<<
Highlights
- Higher net income per share
Net income this quarter of $2.21 per share was higher than in the
first quarter of 2007, mainly because copper and gold prices were
higher. We realized record copper prices this quarter, at US $4.16
per pound, compared to US $2.81 per pound last year. Zinc prices were
lower at US $1.08 per pound compared to US $1.38 per pound. Copper
sales this quarter included $16 million in finalization adjustments
relating to 2007 sales.
- Production consistent with last year
Copper and gold production was constant between periods and zinc
production was marginally lower this year.
- Operating cash flow per share down because of changes in working
capital
Operating cash flow was $77 million or $1.59 per common share
compared to $105 million or $2.17 per share in the first quarter of
2007. Operating cash flow before changes in working capital was
$114 million or $2.36 per share.
- Las Cruces on schedule
Plant construction is on schedule and we expect Las Cruces to produce
its first copper cathode in the fourth quarter of 2008. Capital cost
estimates to complete the project remain unchanged. We have entered
into contracts with smelters to sell the majority of the 130,000
tonnes of high grade ore and expect shipments to start in June.
- Proceeding with development at Petaquilla
We entered into an agreement with Teck Cominco Limited to proceed
with development of Petaquilla. Over the next 18 months we will act
as operator on behalf of Teck Cominco and will fund at least
US $50 million of our and Teck Cominco's share of expenditures to
advance the project.
- Injunction at Cerattepe
On March 28 we received notice of a court injunction preventing
further development work at the Cerattepe property. The injunction
decision has been appealed and we expect to receive the results of
the appeal soon. If the appeal is not successful, the project will be
delayed.
Key financial data
-------------------------------------------------------------------------
three months ended March 31
2008 2007 change
-------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(thousands, except per share amounts)
Sales
Gross sales $276,281 $286,614 -4%
Net income
Net income $106,674 $101,078 +6%
Net income per share $2.21 $2.09 +6%
Cash flow
Cash flow provided by operating
activities $76,750 $104,980 -27%
Cash flow provided by operating
activities per share(1) $1.59 $2.17 -27%
Capital spending $111,414 $51,935 +115%
-------------------------------------------------------------------------
OPERATING HIGHLIGHTS
Production(2)
Copper (tonnes) 19,200 19,500 -2%
Zinc (tonnes) 20,300 22,100 -8%
Gold (ounces) 56,300 56,000 +1%
Cash costs
Copper (US $ per pound)(3) $0.33 $0.10 +230%
Gold (US $ per ounce)(3) $392 $448 -13%
-------------------------------------------------------------------------
as at March 31 as at December 31
FINANCIAL CONDITION 2008 2007
----------------------------------
Current ratio 6.3 to 1 5.6 to 1
Gross debt to total equity 22% 18%
Net working capital balance (millions) $982 $855
Cash balance (millions) $906 $841
Shareholders' equity (millions) $1,575 $1,392
-------------------------------------------------------------------------
(1) Calculated as cash flow provided by operating activities divided by
average shares outstanding for the respective period.
(2) Inmet's share.
(3) Cash cost per pound of copper and cash cost per ounce of gold are
non-GAAP measures - see Supplementary financial information on pages
31 and 33.
First quarter press release
Where to find it
Our financial results ............................ 4
Key changes in 2008 .............................. 4
Understanding our performance .................... 5
Earnings from operations ....................... 7
Corporate costs ................................ 12
Results of our operations ........................ 14
Cayeli ......................................... 14
Pyhasalmi ...................................... 16
Troilus ........................................ 18
Ok Tedi ........................................ 20
Status of our development projects ............... 22
Las Cruces ..................................... 22
Cerattepe ...................................... 23
Petaquilla ..................................... 24
Managing our liquidity ........................... 25
Financial condition .............................. 27
Managing risk .................................... 29
Accounting changes ............................... 30
Supplementary financial information .............. 31
Quarterly review ................................. 34
Consolidated financial statements ................ 35
>>
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 March 31, 2008.
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
<<
-------------------------------------------------------------------------
(thousands, except per share amounts) three months ended March 31
2008 2007 change
-------------------------------------------------------------------------
EARNINGS FROM OPERATIONS(1)
Cayeli $53,655 $59,435 -10%
Pyhasalmi 27,994 31,442 -11%
Troilus 8,635 2,812 +207%
Ok Tedi 53,918 40,015 +35%
Other (494) (488) +1%
-------------------------------------------------------------------------
143,708 133,216 +8%
-------------------------------------------------------------------------
DEVELOPMENT AND EXPLORATION
Corporate development and exploration (2,618) (842) +211%
-------------------------------------------------------------------------
CORPORATE COSTS
General and administration (3,648) (2,840)
Investment and other income 14,754 7,427
Interest expense (447) (438)
Income and capital taxes (44,870) (35,650)
Non-controlling interest (205) 205
-------------------------------------------------------------------------
(34,416) (31,296) +10%
-------------------------------------------------------------------------
Net income $106,674 $101,078 +6%
-------------------------------------------------------------------------
Basic net income per share $2.21 $2.09 +6%
-------------------------------------------------------------------------
Diluted net income per share $2.21 $2.09 +6%
-------------------------------------------------------------------------
Weighted average shares outstanding 48,282 48,278 -
-------------------------------------------------------------------------
(1) Gross sales less smelter processing charges and freight, cost of
sales, depreciation and provisions for mine rehabilitation.
Key changes this year
-------------------------------------------------------------------------
three months ended see
(millions) March 31 page
-------------------------------------------------------------------------
EARNINGS FROM OPERATIONS
Sales
Higher metal prices denominated in
Canadian dollars $23 7
Lower sales volumes (18) 8
Costs
Lower smelter processing charges and
freight 14 10
Higher operating costs, including costs
that vary with income and cash flows (9) 11
-----------------------------------------------------------
Increase in earnings from operations,
compared to 2007 $10
CORPORATE COSTS
Higher taxes from higher income (10) 13
Change in tax rates 1 13
Foreign exchange gain 7 12
Higher interest income 2 12
Other (4)
-----------------------------------------------------------
Increase in net income, compared to 2007 $6
-----------------------------------------------------------
Understanding our performance
Metal prices
The table below shows the average metal prices, in US dollars and Canadian
dollars, we realized (the prices we realize include finalization adjustments -
see Gross sales on page 7).
-------------------------------------------------------------------------
three months ended March 31
2008 2007 Change
-------------------------------------------------------------------------
US dollar metal prices
Copper (per pound) US $4.16 US $2.81 +48%
Zinc (per pound) US $1.08 US $1.38 -22%
Gold (per ounce) US $776 US $559 +39%
-------------------------------------------------------------------------
Canadian dollar metal prices
Copper (per pound) C$4.16 C$3.29 +26%
Zinc (per pound) C$1.08 C$1.61 -33%
Gold (per ounce) C$776 C$654 +19%
-------------------------------------------------------------------------
Exchange rates affect revenue and earnings. The table below shows the
average exchange rates we realized.
