time ever.
Pyrite
Sulphur prices rose steadily this quarter, driven mainly by demand from China. Additional pyrite demand from China this year depends on the cost of freight, which is significant relative to sulphur prices.
Exchange rates
Exchange rates affect our revenue and earnings. The table below shows the average exchange rates we realized this quarter and year to date compared to 2009.
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three months ended nine months ended
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2010 2009 change 2010 2009 change
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Exchange rates
1 US$ to C$ $ 1.04 $ 1.10 -5% $ 1.04 $ 1.17 -11%
1 euro to C$ $ 1.34 $ 1.57 -15% $ 1.36 $ 1.59 -14%
1 euro to US$ $ 1.29 $ 1.43 -10% $ 1.32 $ 1.37 -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 15 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 year to date. While treatment charges for zinc concentrates are higher than last year, price participation is lower.
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three months ended nine months ended
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(US$) 2010 2009 change 2010 2009 change
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Treatment charges
Copper (per dry metric
tonne of concentrate) $ 48 $ 66 -27% $ 53 $ 66 -20%
Zinc (per dry metric
tonne of concentrate) $ 244 $ 186 +31% $ 245 $ 189 +30%
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Price participation
Copper (per pound) $ 0.01 $ 0.03 -67% $ 0.01 $ 0.03 -67%
Zinc (per pound) ($0.01) $ 0.06 -117% ($0.01) $ 0.02 -150%
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Freight charges
Copper (per dry metric
tonne of concentrate) $ 68 $ 44 +55% $ 68 $ 35 +94%
Zinc (per dry metric
tonne of concentrate) $ 30 $ 18 +67% $ 31 $ 23 +35%
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Statutory tax rates remain consistent
The table below shows the statutory tax rates for each of our taxable
operating mines.
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2010 2009 Change
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Statutory tax rates
Cayeli 24% 24% -
Pyhasalmi 26% 26% -
Ok Tedi 37% 37% -
Las Cruces 30% 30% -
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Earnings from operations
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three months ended September nine months ended September
30 30
(thousands) 2010 2009 change 2010 2009 change
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Gross sales $ 313,349 $ 241,121 +30% $ 779,959 $ 693,315 +12%
Smelter processing
charges and
freight (47,191) (41,607) +13% (128,314) (122,736) +5%
Cost of sales:
Direct
production
costs (88,045) (69,698) +26% (227,104) (218,547) +4%
Inventory
changes (550) 179 -407% (10,950) (1,493) +633%
Provisions for
mine
rehabilitation
and other non-
cash charges (5,127) (3,187) +61% (9,085) (16,397) -45%
Depreciation (24,308) (14,558) +67% (58,483) (43,841) +33%
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Earnings from
operations $ 148,128 $ 112,250 +32% $ 346,023 $ 290,301 +19%
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Gross sales were higher
-
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three months ended nine months ended
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(thousands) 2010 2009 change 2010 2009 change
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Gross sales by
operation
Cayeli $ 93,597 $ 67,612 +38% $ 244,029 $ 191,344 +28%
Las Cruces 61,849 - +100% 61,849 - +100%
Pyhasalmi 65,255 48,262 +35% 160,701 125,244 +28%
Troilus 9,893 34,279 -71% 72,070 158,676 -55%
Ok Tedi (1) 82,755 90,968 -9% 241,310 218,051 +11%
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$ 313,349 $ 241,121 +30% $ 779,959 $ 693,315 +12%
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Gross sales by
metal
Copper $ 213,664 $ 138,345 +54% $ 467,591 $ 348,344 +34%
Zinc 39,951 35,237 +13% 126,222 95,289 +32%
Gold 33,716 54,099 -38% 133,576 202,824 -34%
Other 26,018 13,440 +94% 52,570 46,858 +12%
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$ 313,349 $ 241,121 +30% $ 779,959 $ 693,315 +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
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three months ended nine months ended
(millions) September 30 September 30
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Higher copper prices, denominated in
Canadian dollars $ 23 $ 69
Higher zinc prices, denominated in
Canadian dollars 3 22
Higher gold prices, denominated in
Canadian dollars 2 7
Changes in other metal prices 9 (2)
Gross sales at Las Cruces 62 62
Lower gross sales from Troilus (24) (87)
Higher (lower) sales volumes at our
other mines (2) 13
Other (1) 3
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Higher gross sales, compared to 2009 $ 72 $ 87
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We record sales that settle during the reporting period using the metal price on the day they settle. For sales that have not settled, we use an estimate based on the month we expect the sale to settle and the forward price of the metal at the end of the reporting period. We recognize the difference between our estimate and the final price by adjusting our gross sales in the period when we settle the sale (finalization adjustment).
In the third quarter, we recorded $3 million in positive finalization adjustments from second quarter sales.
At the end of this quarter, the following sales had not been settled:
-- 22 million pounds of copper provisionally priced at US $3.64 per pound
-- 13 million pounds of zinc provisionally priced at US $0.99 per pound.
The finalization adjustment we record for these sales will depend on the actual price we receive when they settle, which can be up to five months from the time we initially record it. We expect these sales to settle in the following months:
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(millions of pounds) copper zinc
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October 2010 10 13
November 2010 8 -
December 2010 4 -
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Unsettled sales at September 30, 2010 22 13
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Significantly higher copper and pyrite sales volumes, lower gold sales volumes
Our sales volumes are directly affected by the amount of production from our mines, and our ability to ship to our customers.
Copper production and sales volumes are up this quarter and year to date mainly because of Las Cruces. Zinc production is flat this quarter but higher year to date because zinc grades at Pyhasalmi were higher. Gold production and sales volumes are lower because Troilus stopped producing in June 2010. We realized significantly higher pyrite sales volumes this quarter because of higher demand from China.
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three months ended nine months ended
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2010 2009 change 2010 2009 change
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Sales volumes
Copper (tonnes) 24,600 20,800 +18% 67,900 57,700 +18%
Zinc (tonnes) 18,400 17,600 +5% 59,700 54,900 +9%
Gold (ounces) 26,700 51,100 -48% 110,100 183,100 -40%
Pyrite (tonnes) 196,000 98,600 +99% 395,100 295,600 +34%
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Production
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three months ended nine months ended revised
September 30 September 30 objective
Inmet's share(1) 2010 2009 change 2010 2009 change 2010
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Copper (tonnes)
Cayeli 7,300 6,400 +14% 21,500 21,000 +2% 29,200
Las Cruces cathode 5,800 1,500 +287% 13,600 1,500 +807% 20,000
Las Cruces copper
contained in ore - - - - - - -
Pyhasalmi 3,900 3,700 +5% 10,800 11,000 -2% 13,400
Troilus - 1,000 -100% 2,000 4,900 -59% 2,000
Ok Tedi 7,800 7,300 +7% 20,600 20,800 -1% 29,300(2)
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24,800 19,900 +25% 68,500 59,200 +16% 93,900
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Zinc (tonnes)
Cayeli 11,700 13,600 -14% 38,200 37,100 +3% 51,700
Pyhasalmi 9,100 8,100 +12% 21,900 17,400 +26% 31,300
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20,800 21,700 -4% 60,100 54,500 +10% 83,000
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Gold (ounces)
Troilus - 26,200 -100% 37,900 111,000 -66% 37,900
Ok Tedi 24,900 22,000 +13% 63,900 66,600 -4% 93,600(2)
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24,900 48,200 -48% 101,800 177,600 -43% 131,500
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Pyrite (tonnes)
Pyhasalmi 62,000 - +100% 397,000 323,000 +23% 500,000
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(1) Inmet's share: 100 percent for Cayeli, Pyhasalmi and Troilus, 18
percent for Ok Tedi and 70 percent for Las Cruces.
(2) This production objective could change in the fourth quarter of 2010,
if we exchange our 18 percent equity interest in Ok Tedi for a 5
percent net smelter return royalty.
2010 outlook for sales
We use our production objectives as the basis for our sales objectives.
We have decreased our copper production objective by 17,300 tonnes from our June 30, 2010 expectation because of slower ramp up than anticipated at and the deferral of direct shipment of ore to smelters (see page 16).
Las Cruces has mined and stockpiled 100,000 tonnes of 12 percent grade ore to ship directly to smelters. We have applied for but not yet received the necessary permit to move the material offsite. The regulator has taken the position that shipping this ore is inconsistent with our mandate to process ore on-site. We believe there are substantial tax and employment benefits associated with shipping this high grade ore concurrently with operating the plant. We continue to pursue obtaining this permit on the basis of the substantial benefits the direct shipping would provide to the regional economy but cannot determine when it will occur.
We began recognizing Las Cruces' results in operating earnings as of July 1, 2010.
We expect our zinc production objective to be consistent with our original expectations and gold to be less. Lower gold grades have been mined at Ok Tedi through the year to reduce the quantity of sulphur to the mill feed. Higher pyrite production is expected at Pyhasalmi to meet the increased demand.
Our Canadian dollar sales revenues are affected by the US dollar denominated metal price we receive, and the exchange rate between the US dollar and Canadian dollar. The overall outlook for copper demand is broadly positive for the balance of 2010.
Higher freight charges for the quarter
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(thousands) 2010 2009 change 2010 2009 change
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Smelter processing
charges and freight
by operation
Cayeli $ 18,522 $ 17,580 +5% $ 57,217 $ 55,094 +4%
Las Cruces 27 - +100% 27 - +100%
Pyhasalmi 19,754 12,485 +58% 39,809 33,802 +18%
Troilus 205 2,272 -91% 4,526 10,990 -59%
Ok Tedi (1) 8,683 9,270 -6% 26,735 22,850 +17%
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$ 47,191 $ 41,607 +13% $128,314 $122,736 +5%
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Smelter processing
charges and freight
by metal
Copper $ 18,899 $ 21,483 -12% $ 53,644 $ 59,826 -10%
Zinc 16,171 11,962 +35% 52,149 38,930 +34%
Other 12,121 8,162 +49% 22,521 23,980 -6%
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$ 47,191 $ 41,607 +13% $128,314 $122,736 +5%
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Smelter processing
charges by type and
freight
Copper treatment and
refining charges $ 6,353 $ 8,657 -27% $ 18,730 $ 27,290 -31%
Zinc treatment
charges 9,089 7,016 +30% 29,952 24,065 +24%
Copper price
participation 417 1,393 -70% 1,537 4,138 -63%
Zinc price
participation (508) 2,669 -119% (1,946) 3,505 -156%
Content losses 13,616 12,217 +11% 40,552 33,741 +20%
Freight 16,721 7,228 +131% 35,280 23,663 +49%
Other 1,503 2,427 -38% 4,209 6,334 -34%
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$ 47,191 $ 41,607 +13% $128,314 $122,736 +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 this quarter than they were in 2009 because we have more favourable terms with smelters. Zinc treatment charges were higher than last year because of our terms with smelters and higher sales volumes. Content losses were higher because metal prices are higher than they were last year. Freight rates were higher mainly because pyrite shipments were higher.
2010 outlook for smelter processing charges and freight
We sell approximately 90 percent of our copper concentrate under long-term contracts. We expect price participation to be minimal.
We expect total zinc smelter processing charges, including price participation, to be lower than they were in 2009.
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 about 20 percent higher than they were in 2009 because of the expected recovery in global trade and associated shipping demand.
Direct production costs and cost of sales higher than last year
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30 30
(thousands) 2010 2009 change 2010 2009 change
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Direct production
costs by operation
Cayeli $ 22,333 $ 18,583 +20% $ 65,342 $ 58,889 +11%
Las Cruces 30,797 - +100% 30,797 - +100%
Pyhasalmi 12,225 14,026 -13% 40,056 45,391 -12%
Troilus - 12,671 -100% 23,905 43,588 -45%
Ok Tedi (1) 22,690 24,418 -7% 67,004 70,679 -5%
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Total direct
production costs 88,045 69,698 +26% 227,104 218,547 +4%
Inventory changes 550 (179) +407% 10,950 1,493 +633%
Reclamation,
accretion and
other non-cash
expenses 5,127 3,187 +61% 9,085 16,397 -45%
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Total cost of sales $ 93,722 $ 72,706 +29% $ 247,139 $ 236,437 +5%
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(1) Our 18 percent share of Ok Tedi's direct production costs.
Direct production costs are higher in the quarter and year to date than they were in 2009, mainly because we began recognizing operating results at Las Cruces in the 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. The closure of Troilus also resulted in higher inventory changes in the first half of the year.
2010 outlook for cost of sales
Consolidated direct production costs should be higher because of production costs at Las Cruces and higher labour and royalty costs at Cayeli, but will be reduced somewhat by lower Canadian dollar costs at Pyhasalmi and due to the closure of Troilus.
Certain variable costs may continue to affect our earnings, depending on
metal prices:
-- royalties at Cayeli are affected by its net income
-- variable employee compensation costs at Ok Tedi are affected by its cash
flows
-- royalties at Las Cruces are affected by its net sales.
Depreciation higher this quarter
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(thousands) 2010 2009 change 2010 2009 change
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Depreciation by
operation
Cayeli $ 3,691 $ 2,980 +24% $ 10,161 $ 9,826 +3%
Las Cruces 10,328 - +100% 10,328 - +100%
Pyhasalmi 1,925 1,473 +31% 5,637 6,237 -10%
Troilus 820 3,401 -76% 10,822 10,121 +7%
Ok Tedi 7,544 6,704 +13% 21,535 17,657 +22%
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$ 24,308 $ 14,558 +67% $ 58,483 $ 43,841 +33%
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Depreciation was higher in 2010 mainly as Las Cruces began to depreciate its operating assets in the income statement in the third quarter. Depreciation at Ok Tedi was higher this quarter and year to date because it increased the assets related to asset retirement obligations at the end of 2009 and began amortizing the cost of storage pits it uses to store the sulphur concentrate the tailings management plant produces. Depreciation recognized at Troilus during the third quarter of 2010 represented the final remaining inventory being sold.
2010 outlook for depreciation
We expect depreciation to be higher in 2010 mainly because of the impact of Las Cruces.
Corporate costs
Corporate costs include general and administration costs, taxes, interest and other income.
