##### 



Exhibit B

Management Discussion and Analysis for the year ended December 31, 2002 and
Audited Consolidated Financial Statements as at and for the years ended
December 31, 2002, 2001 and 2000





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(cover)





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Fording Inc.MANAGEMENTS DISCUSSION & ANALYSIS
December 31,2002

This discussion and
analysis is a year over year review of Fording Inc.s activities, results of operations,
liquidity and capital resources, on a consolidated basis. The following should be read
together with the Consolidated Financial Statements, the Notes thereto and
other public disclosure of Fording Inc. (Fording). The Consolidated Financial
Statements were prepared in accordance with Canadian generally accepted
accounting principles (GAAP). These principles conform in all material respects
with US GAAP, except as disclosed in note 21 to the Consolidated Financial
Statements. The financial results and financial position of Fording include
the metallurgical coal sites of the Mountain Operations, the mine-mouth
thermal coal mines and royalty properties of the Prairie Operations, and the
Industrial Minerals Operations comprised of NYCO Minerals, Inc. (NYCO), Minera
NYCO S.A. de C.V. (Minera) and American Tripoli, Inc. The corporate costs
reflect general and administration expenses not allocated to specific business
segments.

OVERVIEW

Fordings
operating income decreased $30 million or 17% to $146 million in 2002
compared to $176 million in 2001. The
Corporation reported a net loss of $71 million or $1.38 per share which
included the after-tax charges of $137 million for the write-down of its
wollastonite property in Mexico, $8 million for reorganization costs related to
the initial steps in the conversion to an income trust and the response to an
unsolicited takeover bid, and $5 million related to the expensing of
capitalized costs for the Brooks power project. Fordings net income, before
unusual items, decreased 19% to $79 million or $1.54 per share in 2002 compared
to $97 million or $1.85 per share in 2001. Unusual charges, net of income
taxes, in 2001 included $3 million related to the Canadian Pacific Limited Plan
of Arrangement, upon which Fording became a separate publicly held corporation.

2002 COMPARED TO 2001

Income from operations of $146 million in 2002 was a decrease of $30 million
from 2001. Net income for the year ended December 31, 2002 was $79 million
($1.54 per share) before unusual items, compared with net income before unusual
items of $97 million ($1.85 per share) in 2001.

The Corporations financial
results continue to be

|                             |  |                       
|---------------------------- |  | ----------------------
|(OPERATING INCOME BAR GRAPH) |  | (NET INCOME BAR GRAPH)

|                                                          |                                |      |       |       |   |      |       |       |   |   |      |      |  
|--------------------------------------------------------- | ------------------------------ | ---- | ----- | ----- | - | ---- | ----- | ----- | - | - | ---- | ---- | -
|Summarized Statement of Net Income                        |                                |      |       |       |   |      |       |       |   |   |      |     
|(millions of Canadian dollars, except earnings per share) |                                | 2002 |       | 2001  |   | 2000
|                                                          |                                |      |       |       |   |     
|Income from operations:                                   |                                |      |       |       |   |      |       |       |   |   |      |     
|                                                          | Mountain Operations            |      | $     | 126.3 |   |      | $     | 142.0 |   |   | $    | 46.1 |  
|                                                          | Prairie Operations             |      |       | 37.1  |   |      |       | 40.2  |   |   |      | 38.4 |  
|                                                          | Industrial Minerals Operations |      |       | (0.4  | ) |      |       | 2.4   |   |   |      | 6.8  |  
|                                                          | Corporate                      |      |       | (17.0 | ) |      |       | (8.2  | ) |   |      | (5.8 | )
|                                                          |                                |      |       |       |   |      |       |       |   |   |      |     
|                                                          |                                |      | 146.0 |       |   |      | 176.4 |       |   |   | 85.5 |     
|Interest and other expenses                               |                                |      | 5.5   |       |   |      | 8.7   |       |   |   | 15.1 |     
|Provision for asset write-down                            |                                |      | 140.0 |       |   |      |      |       |   |   |     |     
|Reorganization costs                                      |                                |      | 11.5  |       |   |      | 3.9   |       |   |   |     |     
|Income taxes                                              |                                |      | 59.9  |       |   |      | 69.2  |       |   |   | 35.8 |     
|                                                          |                                |      |       |       |   |      |       |       |   |   |      |     
|Net(loss) income per financial statements                 |                                | $    | (70.9 | )     |   | $    | 94.6  |       |   | $ | 34.6 |     
|                                                          |                                |      |       |       |   |      |       |       |   |   |      |     
|Unusual items, net of tax:                                |                                |      |       |       |   |      |       |       |   |   |      |     
|                                                          | Provision for asset write-down |      |       | 137.2 |   |      |       |      |   |   |      |     |  
|                                                          | Reorganization costs           |      |       | 7.5   |   |      |       | 2.5   |   |   |      |     |  
|                                                          | Brooks capital expense         |      |       | 5.3   |   |      |       |      |   |   |      |     |  
|                                                          |                                |      |       |       |   |      |       |       |   |   |      |     
|Net income before unusual items                           |                                | $    | 79.1  |       |   | $    | 97.1  |       |   | $ | 34.6 |     
|                                                          |                                |      |       |       |   |      |       |       |   |   |      |     
|Basic (loss) earnings per share                           |                                | $    | (1.38 | )     |   | $    | 1.80  |       |   | $ | 0.66 |     
|                                                          |                                |      |       |       |   |      |       |       |   |   |      |     
|Basic earnings per share, before unusual items            |                                | $    | 1.54  |       |   | $    | 1.85  |       |   | $ | 0.66 |     
|                                                          |                                |      |       |       |   |      |       |       |   |   |      |     

1



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largely influenced by the Mountain Operations, and 2002 can be characterized by
increased sales prices which were more than offset by lower sales volumes and
higher unit operating costs. Despite an increase in the average US dollar sales
price, income from operations declined 11% in the Mountain Operations. The
Prairie Operations continued to be an important contributor to the
Corporations financial results, with operating income declining slightly due
to the completion of the Mildred Lake contract in the third quarter
of 2001. The
Industrial Minerals Operations generated a small loss in 2002.