-------------------------------------------------------------------------
three months ended March 31
2008 2007 change
-------------------------------------------------------------------------
Exchange rates
1 US$ to C$ $1.00 $1.17 -15%
1 euro to C$ $1.51 $1.54 -2%
-------------------------------------------------------------------------
>>
Canadian dollar revenue and earnings were lower in the first quarter compared to the same period last year because of the significant increase in the value of the Canadian dollar relative to the US dollar. This lowered gross sales this quarter by $40 million and net income by $26 million, which includes a $6 million foreign exchange loss from the repatriation of Cayeli earnings in the first quarter of 2008. There was a small change in the average value of the Canadian dollar relative to the euro between periods, which increased net income slightly because euro-based costs were slightly lower when converted to Canadian dollars. There was however a larger change in the value of the euro to Canadian dollar from December 31, 2007 to March 31, 2008 and when euro denominated cash and short-term intergroup receivables were revalued, resulted in foreign exchange gains of $7 million recorded in Investment and other income in 2008.
Treatment charges and freight down for copper and up for zinc
Treatment charges are one component of smelter processing charges. We also pay smelters for content losses and price participation.
The table below shows the average smelter processing charges we realized.
<<
-------------------------------------------------------------------------
three months ended March 31
2008 2007 change
-------------------------------------------------------------------------
Treatment charges
Copper (per dry metric tonne of
concentrate) US$52 US$73 -29%
Zinc (per dry metric tonne of
concentrate) US$310 US$124 +150%
-------------------------------------------------------------------------
Price participation
Copper (per pound) US$0.05 US$0.08 -38%
Zinc (per pound)(1) US$(0.04) US$0.01 -500%
-------------------------------------------------------------------------
Freight charges
Copper (per dry metric tonne of
concentrate) US$50 US$30 +67%
Zinc (per dry metric tonne of
concentrate) US$39 US$24 +63%
-------------------------------------------------------------------------
(1) Zinc price participation is based on a zinc price of US $2,000 per
tonne in 2008 and US $3,500 per tonne in 2007.
Copper treatment charges were lower this quarter than they were in 2007
because we have better contract terms with smelters. Zinc treatment charges
were higher than 2007, but zinc price participation was down significantly.
Statutory tax rates down slightly
The table below shows the statutory tax rates for each of our taxable
operating mines.
-------------------------------------------------------------------------
2008 2007 change
-------------------------------------------------------------------------
Statutory tax rates
Cayeli 24% 27% -3%
Pyhasalmi 26% 26% -
Ok Tedi 37% 37% -
-------------------------------------------------------------------------
Cayeli's tax rate is lower because the withholding tax rate was reduced
from 8 percent to 5 percent.
EARNINGS FROM OPERATIONS
Earnings from operations includes the following:
-------------------------------------------------------------------------
three months ended March 31
(thousands) 2008 2007 change
-------------------------------------------------------------------------
Gross sales $276,281 $286,614 -4%
Smelter processing charges (44,157) (64,606) -32%
Cost of sales:
Direct production costs (77,534) (73,716) +5%
Inventory changes 2,940 (3,608) -181%
Provisions for mine rehabilitation
and other non-cash charges (4,652) (2,053) +127%
Depreciation (9,170) (9,415) -3%
-------------------------------------------------------------------------
Earnings from operations $143,708 $133,216 +8%
-------------------------------------------------------------------------
Gross sales revenues were 4 percent lower this quarter because of lower
volumes sold
-------------------------------------------------------------------------
three months ended March 31
(thousands) 2008 2007 change
-------------------------------------------------------------------------
Gross sales by operation
Cayeli $100,616 $117,734 -15%
Pyhasalmi 54,908 65,340 -16%
Troilus 34,251 30,242 +13%
Ok Tedi(1) 86,506 73,298 +18%
-------------------------------------------------------------------------
$276,281 $286,614 -4%
-------------------------------------------------------------------------
Gross sales by metal
Copper $168,168 $143,324 +17%
Zinc 48,806 89,781 -46%
Gold 43,287 41,057 +5%
Other 16,020 12,452 +29%
-------------------------------------------------------------------------
$276,281 $286,614 -4%
-------------------------------------------------------------------------
(1) Our 18 percent share of Ok Tedi's sales.
Key components of the change in sales
-------------------------------------------------------------------------
three months ended
(millions) March 31
-------------------------------------------------------------------------
Higher copper prices, denominated in C$ $37
Lower zinc prices, denominated in C$ (24)
Higher gold prices and other metal prices,
denominated in C$ 10
Lower sales volumes (33)
-------------------------------------------------------------------------
Decrease in gross sales, compared to 2007 $(10)
-------------------------------------------------------------------------
>>
Higher copper and gold prices; lower zinc prices
We record sales using the metal price we receive for sales that settle during the reporting period. For sales that have not been settled, we use an estimate based on the month we expect the sale to settle and the metal's forward price at the end of the reporting period. We recognize the difference between our estimate and the final price we receive by adjusting our gross sales in the period we settle the sale (finalization adjustment).
Copper sales were higher this quarter because of $16 million in finalization adjustments for sales recorded in the fourth quarter of 2007. There were minimal adjustments to zinc sales.
Our finalization adjustments were calculated using US $3.02 per pound for copper and US $1.07 per pound for zinc. The average LME price for copper this quarter was US $3.54 per pound and US $1.10 per pound for zinc. The copper price increased substantially during the quarter, peaking at US $4.03 per pound.
<<
At the end of this quarter, the following sales had not been settled:
- 29 million pounds of copper provisionally priced at US $3.83 per
pound
- 11 million pounds of zinc provisionally priced at US $1.06 per pound.
>>
The finalization adjustment we record for these sales will depend on the actual price when the sale actually settles, which can be from one to five months after we initially record it.
Lower sales volume
<<
-------------------------------------------------------------------------
three months ended March 31
2008 2007 change
-------------------------------------------------------------------------
Sales volumes
Copper (tonnes) 18,300 20,000 -9%
Zinc (tonnes) 20,500 25,200 -19%
Gold (ounces) 55,300 61,800 -11%
-------------------------------------------------------------------------
Our sales volumes are directly affected by the amount of production from
our mines, and our ability to ship to our customers.
Sales volumes this quarter were in line with production in the first
quarter of 2007, but sales were down compared to 2007 first quarter sales
because shipping that had been delayed in the fourth quarter of 2006 was
recognized in the first quarter of 2007.