Investment and other income (expense)
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three months ended nine months ended
September 30 September 30
(thousands) 2010 2009 2010 2009
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Interest income $ 1,990 $ 1,135 $ 5,347 $ 3,878
Foreign exchange gain (loss) 1,012 (17,417) (22,141) (9,319)
Dividend and royalty income 650 300 2,539 985
Loss on settlement of interest
rate swap contract - (14,823) - (14,823)
Gain on recognition of
settlement of foreign currency
forward contract - 35,615 - 35,615
Mark to market on Ok Tedi copper
forward contracts - (802) - (3,228)
Other (119) (420) (660) (4,257)
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$ 3,533 $ 3,588 $ (14,915) $ 8,851
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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 on page 25), 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 the third quarter of
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 have been amortizing it 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 gain (loss)
We have a foreign exchange gain or loss when we:
-- revalue certain foreign denominated assets and liabilities
-- distribute funds from our self-sustaining operations and recognize the
foreign exchange we previously deferred on our original investment and
on funds as they accumulated.
Our foreign exchange gains (losses) are from:
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Translation of Las Cruces' US
dollar-denominated bank credit
facility $ - $ (1,348) $ - $ 2,460
Translation of foreign
denominated cash held at
corporate 207 (16,314) (362) (17,760)
Translation of other monetary
assets and liabilities 805 1,684 877 3,508
Reduction in our net investments - (1,439) (22,656) 2,473
----------------------------------------------------------------------------
$ 1,012 $ (17,417) $ (22,141) $ (9,319)
----------------------------------------------------------------------------
We recognized foreign exchanges losses of $21 million this year on the repatriation of cash from Cayeli and Pyhasalmi. 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.
2010 outlook for investment and other income
Investment and other income is affected by our cash and held to maturity investment balances, and by interest rates and exchange rates. We only expect to receive funds from Ok Tedi over the rest of the year. Because Ok Tedi distributes its earnings more frequently, the effect of repatriation is normally not significant.
Stand-by costs
In the first quarter of 2010, we could not mine ore at Las Cruces because of the water levels in the pit. We expensed $6.8 million in water plant operating and maintenance costs because they did not relate to production activities.
Asset impairment
We made a decision in 2008 not to proceed with the Cerattepe project. All work ceased on the project and we took a $34 million charge to write down the assets to its net realizable value. In the first quarter of 2009, we took an additional impairment charge of $6 million, as well as a $6 million tax recovery (reflected in income taxes), to adjust to current net realizable value.
Income tax expense (recovery)
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
(thousands) 2010 2009 change 2010 2009 change
----------------------------------------------------------------------------
Cayeli $ 9,327 $ 5,641 $ 21,733 $ 7,272
Las Cruces 10,828 7,682 (3,702) 7,949
Pyhasalmi 6,974 4,339 16,900 6,644
Ok Tedi 17,338 18,924 44,927 37,933
Troilus and
corporate 805 2,658 644 22,388
----------------------------------------------------------------------------
$ 45,272 $ 39,244 $ 80,502 $ 82,186
----------------------------------------------------------------------------
Consolidated
effective tax rate 32% 37% -5% 27% 31% -4%
----------------------------------------------------------------------------
Our tax expense changes as our earnings change.
For the year to date, the consolidated effective tax rate went down by 4 percent compared to 2009 mainly because Las Cruces recognized a tax recovery on a foreign exchange loss from its intercompany US dollar denominated debt. The foreign exchange eliminates on consolidation, but the tax recovery does not as there is no corresponding tax expense on the foreign exchange gain. For the quarter, the consolidated effective tax rate decrease of 5 percent is mainly from lower mining taxes in Canada because of the closure of Troilus.
2010 outlook for income tax expense
For the remainder of the year, we expect statutory tax rates at our operations to remain the same unless a statutory tax rate change is enacted.
Results of our operations
2010 estimates
Our financial review by operation includes estimates for our 2010 operating earnings and operating cash flows. We used our 2010 objectives for production and cost per tonne of ore milled to build these estimates, along with the following assumptions for the remaining three months of the year:
----------------------------------------------------------------------------
Copper price US $3.60 per pound
Zinc price US $1.00 per pound
Gold price US $1,300 per ounce
Copper treatment cost US $50 per tonne for contracts and US $29 per
tonne for spot sales
Zinc treatment cost US $265 per tonne (basis US $2,500 per tonne)
and
US $135 per tonne for spot sales
US $ to C$ exchange rate $1.05
euro to C$ exchange rate $1.29
Working capital Assume no changes for the year except for
Troilus
----------------------------------------------------------------------------
Cayeli
----------------------------------------------------------------------------
three months ended nine months ended revised
September 30 September 30 objective
2010 2009 change 2010 2009 change 2010
----------------------------------------------------------------------------
Tonnes of ore
milled
(000's) 275 290 -5% 859 851 +1% 1,170
Tonnes of ore
milled per
day 3,000 3,200 -5% 3,100 3,100 - 3,300
----------------------------------------------------------------------------
Grades
(percent) copper 3.4 3.1 +10% 3.2 3.2 - 3.2
zinc 6.2 6.5 -5% 6.3 6.2 +2% 6.3
----------------------------------------------------------------------------
Mill
recoveries
(percent) copper 78 72 +8% 77 76 +1% 78
zinc 68 72 -6% 71 70 +1% 70
----------------------------------------------------------------------------
Production
(tonnes) copper 7,300 6,400 +14% 21,500 21,000 +2% 29,200
zinc 11,700 13,600 -14% 38,200 37,100 +3% 51,700
----------------------------------------------------------------------------
Cost per tonne of
ore milled (C$) $ 81 $ 64 +27% $ 76 $ 69 +10% $ 75
----------------------------------------------------------------------------
Production results on target
Mill production at Cayeli this quarter was lower than 2009 because mine production was down due to the significant amount of rehabilitation required in the lower part of the mine. This pushed production into upper level stopes that have higher grades and more difficult geotechnical conditions. The addition of a new bolting unit and increasing targets for shotcrete application will permit our return to planned production levels in the lower part of the mine in the fourth quarter.
Year to date, however, we remain ahead of 2009 levels, which is a substantial accomplishment given 2009 was a record year, and we expect to come close to our original 1.2 million tonnes annual throughput objective. Cayeli set a new record this quarter for daily mill tonnage, processing 3,794 tonnes.
Copper production was higher this quarter compared to 2009 mainly due to higher grades from mining tertiary stopes in the upper part of the mine. Zinc grades and recoveries this quarter were lower than 2009 resulting in lower production. Year to date, copper and zinc production were consistent with 2009 levels.
We continue to focus on ground support and rehabilitation, and progress the ore pass rehabilitation and concrete delivery line extension projects to sustain production levels. We do not expect any long term impact from the increased support needs and we are improving our capabilities with the addition of new equipment and personnel.
Cost per tonne of ore milled was significantly higher than 2009 mainly because mill throughput was lower, royalties were higher due to higher realized metals prices, and labour costs increased.
2010 outlook for production
We expect to produce 29,200 tonnes of copper and 51,700 tonnes of zinc, consistent with our original projections.
We have increased our annual objective for cost per tonne of ore milled by $3 to $75 per tonne to reflect higher costs year to date.
Financial review
Higher earnings for the quarter because copper prices and volumes were
higher
----------------------------------------------------------------------------
(millions of Canadian three months ended nine months ended revised
dollars unless September 30 September 30 objective
otherwise stated) 2010 2009 2010 2009 2010
----------------------------------------------------------------------------
Sales analysis
Copper sales (tonnes) 8,500 6,800 20,600 20,100 29,200
Zinc sales (tonnes) 9,600 10,000 38,500 37,500 51,700
--------------------------------------------------
Gross copper sales $ 67 $ 43 $ 152 $ 116 $ 231
Gross zinc sales 21 19 80 63 111
Other metal sales 6 6 12 12 14
--------------------------------------------------
Gross sales 94 68 244 191 356
Smelter processing charges
and freight (19) (18) (57) (55) (81)
----------------------------------------------------------------------------
Net sales $ 75 $ 50 $ 187 $ 136 $ 275
----------------------------------------------------------------------------
Cost analysis
Tonnes of ore milled
(thousands) 275 290 859 851 1,200
Direct production costs ($
per tonne) $ 81 $ 64 $ 76 $ 69 $ 75
----------------------------------------------------------------------------
Direct production costs $ 22 $ 19 $ 66 $ 59 $ 90
Change in inventory (1) (1) (2) (1) -
Depreciation and other
non-cash costs 5 3 12 12 19
----------------------------------------------------------------------------
Operating costs $ 26 $ 21 $ 76 $ 70 $ 109
----------------------------------------------------------------------------
Operating earnings $ 49 $ 29 $ 111 $ 66 $ 166
----------------------------------------------------------------------------
Operating cash flow $ 21 $ 30 $ 74 $ 45 $ 141
----------------------------------------------------------------------------
The objective for 2010 uses the assumptions listed on page 13.
The table below shows what contributed to the change in operating earnings and operating cash flow between 2010 and 2009.
----------------------------------------------------------------------------
three months ended nine months ended
(millions) September 30 September 30
----------------------------------------------------------------------------
Higher metal prices, denominated in
Canadian dollars $ 16 $ 48
Higher sales volumes 8 3
Higher operating costs (4) (6)
----------------------------------------------------------------------------
Higher operating earnings, compared to
2009 20 45
Change in tax expense because of
change in taxable income (2) (6)
Changes in working capital (see note 2
on page 43) (28) (9)
Other 1 (1)
----------------------------------------------------------------------------
Higher (lower) operating cash flow,
compared to 2009 $ (9) $ 29
----------------------------------------------------------------------------
Capital spending expected to be lower due to timing
----------------------------------------------------------------------------
three months ended nine months ended revised
September 30 September 30 objective
2010 2009 change 2010 2009 change 2010
----------------------------------------------------------------------------
Capital spending $ 3,300 $ 4,100 -20% $ 8,200 $ 10,600 -23% $ 16,000
----------------------------------------------------------------------------
2010 outlook for capital spending
We expect to spend $16 million in 2010 on mobile equipment, site water control, stope stability, additional mill upgrades and development. The second phase of the headframe realignment project is nearing completion and should be done in the fourth quarter. This will bring the headframe back to its design configuration. We have established a monitoring and correction program to ensure the facility remains stable for the remaining life of the mine. At the same time, we will implement several geotechnical recommendations to curtail surface instability.
Las Cruces
---------------------------------------------------------------------
three months ended
September 30
(100 percent) 2010 2009 change
---------------------------------------------------------------------
Tonnes of ore processed (000's) 143 42 +240%
Tonnes of unprocessed ore
(000's) - - -
---------------------------------------------------------------------
Copper grades
(percent) cathode 7.5 6.4 +17%
unprocessed
ore - - -
---------------------------------------------------------------------
Plant recoveries
(percent) 77 82 -6%
---------------------------------------------------------------------
Copper production
(tonnes) cathode 8,400 2,200 +282%
unprocessed
ore - - -
---------------------------------------------------------------------
Cost per tonne of ore processed
(subsequent to July 1, 2010) not not
(C$) $ 215 applicable applicable
---------------------------------------------------------------------
Las Cruces
---------------------------------------------------------------------------
nine months ended revised
September 30 objective
(100 percent) 2010 2009 change 2010
---------------------------------------------------------------------------
Tonnes of ore processed (000's) 331 42 +688% 469
Tonnes of unprocessed ore
(000's) - - - -
---------------------------------------------------------------------------
Copper grades
(percent) cathode 7.2 6.4 +13% 7.2
unprocessed
ore - - - -
---------------------------------------------------------------------------
Plant recoveries
(percent) 81 82 -1% 85
---------------------------------------------------------------------------
Copper production
(tonnes) cathode 19,500 2,200 +786% 28,600
unprocessed
ore - - - -
---------------------------------------------------------------------------
Cost per tonne of ore processed
(subsequent to July 1, 2010) not not
(C$) $ 215 applicable applicable $ 171
---------------------------------------------------------------------------
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, constant breakdowns prevented the ramp up and stable operation of the plant until April of this year. Plant reliability has since greatly improved and no substantial mechanical downtime was experienced in the third quarter. In a '2nd Phase', we addressed bottlenecks in the plant design and our main focus has now shifted 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 in order 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 October, we have reached these recovery levels 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 maintaining an
adequate level of ferric iron in solution. Increasing throughput too
rapidly and without the necessary ferric iron concentrations leads to a
rapid decline in recovery; we will not sacrifice longer term recovery
for short term increases in throughput. Total iron concentrations in the
feed exceed the design specifications and we are working to ensure the
optimum leaching conditions to increase and maintain ferric iron levels.
-- 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 2011 while optimizing its near term
performance. 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.
We produced 8,400 tonnes of copper cathode this quarter. Although this was at the lower end of our expectations, it represents an increase of 27 percent compared to the second quarter of 2010.
Mining in the pit during the quarter went well and we are on track to stockpile 500,000 tonnes of ore for the plant in advance of the rainy season. This should ensure uninterrupted feed if access to the pit is restricted.
2010 outlook
We are continuing to focus on increasing plant capacity and reducing bottlenecks as they occur. We see the following measures as evolutionary as we continue to optimize the plant to reach its full potential:
-- adding a large surge tank between leaching and filtration to further
smooth out the leaching operation toward the end of this year
-- adding a clarifier in December to remove solids from the leach solution
greatly reducing maintenance requirements
-- grinding thickener components will be redesigned and installed by mid-
2011 to improve underflow density to the leaching process.
We are encouraged by our progress in recent months and our detailed understanding of the remaining issues. We will continue with our rigorous implementation of the ramp up plan that maintains high recovery levels and high cathode purity. We require a period of continuous operation to accurately predict the timing of achieving our overall design performance but believe production for 2010 of 28,600 tonnes of copper cathode (20,000 tonnes for our 70 percent share) is achievable.
Las Cruces has mined and stockpiled 100,000 tonnes of 12 percent grade ore to ship directly to smelters. We have applied for but not yet received the necessary permit to move the material offsite. The regulator has taken the position that shipping this ore is inconsistent with our mandate to process ore on-site. We believe there are substantial tax and employment benefits associated with shipping this high grade ore concurrently with operating the plant. We continue to pursue obtaining this permit on the basis of the substantial benefits the direct shipping would provide to the regional economy but cannot determine when it will occur.