The Corporations review of the carrying values of its wollastonite properties in
Mexico resulted in an asset write-down of $140 million. This write-down
reflected the declining profitability and uncertainty of future recovery in the
Industrial Minerals segment.

|                                            |  |                              
|------------------------------------------- |  | -----------------------------
|(NET INCOME BEFORE UNUSUAL ITEMS BAR GRAPH) |  | (OPERATING REVENUE BAR GRAPH)

MOUNTAIN OPERATIONS

Income from operations of $126 million in 2002 fell from the previous years
record level of $142 million. This decrease was a result of lower sales volumes
and higher unit cost of sales, partially offset by higher sales prices.

Operating
revenue was $768 million, down from $873 million in 2001. The average
sales price for 2002 was US$44 per tonne, an increase of 10% over 2001, and
reflects higher contract settlements for hard-coking coal in the 2002 coal
year. The Canadian dollar price increased 7% to $62 in 2002 from $58 in 2001.
Previously established foreign exchange forward contracts resulted in a
realized exchange rate of US$0.71 compared to US$0.69 in the prior year.

Metallurgical coal sales declined 18% to 12.3 million tonnes from 2001 sales of
15.0 million tonnes. While protracted negotiations for the 2002 coal year
resulted in increased sales prices, they also contributed to significantly
lower sales volumes for the 2002 calendar year. A reduction in tonnage from
certain long-standing customers, unexpected coke plant closures in the United
States, United Kingdom and Italy, and the inability to place volume in the spot
and tender markets, including the large Turkish coal market, all contributed to
sales volumes well below 2001 levels.

Cost of sales decreased to $588 million
in 2002 from $676 million in 2001 as a result of lower sales volumes; however,
unit cost of sales increased 6% to $48 per tonne. Unit distribution costs in
2002 were 3% higher primarily due to rail and port rate increases effective
April 1, 2001, and the impact of a larger proportion of North American sales,
which have higher rail costs. The unit cost of production was 9% higher
reflecting lower production volumes due to inventory control shutdowns,
increased haul distances and higher strip ratios.

Selling, general and
administration expenses for the year were consistent with 2001. Depreciation
and depletion decreased 3% over the prior year primarily due to lower
production from the Mountain Operations.

(EXPORT COAL SALES PRICE BAR GRAPH)

PRAIRIE OPERATIONS

Operating revenue declined to $67 million from $80 million in 2001 and cost of
sales decreased to $23 million in 2002 from $33 million in 2001. Income from
operations declined to $37 million in 2002 from $40 million in 2001 primarily
due to the closure of the Mildred Lake Operation in the third quarter of 2001.
Royalty income received from third-party mining of Fordings mineral reserves
increased in 2002 to partially offset the impact of the Mildred Lake closure.

INDUSTRIAL MINERALS OPERATIONS

Income from operations decreased by $3 million to a small operating loss in
2002. Reduced sales volumes were partially offset by an increase in the average
sales price, which was primarily a result of product mix. Wollastonite

2



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sales volumes of 84,000 tonnes in 2002 were 15% lower than in 2001. Lower sales
volumes were primarily attributable to the Corporations exit from lower-priced
markets and the continued weak economies in the US and Europe.

CORPORATE

Corporate costs of $17 million in 2002 increased $9 million over the prior
year, primarily due to accumulated capitalized costs of $8 million related to
the Brooks power project being expensed in 2002. In the third quarter of 2002,
economic and environmental uncertainties in the power industry, transmission
congestion issues, and the absence of a partner for the project indicated that
the future recovery of project costs was uncertain. The capitalized costs for
the project were expensed accordingly. The Corporation continued to advance the
project through the permitting process in the fourth quarter, with additional
costs of $0.3 million being expensed as incurred.

OTHER EXPENSES

Net interest expense decreased to $6 million in 2002 from $8 million in 2001
due to lower debt levels and lower interest rates.

Due to a history of operating losses and uncertainty around future improvement,
the Corporation updated an assessment of the recoverability of its investment
in assets related to the Minera NYCO wollastonite operations in Mexico.
Projections of undiscounted future net cash flows generated by these assets
were less than their carrying values and, accordingly, a provision of $140
million was recorded in the fourth quarter 2002 results. Fording continues to
work with customers and potential partners on new-product and new-application
development for its industrial minerals; however, the future value of these
applications remains uncertain. The majority of the write-off was not tax
affected and no future tax asset was recognized as a result of this reduction
in carrying value as its realization is uncertain.

Reorganization costs of $12 million were expensed in 2002 relating to Fordings
planned conversion into an income trust and the Corporations response to the
unsolicited offer by Sherritt Coal Acquisition Inc. It is estimated that an
additional $26 million in costs will be incurred in 2003 related to completing
the Plan of Arrangement. In 2001, costs of $4 million associated with the
Canadian Pacific Limited reorganization were incurred.

INCOME TAXES

Income taxes decreased to $60 million in 2002 from $69 million in 2001
primarily as a result of lower pre-tax income. Several other issues impacted
the income tax expense and the effective tax rate for 2002. No tax effect was
recognized on the $140 million write-down of the Corporations investment in
its Mexican operations except for $3 million related to assets recorded in
Canada. Tax losses are not recorded unless the realization of these losses are
more likely than not. In the absence of this write-down, the Corporations
effective tax rate for 2002 would have been approximately 49%. The impact of
lower tax rates in British Columbia and Alberta and favorable adjustments
related to prior years was partially offset by higher mineral taxes primarily
due to larger foreign currency exchange losses, which are not deductible. The
effective tax rate in 2001 was reduced by the finalization in June 2001 of tax
assessments related to prior years.