Production
-------------------------------------------------------------------------
three months ended March 31 objective
Inmet's share(1) 2008 2007 change 2008
-------------------------------------------------------------------------
Copper (tonnes)
Ok Tedi 6,700 8,200 31,300
Cayeli 8,100 7,500 33,600
Pyhasalmi 3,500 3,200 13,000
Las Cruces - - 18,900
Troilus 900 600 7,000
-------------------------------------------------------------------------
19,200 19,500 -2% 103,800
-------------------------------------------------------------------------
Zinc (tonnes)
Cayeli 12,700 11,900 47,800
Pyhasalmi 7,600 10,200 30,900
-------------------------------------------------------------------------
20,300 22,100 -8% 78,700
-------------------------------------------------------------------------
Gold (ounces)
Troilus 35,000 33,200 163,200
Ok Tedi 21,300 22,800 121,300
-------------------------------------------------------------------------
56,300 56,000 +1% 284,500
-------------------------------------------------------------------------
Pyrite (tonnes)
Pyhasalmi 194,500 160,500 +21% 505,000
-------------------------------------------------------------------------
(1) Inmet's share represents 100 percent for Cayeli, Pyhasalmi and
Troilus, 18 percent for Ok Tedi and 70 percent for Las Cruces.
This quarter:
- copper production this quarter was consistent with the first quarter
of 2007. This was the net result of higher throughput and grades at
Cayeli and Pyhasalmi, and lower production at Ok Tedi.
- zinc production was lower mainly because grades at Pyhasalmi were
lower.
- gold production did not change. Although grades were higher at both
Troilus and Ok Tedi, throughput was down at both mines.
2008 outlook for sales
We expect sales of all metals for the year to be consistent with our 2008
production estimates in the chart above. Our higher copper production outlook
is based on our expectation that production will start at Las Cruces.
The total amount we will receive in Canadian dollars will be affected by
US dollar denominated metal prices and the exchange rate between the US dollar
and the Canadian dollar.
Smelter processing charges and freight were substantially less this
quarter
-------------------------------------------------------------------------
three months ended March 31
(thousands) 2008 2007 change
-------------------------------------------------------------------------
Smelter processing charges and freight
by operation
Cayeli $22,013 $31,168 -29%
Pyhasalmi 10,820 18,614 -42%
Troilus 2,187 2,693 -19%
Ok Tedi(1) 9,137 12,131 -25%
-------------------------------------------------------------------------
$44,157 $64,606 -32%
-------------------------------------------------------------------------
Smelter processing charges and freight
by metal
Copper $20,894 $27,479 -24%
Zinc 19,772 33,715 -41%
Other 3,491 3,412 +2%
-------------------------------------------------------------------------
$44,157 $64,606 -32%
-------------------------------------------------------------------------
Smelter processing charges by type and
freight
Copper treatment and refining charges $5,975 $11,024 -46%
Zinc treatment charges 11,792 7,084 +66%
Copper price participation 1,963 3,860 -49%
Zinc price participation (1,894) 11,016 -117%
Content losses 16,257 21,963 -26%
Other 2,272 1,527 +49%
Freight 7,792 8,132 -4%
-------------------------------------------------------------------------
$44,157 $64,606 -32%
-------------------------------------------------------------------------
(1) Our 18 percent share of Ok Tedi's smelter processing charges and
freight.
>>
Copper treatment and refining charges were lower this quarter compared to 2007 because of more favourable contract terms with smelters. Zinc treatment charges were higher, but lower prices significantly reduced zinc price participation charges.
2008 outlook for smelter processing charges and freight
We have finalized the contract terms for long-term copper sales at our operating mines, and treatment charges are averaging about US $50 per dry metric tonne with little to no price participation.
We have not finalized terms for zinc yet, but we are seeing higher zinc treatment charges in 2008, at about US $325 per dry metric tonne. We expect price escalation/de-escalation (price participation) of zinc concentrate to be approximately US $0.10 per dry metric tonne for zinc prices greater than US $
2,000 per tonne ($1.36 per pound), and (US $0.10) per dry metric tonne for zinc prices less than US $2,000 per tonne.
Production is planned to begin at Las Cruces in 2008. For five months starting in June 2008, the mine intends to sell crushed ore and pay smelter processing charges. These charges are expected to be higher than what our other operations pay because of the impurity levels in this ore.
We expect copper cathode production to start in the fourth quarter. Copper cathode will be sold directly to buyers, bypassing the smelters and eliminating smelter and refining treatment charges.
Direct production costs and cost of sales were consistent with last year
<<
-------------------------------------------------------------------------
three months ended March 31
(thousands) 2008 2007 change
-------------------------------------------------------------------------
Direct production costs by operation
Cayeli $23,340 $20,901 +12%
Pyhasalmi 14,604 13,617 +7%
Troilus 19,947 19,337 +3%
Ok Tedi(1) 19,643 19,861 -1%
-------------------------------------------------------------------------
Total direct production costs 77,534 73,716 +5%
Inventory changes (2,940) 3,608 -181%
Reclamation, accretion and other
non-cash expenses 4,652 2,053 +127%
-------------------------------------------------------------------------
Total cost of sales $79,246 $79,377 -
-------------------------------------------------------------------------
(1) Our 18 percent share of Ok Tedi's direct production costs.
Depreciation was slightly lower than last year
-------------------------------------------------------------------------
three months ended March 31
(thousands) 2008 2007 change
-------------------------------------------------------------------------
Depreciation by operation
Cayeli $2,373 $2,697 -12%
Pyhasalmi 2,150 2,361 -9%
Troilus 2,418 2,709 -11%
Ok Tedi 2,229 1,648 +35%
-------------------------------------------------------------------------
$9,170 $9,415 -3%
-------------------------------------------------------------------------
Ok Tedi has higher depreciation because it has been spending on new mine
equipment and other sustaining capital over the last few years.
2008 outlook for depreciation
We estimate depreciation will be about $50 million for 2008. This is
higher than 2007 because production at Las Cruces should begin, and Ok Tedi
will begin depreciating the capital for its mine waste management project.
CORPORATE COSTS
Corporate costs include general and administration costs, taxes and
interest. We also record income from investments in this category, as well as
income we receive from other transactions.
Investment income was higher because of foreign exchange gains
-------------------------------------------------------------------------
three months ended March 31
(thousands) 2008 2007
-------------------------------------------------------------------------
Interest income $8,723 $6,879
Dividend income and royalty - 1,000
Foreign exchange gain (loss) 6,858 (8)
Other (827) (444)
-------------------------------------------------------------------------
$14,754 $7,427
-------------------------------------------------------------------------
>>
We recorded a net foreign exchange gain of $6.9 million this quarter. We recognized a gain of $13 million because we revalued some of our foreign currency denominated accounts and cash balances, and recognized a deferred foreign exchange loss of $6 million when dividends were received from Cayeli.