Financial review
New operating earnings and operating cash flow at Las Cruces this quarter
----------------------------------------------------------------------------
three months ended revised
(millions of Canadian dollars unless September 30 objective
otherwise stated) 2010 2010
----------------------------------------------------------------------------
Sales analysis (1)
Copper sales (tonnes) 8,000 17,100
-----------------------------------
Gross copper sales $ 62 $ 138
Gross unprocessed ore sales - -
-----------------------------------
Gross sales 62 138
Smelter processing charges and freight - (1)
----------------------------------------------------------------------------
Net sales $ 62 $ 137
----------------------------------------------------------------------------
Cost analysis (1)
Tonnes of ore milled (thousands) 143 281
Direct production costs ($ per tonne) $ 215 $ 171
----------------------------------------------------------------------------
Direct production costs $ 31 $ 48
Change in inventory (1) -
Depreciation and other non-cash costs 11 25
----------------------------------------------------------------------------
Operating costs $ 41 $ 73
----------------------------------------------------------------------------
Operating earnings $ 21 $ 64
----------------------------------------------------------------------------
Operating cash flow $ 32 $ 79
----------------------------------------------------------------------------
(1) Subsequent to July 1, 2010 and at 100 percent
Capital spending
----------------------------------------------------------------------------
(100 percent and three months ended nine months ended revised
millions of September 30 September 30 objective
Canadian dollars) 2010 2009 change 2010 2009 change 2010
----------------------------------------------------------------------------
Capital $ 23 $ 12 +92% $ 52 $ 110 -53% $ 103
Pre-operating costs
capitalized, net
of sales, working Not
capital and other (7) (23) -70% (60) (2) meaningful (60)
----------------------------------------------------------------------------
Capital spending $ 16 $ (11) +245% $ (8) $ 108 -107% $ 43
----------------------------------------------------------------------------
In 2010, capital spending was mainly for the permanent water treatment plant, plant improvements and mine development. In 2009 it was mainly for construction capital.
2010 outlook for capital spending
We expect to spend $103 million on capital projects in 2010. This includes $23 million on a water treatment plant and other water management projects, $18 million for mine development and $34 million for plant improvements.
Pyhasalmi
----------------------------------------------------------------------------
three months ended nine months ended revised
September 30 September 30 objective
2010 2009 change 2010 2009 change 2010
----------------------------------------------------------------------------
Tonnes of ore
milled (000's) 351 344 +2% 1,051 1,048 - 1,370
Tonnes of ore
milled per day 3,800 3,700 +2% 3,800 3,800 - 3,750
----------------------------------------------------------------------------
Grades
(percent) copper 1.2 1.1 +9% 1.1 1.1 - 1.0
zinc 2.9 2.6 +12% 2.3 1.9 +21% 2.5
sulphur 40.1 - +100% 42.5 41.6 +2% 42
----------------------------------------------------------------------------
Mill
recoveries
(percent) copper 95 96 -1% 96 96 - 94
zinc 90 90 - 90 89 +1% 90
----------------------------------------------------------------------------
Production
(tonnes) copper 3,900 3,700 +5% 10,800 11,000 -2% 13,400
zinc 9,100 8,100 +12% 21,900 17,400 +26% 31,300
pyrite 62,000 - +100% 397,000 323,000 +23% 500,000
----------------------------------------------------------------------------
Cost per tonne of
ore milled (C$) $ 35 $ 41 -15% $ 38 $ 43 -12% $ 36
----------------------------------------------------------------------------
Higher zinc grades increase zinc production
Pyhasalmi processed at an annualized rate of 1.4 million tonnes this quarter, maintaining its strong production record.
Copper production this quarter and year to date was consistent with last year. Zinc grades and production were significantly higher than 2009 because we mined several zinc rich stopes on the periphery of the ore body in 2010. We have also produced significantly more pyrite to meet the demands of our customers.
We are making several technological improvements, using electronic detonators to improve blasting fragmentation and reduce wall damage, automated loading and dumping equipment and automating full fan longhole drilling to increase productivity.
Cost per tonne of ore milled was significantly lower than last year mainly because the value of the Canadian dollar increased relative to the euro.
2010 outlook for production and costs
Pyhasalmi expects to mine 1.4 million tonnes of 1 percent copper and 2.5 percent zinc in 2010, to produce 13,400 tonnes of copper and 31,300 tonnes of zinc, consistent with our original projections. We have increased our pyrite production objective to 500,000 tonnes to meet current demand for the product.
Pyrite sales enhance Pyhasalmi's financial performance and we have been in discussions with companies in Finland and China to secure sales of over 500,000 tonnes of pyrite per year.
Financial review
Higher earnings because of higher metal prices and pyrite sales volumes
----------------------------------------------------------------------------
(millions of Canadian
dollars unless three months ended nine months ended revised
otherwise stated) September 30 September 30 objective
2010 2009 2010 2009 2010
----------------------------------------------------------------------------
Sales analysis
Copper sales (tonnes) 3,600 3,800 10,400 10,900 13,400
Zinc sales (tonnes) 8,800 7,600 21,200 17,400 31,300
Pyrite sales (tonnes) 196,000 99,000 395,000 296,000 500,000
----------------------------------------------------
Gross copper sales $ 27 $ 26 $ 79 $ 63 $ 101
Gross zinc sales 19 16 46 33 70
Other metal sales 19 6 36 29 45
----------------------------------------------------
Gross sales 65 48 161 125 216
Smelter processing
charges and freight (20) (12) (40) (34) (52)
----------------------------------------------------------------------------
Net sales $ 45 $ 36 $ 121 $ 91 $ 164
----------------------------------------------------------------------------
Cost analysis
Tonnes of ore milled
(thousands) 351 344 1,051 1,048 1,370
Direct production costs
($ per tonne) $ 35 $ 41 $ 38 $ 43 $ 36
----------------------------------------------------------------------------
Direct production costs $ 12 $ 14 $ 40 $ 45 $ 49
Change in inventory 1 - (1) (1) -
Depreciation and other
non-cash costs 3 1 7 8 11
----------------------------------------------------------------------------
Operating costs $ 16 $ 15 $ 46 $ 52 $ 60
----------------------------------------------------------------------------
Operating earnings $ 29 $ 21 $ 75 $ 39 $ 104
----------------------------------------------------------------------------
Operating cash flow $ 26 $ 25 $ 53 $ 46 $ 86
----------------------------------------------------------------------------
The objective for 2010 uses the assumptions listed on page 13.
The table below shows what contributed to the change in operating earnings
and operating cash flow between 2010 and 2009.
----------------------------------------------------------------------------
three months ended nine months ended
(millions) September 30 September 30
----------------------------------------------------------------------------
Higher metal prices, denominated in
Canadian dollars $ 12 $ 25
Higher sales volumes 4 8
Higher freight charges (8) (5)
Lower operating costs 2 5
Other (2) 3
----------------------------------------------------------------------------
Higher operating earnings, compared
to 2009 8 36
Change in tax expense because of
change in earnings (2) (11)
Changes in working capital (see note
2 on page 43) (1) (16)
Other (4) (2)
----------------------------------------------------------------------------
Higher operating cash flow, compared
to 2009 $ 1 $ 7
----------------------------------------------------------------------------
Capital spending lower than expected due to timing
----------------------------------------------------------------------------
three months ended nine months ended revised
September 30 September 30 objective
2010 2009 change 2010 2009 change 2010
----------------------------------------------------------------------------
Capital spending $ 700 $ 2,000 -65% $ 3,300 $ 5,800 -43% $ 4,000
----------------------------------------------------------------------------
2010 outlook for capital spending
Capital spending in 2010 is mainly to replace mobile equipment and the secondary cone crusher.
Ok Tedi
----------------------------------------------------------------
three months ended
September 30
(100 percent) 2010 2009 change
----------------------------------------------------------------
Tonnes of ore milled (000's) 6,200 5,800 +7%
Tonnes of ore milled per day 67,200 63,300 +7%
----------------------------------------------------------------
Strip ratio 1.0 2.0 -50%
----------------------------------------------------------------
Grades copper (percent) 0.8 0.8 -
gold
(grams/tonne) 1.0 1.0 -
----------------------------------------------------------------
Mill recoveries
(percent) copper 84 86 -2%
gold 71 66 +8%
----------------------------------------------------------------
Production copper (tonnes) 43,400 40,700 +7%
gold (ounces) 138,400 122,200 +13%
----------------------------------------------------------------
Cost per tonne of ore milled
(C$) $ 20 $ 23 -13%
----------------------------------------------------------------
----------------------------------------------------------------------------
nine months ended revised
September 30 objective
(100 percent) 2010 2009 change 2010
----------------------------------------------------------------------------
Tonnes of ore milled (000's) 16,600 16,400 +1% 23,900
Tonnes of ore milled per day 60,900 60,000 +1% 65,000
----------------------------------------------------------------------------
Strip ratio 1.3 1.8 -28% 1.2
----------------------------------------------------------------------------
Grades copper (percent) 0.8 0.8 - 0.8
gold
(grams/tonne) 1.0 1.0 - 1.0
----------------------------------------------------------------------------
Mill recoveries
(percent) copper 85 86 -1% 85
gold 70 67 +4% 66
----------------------------------------------------------------------------
Production copper (tonnes) 114,400 115,800 -1% 163,000
gold (ounces) 355,400 370,200 -4% 520,000
----------------------------------------------------------------------------
Cost per tonne of ore milled
(C$) $ 22 $ 24 -8% $ 22
----------------------------------------------------------------------------
Production higher due to improved mill throughput
Mill throughput was higher this quarter compared with the third quarter of 2009. Last year throughput was more constrained until the mine waste management plant was commissioned in the fourth quarter. Tonnes of ore milled is consistent with 2009 year to date, however, because of a 17 day illegal work stoppage by the Ok Tedi Mining and Allied Workers Union (OTMAWU) in April 2010. Copper production was therefore higher this quarter but consistent year to date compared to last year.
Gold grades and production in 2010 continued to be lower than plan because of deferrals made to the mine plan to avoid processing high sulphur, high gold areas of the mine. Despite the significant redesign and modification of the mine waste management plant, its performance continues to be challenged, requiring control of sulphur by blending the ore in the mine before it goes to the mill. This is being accomplished by mining lower benches that contain more copper and less sulphur and gold. The higher grade gold ore is available to be mined but will not be processed until after the mine waste management plant is performing to expectations. A dedicated team of in-house and consulting specialists are working on the plant's technical and operational issues. Ok Tedi is also exploring other alternatives for neutralizing the impact of sulphur.
Ok Tedi reached a new 5 year labour agreement with the OTMAWU at the end of the third quarter. While the agreement provides for certain pay increases, Ok Tedi believes that it will also allow for a reduction in workforce levels.
2010 outlook for production and costs
We have adjusted our gold objective at Ok Tedi for 2010 from 570,000 ounces to 520,000 ounces because of the sulphur grade restrictions. Copper production of 163,000 tonnes is consistent with our original projection.
Financial review
Lower earnings this quarter due to lower copper and gold sales volumes
----------------------------------------------------------------------------
(millions of Canadian
dollars unless three months ended nine months ended revised
otherwise stated) September 30 September 30 objective
2010 2009 2010 2009 2010
----------------------------------------------------------------------------
Sales analysis at 18%
Copper sales (tonnes) 6,500 8,100 21,100 20,500 29,300
Gold sales (ounces) 19,900 25,700 64,000 69,400 93,600
----------------------------------------------------
Gross copper sales $ 57 $ 62 $ 159 $ 138 $ 222
Gross gold sales 25 28 79 77 114
Other metal sales 1 1 3 3 3
----------------------------------------------------
Gross sales $ 83 $ 91 $ 241 $ 218 339
Smelter processing
charges and freight (9) (9) (27) (23) (37)
----------------------------------------------------------------------------
Net sales $ 74 $ 82 $ 214 $ 195 $ 302
----------------------------------------------------------------------------
Cost analysis at 18%
Tonnes of ore milled
(thousands) 1,113 1,050 2,988 2,950 4,300
Direct production costs
($ per tonne) $ 20 $ 23 $ 22 $ 24 $ 22
----------------------------------------------------------------------------
Direct production costs $ 23 $ 24 $ 67 $ 71 $ 95
Change in inventory (1) 2 6 2 -
Depreciation and other
non-cash costs 8 7 22 20 35
----------------------------------------------------------------------------
Operating costs $ 30 $ 33 $ 95 $ 93 $ 130
----------------------------------------------------------------------------
Operating earnings $ 44 $ 49 $ 119 $ 102 $ 172
----------------------------------------------------------------------------
Operating cash flow $ 23 $ 47 $ 110 $ 61 $ 135
----------------------------------------------------------------------------
The objective for 2010 uses the assumptions listed on page 13.
The table below shows what contributed to the change in operating earnings
and operating cash flow between 2010 and 2009.
----------------------------------------------------------------------------
three months ended nine months ended
(millions) September 30 September 30
----------------------------------------------------------------------------
Higher copper prices, denominated in
Canadian dollars $ 7 $ 17
Higher gold prices, denominated in
Canadian dollars 2 8
Lower sales volumes (13) (8)
Higher smelter processing and freight
charges (1) (3)
Lower operating costs 1 6
Higher depreciation (1) (4)
Other - 1
----------------------------------------------------------------------------
Higher (lower) operating earnings,
compared to 2009 (5) 17
Change in tax expense because of
change in earnings 2 (20)
Changes in net working capital (see
note 2 on page 43) (23) 47
Change in depreciation 1 4
Other 1 1
----------------------------------------------------------------------------
Higher (lower) operating cash flow,
compared to 2009 $ (24) $ 49
----------------------------------------------------------------------------
Capital spending
In 2010, Ok Tedi spent $66 million (our share is $12 million), mainly on a mining fleet specifically designed for limestone mining and the construction of storage pits for sulphur concentrate produced by the tailings management plant. In 2009, spending was primarily for the pit drainage project.
----------------------------------------------------------------------------
three months ended nine months ended revised
September 30 September 30 objective
(18 percent) 2010 2009 change 2010 2009 change 2010
----------------------------------------------------------------------------
Capital spending $ 3,500 $ 3,300 +6% $ 11,900 $ 9,900 +20% $ 16,000
----------------------------------------------------------------------------
2010 outlook for capital spending
Spending in 2010 will be on a mining fleet specifically designed for limestone mining, the construction of storage pits for sulphur concentrate produced by the tailings management plant, and earthworks.
Status of our development project
Cobre Panama
Environmental and community affairs
This quarter, Minera Panama submitted the project environmental and social impact assessment (ESIA) to the Autoridad Nacional del Ambiente (ANAM), the Panamanian environmental regulatory authority. This is a significant milestone in the development of the project.