2001 COMPARED TO 2000

For the year ended December 31, 2001, income from operations more than doubled
to $176 million from $86 million in 2000, and net income rose $60 million to
$95 million. Earnings per share of $1.80 represented an increase of 173% over
earnings per share in 2000. These results reflect the record income from
operations from the Mountain Operations. Income from operations of the Prairie
Operations also improved, primarily due to increased royalty revenue from
third-party mining of Fording mineral properties. The results of the Industrial
Minerals Operations were adversely impacted by slowing economic activity in
2001, particularly in the US, and results were below those achieved in 2000.

MOUNTAIN OPERATIONS

The Mountain Operations achieved record performance levels in 2001, generating
income from operations of $142 million, which represented a gain of 208% over
2000.

Operating revenues rose to $873 million from $756 million in 2000. Sales
volumes of 15.0 million tonnes were close to the prior years record volumes of
15.1 million tonnes. After many years of oversupply, metallurgical coal supply
and demand returned to balance during 2000 and remained tight through 2001.
Price increases were achieved in all of the Corporations metallurgical coal
markets for the coal year commencing April 1, 2001. Average coal sales prices
from the Mountain Operations rose 16% over the prior year to US$40, while
realized Canadian dollar prices rose to $58 per tonne from $50.

Cost of sales increased to $676 million in 2001 from $654 million in 2000 as a
result of a 4% increase in the

3



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unit cost of sales. The rise in unit cost was primarily a result of higher
distribution costs. Rail rates increased effective April 1, 2001 in the same
proportion as the price increase for metallurgical coal negotiated by the
Corporation with certain of its Pacific market customers for the 2001 coal
year. In addition, higher port rates and an increase in the proportion of North
American customers, which are rail direct, also contributed to higher
distribution costs. Production costs increased 1%, as higher energy costs and
inflation were offset by operating efficiencies. Selling, general and
administration expenses were essentially unchanged for the year at $2 million,
while depreciation and depletion decreased slightly to $52 million in 2001 from
$54 million in 2000. The lower depreciation and depletion expense was a result
of certain mining equipment becoming fully depreciated, which lowered
depreciation costs.

PRAIRIE OPERATIONS

Income from operations rose slightly to $40 million in 2001 from $38 million in
2000. Operating revenue declined to $80 million in 2001 from $85 million in
2000 as a result of the completion of the 10-year Mildred Lake contract. This
decrease was partially offset by higher royalty revenues received from
third-party mining of Fording reserves and increased mining activities at
Whitewood. Cost of sales decreased to $33 million in 2001 from $37 million in
2000, principally due to the closure of the Mildred Lake Operation.

INDUSTRIAL MINERALS OPERATIONS

Income from operations declined to $2 million in 2001 from $7 million in
2000. This decrease was principally due to the global economic slowdown,
particularly in the United States. Wollastonite sales volumes of 99,000 tonnes
in 2001 were 21% lower than in 2000. Reduced sales volumes were partially
offset by a 12% increase in the average Canadian dollar sales price. Due to the
competitiveness of low-value products, the Corporation has reduced its presence
in certain markets and focused on higher-value products.

OTHER

Corporate costs of $8 million for 2001 increased $2 million over the prior year
due primarily to the increased costs of being a public company.

Interest and other expenses decreased to $13 million in 2001 from $15 million in 2000 due to
lower debt levels which reduced interest expense by $6 million. One-time costs
associated with the Canadian Pacific Limited reorganization were $4 million in
2001.

INCOME TAXES

Income taxes increased to $69 million in 2001 from $36 million in 2000 as a
result of higher pre-tax income. The effective rate declined to 42% for 2001
from 51% in 2000 as a result of reassessments related to prior years being
settled in 2001, and the one-time impact of lower British Columbia tax rates on
the future income tax provision.

LIQUIDITY AND CAPITAL RESOURCES

(CASH FLOW BAR GRAPH)

CASH FLOWS

As at December 31, 2002, the Corporations cash and cash equivalents were $7
million. Cash flow provided from operating activities was $140 million for the
year ended December 31, 2002, compared with $159 million and $118 million for
2001 and 2000, respectively. The Mountain Operations were the primary source of
cash flow for the Corporation. Changes in cash flow in these years can be
attributed to an increase in funding of employee future benefits and the
fluctuating operating results of the Mountain Operations. Non-cash working
capital increased by $32 million in 2002 and $31 million in 2001, following a
decline of $18 million in 2000. Increases in the last two years primarily
reflect the increase of coal inventory following a decrease in inventory in
2000. During the last three years, Fording has utilized cash provided by
operating activities to fund its capital expenditures and pension, working
capital and dividend requirements. It also funded a share buy-back program in
2001 and 2002 and reduced debt by $100 million in 2000.

FINANCING ACTIVITIES

Cash used in financing activities decreased to $55 million in 2002 from $69
million in 2001 and $110 million in 2000, primarily due to lower debt
repayments. Fording

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has used a portion of its cash resources to pay dividends of $28 million, $32
million and $27 million over the past three years. Dividends per share of $0.55
were paid in 2002. A normal course issuer bid established in 2001 resulted in
the purchase of shares for $15 million in 2001 and
$39 million in 2002. There
were 1.4 million shares purchased in 2002, and at the expiry of the normal
course issuer bid on September 30, 2002, a total of 2.0 million shares had been
purchased over the one-year period for cancellation at an average price of
$26.77.