Interest income was higher this quarter compared to the same quarter last year because we had higher cash balances in 2008.
2008 outlook for investment and other income
Investment and other income is affected by cash balances, interest rates and exchange rates.
We plan on repatriating approximately $200 million in cash from Cayeli and expect to record a foreign exchange loss of about $20 million in the second quarter of 2008. We repatriated Pyhasalmi's 2007 distributable earnings in April and will record a foreign exchange gain of $6 million. These distributable earnings were accumulated at exchange rates that were different from the rate that applied when the dividend was ultimately paid. This foreign exchange difference is deferred until the funds are repatriated and then they are recorded in investment and other income.
Because Ok Tedi distributes its earnings more frequently, the effect of repatriation is normally not significant.
Starting on June 30, 2008, the Las Cruces credit facility will convert to a US dollar loan and will be denominated in US dollars, rather than euros. From that date forward, we will revalue the loan to euros (the functional currency of Las Cruces). Foreign exchange gains or losses on revaluations will be reflected in investment and other income.
At March 31, 2008, we held only (euro)3 million in cash in Canada that could be affected by foreign exchange gains or losses.
Income tax expense was higher in the quarter because of higher earnings
<<
-------------------------------------------------------------------------
three months ended March 31
(thousands) 2008 2007 change
-------------------------------------------------------------------------
Cayeli $19,124 $13,671 +40%
Pyhasalmi 6,023 6,907 -13%
Ok Tedi 19,347 14,617 +32%
Las Cruces 250 - +100%
Corporate 126 455 -72%
-------------------------------------------------------------------------
$44,870 $35,650 +26%
-------------------------------------------------------------------------
Our tax expense changes as our earnings change. Cayeli's effective tax
rate was 33 percent this quarter. This is higher than its statutory rate of
24 percent because taxable foreign exchange gains in its Turkish lira tax
accounts generated an additional tax expense of $7 million.
2008 outlook for income tax expense
We are not expecting any further changes in statutory tax rates at our
operations in 2008.
Results of our operations
CAYELI
-------------------------------------------------------------------------
revised
three months ended March 31 objective
2008 2007 change 2008
-------------------------------------------------------------------------
Tonnes of ore milled
(000's) 278 259 +7% 1,100
Tonnes of ore milled
per day 3,100 2,900 +7% 3,000
-------------------------------------------------------------------------
Grades (percent) copper 3.6 3.5 +3% 3.8
zinc 6.5 6.2 +5% 6.0
-------------------------------------------------------------------------
Mill recoveries
(percent) copper 81 83 -2% 81
zinc 70 75 -7% 72
-------------------------------------------------------------------------
Production (tonnes) copper 8,100 7,500 +8% 33,600
zinc 12,700 11,900 +6% 47,800
-------------------------------------------------------------------------
Cost per tonne of
ore milled (C$) $84 $80 +5% $80
-------------------------------------------------------------------------
>>
Cayeli delivers on its production target
Cayeli produced ore this quarter at an annualized rate of more than 1.1 million tonnes, which is consistent with our annual objective and seven percent higher than the first quarter of last year. Copper and zinc production were also higher than last year.
2008 outlook for production and costs
Cayeli expects to complete improvements to its ore pass system in 2008, allowing it to reliably mine and process 1.1 million tonnes of ore annually. Development in 2008 is focusing on access and level development of the lower mine ore blocks. Mine development rates are higher than 2007 and development of the lower mine is proceeding as planned. We expect to operate at an annual production rate of 1.2 million tonnes by 2009.
We have revised our cost per tonne estimate to be in line with first quarter costs. Costs could change, depending on the value of the Turkish lira relative to the US dollar. If the Turkish lira decreases in value, Turkish lira based costs such as labour will go down, reducing our costs.
Royalties also have a significant impact on costs and are variable depending on earnings. Cost per tonne of ore milled in the first quarter includes $15 per tonne in royalties, compared to our objective of $10 per tonne, which is based on metal price assumptions for the remainder of the year.
Financial review
Lower earnings this quarter because shipments in 2007 were considerably
higher than production
<<
-------------------------------------------------------------------------
(millions of Canadian dollars unless three months ended March 31
otherwise stated) 2008 2007
-------------------------------------------------------------------------
Sales analysis
Copper sales (tonnes) 6,700 8,200
Zinc sales (tonnes) 13,900 15,700
----------------------------
Gross copper sales $64 $59
Gross zinc sales 34 56
Other metal sales 3 3
----------------------------
Gross sales 101 118
Smelter processing charges and freight (22) (31)
-------------------------------------------------------------------------
Net sales $79 $87
-------------------------------------------------------------------------
Cost analysis
Tonnes of ore milled (thousands) 278 259
Direct production costs ($ per tonne) $84 $80
-------------------------------------------------------------------------
Direct production costs 23 21
Change in inventory (2) 3
Depreciation and other non-cash costs 4 3
-------------------------------------------------------------------------
Operating costs $25 $27
-------------------------------------------------------------------------
Operating earnings $54 $60
-------------------------------------------------------------------------
Operating cash flow $15 $60
-------------------------------------------------------------------------
The table below shows what contributed to the change in operating earnings
and operating cash flow between 2008 and 2007.
-------------------------------------------------------------------------
three months ended
(millions) March 31
-------------------------------------------------------------------------
Change in metal prices, denominated in Canadian
dollars $-
Lower sales volumes (10)
Lower smelter processing charges 6
Higher royalties (from higher Turkish lira based income) (2)
-------------------------------------------------------------------------
Decrease in operating earnings, compared to 2007 $(6)
Lower tax rate 1
Higher tax expense (8)
Changes in working capital (34)
Other 2
-------------------------------------------------------------------------
Decrease in operating cash flow, compared to 2007 $(45)
-------------------------------------------------------------------------
The change in working capital this quarter is from higher accounts
receivable because of timing of payments and a higher copper sales price used
to value quarter-end receivables.
Capital spending on budget
-------------------------------------------------------------------------
three months ended March 31 objective
2008 2007 change 2008
-------------------------------------------------------------------------
Capital spending $5,700 $5,100 +12% $23,000
-------------------------------------------------------------------------
Capital spending in the quarter was mainly for replacing mine equipment.
2008 outlook for capital spending
Cayeli expects to spend $23 million in 2008 on repairing a ventilation
raise, buying mine equipment and replacing other equipment.