The ESIA describes the existing socio-environmental conditions in the project area, the likely impacts and benefits that will result from the project and the commitments that Minera Panama will undertake to minimize the impacts and enhance the benefits. It is one of the most intensive studies ever undertaken of the socio-environmental context of the Atlantic slope of Panama. Over the past 42 months, more than 40,000 person-hours of field time were recorded, more than 100 Panamanian and international experts were involved in preparing the document, and three rounds of public consultation were held in local communities.
The ESIA document consists of approximately 15,000 pages in 40 volumes. We are working closely with the Panamanian authorities to facilitate a timely review process. While the Panamanian authorities review the ESIA, we expect that it will also be reviewed by external financing agencies to ensure compliance with the International Finance Corporation Performance Standards and the Equator Principles. We are continuing our intensive on-going stakeholder engagement and community development activities to continue to build social license for the project.
Engineering
Engineering this quarter focused on obtaining additional geotechnical information in advance of basic engineering, improvement of existing site infrastructure and on the Engineering, Procurement and Construction Management (EP+CM) procurement process.
Geotechnical work, which includes rock and overburden characterization, site-specific seismic analysis and hydrology, is being undertaken at the plant and port sites, the tailings management facility, eastern infrastructure and along the coast road. It will also include seafloor investigations in the port area. The land based program is nearing completion. The offshore drilling is expected to start in late October and take one month to complete.
Permitting, engineering and construction related to improving site access progressed during the quarter.
We have put considerable effort into selecting an EP+CM contractor. After evaluation of proposals received and extensive due diligence, we shortlisted the most qualified bidders for further negotiations. These negotiations have continued into October and a final decision has now been made. Subject to board approvals, we expect to move into the basic engineering phase of the project in the fourth quarter of 2010.
2010 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
-- continue to pursue the amendment to Panama's Mineral Resources Code to
permit entities in which foreign governmental bodies or authorities have
an interest, to hold direct or indirect interests in mining concessions
in Panama
-- continue to improve site access and infrastructure
-- complete additional drilling for geotechnical and hydrological purposes
and to improve our understanding of mineralization not currently
included in the project base case
-- enter into an agreement with an EP+CM contractor and start basic
engineering
-- work with GDF Suez Energy Central America to select an EPC contractor
for the development of a 300 megawatt thermal power plant to supply
power for the project
-- spend $92 million to carry out the work described.
We 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. After we receive the approvals, site capture, preparation and construction should take approximately 48 months.
We continue to engage with other companies as part of our overall partnering and financing strategy for the project, and are considering reducing our interest in the project as a result. We are also in discussions about other financing options for the project at this time.
Managing our liquidity
We develop our financing strategy by looking at our long-term capital requirements, and deciding on the optimal mix of cash, future operating cash flow, credit facilities and project financing.
Our capital structure includes a liquidity cushion that gives us the flexibility to deal with operational disruptions or general market downturns.
----------------------------------------------------------------------------
three months ended nine months ended
September 30 September 30
(millions) 2010 2009 2010 2009
----------------------------------------------------------------------------
CASH FROM OPERATING ACTIVITIES
Cayeli $ 21 $ 30 $ 74 $ 45
Las Cruces 32 - 26 -
Pyhasalmi 26 25 53 46
Troilus 7 16 44 94
Ok Tedi 23 47 110 61
Corporate development and
exploration not incurred by
operations (2) (1) (5) (5)
General and administration (4) (5) (16) (14)
Corporate taxes (3) (2) (17) (12)
Foreign exchange losses on US dollar
cash - (14) - (14)
Other 2 (7) 5 (4)
----------------------------------------------------------------------------
102 89 274 197
----------------------------------------------------------------------------
CASH FROM INVESTING AND FINANCING
Purchase of property, plant and
equipment (48) (24) (81) (205)
Purchase of long-term investments (77) (100) (296) (100)
Proceeds from issuance of common
shares, net of transaction costs - - - 334
Long-term debt repayments - (232) - (315)
Financial assurance deposits - (43) - (52)
Funding by non-controlling
shareholder - 6 3 50
Subsidies received - 5 - 71
Settlement of interest rate swap
contract - (16) - (16)
Foreign exchange on cash held in
foreign currency 1 (22) (18) (34)
Other 10 (1) 8 (6)
----------------------------------------------------------------------------
(114) (427) (384) (273)
----------------------------------------------------------------------------
Decrease in cash (12) (338) (110) (76)
Cash and short-term investments
Beginning of period 436 835 534 573
----------------------------------------------------------------------------
End of period $ 424 $ 497 $ 424 $ 497
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Key components of the change in operating cash flows
----------------------------------------------------------------------------
three months ended nine months ended
(millions) September 30 September 30
----------------------------------------------------------------------------
Higher earnings from operations (see
page 4) $ 36 $ 56
Higher depreciation 10 15
Higher tax expense (3) (30)
Stand-by and corporate costs - (9)
Changes in working capital (see note 2
on page 43) (46) 27
Realized foreign exchange loss on cash
held in 2009 17 17
Other (1) 1
----------------------------------------------------------------------------
Higher operating cash flow, compared
to 2009 $ 13 $ 77
----------------------------------------------------------------------------
Year to date, operating cash flows were higher than in 2009 because our operating earnings were higher, and in the first quarter of 2009 there was a large outflow of cash related to working capital, which included $48 million to repay smelters for the excess provisional payments they made in 2008, before copper prices dropped because of the global financial crisis. This was partly offset by the payment of more taxes.
2010 outlook for cash from operating activities
The table below shows expected operating cash flow from our operations, based on our outlook for metal prices and production listed on page 13, and the assumptions in Results of our operations, which starts on page 13.
2010 estimated operating cash flow by operation
----------------------------------------------------------------------------
(millions)
----------------------------------------------------------------------------
Cayeli $ 141
Las Cruces 79
Pyhasalmi 86
Troilus 40
Ok Tedi 135
----------------------------------------------------------------------------
$ 481
----------------------------------------------------------------------------
INVESTING AND FINANCING
Capital spending
----------------------------------------------------------------------------
three months ended nine months ended revised
September 30 September 30 objective
(millions) 2010 2009 2010 2009 2010
----------------------------------------------------------------------------
Cayeli $ 3 $ 4 $ 8 $ 11 $ 16
Las Cruces 16 (10) (8) 108 43
Pyhasalmi 1 2 3 6 4
Ok Tedi 3 3 12 10 16
Cobre Panama 25 25 66 70 92
----------------------------------------------------------------------------
$ 48 $ 24 $ 81 205 $ 171
----------------------------------------------------------------------------
Please see Results of our operations and Status of our development project for a discussion of actual results and our 2010 objective. Capital spending in 2010 was mainly for work to advance Cobre Panama.
Acquisition of long-term investments
In 2010, we bought $229 million ($10 million in the second quarter) in medium-term Canadian government and corporate bonds with credit ratings of A to AAA. The bonds mature between December 2010 and August 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.
Additionally, Cayeli purchased $67 million of US Treasury bonds with credit ratings of AAA to obtain 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.
Proceeds from public offering
In the second quarter of 2009, we completed a public offering of 7.825 million common shares of Inmet Mining, for aggregate gross proceeds of $348 million ($334 million net of transaction costs).
Long-term debt repayments and settlement of interest rate swap contract
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
In 2009, Las Cruces received $71 million of subsidy grants under government assistance programs in the European Union for the construction of the mine and process plant.
2010 outlook for investing and financing
We expect capital spending to be $171 million in 2010. The more significant
items include:
-- $103 million at Las Cruces, including $23 million on a water treatment
plant and other water management projects, $18 million for mine
development and $34 million for plant improvements, reduced by working
capital changes and pre-operating costs capitalized net of sales.
-- $92 million for work on the development at Cobre Panama, including basic
engineering, advance payments for mill equipment and other costs to
advance development
-- $10 million at Ok Tedi for the construction of storage pits for sulphur
concentrate produced by the tailings management plant.
On March 31, 2010, we entered into a subscription agreement with a
subsidiary of Temasek Holdings (Private) Limited (Temasek), under which
Temasek has agreed to buy 9.26 million subscription receipts for total
proceeds of $500 million. We issued the subscription receipts on April 23,
2010 and the proceeds are being held in escrow. The subscription receipts
are exchangeable for an equivalent number of Inmet common shares as long as
certain conditions are met on or before December 31, 2010, including:
-- The coming into effect of legislation passed by the legislative assembly
of the Republic of Panama to amend Panama's Mineral Resources Code to
permit entities in which foreign governmental bodies or authorities have
an interest, to hold direct or indirect interests in mining concessions
in Panama.
-- Inmet's or Cobre Panama's ability to use or exploit their rights under
Cobre Panama's mining concession for the mining project are not impaired
in any material way.
If the conditions are met, the subscription receipts will be exchanged for Inmet common shares equal to approximately 14 percent of our outstanding common shares. The proceeds will then be released from escrow and we will use them to fund the development of Cobre Panama and for general corporate purposes. If the conditions are not met, the subscription receipts will automatically terminate and the escrowed funds will be returned to Temasek.
Financial condition
CASH
Our cash and cash equivalents balance at September 30, 2010 was $424 million. This included cash and money market instruments that mature in 90 days or less, and short-term investments that mature in 91 days to a year.
Our policy is to invest excess cash in highly liquid investments of the highest credit quality, and to limit our exposure to individual counterparties to minimize the risk associated with these investments. We base our decisions about the length of maturities on our cash flow requirements, rates of return and other factors.
The economic downturn appears to be reversing, but we are still monitoring
the potential for a second downturn. We have moved some of our government
funds to prime funds and have created a bond portfolio that should provide
better yields with little change to our investment risk. At September 30,
2010, we held cash and short-term investments in the following:
-- AAA rated treasury funds and money market funds managed by leading
international fund managers, who are investing in money market and
short-term debt securities and fixed income securities issued by leading
international financial institutions and their sponsored securitization
vehicles.
-- Cash, term and overnight deposits with leading Canadian and
international financial institutions that are benefiting directly and
indirectly from support programs by various governments and central
banks.
See note 3 on page 44 in the consolidated financial statements for more details about where our cash is invested.
The bond portfolio (Held to maturity investments) totalling $332 million, comprises 17 percent US Treasury bonds, 11 percent Government of Canada bonds, 63 percent Provincial Government bonds and 9 percent corporate bonds, and the bonds mature between December 2010 and August 2015.
Our restricted cash balance of $114 million as at September 30, 2010
included:
-- $29 million in trust for future reclamation at Ok Tedi
-- $17 million of cash collateralized letters of credit for Inmet
-- $66 million related to issuing letters of credit to suppliers and the
local water authority at Las Cruces, a reclamation bond and for its
labour bond to the government
-- $2 million for future reclamation at Pyhasalmi.
COMMON SHARES
----------------------------------------------------------------------------
Common shares outstanding as of September 30, 2010 and
October 26, 2010 56,106,645
----------------------------------------------------------------------------
Deferred share units outstanding as of September 30,2010 104,682
(redeemable on a one-for-one basis for common shares)
----------------------------------------------------------------------------
Dividend declaration
Inmet's board of directors has declared an eligible dividend of $0.10 per common share payable on December 15,2010 to common shareholders of record as of November 30, 2010.
Accounting changes
Plans on transition to International Financial Reporting Standards (IFRS):
The Accounting Standards Board has confirmed that International Financial Reporting Standards (IFRS) will replace current Canadian GAAP for financial periods beginning on and after January 1, 2011. IFRS is based on a conceptual framework similar to Canadian GAAP, but there are significant differences in recognition, measurement and disclosure.
While the adoption of IFRS will not change our business activities, it will result in changes to our reported financial position and net income.
We have prepared a comprehensive IFRS convergence plan that addresses the changes in accounting policy, restatement of comparative periods, internal control over financial reporting, modification of existing systems, the training and awareness of staff, and other related items. Senior financial management, who report to and are overseen by Inmet's Audit Committee, are responsible for planning and implementing the conversion.
To date, we have made an initial determination of all of our significant accounting policies, prepared sample financial statements and assessed the impacts on our systems and processes. We have identified and put in place a dual reporting solution to maintain our accounting records according to Canadian GAAP and IFRS for our 2010 dual reporting year. We have been working alongside our auditors while drafting our accounting policies, to ensure they agree with our choices, and that we are choosing policies that are consistent with our peers in the industry. Concurrently with documenting our new policies, we have documented the related internal controls. We have prepared a reconciliation of our historical Canadian GAAP balance sheet to IFRS balance sheet as at January 1, 2010 and for our financial statements for the first and second quarters of 2010. For the remainder of the year, we will continue to focus on preparing quarterly financial statements in accordance with our expected IFRS accounting policies.
We do not expect our key controls to change during and after our transition to IFRS. As a result of our training program and the preparation of reconciliations to IFRS, we believe that our applicable personnel have obtained an appropriate understanding of IFRS as it applies to our financial reporting.
We have noted below the major differences between our current accounting policies under Canadian GAAP and the accounting policies we currently expect to apply when we transition to IFRS. 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 six months ended June 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. An exposure draft on accounting for joint venture interests (including our investment in Ok Tedi) could have significant effects on our financial statements. We will continue to monitor changes to IFRS and adjust our convergence plan as necessary.
Impairment of assets
Under Canadian GAAP, we use a two-step approach to impairment testing:
-- first comparing asset carrying values with undiscounted future cash
flows to determine whether impairment exists
-- then measuring any impairment by comparing asset carrying values with
fair values (generally assessed using a discounted cash flow valuation
process).
IFRS uses a one step approach to test for and measure impairment, and compares asset carrying values directly with the higher of fair value less costs to sell and value in use (which uses discounted future cash flows).
This approach will lead to write-downs when carrying values of assets supported under Canadian GAAP on an undiscounted basis are not supported on a discounted basis under IFRS. IFRS also requires a full or partial reversal of previous impairment losses when circumstances have changed and the impairments have been reduced. Impairment losses cannot be reversed under Canadian GAAP.
We expect to increase January 1, 2010 property plant and equipment at Cayeli by approximately $50 million to reverse an impairment charge we recognized for this operation in 1996. The increase is the IFRS carrying amount we would have calculated, net of depreciation, if we had not recognized the original impairment. This will result in a higher ongoing depreciation expense for Cayeli.