(CAPITAL EXPENDITURES BAR GRAPH)

INVESTING ACTIVITIES

Cash used in investing activities decreased to $51 million in 2002 from $59
million in 2001, and increased from $36 million in 2000. Capital expenditures
consisted primarily of normal maintenance spending to sustain existing
operations, which included a new shovel in the Mountain Operations and new
support equipment at Whitewood. There was also $6 million initially capitalized
related to the Brooks project in 2002. Capital expenditures in 2001 of $65
million included the purchase of additional haul trucks and the refurbishing of
equipment moved from Mildred Lake to the Mountain Operations.

CREDIT FACILITIES

The Corporation has a $250 million syndicated bank facility with a group of
Canadian and Canadian registered foreign banks, which expires in June 2004 if
not extended. The 3-year term may be extended annually at the request of
Fording and at the option of the syndicated banks. Borrowing rates are short
term, subject to interest rate movement and vary depending on the Corporations
financial ratios. Financial covenants contained in the bank facility consist of
a maximum debt to capitalization ratio, a maximum debt to earnings ratio and a
minimum tangible net worth calculation.

As at December 31, 2002, the Corporation had $135 million of borrowings and $51
million of letters of credit or letters of guarantee outstanding, leaving
unused lines of credit of $64 million under the facility.

OUTLOOK

On February 19, 2003, the shareholders of Fording approved the reorganization
of the Corporation into an income trust, known as the Fording Canadian Coal
Trust (the Fund) as shown on the opposite page. The income trust structure
provides an effective model for the return of available cash flow to
shareholders of the Fund.

The Arrangement also created the Fording Coal Partnership (the Partnership),
which includes Fordings Fording River, Greenhills and Coal Mountain
operations, Tecks Elkview operation and the Luscar/CONSOL joint ventures Line
Creek and Luscar Mine operations and their 46% interest in Neptune Terminals in
Vancouver. Five of the six mines are located near each other in the Elk Valley
of British Columbia (see map below).

(MAP OF FORDING MINES IN THE ELK VALLEY)

The Fund will initially hold 65% of the Partnership. Teck, currently with 35%
of the Partnership, will have the opportunity to earn up to a 40% interest if
synergies above certain levels are achieved. The Partnership is the worlds
second-largest producer of metallurgical coal, producing approximately 20% of
global seaborne high-quality metallurgical coal.

The Fund also maintains 100% ownership of Fordings Industrial Minerals
Operations. In addition, the reorganization resulted in the sale of Fordings
Prairie Operations and assets. Fording has retained a royalty, capped at a
maximum of 5% of gross revenue, on future growth in production from certain
properties included in the sale.

Management believes that the metallurgical coal markets are balanced and that
Canadian coal is competitively priced and well positioned for the 2003 coal
year, which

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TRANSACTION STRUCTURE
UPON COMPLETION OF THE TRANSACTION

(FLOWCHART)



---

|Notes:
|------
|(1)   
|(2)   
|(3)   

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commences on April 1, 2003. Negotiations with worldwide steel companies for the
new coal year have begun and are ongoing. The Partnership has the capacity to
supply in excess of 25 million tonnes annually.

The Partnership has estimated annual synergies in excess of $75 million when
fully realized through the combination of the metallurgical coal assets. A
comprehensive integration and optimization plan for the Partnership is being
prepared. This plan may result in certain costs being incurred for
rationalization and integration of mine production.

INDUSTRIAL MINERALS OPERATIONS

The demand for the products of the Industrial Minerals Operations continues to
be highly dependent on the general condition of the economy. The earnings
performance of these operations has been deteriorating over the last several
years, primarily due to declining sales volumes. However, average sales prices
have increased, primarily as a result of product mix.

Fording continues to focus on new product and new application development for
its industrial minerals. Research is ongoing by the Corporation, and customers
continue to test new products and applications.

LIQUIDITY AND CAPITAL RESOURCES

In 2003, under the new structure, the Fund expects cash flows to be more than
sufficient to fund routine capital requirements and service its debt
facilities. Scheduled capital expenditures are expected to be of a sustaining
nature. The Fund anticipates that its initial distribution for the period from
February 28 to March 31, 2003 will be approximately $1.00 per unit including a
special distribution of $0.74 per unit.

Estimated distributions for the final three quarters of 2003 will depend on
annual price and volume negotiations now under way. In a case where rollover
pricing and targeted sales levels are achieved, estimated distributions for the
final three quarters are expected to total $4.29 per unit, including a second
special distribution of $0.74 per unit. This estimate assumes, among other
things, existing coal prices at January 2003, sales volumes of 18.5 million
tonnes for the nine months, a US/Canadian exchange rate of $0.65, operating and
capital costs based on the mine plans of each operation as at early January
2003, and the realization of $25 million in synergies at the Partnership. Some
of the assumptions used in the preparation of the estimates set forth above may
prove to be incorrect and actual results may vary materially from these
estimates.

New banking facilities in the amount of $540 million have been established for
the Fording operating company and the Partnership, and are comprised of $420
million available to Fording and $120 million available to the Partnership. The
Fording facilities are supported by an unsecured guarantee by the Partnership
to all of the assets of the Partnership, an assignment of Fordings interest in
the Partnership and a general security interest over the assets of Fording.
Fording and the Partnership each have a $120 million facility available in the
form of an extendible 364-day revolving, one-year non-revolving facility.
Fording also has $300 million of term facilities, 50% to be refinanced within
two years of draw down and the balance upon expiry in three years. Borrowing
rates are short term and subject to interest rate movement. The facilities also
provide covenants related to several financial ratios as well as negative
covenants that include restrictions on the disposition of core mining assets.
At the reorganization date, $412 million of the bank facility was utilized. The
operating company drew the entire $300 million term facility and $35 million of
the revolving facility, and an additional $30 million of the revolving facility
was utilized for issued and outstanding Letters of Credit. At the
Partnership, $23 million of the revolving facility was utilized to fund a
working capital payment for the Luscar assets, and $24 million was utilized for
issued and outstanding Letters of Credit. The term facility was drawn to pay
existing debt of Fording and to fund distributions and costs of the
transaction.