PYHASALMI
-------------------------------------------------------------------------
three months ended March 31 objective
2008 2007 change 2008
-------------------------------------------------------------------------
Tonnes of ore milled
(000's) 348 326 +7% 1,370
Tonnes of ore milled
per day 3,800 3,600 +7% 3,750
-------------------------------------------------------------------------
Grades (percent) copper 1.1 1.0 +10% 1.0
zinc 2.4 3.4 -29% 2.5
sulphur 42 39 +8% 41
-------------------------------------------------------------------------
Mill recoveries
(percent) copper 96 95 +1% 94
zinc 92 92 - 90
-------------------------------------------------------------------------
Production (tonnes) copper 3,500 3,200 +9% 13,000
zinc 7,600 10,200 -25% 30,900
pyrite 194,500 160,500 +21% 505,000
-------------------------------------------------------------------------
Cost per tonne of
ore milled (C$) $42 $41 +2% $36
-------------------------------------------------------------------------
>>
Strong mill performance this quarter
Mill throughput performance was better than expected this quarter and higher than the first quarter of 2007. Mill efficiency was lower in the first quarter of 2007 because of hard ore and the failure of a conveyer belt. Zinc production was lower in the first quarter of 2008 compared to 2007 because mining was from stopes containing lower grade ore.
2008 outlook for production and costs
We expect production for the year to be consistent with our earlier estimates and in line with production in the first quarter.
The improvements to maintain throughput and increase efficiency in the mill are well underway. Pyhasalmi has purchased copper flotation cells and a primary mill motor for the mill. A new mill motor will allow speed to be adjusted more easily, which should increase throughput capacity in the grinding circuit and reduce energy costs. These capital improvements should be completed during the second quarter.
We expect costs to come down over the rest of the year, but this will also depend on the euro to Canadian dollar exchange rate.
<<
Financial review
Lower sales volumes reduce operating earnings
-------------------------------------------------------------------------
(millions of Canadian dollars unless three months ended March 31
otherwise stated) 2008 2007
-------------------------------------------------------------------------
Sales analysis
Copper sales (tonnes) 3,500 3,400
Zinc sales (tonnes) 6,600 9,500
Pyrite sales (tonnes) 124,000 134,000
----------------------------
Gross copper sales $28 $24
Gross zinc sales 15 33
Other metal sales 12 8
----------------------------
Gross sales 55 65
Smelter processing charges and freight (11) (19)
-------------------------------------------------------------------------
Net sales $44 $46
-------------------------------------------------------------------------
Cost analysis
Tonnes of ore milled (thousands) 348 326
Direct production costs ($ per tonne) $42 $41
-------------------------------------------------------------------------
Direct production costs $15 $13
Change in inventory (2) (1)
Depreciation and other non-cash costs 3 3
-------------------------------------------------------------------------
Operating costs $16 $15
-------------------------------------------------------------------------
Operating earnings $28 $31
-------------------------------------------------------------------------
Operating cash flow $31 $40
-------------------------------------------------------------------------
The table below shows what contributed to the change in operating earnings
and operating cash flow between 2008 and 2007.
-------------------------------------------------------------------------
three months ended
(millions) March 31
-------------------------------------------------------------------------
Lower metal prices, denominated in Canadian dollars $(1)
Lower sales volumes (5)
Lower smelter processing charges and freight 4
Higher operating costs (1)
-------------------------------------------------------------------------
Decrease in operating earnings, compared to 2007 $(3)
Lower tax expense because of lower earnings 1
Changes in working capital (7)
-------------------
Decrease in operating cash flow, compared to 2007 $(9)
-------------------------------------------------------------------------
The change in working capital this quarter is mainly because of the timing
in paying tax installments.
Capital spending in 2008 will mainly be used to improve mill efficiencies
-------------------------------------------------------------------------
three months ended March 31 objective
(thousands) 2008 2007 change 2008
-------------------------------------------------------------------------
Capital spending $1,800 $300 +500% $12,000
-------------------------------------------------------------------------
Spending this quarter was mainly for the copper flotation cells and other
asset replacements and upgrades.
2008 outlook for capital spending
We expect to spend $12 million in 2008, mainly for mine and mill
equipment.
TROILUS
-------------------------------------------------------------------------
three months ended March 31 objective
2008 2007 change 2008
-------------------------------------------------------------------------
Tonnes of ore milled
(000's) 1,400 1,635 -14% 6,600
Tonnes of ore milled
per day 15,400 18,200 -14% 18,100
-------------------------------------------------------------------------
Strip ratio 1.2 0.9 +33% 1.1
-------------------------------------------------------------------------
Grades gold
(grams/
tonne) 0.93 0.79 +18% 0.93
copper
(percent) 0.07 0.05 +40% 0.11
-------------------------------------------------------------------------
Mill recoveries
(percent) gold 84 80 +5% 83
copper 91 84 +8% 92
-------------------------------------------------------------------------
Production gold
(ounces) 35,000 33,200 +5% 163,200
copper
(tonnes) 900 600 +50% 7,000
-------------------------------------------------------------------------
Cost per tonne of
ore milled (C$) $14 $12 +17% $12
-------------------------------------------------------------------------
>>
Mining of the J4 pit is complete
The J4 pit was completed this quarter. A final cut in the bottom recovered an additional 130,000 tonnes of ore grading over 1 gram per tonne of gold (about 3,500 recoverable ounces) that had not been previously included in the mine plan.
Throughput this quarter was lower than the first quarter of last year and below our expectations because of ore hardness and equipment failures. Even though fewer tonnes were milled in the quarter, gold production was five percent higher than last year because grades from the 87 pit were higher and because of extra tonnage from the J-4 pit. Gold recoveries this quarter were also higher than expected.
In January 2008, Troilus completed its program to upgrade the primary ball mill pumps to 1,500 horse power and secondary ball mill pumps to 1,000 horsepower. These investments should improve our throughput of softer ores in 2008.
2008 outlook for production and costs
We will continue with our plans to mine out the upper benches of the 87 pit and once these are complete we will have access to the higher grade, softer ore of the main 87 pit that has been undisturbed since early 2005. The pit will remain on track for completion in early 2009 and then stockpile recovery will begin. Troilus expects to meet targeted gold and copper production for the year.
<<
Financial review
Higher gold prices helped earnings
-------------------------------------------------------------------------
(millions of Canadian dollars unless three months ended March 31
otherwise stated) 2008 2007
-------------------------------------------------------------------------
Sales analysis
Gold sales (ounces) 35,100 39,700
Copper sales (tonnes) 800 700
----------------------------
Gross gold sales $26 $25
Gross copper sales 7 4
Other metal sales 1 1
----------------------------
Gross sales 34 30
Smelter processing charges and freight (2) (2)
-------------------------------------------------------------------------
Net sales $32 $28
-------------------------------------------------------------------------
Cost analysis
Tonnes of ore milled (thousands) 1,400 1,635
Direct production costs ($ per tonne) $14 $12
-------------------------------------------------------------------------
Direct production costs $20 $20
Change in inventory (1) 2
Depreciation and other non-cash costs 4 3
-------------------------------------------------------------------------
Operating costs $23 $25
-------------------------------------------------------------------------
Operating earnings $9 $3
-------------------------------------------------------------------------
Operating cash flow $6 $-
-------------------------------------------------------------------------
The table below shows what contributed to the change in operating earnings
and operating cash flow between 2008 and 2007.