Business combinations
Under Canadian GAAP, mining companies that are acquired in the early development stage often do not constitute a business, and instead are accounted for as an acquisition of assets without any goodwill. The definition of a business under IFRS is broader, and most acquisitions represent business combinations, so goodwill is recognized more frequently.
In addition, most identifiable assets, liabilities, non-controlling interests and goodwill acquired in a business combination are recorded at full fair value under IFRS. Under Canadian GAAP, only the ownership percentage acquired is recorded. Non-controlling interests are recognized at book value.
Asset retirement obligations
Under Canadian GAAP, we use a credit adjusted risk free interest rate and are not required to update the rate when market rates change.
Under IFRS, we will measure asset retirement obligations using a risk free interest rate and revalue when market risk free interest rates change. We expect to increase January 1, 2010 asset retirement obligations by approximately $40 million on transition to IFRS.
Revenue
Under Canadian GAAP, we recognize revenue when title is legally transferred to the purchaser. For certain shipments at Cayeli, Ok Tedi and Las Cruces, we transfer title when we receive the first provisional payment, which is later than the transfer point for risks and rewards of ownership.
Under IFRS, we will recognize revenue when all significant risks and rewards of ownership of our products are transferred to the purchaser. We expect to increase January 1, 2010 accounts receivable by approximately $25 million and decrease inventories by $6 million on transition to IFRS.
Foreign exchange gains and losses
Under Canadian GAAP, dividends, including those related to the accumulation of earnings and repayment of intercompany debt, are considered a return on investment, and we recognize the deferred foreign exchange gains or losses on these amounts in investment and other income.
Under IFRS, only dividends that represent a return on capital invested in a foreign operation require recognition of previously deferred foreign exchange gains or losses. For the six months ended June 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) 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 31 and 32 includes supplementary financial information about cash costs. These measures do not fall into the category of generally accepted accounting principles.
We use unit cash cost information as a key performance indicator, both on a segmented and consolidated basis. We have included cash costs as supplementary information because we believe our key stakeholders use these measures as a financial indicator of our profitability and cash flows before the effects of capital investment and financing costs, such as interest.
Since cash costs are not recognized measures under Canadian generally accepted accounting principles they should not be considered in isolation of earnings or cash flows. There is also no standard way to calculate cash costs, so they are not a reliable way to compare us to other companies.
About Inmet
Inmet is a Canadian-based global mining company that produces copper, zinc and gold. We have interests in four mining operations in locations around the world: Cayeli, Las Cruces, Pyhasalmi and Ok Tedi. We also have a 100 percent interest in Cobre Panama, a development property in Panama.
This press release is also available at www.inmetmining.com
Third quarter conference call
Will be held on
-- Wednesday, October 27, 2010
-- 8:30 a.m. Eastern Time
-- webcast available at
http://events.digitalmedia.telus.com/inmet/102710/index.php or
www.inmetmining.com
You can also dial in by calling
-- Local or international: +1.416.695.6623
-- Toll-free within North America: +1.800.565.0813
Starting 10:00 a.m. (ET) Wednesday, October 27, 2010, conference call replay
will be available
-- Local or international: +1.416.695.5800 passcode 8578407
-- Toll-free within North America: +1.800.408.3053 passcode 8578407
INMET MINING CORPORATION
Supplementary financial information
Cash costs
2010 For the nine months ended September 30
per pound of copper
-------------------------------------------------------------
LAS CRUCES TOTAL
CAYELI (1) PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
(US dollars)
Direct
production
costs $ 1.22 $ 1.54 $ 1.62 $ 1.32 $ 1.36
Royalties and
variable
compensation 0.11 0.06 - 0.11 0.09
Smelter
processing
charges and
freight 1.36 - 1.06 0.55 0.89
Metal credits (2.05) - (2.73) (1.79) (1.88)
-------------------------------------------------------------
Cash cost $ 0.64 $ 1.60 ($0.05) $ 0.19 $ 0.46
-------------------------------------------------------------
-------------------------------------------------------------
2009 For the nine months
ended September 30
per pound of copper
-------------------------------------------------------------
TOTAL
CAYELI LAS CRUCES PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
(US dollars)
Direct
production
costs $ 1.01 $ - $ 1.61 $ 1.28 $ 1.24
Royalties and
variable
compensation 0.08 - - 0.04 0.05
Smelter
processing
charges and
freight 1.15 - 0.89 0.41 0.80
Metal credits (1.50) - (1.86) (1.44) (1.55)
-------------------------------------------------------------
Cash cost $ 0.74 $ - $ 0.64 $ 0.29 $ 0.54
-------------------------------------------------------------
-------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of cash costs to
statements of earnings
2010 For the nine months
ended September 30
per pound of copper
-------------------------------------------------------------
(millions of
Canadian
dollars,
except where
otherwise LAS CRUCES TOTAL
noted) CAYELI (1) PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
GAAP reference page 15 page 17 page 19 page 21
Direct
production
costs $ 65 $ 31 $ 40 $ 67 $ 203
Smelter
processing
charges and
freight 57 - 40 27 124
By product
sales (92) - (82) (82) (256)
Adjust smelter
processing and
freight, and
sales to
production
basis 2 - 1 (3) -
-------------------------------------------------------------
Operating costs
net of metal
credits $ 32 $ 31 ($1) $ 9 $ 71
US $ to C$
exchange rate $ 1.04 $ 1.04 $ 1.04 $ 1.04 $ 1.04
Inmet's share
of production
(000's) 47,500 18,400 23,900 45,400 135,200
-------------------------------------------------------------
Cash cost $ 0.64 $ 1.60 ($0.05) $ 0.19 $ 0.46
-------------------------------------------------------------
-------------------------------------------------------------
2009 For the nine months
ended September 30
per pound of copper
-------------------------------------------------------------
(millions of
Canadian
dollars,
except where
otherwise TOTAL
noted) CAYELI LAS CRUCES PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
GAAP reference page 15 page 17 page 19 page 21
Direct
production
costs $ 59 $ - $ 45 $ 71 $ 175
Smelter
processing
charges and
freight 55 - 34 23 112
By product
sales (75) - (62) (80) (217)
Adjust smelter
processing and
freight, and
sales to
production
basis 1 - 1 2 4
-------------------------------------------------------------
Operating costs
net of metal
credits $ 40 $ - $ 18 $ 16 $ 74
US $ to C$
exchange rate $ 1.17 $ - $ 1.17 $ 1.17 $ 1.17
Inmet's share
of production
(000's) 46,300 - 24,300 45,900 116,500
-------------------------------------------------------------
Cash cost $ 0.74 $ - $ 0.64 $ 0.29 $ 0.54
-------------------------------------------------------------
-------------------------------------------------------------
(1) Las Cruces' results are included from July 1, 2010
Cash costs
2010 For the three months ended September 30
per pound of copper
------------------------------------------------------------
LAS TOTAL
CAYELI CRUCES (1) PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
(US dollars)
Direct
production
costs $ 1.20 $ 1.54 $ 1.45 $ 1.24 $ 1.33
Royalties and
variable
compensation 0.12 0.06 - 0.05 0.07
Smelter
processing
charges and
freight 1.34 - 1.14 0.56 0.75
Metal credits (2.04) - (3.05) (1.86) (1.66)
------------------------------------------------------------
Cash cost $ 0.62 $ 1.60 ($0.46) ($0.01)$ 0.49
------------------------------------------------------------
------------------------------------------------------------
2009 For the three months
ended September 30
per pound of copper
------------------------------------------------------------
LAS TOTAL
CAYELI CRUCES PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
(US dollars)
Direct
production
costs $ 1.09 $ - $ 1.57 $ 1.28 $ 1.27
Royalties and
variable
compensation 0.11 - - 0.09 0.08
Smelter
processing
charges and
freight 1.38 - 1.21 0.45 0.95
Metal credits (2.12) - (2.21) (1.40) (1.84)
------------------------------------------------------------
Cash cost $ 0.46 $ - $ 0.57 $ 0.42 $ 0.46
------------------------------------------------------------
------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of cash costs to
statements of earnings
2010 For the three months
ended September 30
per pound of copper
------------------------------------------------------------
(millions of
Canadian
dollars, except
where LAS TOTAL
otherwise noted) CAYELI CRUCES (1) PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
GAAP reference page 15 page 17 page 19 page 21
Direct
production
costs $ 22 $ 31 $ 12 $ 23 $ 88
Smelter
processing
charges and
freight 19 - 20 9 48
By product sales (27) - (38) (26) (91)
Adjust smelter
processing and
freight, and
sales to
production
basis (4) - 2 (6) (8)
------------------------------------------------------------
Operating costs
net of metal
credits $ 10 $ 31 ($4)$ - $ 37
US $ to C$
exchange rate $ 1.04 $ 1.04 $ 1.04 $ 1.04 $ 1.04
Inmet's share of
production
(000's) 16,200 18,400 8,700 17,200 60,500
------------------------------------------------------------
Cash cost $ 0.62 $ 1.60 ($0.46) ($0.01)$ 0.49
------------------------------------------------------------
------------------------------------------------------------
2009 For the three months
ended September 30
per pound of copper
------------------------------------------------------------
(millions of
Canadian
dollars, except
where LAS TOTAL
otherwise note) CAYELI CRUCES PYHASALMI OK TEDI COPPER
----------------------------------------------------------------------------
GAAP reference page 15 page 17 page 19 page 21
Direct
production
costs $ 19 $ - $ 14 $ 24 $ 57
Smelter
processing
charges and
freight 18 - 12 9 39
By product sales (25) - (22) (29) (76)
Adjust smelter
processing and
freight, and
sales to
production
basis (5) - 1 3 (1)
------------------------------------------------------------
Operating costs
net of metal
credits $ 7 - $ 5 $ 7 $ 19
US $ to C$
exchange rate $ 1.10 - $ 1.10 $ 1.10 $ 1.10
Inmet's share of
production
(000's) 14,100 - 8,200 16,100 38,400
------------------------------------------------------------
Cash cost $ 0.46 $ - $ 0.57 $ 0.42 $ 0.46
------------------------------------------------------------
------------------------------------------------------------
(1) Las Cruces' results are included from July 1, 2010
INMET MINING CORPORATION
Quarterly review
(unaudited)
Latest Four Quarters
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2010 2010 2010 2009
(thousands of Canadian
dollars, except per Third Second First Fourth
share amounts) quarter quarter quarter quarter
----------------------------------------------------------------------------
----------------------------------------------------------------------------
STATEMENTS OF EARNINGS
Gross sales $ 313,349 $ 215,051 $ 251,559 $ 290,570
Smelter processing
charges and freight (47,191) (36,794) (44,329) (53,696)
Cost of sales (93,722) (72,437) (80,980) (74,995)
Depreciation (24,308) (18,951) (15,224) (17,911)
----------------------------------------------------
148,128 86,869 111,026 143,968
Corporate development
and exploration (2,758) (2,524) (2,779) (2,915)
General and
administration (4,073) (6,288) (5,510) (9,836)
Investment and other
income (expense) 3,533 (18,370) (78) 280
Asset impairment - - - (3,496)
Stand-by costs - - (6,753) -
Interest expense (3,480) (421) (452) (496)
Capital tax expense (82) (82) (82) 69
Income tax expense (45,272) (15,167) (20,063) (38,668)
Non-controlling interest (9,910) 4,419 4,562 857
----------------------------------------------------
Net income 86,086 48,436 79,871 $ 89,763
----------------------------------------------------
Net income per common
share $ 1.53 $ 0.86 $ 1.42 $ 1.60
----------------------------------------------------
Diluted net income per
common share $ 1.53 $ 0.86 $ 1.42 $ 1.60
----------------------------------------------------
Previous Four Quarters
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2009 2009 2009 2008
(thousands of Canadian
dollars, except per Third Second First Fourth
share amounts) quarter quarter quarter quarter
----------------------------------------------------------------------------
----------------------------------------------------------------------------
STATEMENTS OF EARNINGS
Gross sales $ 241,121 $ 213,042 $ 239,152 $ 139,626
Smelter processing
charges and freight (41,607) (40,589) (40,540) (32,870)
Cost of sales (72,706) (73,827) (89,904) (91,715)
Depreciation (14,558) (13,604) (15,679) (14,844)
----------------------------------------------------
112,250 85,022 93,029 197
Corporate development
and exploration (1,963) (2,727) (3,232) (1,971)
General and
administration (5,147) (4,785) (4,124) (3,289)
Investment and other
income (expense) 3,588 16,466 (11,203) 8,057
Asset impairment - - (6,419) (36,275)
Interest expense (496) (493) (492) (490)
Capital tax expense (744) (125) (125) (1,304)
Income tax (expense)
recovery (39,244) (24,052) (18,890) 767
Non-controlling interest (6,693) (2,778) 2,783 1,794
----------------------------------------------------
Net income (loss) $ 61,551 $ 66,528 $ 51,327 ($32,514)
----------------------------------------------------
Net income (loss) per
common share $ 1.10 $ 1.37 $ 1.06 ($0.67)
----------------------------------------------------
Diluted net income
(loss) per common share$ 1.09 $ 1.36 $ 1.06 ($0.67)
----------------------------------------------------
INMET MINING CORPORATION
Consolidated balance sheets
September
Note 30 December 31
(thousands of Canadian dollars) reference 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(unaudited)
Assets
Current assets:
Cash and short-term investments 3 $ 423,756 $ 533,913
Restricted cash 4 12,435 15,130
Accounts receivable 115,722 129,987
Inventories 85,414 103,108
Current portion of held to maturity
investments 6 64,449 9,993
Future income tax asset 7,956 8,466
Other 525 -
----------------------------
710,257 800,597
Restricted cash 4 101,531 101,589
Property, plant and equipment 1,813,634 1,860,616
Investments in equity securities 5 55,725 42,411
Held to maturity investments 6 334,385 89,891
Future income tax asset 14,855 6,151
Other assets 4,745 2,894
----------------------------
$ 3,035,132 $ 2,904,149
----------------------------------------------------------------------------
Liabilities
Current liabilities:
Accounts payable and accrued
liabilities $ 178,282 $ 185,145
Derivatives 2,012 1,543
Future income tax liabilities 3,330 4,612