CRITICAL ACCOUNTING POLICIES

The Corporations historical financial statements are prepared in accordance
with Canadian generally accepted accounting principles and require management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, management reviews its estimates based
on currently available information. Actual results may differ from these
estimates.

FINANCIAL INSTRUMENTS

Derivative financial instruments, specifically foreign exchange forward
contracts, are utilized by the Corporation to manage its foreign currency
exposure. The Corporation does not enter into derivative financial instruments for

7



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trading or speculative purposes. The gains and losses on
derivative instruments used as hedges are recognized in
income in the period that the hedged exposure is recognized
in income, which is the same period in which the
instrument is settled. The gain or loss is netted against
the item that was hedged.

RECLAMATION

Fording has significant long-term liabilities relating
to mine reclamation and end-of-mine closure costs. As
mining activities release the reserves included in the
long-range mine plans, liabilities are recorded for the
estimated costs to reclaim disturbed sites to meet existing
regulatory standards. Reclamation liabilities are not
funded. The liability is determined on a mine-by-mine
basis and various assumptions are used. At December 31,
2002, the accrual for reclamation liabilities amounted
to $36 million. Costs incurred under the reclamation
programs are charged against the accrual. It has been
assumed that government regulations will not change
significantly and that the Corporation will continue to
operate and has developed its reclamation programs
accordingly. At December 31, 2002, the estimated total of
all future reclamation costs was approximately $75 million,
and the balance, which is not provided for, is being
accrued over the remaining reserve life at each mine
which ranges from 12 to 25 years.

EMPLOYEE FUTURE BENEFITS

Fording has post-retirement benefit plans that include
pension plans and other post-retirement benefit plans
that involve the use of key estimates. Liabilities are actuarially
determined using various assumptions, including
expected plan performance, salary escalation, discount
rates, retirement ages of employees and future cost trends
to estimate the cost and obligations of these liabilities.
Pension obligations are funded in accordance with the
applicable legislation. Detailed information related to
these items is included in note 7 of the Consolidated Financial
Statements.

REVENUE RECOGNITION

Sales revenue is recognized when title passes to the
customer. Seaborne coal sales revenue is recognized when
the coal has been loaded on the vessel. Rail direct sales are
recognized when title to ownership has transferred,
either when coal is loaded on the train or when it arrives
at its destination. Industrial minerals sales revenue is recognized
upon shipment to customers from the plant or
warehouse. Revenues from the Prairie Operations are
recorded when the services are provided or the mineral
reserve is mined, and return on investment and royalties
are recorded when earned.

RISKS AND UNCERTAINTIES

Fording, through its subsidiaries, has operations
throughout North America and customers around the
world. As such, Fording is exposed to changes in various
markets and economies, and its operations can be affected
by a variety of conditions. To minimize the impacts of
such changes and conditions on the financial performance
of the Corporation, Fording seeks to identify, evaluate
and, where appropriate, hedge financial, market and
operational risk. Going forward under the income trust
structure, most of the Funds operating results will be
derived from its interest in the Partnership operations.

FOREIGN CURRENCY EXCHANGE RISK

Fordings operating results and cash flows are affected
by foreign currency exchange rates. Exchange rate movements
can have a significant impact on results as a large
portion of operating costs are incurred in Canadian dollars
and most revenues are earned in US dollars. To manage
its exposure to currency fluctuations, Fording has, in the
past, entered into foreign exchange forward contracts to
fix the rate at which certain future anticipated flows of
US dollars are exchanged into Canadian dollars. The unrealized
mark to market loss on these foreign exchange forward
contracts at December 31, 2002 was $111.3 million.

The following chart summarizes Fordings hedged positions
outstanding at January 1, 2003.

|     |  |                   |       |               |  |               |      |         |  |  |      | 
|---- |  | ----------------- | ----- | ------------- |  | ------------- | ---- | ------- |  |  | ---- | 
|     |  |                   |       |               |  | Average       |      | Average
|Year |  | Amount Hedged     |       | Exchange Rate |  | Exchange Rate
|     |  |                   |       |               |  |              
|     |  | (millions of US$) |       | (CDN$/US$)    |  | (US$/CDN$)   
|2003 |  | $                 | 585   |               |  |               | 1.54 |         |  |  | 0.65 | 
|2004 |  |                   | 434   |               |  |               | 1.53 |         |  |  | 0.66 | 
|2005 |  |                   | 355   |               |  |               | 1.51 |         |  |  | 0.66 | 
|2006 |  |                   | 95    |               |  |               | 1.60 |         |  |  | 0.62 | 
|     |  |                   |       |               |  |               |      |         |  |  |      | 
|     |  | $                 | 1,469 |               |  |               |      |         |  |  |      | 
|     |  |                   |       |               |  |               |      |         |  |  |      | 

8



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##### 



MARKET RISK

The prices for export metallurgical coal have a significant
impact on Fordings profitability, and are dependent
on the supply/demand balance for seaborne metallurgical
coking coal and, to a lesser degree, the economic conditions
of the markets into which metallurgical coal is sold.
Profitability is also affected by production and transportation
costs, product quality and taxation. Over time, the
Corporation has attempted to reduce its dependence on
any single market through the development of a diversified
customer base.

INSURANCE

In the past, Fording has maintained insurance against
risks that are typical in the mining industry and in amounts
that it believed to be reasonable. It is anticipated that the
Partnership will continue this practice going forward.
Fording has insured its physical assets on a replacement
cost basis and purchased business interruption insurance
and liability insurance. Insurance against certain risks,
including certain liabilities for environmental damage,
is not available at reasonable economic rates to the Partnership,
Fording or to others in the mining industry.