-------------------------------------------------------------------------
three months ended
(millions) March 31
-------------------------------------------------------------------------
Higher metal prices denominated in Canadian dollars $7
Higher operating costs (1)
-------------------------------------------------------------------------
Increase in operating earnings, compared to 2007 $6
Changes in working capital (2)
Other 2
-------------------------------------------------------------------------
Increase in operating cash flow, compared to 2007 $6
-------------------------------------------------------------------------
OK TEDI
-------------------------------------------------------------------------
three months ended March 31 objective
(100 percent) 2008 2007 change 2008
-------------------------------------------------------------------------
Tonnes of ore milled
(000's) 5,000 6,600 -24% 25,300
Tonnes of ore milled
per day 54,900 72,500 -24% 69,000
-------------------------------------------------------------------------
Strip ratio 1.9 1.3 +46% 1.3
-------------------------------------------------------------------------
Grades copper
(percent) 0.9 0.8 +13% 0.8
gold
(grams/
tonne) 1.0 0.8 +25% 1.2
-------------------------------------------------------------------------
Mill recoveries
(percent) copper 85 85 - 85
gold 73 71 +3% 67
-------------------------------------------------------------------------
Production copper
(tonnes) 37,300 45,300 -18% 174,000
gold
(ounces) 118,500 126,700 -6% 674,000
-------------------------------------------------------------------------
Cost per tonne of
ore milled (C$) $24 $17 +41% $18
-------------------------------------------------------------------------
>>
Lower throughput this quarter
Ok Tedi's operations were affected this quarter by a four-day strike in March, and by problems with a conveyor belt. The strike lowered production by about 2,500 tonnes of copper contained in concentrates (Inmet's share - 450 tonnes) and 6,400 ounces of contained gold (Inmet's share - 1,200 ounces).
Throughput was lower in February and March because lower crusher availability and a broken conveyor belt reduced the amount of feed that could be delivered to the mill. A higher portion of harder skarn ore also lowered throughput.
2008 outlook for production and costs
We have not adjusted for the shortfall in production during the first quarter. Ok Tedi's 2008 objective has remained unchanged.
<<
Financial review
Ok Tedi benefited from higher copper and gold prices
-------------------------------------------------------------------------
(millions of Canadian dollars unless three months ended March 31
otherwise stated) 2008 2007
-------------------------------------------------------------------------
Sales analysis at 18%
Copper sales (tonnes) 7,400 7,700
Gold sales (ounces) 20,200 22,200
----------------------------
Gross copper sales $68 $56
Gross gold sales 17 16
Other metal sales 1 1
----------------------------
Gross sales 86 73
Smelter processing charges and freight (9) (12)
-------------------------------------------------------------------------
Net sales $77 $61
-------------------------------------------------------------------------
Cost analysis at 18%
Tonnes of ore milled (thousands) 900 1,200
Direct production costs ($ per tonne) $24 $17
-------------------------------------------------------------------------
Direct production costs $20 $20
Change in inventory 1 (1)
Depreciation and other non-cash costs 2 2
-------------------------------------------------------------------------
Operating costs $23 $21
-------------------------------------------------------------------------
Operating earnings $54 $40
-------------------------------------------------------------------------
Operating cash flow $39 $8
-------------------------------------------------------------------------
The table below shows what contributed to the change in operating earnings
and operating cash flow between 2008 and 2007.
-------------------------------------------------------------------------
three months ended
(millions) March 31
-------------------------------------------------------------------------
Higher metal prices, denominated in Canadian dollars $17
Lower sales volumes (3)
Lower smelter processing charges 5
Higher variable compensation (2)
Higher operating costs (3)
-------------------------------------------------------------------------
Increase in operating earnings, compared to 2007 $14
Decreased tax expense because of lower taxable
earnings 1
Changes in net working capital 16
-------------------------------------------------------------------------
Increase in operating cash flow, compared to 2007 $31
-------------------------------------------------------------------------
The change in working capital this quarter reflects lower accounts
receivable due to timing of payments.
The mine waste management program is expected to be completed mid-year
Ok Tedi's capital spending this quarter was mainly for the mine waste
management program.
-------------------------------------------------------------------------
(18 percent) three months ended March 31 objective
2008 2007 change 2008
-------------------------------------------------------------------------
Capital spending $8,000 $6,200 +29% $23,000
-------------------------------------------------------------------------
>>
2008 outlook for capital spending
Ok Tedi plans to spend $130 million (Inmet's 18 percent share is $23 million) in 2008. Of the $130 million, about $43 million will be for the mine waste management program, $27 million for the pit drainage tunnel, and the rest for mine equipment and other sustaining capital.
Status of our development projects
Las Cruces
Quarterly development update
Plant construction
In the first quarter Las Cruces had completed the following:
<<
- 70 percent of construction
- 81 percent of total physical progress.
>>
Work is progressing on schedule. We have established our operations team, and it has been working closely with the contractors to refine procedures and ensure a smooth and rapid commissioning period beginning in late July.
Mining progress and direct ore shipping
A total of 3.9 million cubic metres of waste were removed from the mine during the first quarter, including waste for the phase two pit extension. Mining costs continue to be below budget because of more efficient blasting and haulage.
Las Cruces is progressing with its plan to selectively mine and crush approximately 130,000 tonnes of high grade ore and ship it directly to smelters. We still expect to sell 130,000 tonnes of ore and have confirmed orders to sell the majority of this material commencing in June. This should result in the production of approximately 18,000 tonnes of copper.
At the same time, ore will be stockpiled in preparation for the plant start-up in the fourth quarter. The build-up of the stockpile will permit blending of the ore to ensure optimal feed for start-up.
2008 outlook for development and operations
Las Cruces construction is on schedule and we expect copper cathode production to begin in the fourth quarter. By March 31, 2008, (euro)381 million had been spent or committed on the project, and we expect to spend the balance in 2008. Las Cruces will start generating revenue in 2008 with the shipment of high grade copper ore beginning in June and copper cathode beginning in the fourth quarter.