----------------------------
183,624 191,300
Long-term debt 7 198,713 200,026
Asset retirement obligations 141,358 145,038
Derivatives 3,357 3,165
Other liabilities 32,032 32,113
Future income tax liabilities 9,490 16,357
Non-controlling interest 73,597 78,005
----------------------------
642,171 666,004
----------------------------
Commitments 8
Shareholders' equity
Share capital 669,952 669,952
Contributed surplus 64,551 63,296
Stock based compensation 6,295 5,170
Retained earnings 1,750,586 1,541,803
Accumulated other comprehensive loss 10 (98,423) (42,076)
----------------------------
2,392,961 2,238,145
----------------------------
$ 3,035,132 $ 2,904,149
----------------------------------------------------------------------------
(see accompanying notes)
INMET MINING CORPORATION
Segmented balance sheets
2010 As at September 30
(unaudited) CORPORATE CAYELI LAS CRUCES PYHASALMI
---------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Assets
Cash and short-term
investments $ 146,981 $ 75,079 $ 50,312 $ 78,830
Other current assets 69,839 62,063 49,929 48,340
Restricted cash 16,853 - 54,267 1,719
Property, plant and
equipment 742 114,866 969,172 59,448
Investments in
equity securities 55,725 - - -
Held to maturity
investments 267,484 66,901 - -
Other non-current
assets 1,862 3,628 7,118 -
-------------------------------------------------------
$ 559,486 $ 322,537 $ 1,130,798 $ 188,337
-------------------------------------------------------
Liabilities
Current liabilities $ 15,350 $ 29,904 $ 40,067 $ 19,448
Long-term debt 17,340 - 181,373 -
Asset retirement
obligations 28,309 8,990 48,120 14,875
Derivatives - - - -
Other liabilities 4,497 6,516 18,612 -
Future income tax
liabilities - - 182 9,308
Non-controlling
interest - - 73,597 -
-------------------------------------------------------
$ 65,496 $ 45,410 $ 361,951 $ 43,631
-------------------------------------------------------
COBRE
(unaudited) TROILUS OK TEDI PANAMA TOTAL
----------------------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Canada) Guinea) (Panama)
Assets
Cash and short-term
investments $ - $ 64,833 $ 7,721 $ 423,756
Other current assets 3,248 52,616 466 286,501
Restricted cash - 28,692 - 101,531
Property, plant and
equipment - 91,180 578,226 1,813,634
Investments in
equity securities - - - 55,725
Held to maturity
investments - - - 334,385
Other non-current
assets - 6,992 - 19,600
--------------------------------------------------------
$ 3,248 $ 244,313 $ 586,413 $ 3,035,132
--------------------------------------------------------
Liabilities
Current liabilities $ 13,725 $ 56,839 $ 8,291 $ 183,624
Long-term debt - - - 198,713
Asset retirement
obligations 1,506 39,558 - 141,358
Derivatives - 3,357 - 3,357
Other liabilities - 2,407 - 32,032
Future income tax
liabilities - - - 9,490
Non-controlling
interest - - - 73,597
--------------------------------------------------------
$ 15,231 $ 102,161 $ 8,291 $ 642,171
--------------------------------------------------------
2009 As at December 31
CORPORATE CAYELI LASCRUCES 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
COBRE
TROILUS OK TEDI 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 Nine Months Ended
September 30 September 30
(thousands of
Canadian dollars
except per share Note
amounts) reference 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gross sales $ 313,349 $ 241,121 $ 779,959 $ 693,315
Smelter processing
charges and
freight (47,191) (41,607) (128,314) (122,736)
Cost of sales (93,722) (72,706) (247,139) (236,437)
Depreciation (24,308) (14,558) (58,483) (43,841)
----------------------------------------------------------------------------
148,128 112,250 346,023 290,301
Corporate
development and
exploration (2,758) (1,963) (8,061) (7,922)
General and
administration (4,073) (5,147) (15,871) (14,056)
Investment and
other income 11 3,533 3,588 (14,915) 8,851
Asset impairment - - - (6,419)
Stand-by costs - - (6,753) -
Interest expense (3,480) (496) (4,353) (1,481)
Capital tax expense (82) (744) (246) (994)
Income tax expense 12 (45,272) (39,244) (80,502) (82,186)
Non-controlling
interest (9,910) (6,693) (929) (6,688)
----------------------------------------------------------------------------
Net income $ 86,086 $ 61,551 $ 214,393 $ 179,406
----------------------------------------------------------------------------
Basic net income
per common share 13$ 1.53 $ 1.10 $ 3.82 $ 3.51
----------------------------------------------------------------------------
Diluted net income
per common share 13$ 1.53 $ 1.09 $ 3.81 $ 3.50
----------------------------------------------------------------------------
Weighted average
shares outstanding
(000's) 56,107 56,107 56,107 51,062
----------------------------------------------------------------------------
(see accompanying notes)
INMET MINING CORPORATION
Segmented statements of earnings
(unaudited)
2010 For the nine months ended September 30
CORPORATE CAYELI LAS CRUCES PYHASALMI
---------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Gross sales $ - $ 244,029 $ 61,849 $ 160,701
Smelter processing
charges and freight - (57,217) (27) (39,809)
Cost of sales (1,523) (65,952) (30,880) (40,610)
Depreciation - (10,161) (10,328) (5,637)
-------------------------------------------------------
(1,523) 110,699 20,614 74,645
Corporate
development and
exploration (4,721) (451) - (2,889)
General and
administration (15,871) - - -
Investment and other
income (15,820) 950 469 -
Stand-by costs - - (6,753) -
Interest expense (1,312) - (3,041) -
Capital tax expense (246) - - -
Income tax (expense)
recovery (644) (21,733) 3,702 (16,900)
Non-controlling
interest - - (929) -
-------------------------------------------------------
Net income (loss) ($40,137) $ 89,465 $ 14,062 $ 54,856
-------------------------------------------------------
-------------------------------------------------------
2010 For the nine months ended September 30
COBRE
TROILUS OK TEDI PANAMA TOTAL
----------------------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Canada) Guinea) (Panama)
Gross sales $ 72,070 $ 241,310 $ - $ 779,959
Smelter processing
charges and freight (4,526) (26,735) - (128,314)
Cost of sales (34,336) (73,838) - (247,139)
Depreciation (10,822) (21,535) - (58,483)
--------------------------------------------------------
22,386 119,202 - 346,023
Corporate
development and
exploration - - - (8,061)
General and
administration - - - (15,871)
Investment and other
income (481) (33) - (14,915)
Stand-by costs - - - (6,753)
Interest expense - - - (4,353)
Capital tax expense - - - (246)
Income tax (expense)
recovery - (44,927) - (80,502)
Non-controlling
interest - - - (929)
--------------------------------------------------------
Net income (loss) $ 21,905 $ 74,242 $ - $ 214,393
--------------------------------------------------------
--------------------------------------------------------
2009 For the nine months ended September 30
CORPORATE CAYELI LAS CRUCES PYHASALMI
----------------------------------------------------------------------------
(thousands of Canadian
dollars) (Turkey) (Spain) (Finland)
Gross sales $ - $ 191,344 $ - $ 125,244
Smelter processing
charges and freight - (55,094) - (33,802)
Cost of sales (1,401) (60,549) - (46,079)
Depreciation - (9,826) - (6,237)
----------------------------------------------------
(1,401) 65,875 - 39,126
Corporate development
and exploration (4,581) (971) - (2,370)
General and
administration (14,056) - - -
Investment and other
income (10,798) 822 21,902 (421)
Asset impairment charges - (6,419) - -
Interest expense (1,481) - - -
Capital tax expense (994) - - -
Income tax expense (22,388) (7,272) (7,949) (6,644)
Non-controlling interest - - (6,688) -
----------------------------------------------------
Net income (loss) ($55,699) $ 52,035 $ 7,265 $ 29,691
----------------------------------------------------
2009 For the nine months
ended September 30
COBRE
TROILUS OK TEDI PANAMA TOTAL
----------------------------------------------------------------------------
(thousands of Canadian (Papua New
dollars) (Canada) Guinea) (Panama)
Gross sales $ 158,676 $ 218,051 $ - $ 693,315
Smelter processing
charges and freight (10,990) (22,850) - (122,736)
Cost of sales (52,953) (75,455) - (236,437)
Depreciation (10,121) (17,657) - (43,841)
----------------------------------------------------
84,612 102,089 - 290,301
Corporate development
and exploration - - - (7,922)
General and
administration - - - (14,056)
Investment and other
income 645 (3,299) - 8,851
Asset impairment charges - - - (6,419)
Interest expense - - - (1,481)
Capital tax expense - - - (994)
Income tax expense - (37,933) - (82,186)
Non-controlling interest - - - (6,688)
----------------------------------------------------
Net income (loss) $ 85,257 $ 60,857 $ - $ 179,406
----------------------------------------------------
INMET MINING CORPORATION
Segmented statements of earnings
(unaudited)
2010 For the three months ended September 30
CORPORATE CAYELI LAS CRUCES PYHASALMI
---------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Gross sales $ - $ 93,597 $ 61,849 $ 65,255
Smelter processing
charges and freight - (18,522) (27) (19,754)
Cost of sales (512) (22,253) (30,880) (14,097)
Depreciation - (3,691) (10,328) (1,925)
-------------------------------------------------------
(512) 49,131 20,614 29,479
Corporate
development and
exploration (1,474) (373) - (911)
General and
administration (4,073) - - -
Investment and other
income 2,945 957 291 -
Interest expense (439) - (3,041) -
Capital tax expense (82) - - -
Income tax (expense)
recovery (805) (9,327) (10,828) (6,974)
Non-controlling
interest - - (9,910) -
-------------------------------------------------------
Net income (loss) ($4,440) $ 40,388 ($2,874) $ 21,594
-------------------------------------------------------
-------------------------------------------------------
2010 For the three months ended September 30
COBRE
TROILUS OK TEDI PANAMA TOTAL
----------------------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Canada) Guinea) (Panama)
Gross sales $ 9,893 $ 82,755 $ - $ 313,349
Smelter processing
charges and freight (205) (8,683) - (47,191)
Cost of sales (3,781) (22,199) - (93,722)
Depreciation (820) (7,544) - (24,308)
--------------------------------------------------------
5,087 44,329 - 148,128
Corporate
development and
exploration - - - (2,758)
General and
administration - - - (4,073)
Investment and other
income (645) (15) - 3,533
Interest expense - - - (3,480)
Capital tax expense - - - (82)
Income tax (expense)
recovery - (17,338) - (45,272)
Non-controlling
interest - - - (9,910)
--------------------------------------------------------
Net income (loss) $ 4,442 $ 26,976 $ - $ 86,086
--------------------------------------------------------
--------------------------------------------------------
2009 For the three months ended September 30
CORPORATE CAYELI LASCRUCES PYHASALMI
---------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Gross sales $ - $ 67,612 $ - $ 48,262
Smelter processing
charges and freight - (17,580) - (12,485)
Cost of sales (409) (18,263) - (13,504)
Depreciation - (2,980) - (1,473)
-------------------------------------------------------
(409) 28,789 - 20,800
Corporate
development and
exploration (1,207) (70) - (686)
General and
administration (5,147) - - -
Investment and other
income (17,218) (248) 21,582 1
Interest expense (496) - - -
Capital tax expense (744) - - -
Income tax expense (2,658) (5,641) (7,682) (4,339)
Non-controlling
interest - - (6,693) -
-------------------------------------------------------
Net income (loss) ($27,879) $ 22,830 $ 7,207 $ 15,776
-------------------------------------------------------
2009 For the three months ended September 30
COBRE
TROILUS OK TEDI PANAMA TOTAL
----------------------------------------------------------------------------
(thousands of (Papua New
Canadian dollars) (Canada) Guinea) (Panama)
Gross sales $ 34,279 $ 90,968 $ - $ 241,121
Smelter processing
charges and freight (2,272) (9,270) - (41,607)
Cost of sales (14,510) (26,020) - (72,706)
Depreciation (3,401) (6,704) - (14,558)
--------------------------------------------------------
14,096 48,974 - 112,250
Corporate
development and
exploration - - - (1,963)
General and
administration - - - (5,147)
Investment and other
income 284 (813) - 3,588
Interest expense - - - (496)
Capital tax expense - - - (744)
Income tax expense - (18,924) - (39,244)
Non-controlling
interest - - - (6,693)
--------------------------------------------------------
Net income (loss) $ 14,380 $ 29,237 $ - $ 61,551
--------------------------------------------------------
INMET MINING CORPORATION
Consolidated statements of cash flows
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
(thousands of Note
Canadian dollars) reference 2010 2009 2010 2009
----------------------------------------------------------------------------
Cash provided by
(used in)
operating
activities (1)
Net income $ 86,086 $ 61,551 $ 214,393 $ 179,406
Add (deduct) items
not affecting
cash:
Depreciation 24,308 14,558 58,483 43,841
Future income tax 8,825 5,427 (15,138) 16,746
Accretion expense
on asset
retirement
obligations 2,300 1,180 4,827 3,655
Non-controlling
interest 9,910 6,693 929 6,688
Asset impairment - - - 6,419
Foreign exchange
loss (gain) (1,108) 2,951 21,853 (5,897)
Gain on
recognition of
foreign currency
forward contract
settlement - (35,615) - (35,615)
Loss on
recognition of
interest rate
swap contract
settlement - 14,823 - 14,823
Other 5,382 3,198 6,628 10,808
Settlement of asset
retirement
obligations (4,577) (2,093) (6,098) (4,849)
Net change in non-
cash working
capital 2 (28,991) 16,604 (11,876) (39,055)
------------------------------------------------
102,135 89,277 274,001 196,970
------------------------------------------------
Cash provided by
(used in)
investing
activities
Purchase of
property, plant
and equipment (47,785) (23,789) (80,620) (204,911)
Purchase of long-
term investments 6 (76,748) (100,000) (295,846) (100,000)
Sale of short-term
investments - 53,958 26,996 8,707
Sale of assets -
Troilus 5,502 - 5,502 -
Funding received
under Cobre Panama
option agreement 4,154 - 10,362 -
------------------------------------------------
(114,877) (69,831) (333,606) (296,204)
------------------------------------------------
Cash provided by
(used in)
financing
activities
Long-term debt
repayments - (232,101) - (314,603)
Issuance of common
shares - - - 334,284
Funding by non-
controlling
shareholder - 5,676 2,835 49,617
Financial assurance
deposits (868) (43,078) (1,222) (51,818)
Dividends paid on
common shares - - (5,610) (4,828)
Settlement of
interest rate swap
contract - (15,982) - (15,982)
Subsidies received - 4,730 360 70,939
Other (690) (1,251) (2,200) (1,341)
------------------------------------------------
(1,558) (282,006) (5,837) 66,268
------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency 1,738 (21,535) (17,719) (34,435)
------------------------------------------------
Decrease in cash (12,562) (284,095) (83,161) (67,401)
Cash:
Beginning of
period 436,318 753,753 506,917 537,059
------------------------------------------------
End of period 423,756 469,658 423,756 469,658
Short-term