ENVIRONMENT

It is Fordings policy to achieve and demonstrate sound
environmental performance by controlling the impact of
its activities on the environment through its policies and
practices, and to comply with applicable laws and regulations.
Effective environmental management systems
form an integral part of Fordings mining operations and
aid in the continual monitoring and improvement of
environmental performance and reduced environmental
risks and liabilities. A number of the Corporations operations
have achieved ISO 14000 certification to further
demonstrate to customers and the general public a
strong environmental ethic by implementing an internationally
recognized system for environmental management.

Canada and the United States have not introduced
comprehensive regulations addressing greenhouse gas
emissions, including emission targets for specific industrial
sectors. While the United States has decided that it
will not ratify the Kyoto Protocol, an international agreement
which sets limits on greenhouse gas emissions from
certain signatory countries, the Canadian Federal Parliament
has voted to ratify this agreement. Should this
agreement enter into force, Canada will be committed to
limiting its net greenhouse gas emissions to 6% below
the levels emitted in 1990. Recent statements from the
Federal Government indicate that no particular industry
sector will be discriminated against under the agreement.
Canadas current level of greenhouse gas emissions significantly
exceeds the agreed-to limit. The primary source
of greenhouse gas emissions in Canada is the use of
hydrocarbon energy. Fordings operations, including those
conducted through the Partnership, depend significantly
on hydrocarbon energy sources to conduct daily operations,
and there are currently no economic substitutes for
these forms of energy. A significant proportion of Canadas

industrial sector faces a similar situation to Fording. The
federal and provincial governments have not finalized
any formal regulatory programs to control greenhouse
gases, and it is not yet possible to reasonably estimate the
nature, extent, timing and cost of any programs contemplated
or their potential effects on Fordings operations.
Most of Fordings products are sold outside of Canada,
and sales are not expected to be significantly affected by
Canadas Kyoto ratification decision. However, the broad
adoption of emission limitations or other regulatory
efforts to control greenhouse gas emissions may affect
the demand for coal, oil and natural gas, as well as
increase production and transportation costs.

OPERATIONAL RISKS

Operational risks include the possibility of natural disasters,
failure of major equipment or labour disruptions.
In the past, Fording has taken steps to mitigate these risks
by maintaining adequate stockpiles of finished product,
maintaining insurance coverages to minimize the impact
of major insured perils, implementing gain-sharing programs
and negotiating long-term collective agreements
at all of its unionized minesites. It is anticipated that the
Partnership will take similar steps going forward.

Employees at the Fording River and NYCO operations
ratified new 5-year collective agreements in 2001. A similar
5-year agreement was achieved at the Coal Mountain
operation in 2000. The collective agreements expire on
May 31, 2005 at Line Creek, October 31, 2005 at Elkview and
June 30, 2007 at the Luscar mine. The Greenhills and Minera
NYCO operations are non-unionized.

Exposure to energy prices affects costs in the mining
industry. Of great significance is the price of diesel, which
is used by most heavy equipment in mining. A one-cent
per litre change in the price of diesel translates into
approximately a $2 million change in operating costs to
the Partnership. The mines also use significant amounts

9



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##### 



of electricity. Electricity prices are currently regulated in
the province of British Columbia and are frozen until
March 2003. A 5% increase in electricity costs would result
in an additional $1 million in operating expenses to the
Partnership. With the exception of Line Creek, coal-fired
dryers are used in the process plants, which mitigate
exposure to natural gas prices. Natural gas continues to
be used for the heating of buildings and, to some degree,
drying of coal. A 5% increase in the cost of natural gas
would result in an additional $1 million in operating
expenses to the Partnership.

A substantial portion of the coal production from the
Partnership is transported to port facilities by Canadian
Pacific Railway (CPR) and loaded onto vessels in Vancouver
at either Westshore or Neptune terminals. Prolonged
labour stoppages, weather problems or other factors that
prevent CPR, Westshore or Neptune from delivering their
services could seriously impact the financial results of the
Company. CPR has seven collective agreements with various
bargaining units in Canada. Agreements with three
bargaining units expired on January 1, 2003 and agreements
with two other bargaining units expire at the end
of 2003. The remaining two agreements expire at the end
of 2004. All three of Westshores labour contracts expired
on January 31, 2003. The two labour agreements at Neptune
Terminals both expired December 31, 2002. Negotiations
are ongoing for the expired agreements at CPR,
Westshore and Neptune.

RISKS ASSOCIATED WITH THE CREATION OF THE FUND

Risk factors specific to the creation of the Fund exist.
There is no assurance that Canadian federal income tax
laws or the current treatment of mutual fund trusts will not
be changed in a manner which adversely affects unitholders
of the Fund. In addition, unitholders do not have the same
statutory rights normally associated with ownership of
shares in a company, and there is an absence of statutory
limited liability to unitholders of mutual funds.

FORWARD-LOOKING INFORMATION

This annual report contains certain forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (United States) relating, but
not limited to, the Corporations expectations, intentions,
plans and beliefs. Forward-looking information can often
be identified by forward-looking words such as
anticipate,
believe, expect, goal, plan, intend, estimate,
may, and will or similar words suggesting future outcomes,
or other expectations, beliefs, plans, objectives,
assumptions, intentions or statements about future events
or performance. Unitholders and prospective investors
should be aware that these statements are subject to
known and unknown risks, uncertainties and other factors
that could cause actual results to differ materially from
those suggested by the forward-looking statements.

Unitholders are cautioned not to place undue reliance
on forward-looking information. By its nature, forward looking
information involves numerous assumptions,
inherent risks and uncertainties, both general and specific,
that contribute to the possibility that the predictions,
forecasts, projections and various future events will not
occur. These factors include, but are not limited to,
changes in commodity prices; changes in steel-making
methods and other technological changes; the strength of
various economies; changes in the manner in which use
of products are regulated; the availability and comparative
price of energy commodities; the effects of competition
and pricing pressures; the oversupply of, or lack of
demand for, products produced by Fording or the Partnership;
changes in the manner in which the power industry
is regulated; currency and interest rate fluctuations; various
events which could disrupt operations, including
labour stoppages and severe weather conditions; and the
Funds ability to anticipate and manage the foregoing
factors and risks.