The table below shows the spending this quarter and the amount required
for the balance of 2008 to complete construction:
<<
-------------------------------------------------------------------------
(millions) Spending Lending Subsidies Funding
under received from
Tranche A project
of credit sponsors
facility
-------------------------------------------------------------------------
Up to March 31, 2008 (euro)345 (euro)113 (euro)8 (euro)231
Remainder of 2008 118 58 45 8
-------------------------------------------------------------------------
(euro)463 (euro)171 (euro)53 (euro)239
-------------------------------------------------------------------------
The table below shows expected production for 100 percent of Las Cruces
-------------------------------------------------------------------------
2008 2009
target target
-------------------------------------------------------------------------
Tonnes of ore processed (thousands) 240 800
-------------------------------------------------------------------------
Strip ratio 28 32
-------------------------------------------------------------------------
Copper grades (percent) 12 9
-------------------------------------------------------------------------
Copper production (tonnes) 27,000 64,000
-------------------------------------------------------------------------
Smelter processing charges and
freight for crushed ore sales (C $ per tonne) $210 -
-------------------------------------------------------------------------
Direct production cost of ore
processed (C $ per tonne) $172 $150
-------------------------------------------------------------------------
>>
CERATTEPE
Quarterly development update
On March 26, 2008,we received notice from the Rize Administrative Court of its decision to grant an injunction against the Cerattepe project. See Managing risk at page 29 for more details. The Turkish Ministry of Energy and Natural Resources has appealed the decision and we have joined in that process. The injunction prevents any further development work on the property. If the appeal succeeds, work would continue while we wait for the Court to make its final decision on the applications to cancel the operating licences. We expect the Court to reach its decision about the applications to cancel by the end of 2008.
Although we are disappointed with the decision to grant an injunction, we will continue with our efforts to advance the Cerattepe project. We continue to maintain an active campaign of community dialogue and engagement to reinforce support for the project.
The following work was underway this quarter:
Underground development
Ramp development reached 350 metres by the end of March. A further 400 metres is required to reach the orebody. Mobile equipment for the mine has been ordered.
Aerial tramway
Detailed engineering has progressed and ropeway components are now ready to ship to the site. We are in the process of obtaining permits for the tramway to be installed by the end of 2008.
Cayeli mill expansion
The mill needs to increase its capacity from 1.2 million tonnes per year to 1.5 million tonnes per year. This requires a new grinding and flotation section as well as a small SAG mill and a ball mill. The design is ongoing and major equipment has been ordered.
2008 outlook for development
We plan to continue to move the project forward and hope to start production by the end of the first quarter of 2009, subject to the outcome of current legal proceedings (see Managing Risk - Cerattepe legal proceedings). To date we have spent and committed capital of $53 million.
PETAQUILLA
Quarterly development update
On March 26, 2008, we entered into an agreement with Teck Cominco Limited to proceed with the development of the Petaquilla copper project in Panama. Under the agreement we will work closely with Teck Cominco during the next crucial phase of project development, acting as operator of the project on behalf of Teck Cominco and will fund our and Teck Cominco's share of project expenditures for an interim period that will end once we have contributed US $50 million in development costs that have been incurred on the project or September 30, 2009, whichever is earlier.
At the end of the interim period, Teck Cominco must choose either to continue participating in the project and resume funding, or to sell its interest.
The following work was underway this quarter:
Front End Engineering and Design (FEED) study
Work is continuing on this study and a project review team is currently studying opportunities to reduce capital costs and enhance project economics. The targeted completion date for the final study is the first half of 2009.
Drilling
Drilling to expand the resource, to confirm prospective locations for plant and other facilities and to provide geotechnical information for engineering work is continuing.
Plant and equipment
We have received proposals for the construction of the SAG and ball mills. Because of the long lead times we have placed an order for two SAG mills and four ball mills subject to cancellation terms.
Baseline work for the social and environmental impact assessment
Work is progressing in this area and we expect to submit our impact assessment to the Panamanian environmental authorities in the second quarter of 2009.
Petaquilla team in Panama
We have started building a dedicated team to lead all development, engineering, technical, environmental and permitting activities in Panama.
2008 outlook for development
Petaquilla is expected to spend approximately $75 million on the project in 2008 to complete the FEED study as well as ordering long lead time capital equipment. The capital items must be ordered at this stage of development to maintain the project schedule.
<<
Managing our liquidity
-------------------------------------------------------------------------
three months ended
March 31
(millions) 2008 2007
-------------------------------------------------------------------------
CASH FROM OPERATING ACTIVITIES
Cayeli $15 $60
Pyhasalmi 31 40
Troilus 6 -
Ok Tedi 39 8
Corporate development and exploration not included
in operation's cash flow (2) (1)
General and administration (4) (3)
Other (8) 1
-------------------------------------------------------------------------
77 105
-------------------------------------------------------------------------
CASH FROM INVESTING AND FINANCING
Capital spending (111) (52)
Long-term borrowings 50 14
Funding from non-controlling shareholder 15 5
Foreign exchange on cash held in foreign currency 37 (3)
Other (3) (11)
-------------------------------------------------------------------------
(12) (47)
-------------------------------------------------------------------------
Increase in cash 65 58
Cash and short-term investments
Beginning of period 841 640
-------------------------------------------------------------------------
End of period $906 $698
-------------------------------------------------------------------------
OPERATING ACTIVITIES
Key components of the change in operating cash flows
-------------------------------------------------------------------------
three months ended
(millions) March 31
-------------------------------------------------------------------------
Higher earnings from operations (see page 4) $10
Non-cash changes in operating earnings:
Increased tax expense (5)
Changes in working capital (32)
Other (1)
-------------------------------------------------------------------------
Decrease in operating cash flow, compared to 2007 $(28)
-------------------------------------------------------------------------
Operating cash flows are lower this quarter compared to 2007 because
working capital is higher from higher accounts receivable at Cayeli, and
payment of corporate year-end incentive bonuses were higher this year.
2008 outlook for operating activities
Based on our outlook for metal prices and production, we expect our
operating cash flows for our operating mines to be in a similar range for 2008
as they were for 2007 and we expect operating cash flows from the start of
production at Las Cruces.
INVESTING AND FINANCING
Capital spending
-------------------------------------------------------------------------
three months ended revised
March 31 objective
(millions) 2008 2007 2008
-------------------------------------------------------------------------
Cayeli $6 $5 $23
Pyhasalmi 2 - 12
Troilus - - 1
Ok Tedi 8 7 23
Las Cruces 92 38 342
Cerattepe 3 2 53
-------------------------------------------------------------------------
$111 $52 $454
-------------------------------------------------------------------------
>>
Please see Results of our operations and Status of our development projects for a discussion of actual results and our 2008 objective.
Las Cruces borrowed an additional (euro)26 million this quarter, bringing the total amount borrowed under Tranche A of its credit facility to (euro)113 million.
2008 outlook for investing and financing
We expect capital spending to be $454 million in 2008:
<<
- $325 million for the continuing development of the Las Cruces mine
and $17 million for its sustaining capital
- $53 million for development at Cerattepe assuming the injunction is
lifted
- $8 million for the mine waste management program and $5 million for
drainage tunnel underground work at Ok Tedi.