investments - 26,967 - 26,967
------------------------------------------------
Cash and short-term
investments $ 423,756 $ 496,625 $ 423,756 $ 496,625
----------------------------------------------------------------------------
(see accompanying
notes)
(1) Supplementary
cash flow
information:
Cash interest paid $ 546 $ 972 $ 1,146 $ 10,867
Cash taxes paid $ 23,529 $ 7,189 $ 97,566 $ 17,828
----------------------------------------------------------------------------
INMET MINING CORPORATION
Segmented statements of cash flows
(unaudited)
2010 For the nine months ended September 30
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 ($24,045) $ 98,939 $ 25,495 $ 61,582
Net change in non-
cash working
capital (8,818) (24,479) 58 (8,090)
-------------------------------------------------------
(32,863) 74,460 25,553 53,492
-------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment (132) (8,229) 7,834 (3,264)
Purchase of long-
term investments (228,500) (67,346) - -
Sale of short-term
investments 26,996 - - -
Sale of assets -
Troilus - - - -
Funding received-
Cobre Panama
option agreement - - - -
-------------------------------------------------------
(201,636) (75,575) 7,834 (3,264)
-------------------------------------------------------
-------------------------------------------------------
Cash provided by
(used in) financing
activities (6,109) - 1,560 -
-------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (6,556) 44 (9,728)
-------------------------------------------------------
Intergroup funding
(distributions) 163,015 (75,881) 5,282 (27,984)
-------------------------------------------------------
Increase (decrease)
in cash (77,593) (83,552) 40,273 12,516
Cash:
Beginning of period 224,574 158,631 10,039 66,314
-------------------------------------------------------
End of period 146,981 75,079 50,312 78,830
Short-term
investments - - - -
-------------------------------------------------------
Cash and short-term
investments $ 146,981 $ 75,079 $ 50,312 $ 78,830
-------------------------------------------------------
-------------------------------------------------------
2010 For the nine months ended September 30
COBRE
TROILUS OK TEDI 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 $ 31,469 $ 92,437 $ - $ 285,877
Net change in non-
cash working
capital 12,292 17,161 - (11,876)
--------------------------------------------------------
43,761 109,598 - 274,001
--------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment - (11,863) (64,966) (80,620)
Purchase of long-
term investments - - - (295,846)
Sale of short-term
investments - - - 26,996
Sale of assets -
Troilus 5,502 - - 5,502
Funding received-
Cobre Panama
option agreement - - 10,362 10,362
--------------------------------------------------------
5,502 (11,863) (54,604) (333,606)
--------------------------------------------------------
--------------------------------------------------------
Cash provided by
(used in) financing
activities - (1,288) - (5,837)
--------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (1,491) 12 (17,719)
--------------------------------------------------------
Intergroup funding
(distributions) (49,263) (66,754) 51,585 -
--------------------------------------------------------
Increase (decrease)
in cash - 28,202 (3,007) (83,161)
Cash:
Beginning of period - 36,631 10,728 506,917
--------------------------------------------------------
End of period - 64,833 7,721 423,756
Short-term
investments - - - -
--------------------------------------------------------
Cash and short-term
investments $ - $ 64,833 $ 7,721 $ 423,756
--------------------------------------------------------
--------------------------------------------------------
2009 For the nine months ended September 30
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 ($49,832) $ 60,713 $ - $ 37,886
Net change in non-
cash working
capital 947 (15,612) - 8,009
-------------------------------------------------------
(48,885) 45,101 - 45,895
-------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment (278) (10,631) (108,147) (5,823)
Purchase of long-
term investments (100,000) - - -
Purchase of short-
term investments 8,707 - - -
-------------------------------------------------------
(91,571) (10,631) (108,147) (5,823)
-------------------------------------------------------
-------------------------------------------------------
Cash provided by
(used in) financing
activities 329,201 - (250,968) -
-------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (20,512) (731) (5,462)
-------------------------------------------------------
Intergroup funding
(distributions) (241,372) (89,340) 378,938 (9,923)
-------------------------------------------------------
Increase (decrease)
in cash (52,627) (75,382) 19,092 24,687
Cash:
Beginning of period 205,564 192,881 33,981 65,976
-------------------------------------------------------
End of period 152,937 117,499 53,073 90,663
Short-term
investments 26,967 - - -
-------------------------------------------------------
Cash and short-term
investments $ 179,904 $ 117,499 $ 53,073 $ 90,663
-------------------------------------------------------
-------------------------------------------------------
2009 For the nine months ended September 30
COBRE
TROILUS OK TEDI 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 $ 96,113 $ 91,145 $ - $ 236,025
Net change in non-
cash working
capital (2,495) (29,904) - (39,055)
--------------------------------------------------------
93,618 61,241 - 196,970
--------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment - (9,907) (70,125) (204,911)
Purchase of long-
term investments - - - (100,000)
Purchase of short-
term investments - - - 8,707
--------------------------------------------------------
- (9,907) (70,125) (296,204)
--------------------------------------------------------
--------------------------------------------------------
Cash provided by
(used in) financing
activities - (11,965) - 66,268
--------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (7,612) (118) (34,435)
--------------------------------------------------------
Intergroup funding
(distributions) (93,618) (18,224) 73,539 -
--------------------------------------------------------
Increase (decrease)
in cash - 13,533 3,296 (67,401)
Cash:
Beginning of period - 37,547 1,110 537,059
--------------------------------------------------------
End of period - 51,080 4,406 469,658
Short-term
investments - - - 26,967
--------------------------------------------------------
Cash and short-term
investments $ - $ 51,080 $ 4,406 $ 496,625
--------------------------------------------------------
--------------------------------------------------------
INMET MINING CORPORATION
Segmented statements of cash flows
(unaudited)
2010 For the three months ended September 30
CORPORATE CAYELI LASCRUCES PYHASALMI
---------------------------------------------------------------------------
(thousands of
Canadian dollars) (Turkey) (Spain) (Finland)
Cash provided by
(used in) operating
activities
Before net change
in non-cash
working capital ($7,339) $ 44,849 $ 32,248 $ 23,869
Net change in non-
cash working
capital 1,011 (23,833) 58 1,905
-------------------------------------------------------
(6,328) 21,016 32,306 25,774
-------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment (44) (3,347) (16,487) (743)
Purchase of long-
term investments (9,402) (67,346) - -
Sale of assets -
Troilus - - - -
Funding received-
Cobre Panama
option agreement - - - -
-------------------------------------------------------
(9,446) (70,693) (16,487) (743)
-------------------------------------------------------
-------------------------------------------------------
Cash used in
financing
activities (681) - (234) -
-------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (3,966) 3,086 4,868
-------------------------------------------------------
Intergroup funding
(distributions) 941 130 1,563 (3,978)
-------------------------------------------------------
Increase (decrease)
in cash (15,514) (53,513) 20,234 25,921
Cash:
Beginning of period 162,495 128,592 30,078 52,909
-------------------------------------------------------
End of period 146,981 75,079 50,312 78,830
Short-term
investments - - - -
-------------------------------------------------------
Cash and short-term
investments $ 146,981 $ 75,079 $ 50,312 $ 78,830
-------------------------------------------------------
-------------------------------------------------------
2010 For the three months ended September 30
COBRE
TROILUS OK TEDI 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 $ 2,773 $ 34,726 $ - $ 131,126
Net change in non-
cash working
capital 4,044 (12,176) - (28,991)
--------------------------------------------------------
6,817 22,550 - 102,135
--------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment - (3,458) (23,706) (47,785)
Purchase of long-
term investments - - - (76,748)
Sale of assets -
Troilus 5,502 - - 5,502
Funding received-
Cobre Panama
option agreement - - 4,154 4,154
--------------------------------------------------------
5,502 (3,458) (19,552) (114,877)
--------------------------------------------------------
--------------------------------------------------------
Cash used in
financing
activities - (643) - (1,558)
--------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (1,883) (367) 1,738
--------------------------------------------------------
Intergroup funding
(distributions) (12,319) (381) 14,044 -
--------------------------------------------------------
Increase (decrease)
in cash - 16,185 (5,875) (12,562)
Cash:
Beginning of period - 48,648 13,596 436,318
--------------------------------------------------------
End of period - 64,833 7,721 423,756
Short-term
investments - - - -
--------------------------------------------------------
Cash and short-term
investments $ - $ 64,833 $ 7,721 $ 423,756
--------------------------------------------------------
--------------------------------------------------------
2009 For the three months ended September 30
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 ($28,693) $ 25,746 $ - $ 22,518
Net change in non-
cash working
capital 868 4,174 - 2,136
-------------------------------------------------------
(27,825) 29,920 - 24,654
-------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment (17) (4,076) 10,403 (2,045)
Purchase of long-
term investments (100,000) - - -
Purchase of short-
term investments 53,958 - - -
-------------------------------------------------------
(46,059) (4,076) 10,403 (2,045)
-------------------------------------------------------
-------------------------------------------------------
Cash used in
financing
activities (63) - (270,727) -
-------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (9,837) (2,102) (3,810)
-------------------------------------------------------
Intergroup funding
(distributions) (248,439) 827 280,195 (22,878)
-------------------------------------------------------
Increase (decrease)
in cash (322,386) 16,834 17,769 (4,079)
Cash:
Beginning of period 475,323 100,665 35,304 94,742
-------------------------------------------------------
End of period 152,937 117,499 53,073 90,663
Short-term
investments 26,967 - - -
-------------------------------------------------------
Cash and short-term
investments $ 179,904 $ 117,499 $ 53,073 $ 90,663
-------------------------------------------------------
2009 For the three months ended September 30
COBRE
TROILUS OK TEDI 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 $ 17,254 $ 35,848 $ - $ 72,673
Net change in non-
cash working
capital (1,322) 10,748 - 16,604
--------------------------------------------------------
15,932 46,596 - 89,277
--------------------------------------------------------
Cash provided by
(used in) investing
activities
Purchase of
property, plant
and equipment - (3,317) (24,737) (23,789)
Purchase of long-
term investments - - - (100,000)
Purchase of short-
term investments - - - 53,958
--------------------------------------------------------
- (3,317) (24,737) (69,831)
--------------------------------------------------------
--------------------------------------------------------
Cash used in
financing
activities - (11,216) - (282,006)
--------------------------------------------------------
Foreign exchange
change on cash
held in foreign
currency - (5,661) (125) (21,535)
--------------------------------------------------------
Intergroup funding
(distributions) (15,932) (18,119) 24,346 -
--------------------------------------------------------
Increase (decrease)
in cash - 8,283 (516) (284,095)
Cash:
Beginning of period - 42,797 4,922 753,753
--------------------------------------------------------
End of period - 51,080 4,406 469,658
Short-term
investments - - - 26,967
--------------------------------------------------------
Cash and short-term
investments $ - $ 51,080 $ 4,406 $ 496,625
--------------------------------------------------------
INMET MINING CORPORATION
Consolidated statements of retained earnings
(unaudited)
Three Months Ended Sept Nine Months Ended Sept
30 30
(thousands of Canadian
dollars) 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Retained earnings,
beginning of period $ 1,664,500 $ 1,396,101 $ 1,541,803 $ 1,283,074
Net income 86,086 61,551 214,393 179,406
Dividends on common
shares - - (5,610) (4,828)
----------------------------------------------------------------------------
Retained earnings, end
of period $ 1,750,586 $ 1,457,652 $ 1,750,586 $ 1,457,652
----------------------------------------------------------------------------
(see accompanying notes)
Consolidated statements of comprehensive income (loss)
(unaudited)
Three Months Ended Nine Months Ended
Sept 30 Sept 30
(thousands of Note
Canadian dollars) reference 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income $ 86,086 $ 61,551 $ 214,393 $ 179,406
------------------------------------------------
Other comprehensive
income (loss) for
the period :
Changes in fair
value of gold
forward sales
contracts (136) (775) (937) (1,880)
Changes in fair
value of interest
rate swap
contracts - (1,081) - 3,903
Changes in fair
value of
investments 6,013 986 13,313 10,387
Currency
translation
adjustments 32,469 (103,221) (45,042) (174,798)
Reclassification to
net income of
gains/losses
realized:
Amortization of
gain on foreign
exchange forward
contracts - (2,626) - (5,657)
Recognition of
gain on foreign
exchange forward
contract - (28,158) - (28,158)
Recognition of
loss on interest
rate swap
contract - 11,711 - 11,711
Foreign exchange
loss on reduction
of net investment
in self-
sustaining
foreign
operations 11 - 1,439 (22,656) (2,473)
Income tax expense
related to other
comprehensive
income 14 (833) 8,822 (1,025) 5,685
------------------------------------------------
37,513 (112,903) (56,347) (181,280)
------------------------------------------------
Comprehensive
income (loss) $ 123,599 ($51,352) $ 158,046 ($1,874)
----------------------------------------------------------------------------
(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.
Statement of cash flows
The following tables show the components of our net change in non-cash working capital by segment.