The list of factors set forth above is not exhaustive, and
the Fund undertakes no obligation to update publicly or
otherwise revise any forward-looking information
whether as a result of new information, future events or
other such factors which affect this information, except
as required by law.

Statements relating to the magnitude or quality of
mineral deposits are deemed to be forward-looking statements.
The reliability of such information is affected by,
among other things, uncertainties involving geology of
mineral deposits; uncertainty of estimates of their size or
composition; uncertainty of projections relating to costs
of production; the possibility of delays in mining activities;
changes in plans with respect to exploration, development
projects or capital expenditures; and various
other risks including those relating to health, safety and
environmental matters.

10



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##### 



MANAGEMENTS REPORT

JANUARY 17, 2003

The accompanying consolidated financial statements and related financial
information are the responsibility of
management and have been prepared in accordance with generally accepted
accounting principles in Canada and
necessarily include amounts that reflect managements judgment and best
estimates. Financial information contained
elsewhere in this Annual Report is consistent with the consolidated financial
statements.

Management has established systems of accounting and internal control that
provide reasonable assurance that
assets are safeguarded from loss or unauthorized use, and produce reliable
accounting records for the preparation of
financial information. Policies and procedures are maintained to support the
accounting and internal control systems
and include an established code of business conduct.

The independent external auditors, PricewaterhouseCoopers LLP, have conducted
an examination of the consolidated
financial statements in accordance with Canadian generally accepted auditing
standards on behalf of the
shareholders. The independent auditors have full and free access to the Audit
Committee.

The Board of Directors carries out its responsibility for the consolidated
financial statements principally through
its Audit Committee, consisting of three members, all of whom are unrelated
directors. This Committee reviews the
consolidated financial statements with management and the independent auditors
prior to submission to the
Board for approval. The Audit Committee also recommends to the Board the
independent auditors to be proposed to
the shareholders for appointment. Interim consolidated financial statements are
reviewed by the Audit Committee
prior to release to the shareholders.

The consolidated financial statements are approved by the Board of Directors on
the recommendation of the
Audit Committee.

|                                                                        |  |                                                                             
|----------------------------------------------------------------------- |  | ----------------------------------------------------------------------------
|(-s- J.G. Gardiner)
J.G. Gardiner
President and Chief Executive Officer |  | (-s- A.R. Hagerman)
A.R. Hagerman
Vice President and Chief Financial Officer

AUDITORS REPORT

TO THE SHAREHOLDERS OF FORDING INC.

We have audited the consolidated balance sheets of Fording Inc. as at December
31, 2002 and 2001 and the consolidated
statements of income and retained earnings and cash flows for the years ended
December 31, 2002, 2001 and
2000. These consolidated financial statements are the responsibility of the
corporations management. Our responsibility
is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance
whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position
of the corporation as at December 31, 2002 and 2001 and the results of its
operations and its cash flows for the years
ended December 31, 2002, 2001 and 2000 in accordance with Canadian generally
accepted accounting principles.

(PRICEWATERHOUSECOOPERS LLP LOGO)
Chartered Accountants
Calgary, Alberta
January 17, 2003
(except as to note 20, which is as of February 28, 2003)

PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers
LLP and the other member firms of PricewaterhouseCoopers International Limited,
each of which is a separate and independent legal entity.

11



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##### 



Fording Inc.CONSOLIDATED BALANCE SHEETS
As at December 31

|                                                    |  |      |       |      |  |   |         | 
|--------------------------------------------------- |  | ---- | ----- | ---- |  | - | ------- | 
|(millions of Canadian dollars)                      |  | 2002 |       | 2001
|                                                    |  |      |       |     
|ASSETS                                              |  |      |       |      |  |   |         | 
|Current assets                                      |  |      |       |      |  |   |         | 
|Cash and temporary investments                      |  | $    | 7.0   |      |  | $ | 3.7     | 
|Accounts receivable                                 |  |      | 47.5  |      |  |   | 54.3    | 
|Inventory (note 4)                                  |  |      | 189.7 |      |  |   | 156.8   | 
|Prepaid expenses                                    |  |      | 10.3  |      |  |   | 6.9     | 
|                                                    |  |      |       |      |  |   |         | 
|                                                    |  |      | 254.5 |      |  |   | 221.7   | 
|Capital assets(note 5)                              |  |      | 644.1 |      |  |   | 807.1   | 
|Other assets                                        |  |      | 10.8  |      |  |   | 11.5    | 
|                                                    |  |      |       |      |  |   |         | 
|                                                    |  | $    | 909.4 |      |  | $ | 1,040.3 | 
|                                                    |  |      |       |      |  |   |         | 
|LIABILITIES                                         |  |      |       |      |  |   |         | 
|Current liabilities                                 |  |      |       |      |  |   |         | 
|Bank indebtedness                                   |  | $    | 8.1   |      |  | $ | 0.9     | 
|Accounts payable                                    |  |      | 81.6  |      |  |   | 78.5    | 
|Income taxes payable                                |  |      | 3.1   |      |  |   | 1.7     | 
|                                                    |  |      |       |      |  |   |         | 
|                                                    |  |      | 92.8  |      |  |   | 81.1    | 
|Reclamation(note 6)                                 |  |      | 35.8  |      |  |   | 34.5    | 
|Pensions and other post-retirement benefits(note 7) |  |      | 12.2  |      |  |   | 27.2    | 
|Long-term debt(note 8)                              |  |      | 135.0 |      |  |   | 131.0   | 
|Future income taxes(note 9)                         |  |      | 184.9 |      |  |   | 178.3   | 
|Commitments and contingencies(note 17)              |  |      |       |      |  |   |         | 
|                                                    |  |      |       |      |  |   |         | 
|                                                    |  |      | 460.7 |      |  |   | 452.1   | 
|                                                    |  |      |       |      |  |   |         | 
|SHAREHOLDERS
EQUITY                                 |  |      |       |      |  |   |         | 
|Capital stock(note 10)                              |  |      | 122.4 |      |  |   | 125.5   | 
|Capital contributed(note 10)                        |  |      |      |      |  |   | 1.8     | 
|Retained earnings                                   |  |      | 291.8 |      |  |   | 423.6   | 
|Foreign currency translation adjustments(note 10)   |  |      | 34.5  |      |  |   | 37.3    | 
|                                                    |  |      |       |      |  |   |         | 
|                                                    |  |      | 448.7 |      |  |   | 588.2   | 
|                                                    |  |      |       |      |  |   |         | 
|                                                    |  | $    | 909.4 |      |  | $ | 1,040.3 | 
|                                                    |  |      |       |      |  |   |         | 