>>
We will finance the spending at Las Cruces through a combination of debt, government subsidies and sponsor contributions (see page 22). On June 30, 2008, the credit facility will be converted from a euro facility to a US dollar facility. Repayments will be made in US dollars and interest will be calculated using US Libor rates.
We also expect to invest $36 million (our 48 percent share) for FEED studies and the deposits required for long lead time equipment at Petaquilla. This will be funded from Inmet's current cash balances.
Financial condition
CASH
Our cash and equivalents balance of $906 million at March 31, 2008 included cash and money market instruments that mature in 90 days or less from the date of acquisition, and short-term investments that mature in 91 days to a year.
<<
Cash and short-term investments were generally held in:
- short-term debt instruments issued by Canadian Crown Corporations
- AAA rated money market funds managed by leading international fund
managers 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 and term and overnight deposits with leading Canadian and
international financial institutions.
Our restricted cash balance of $49 million included:
- $14 million in trust for future rehabilitation at Ok Tedi
- $14 million of cash collateralized letters of credit for Inmet
- $21 million related to issuing letters of credit to suppliers at
Las Cruces.
COMMON SHARES
-------------------------------------------------------------------------
Common shares outstanding as of March 31, 2008
and April 29, 2008 48,281,759
Deferred share units outstanding as of March 31,
2008 (redeemable on a one-for-one basis for
common shares) 76,143
-------------------------------------------------------------------------
Dividend declaration
Inmet's board of directors has declared an eligible dividend of $0.10 per
common share payable on June 15, 2008 to shareholders of record as at May 31,
2008.
FINANCIAL INSTRUMENTS
The table below shows the gold and copper forward sales, and the currency
and interest rate hedges (and their marked-to-market valuations) recorded on
our balance sheet at the end of this quarter.
-------------------------------------------------------------------------
Type of Expiry Quantity Price C$ marked-to-
contract market gain (loss)
at March 31,
2008
-------------------------------------------------------------------------
Copper forward
sales
Ok Tedi 2008 2.6 million lbs US $2.78 per lb
2009 3.2 million lbs US $2.41 per lb
----------------------------------------
5.8 million lbs US $2.58 per lb $(6.5 million)(1)
Gold forward
sales
Troilus 2008 43,700 ounces US $352 per oz. $(26.5 million)(2)
Ok Tedi 2008 3,400 ounces US $372 per oz.
2010 3,600 ounces US $748 per oz.
2011 3,600 ounces US $775 per oz.
2012 3,600 ounces US $803 per oz.
2013 1,800 ounces US $825 per oz.
-----------------------------------------------------------
16,000 ounces US $695 per oz. $(6.8 million)(2)
Currency
forward sales
Las Cruces 2008 US $215 million (euro)171.80 million $54.3 million
-----------------------------------------------------------
Interest rate
swaps
Las Cruces 2008 to US $179 million 5.2 percent $(14.5 million)
2014 (reducing in
conjunction with
debt repayment
schedule)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) At a copper price of US $3.86 per pound.
(2) At a gold price of US $933 per ounce.
>>
The currency forward sale at Las Cruces expires June 30, 2008. This forward sale has been accounted for as a hedge against the conversion of the euro denominated credit facility to a US dollar denominated facility. On June 30, assuming we maintain a gain position; we will receive cash on settlement. If the hedge remains effective at June 30, this cash (or deferred gain) will increase the carrying value of the loan and will be amortized as a reduction to interest expense over the term of the loan.
Managing risk
The following is an update to the discussion, only where required, of the key risks associated with our business and the strategies we use to manage them. You can find the full discussion in our 2007 annual review.
Development at Las Cruces
Las Cruces is a development project, and while we are confident that the project will add value as planned, there are still significant risks to completing the project as planned, particularly in the ability of Las Cruces contractors to meet critical construction milestones.
While there are rigorous controls on contractor performance, progress depends on the abilities of the Las Cruces owner team and construction manager to hire the necessary people and effectively manage them.
A local non-governmental group has initiated several legal proceedings claiming that various government approvals for the project were not granted according to regulatory requirements. We believe these claims are without merit and are vigourously defending against them. Two of these proceedings were dismissed in 2006. Two other proceedings are still outstanding.
Cerattepe legal proceedings
After the Turkish Administrative Supreme Court reinstated the project operating licences on procedural grounds in April 2007, the plaintiffs in the prior proceedings re-filed applications to have the licences cancelled with the newly created Rize Administrative Court, and also made applications to stop work on the property and to cancel a lease of the land where the ropeway terminus will be located.
We joined the proceedings as an intervener and, together with the Turkish Ministry of Energy and Natural Resources, have filed defences to the application to cancel, which we continue to believe are without merit.
On March 26, 2008 we received notice from the Rize Administrative Court of its decision to grant an injunction against the Cerattepe project. As a result, our subsidiary Artvin Bakir Maden Isletmeleri, A.S. (ABMI) is prevented from carrying out further development work on the Cerattepe property.
The main defendant in the legal proceedings is the Turkish Ministry of Energy and Natural Resources (ABMI is a co-defendant). The Ministry has appealed the injunction decision to the Trabzon District Administrative Court, and we expect that court will rule on the appeal in May 2008.
If the appeal succeeds, ABMI will begin work on the property again and continue development activities until the Rize Administrative Court makes its final decision on the cancellation applications. The status of the operating licences would still remain subject to such decision.
Although we are disappointed with the decision to grant an injunction, we will continue with our efforts concerning the Cerattepe project. If the Ministry's appeal concerning the injunction is not successful or if the Rize Administrative court decides the licenses should be cancelled, the project's development schedule will be delayed.
<<
Sensitivity analysis
The table below shows you the effect of key variables on our net income,
based on our 2008 objectives.
-------------------------------------------------------------------------
Would change
Would change our 2008 net
our 2008 net income per
A change of: income by: share by:
-------------------------------------------------------------------------
Metal prices
Copper (per pound) US $0.30 $44 million $0.90
Zinc (per pound) US $0.10 $8 million $0.16
Gold (per ounce)(1) US $100 $17 million $0.35
-------------------------------------------------------------------------
Exchange rates
Canadian dollar per US dollar C$0.10 $56 million $1.17
Canadian dollar per euro C$0.10 $5 million $0.11
-------------------------------------------------------------------------
Treatment and refining charges
Copper treatment charge per tonne US $10
and copper refining charge per
pound US $0.10 $4 million $0.08
Zinc treatment charge per tonne US $10 $1 million $0.02
-------------------------------------------------------------------------
Freight and energy costs
Concentrate freight per tonne 10% $3 million $0.07
Fuel price per litre $0.10 $4 million $0.08
Electricity per kilowatt hour $0.01 $5 million |