For the nine months ended September 30, 2010
----------------------------------------------------------------
----------------------------------------------------------------
(thousands) Corporate Cayeli Las Cruces
----------------------------------------------------------------
----------------------------------------------------------------
Accounts receivable ($1,475) ($17,394) ($677)
Inventories - (2,328) (2,131)
Accounts payable and
accrued liabilities 3,566 (3,007) 2,866
Taxes (10,905) (473)
Other (4) (1,277)
----------------------------------------------------------------
($8,818) ($24,479) $ 58
----------------------------------------------------------------
For the nine months ended September 30, 2009
----------------------------------------------------------------
----------------------------------------------------------------
(thousands) Corporate Cayeli Las Cruces
----------------------------------------------------------------
----------------------------------------------------------------
Accounts receivable ($272) ($17,674) $ -
Inventories - (585) -
Accounts payable and
accrued liabilities (1,319) 1,028 -
Taxes 5,247 1,621 -
Other (2,709) (2) -
----------------------------------------------------------------
$ 947 ($15,612) $ -
----------------------------------------------------------------
For the nine months ended September 30, 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands) Pyhasalmi Troilus Ok Tedi Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts receivable ($525) $ 10,791 $ 3,224 ($6,056)
Inventories (1,394) 9,792 5,493 9,432
Accounts payable and
accrued liabilities (5,241) (8,291) (177) (10,284)
Taxes (930) - 10,586 (1,722)
Other - - (1,965) (3,246)
----------------------------------------------------------------------------
($8,090) $ 12,292 $ 17,161 ($11,876)
----------------------------------------------------------------------------
For the nine months ended September 30, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands) Pyhasalmi Troilus Ok Tedi Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts receivable ($8,108) ($1,180) ($53,308) ($80,542)
Inventories (375) 5,428 1,149 5,617
Accounts payable and
accrued liabilities 2,625 (6,743) (799) (5,208)
Taxes 13,867 - 23,846 44,581
Other - - (792) (3,503)
----------------------------------------------------------------------------
$ 8,009 ($2,495) ($29,904) ($39,055)
----------------------------------------------------------------------------
For the three months ended September 30, 2010
----------------------------------------------------------------
(thousands) Corporate Cayeli Las Cruces
---------------------------------=------------------------------
Accounts receivable ($797) ($25,661) ($677)
Inventories - (1,651) (2,131)
Accounts payable
and accrued
liabilities 1,659 1,269 2,866
Taxes 150 3,553 -
Other (1) (1,343) -
----------------------------------------------------------------
$ 1,011 ($23,833) $ 58
----------------------------------------------------------------
For the three months ended September 30, 2009
----------------------------------------------------------------
(thousands) Corporate Cayeli Las Cruces
----------------------------------------------------------------
Accounts receivable ($338) ($1,996) $ -
Inventories - (804) -
Accounts payable
and accrued
liabilities 1,552 6,550 -
Taxes (95) 449 -
Other (251) (25) -
----------------------------------------------------------------
$ 868 $ 4,174 $ -
----------------------------------------------------------------
For the three months ended September 30, 2010
----------------------------------------------------------------------------
(thousands) Pyhasalmi Troilus Ok Tedi Total
----------------------------------------------------------------------------
Accounts receivable ($1,675) $ 7,057 ($10,677) ($32,430)
Inventories 155 3,190 (2,255) (2,692)
Accounts payable
and accrued
liabilities 328 (6,203) (2,331) (2,412)
Taxes 3,097 - 4,407 11,207
Other - - (1,320) (2,664)
----------------------------------------------------------------------------
$ 1,905 $ 4,044 ($12,176) ($28,991)
----------------------------------------------------------------------------
For the three months ended September 30, 2009
----------------------------------------------------------------------------
(thousands) Pyhasalmi Troilus Ok Tedi Total
----------------------------------------------------------------------------
Accounts receivable ($1,905) ($685) ($4,908) ($9,832)
Inventories (765) 1,490 1,161 1,082
Accounts payable
and accrued
liabilities 1,368 (2,127) (1,181) 6,162
Taxes 3,438 - 16,175 19,967
Other - - (499) (775)
----------------------------------------------------------------------------
$ 2,136 ($1,322)$ 10,748 $ 16,604
----------------------------------------------------------------------------
3. Cash and short-term investments
-----------------------------------------------------------------------
September 30 December 31
(thousands) 2010 2009
-----------------------------------------------------------------------
Cash:
Liquidity funds $ 140,751 $ 205,190
Bankers' acceptances 34,106 92,200
Money market funds 56,691 19,951
Term deposits 88,777 40,140
Overnight deposits 4,153 54,435
Bank deposits 99,278 95,001
--------------------------------------
423,756 506,917
Short-term investments:
Corporate - 26,996
-----------------------------------------------------------------------
Total cash and short-term
investments 423,756 $ 533,913
-----------------------------------------------------------------------
4. Restricted cash
-----------------------------------------------------------------------
September December
30 31
(thousands) 2010 2009
-----------------------------------------------------------------------
Collateralized cash for letter of
credit facility - Inmet Mining $ 16,853 $ 16,492
In trust for Ok Tedi reclamation 28,692 26,365
Collateralized cash for letters
of credit - Las Cruces 66,702 72,008
Collateralized cash for Pyhasalmi
reclamation 1,719 1,854
-----------------------------------------------------------------------
113,966 116,719
Less current portion:
Collateralized cash for letters
of credit - Las Cruces (12,435) (15,130)
-----------------------------------------------------------------------
$ 101,531 $ 101,589
-----------------------------------------------------------------------
5. Investments in equity securities
-----------------------------------------------------------------------
September 30 December 31
(thousands) 2010 2009
-----------------------------------------------------------------------
Available-for-sale equity
securities:
Premier Gold Mines Ltd (9.5
million shares) $ 53,582 $ 39,501
Other 2,143 2,910
-----------------------------------------------------------------------
$ 55,725 $ 42,411
-----------------------------------------------------------------------
6. Held to maturity investments
We invested an additional $229 million in long-term Canadian and Provincial
government bonds and Cayeli purchased $67 million of US Treasury bonds. The
bonds, with credit ratings of A to AAA, mature between December 2010 and
August 2015 and have a weighted average annual yield to maturity of 1.7
percent. We have designated these bonds as held to maturity, measuring them
initially at fair value and subsequently at amortized cost.
7. Long-term debt
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30, December 31,
2010 2009
----------------------------------------------------------------------------
Promissory note $ 17,340 $ 18,094
Loans from non-controlling shareholder 181,373 181,932
----------------------------------------------------------------------------
$ 198,713 $ 200,026
----------------------------------------------------------------------------
8. Commitments
Capital commitments
Our operations have the following capital commitments as at September 30,
2010:
-- Ok Tedi committed approximately $78.4 million (our proportionate share
is $14.1 million) mainly for mobile equipment and the construction of
underwater storage pits for sulphur concentrate produced by the mine
waste tailings plant.
-- Las Cruces committed $24.5 million primarily for the purchase of a
permanent water treatment plant.
-- Cobre Panama committed $129.4 million for the design and supply of two
SAG mills, four ball mills and the related gearless drives.
9. Subscription agreement with Temasek Holdings
On March 31, 2010, we entered into a subscription agreement with a
subsidiary of Temasek Holdings (Private) Limited (Temasek), under which
Temasek has agreed to buy 9.26 million subscription receipts for total
proceeds of $500 million. We issued the subscription receipts on April 23,
2010 and the proceeds are being held in escrow. The subscription receipts
are exchangeable for an equivalent number of Inmet common shares as long as
certain conditions are met on or before December 31, 2010, including:
-- The coming into effect of legislation passed by the legislative assembly
of the Republic of Panama to amend Panama's Mineral Resources Code to
permit entities in which foreign governmental bodies or authorities have
an interest, to hold direct or indirect interests in mining concessions
in Panama.
-- Inmet's or Cobre Panama's ability to use or exploit their rights under
Cobre Panama's mining concession for the mining project are not impaired
in any material way.
If the conditions are met, the subscription receipts will be exchanged for
Inmet common shares equal to approximately 14 percent of our outstanding
common shares. The proceeds will then be released from escrow and we will
use them to fund the development of Cobre Panama and for general corporate
purposes. If the conditions are not met, the subscription receipts will
automatically terminate and the escrowed funds will be returned to Temasek.
10. 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 nine months ending September
30, 2010 (56,347)
----------------------------------------------------------------------------
AOCL, September 30, 2010 ($98,423)
----------------------------------------------------------------------------
AOCL September 30, 2010 comprises:
Unrealized losses on gold forward sales contracts (net of tax
$2,296) ($5,357)
Unrealized gains on investments (net of tax of $6,094) 35,801
Currency translation adjustment (128,867)
----------------------------------------------------------------------------
AOCL, September 30, 2010 ($98,423)
----------------------------------------------------------------------------
The table below shows the breakdown of the currency translation adjustments
included in AOCL.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30, December 31,
2010 2009
----------------------------------------------------------------------------
Pyhasalmi (euro functional currency) ($14,794) ($5,308)
Las Cruces (euro functional currency) (60,616) (8,793)
Cayeli (US dollar functional currency) (13,957) (20,901)
Ok Tedi (US dollar functional currency) (16,178) (13,751)
Cobre Panama (US dollar functional currency) (23,322) (12,416)
----------------------------------------------------------------------------
($128,867) ($61,169)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Canadian dollar to US dollar exchange rate was $1.03 at September 30,
2010 and $1.05 at December 31, 2009. The Canadian dollar to euro exchange
rate was $1.40 at September 30, 2010 and $1.50 at December 31, 2009.
11. Investment and other income
Investment and other income are summarized as follows:
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Interest income $ 1,990 $ 1,135 $ 5,347 $ 3,878
Foreign exchange gain (loss) 1,012 (17,417) (22,141) (9,319)
Loss on recognition of
settlement of Las Cruces
interest rate swap contract - (14,823) - (14,823)
Gain on recognition of
settlement of Las Cruces
foreign exchange forward
contract - 35,615 - 35,615
Dividend and royalty income 650 300 2,539 985
Mark to market on Ok Tedi
copper forward contracts - (802) - (3,228)
Other (119) (420) (660) (4,257)
----------------------------------------------------------------------------
$ 3,533 $ 3,588 ($14,915) $ 8,851
----------------------------------------------------------------------------
Foreign exchange
For transactions with foreign currencies we use the exchange rates in
effect:
-- at period-end for monetary assets and liabilities
-- on the date of the transaction for non-monetary assets and liabilities
-- on the date of the transaction for income and expenses
Foreign exchange gain (loss) is a result of:
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
(thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Translation of Las Cruces' US
dollar- denominated bank
credit facility $ - ($1,348) $ - $ 2,460
Translation of foreign -
denominated cash held at
corporate 207 (16,314) (362) (17,760)
Translation of other monetary
assets and liabilities 805 1,684 877 3,508
Reduction in our net
investments - (1,439) (22,656) 2,473
----------------------------------------------------------------------------
$ 1,012 ($17,417) ($22,141) ($9,319)
----------------------------------------------------------------------------
12. Income tax expense
For the nine months ended September 30, 2010
----------------------------------------------------------------------------
(thousands) Corporate Cayeli Las Cruces Pyhasalmi Ok Tedi Total
----------------------------------------------------------------------------
Current
income
taxes $ 5,596 $ 23,877 $ - $ 16,865 $ 49,302 $ 95,640
Future
income
taxes (4,952) (2,144) (3,702) 35 (4,375) (15,138)
----------------------------------------------------------------------------
$ 644 $ 21,733 ($3,702) $ 16,900 $ 44,927 $ 80,502
----------------------------------------------------------------------------
For the nine months ended September 30, 2009
----------------------------------------------------------------------------
(thousands) Las
Corporate Cayeli Cruces Pyhasalmi Ok Tedi Total
----------------------------------------------------------------------------
Current
income
taxes $ 12,220 $ 17,654 $ - $ 6,114 $ 29,452 $ 65,440
Future
income
taxes 10,168 (10,382) 7,949 530 8,481 16,746
----------------------------------------------------------------------------
$ 22,388 $ 7,272 $ 7,949 $ 6,644 $ 37,933 $ 82,186
----------------------------------------------------------------------------
For the three months ended September 30, 2010
----------------------------------------------------------------------------
(thousands) Las
Corporate Cayeli Cruces Pyhasalmi Ok Tedi Total
----------------------------------------------------------------------------
Current
income
taxes $ 2,853 $ 8,697 $ - $ 6,978 $ 17,919 $ 36,447
Future
income
taxes (2,048) 630 10,828 (4) (581) 8,825
----------------------------------------------------------------------------
$ 805 $ 9,327 $ 10,828 $ 6,974 $ 17,338 $ 45,272
----------------------------------------------------------------------------
For the three months ended September 30, 2009
----------------------------------------------------------------------------
(thousands) Las
Corporate Cayeli Cruces Pyhasalmi Ok Tedi Total
----------------------------------------------------------------------------
Current
income
taxes $ 2,056 $ 7,048 $ - $ 4,356 $ 20,357 $ 33,817
Future
income
taxes 602 (1,407) 7,682 (17) (1,433) 5,427
----------------------------------------------------------------------------
$ 2,658 $ 5,641 $ 7,682 $ 4,339 $ 18,924 $ 39,244
----------------------------------------------------------------------------
13. Net income per share
------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
(thousands) 2010 2009 2010 2009
------------------------------------------------------------------------
Net income available
to common
shareholders $ 86,086 $ 61,551 $ 214,393 $ 179,406
------------------------------------------------------------------------
(thousands)
------------------------------------------------------------------------
Weighted average
common shares
outstanding 56,107 56,107 56,107 51,062
Plus incremental
shares from assumed
conversions:
Deferred share units 105 89 105 89
Long term incentive
plan units 43 43 43 43
------------------------------------------------------------------------
Diluted weighted
average common shares
outstanding 56,255 56,239 56,255 51,194
------------------------------------------------------------------------
(Canadian dollars per
share)
------------------------------------------------------------------------
Basic net income per
common share $ 1.53 $ 1.10 $ 3.82 $ 3.51
Dilutive effect from
assumed conversions
of deferred share
units and long term
incentive plan units
per common share - ($0.01) ($0.01) ($0.01)
------------------------------------------------------------------------
Diluted net income per
common share $ 1.53 $ 1.09 $ 3.81 $ 3.50
------------------------------------------------------------------------
14. Income tax recovery (expense) included in other comprehensive income
-----------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
(thousands) 2010 2009 2010 2009
------------------------------------------------------------------------
Changes in fair value
of gold forward sales
contracts $ 41 $ 233 $ 281 $ 564
Changes in fair value
of interest rate swap
contracts - 411 - (1,482)
Changes in fair value
of investments (874) (165) (1,306) (1,740)
Recognition of gain on
foreign exchange
forward contract - 12,792 - 12,792
Recognition of loss on
interest rate swap
contract - (4,449) - (4,449)
------------------------------------------------------------------------
($833) $ 8,822 ($1,025) $ 5,685
------------------------------------------------------------------------
Contacts:
Inmet Mining Corporation
Jochen Tilk
President and Chief Executive Officer
+1.416.860.3972
www.inmetmining.com