The accompanying notes are an integral part of these financial statements.

Approved by the Board of Directors:

|                                           |  |                                           
|------------------------------------------ |  | ------------------------------------------
|(-s- J.G. Gardiner)
J.G. Gardiner
Director |  | (-s- H.G. Schaefer)
H.G. Schaefer
Director

12



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##### 



Fording Inc.CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Years ended December 31

|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|-------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------- | - |  | - | ----- | -
|(millions of Canadian dollars, except per share amounts) |  | 2002 |       | 2001 |  | 2000
|                                                         |  |      |       |      |  |     
|Revenues                                                 |  | $    | 882.2 |      |  | $    | 1,000.4 |   |  | $ | 896.1 |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|Expenses                                                 |  |      |       |      |  |      |         |   |  |   |       |  
|Cost of sales                                            |  |      | 641.7 |      |  |      | 739.0   |   |  |   | 723.9 |  
|Selling, general and administration                      |  |      | 16.4  |      |  |      | 15.2    |   |  |   | 12.4  |  
|Depreciation and depletion                               |  |      | 69.9  |      |  |      | 69.8    |   |  |   | 74.3  |  
|Brooks capital expense (note 12)                         |  |      | 8.2   |      |  |      |        |   |  |   |      |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|                                                         |  |      | 736.2 |      |  |      | 824.0   |   |  |   | 810.6 |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|Income from operations                                   |  |      | 146.0 |      |  |      | 176.4   |   |  |   | 85.5  |  
|Other expenses                                           |  |      |       |      |  |      |         |   |  |   |       |  
|Provision for asset write-down (note 13)                 |  |      | 140.0 |      |  |      |        |   |  |   |      |  
|Reorganization costs (note 14)                           |  |      | 11.5  |      |  |      | 3.9     |   |  |   |      |  
|Interest expense                                         |  |      | 5.6   |      |  |      | 8.5     |   |  |   | 15.0  |  
|Interest income                                          |  |      | (0.1  | )    |  |      | (0.1    | ) |  |   | (0.3  | )
|Other                                                    |  |      |      |      |  |      | 0.3     |   |  |   | 0.4   |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|                                                         |  |      | 157.0 |      |  |      | 12.6    |   |  |   | 15.1  |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|(Loss) income before taxes                               |  |      | (11.0 | )    |  |      | 163.8   |   |  |   | 70.4  |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|Income taxes(note 9)                                     |  |      |       |      |  |      |         |   |  |   |       |  
|Current                                                  |  |      | 53.1  |      |  |      | 78.8    |   |  |   | 24.5  |  
|Future                                                   |  |      | 6.8   |      |  |      | (9.6    | ) |  |   | 11.3  |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|                                                         |  |      | 59.9  |      |  |      | 69.2    |   |  |   | 35.8  |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|Net (loss) income                                        |  | $    | (70.9 | )    |  | $    | 94.6    |   |  | $ | 34.6  |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|Average number of shares outstanding
(millions)(note 10) |  |      | 51.4  |      |  |      | 52.5    |   |  |   | 52.5  |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|Basic (loss) earnings per share(note 10)                 |  | $    | (1.38 | )    |  | $    | 1.80    |   |  | $ | 0.66  |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|Diluted (loss) earnings per share(note 10)               |  | $    | (1.38 | )    |  | $    | 1.80    |   |  | $ | 0.66  |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|Retained earnings  beginning of year                    |  | $    | 423.6 |      |  | $    | 361.2   |   |  | $ | 354.0 |  
|Net (loss) income for the year                           |  |      | (70.9 | )    |  |      | 94.6    |   |  |   | 34.6  |  
|Dividends                                                |  |      | (28.2 | )    |  |      | (32.2   | ) |  |   | (27.4 | )
|Repurchase of capital stock (note 10)                    |  |      | (32.7 | )    |  |      |        |   |  |   |      |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  
|Retained earnings  end of year                          |  | $    | 291.8 |      |  | $    | 423.6   |   |  | $ | 361.2 |  
|                                                         |  |      |       |      |  |      |         |   |  |   |       |  

The accompanying notes are an integral part of these financial statements.

13



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##### 



Fording Inc.CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31

|                                                   |  |      |       |      |  |      |       |   |  |   |        |  
|-------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ------ | -
|(millions of Canadian dollars)                     |  | 2002 |       | 2001 |  | 2000
|                                                   |  |      |       |      |  |     
|Operating activities                               |  |      |       |      |  |      |       |   |  |   |        |  
|Net (loss) income for the period                   |  | $    | (70.9 | )    |  | $    | 94.6  |   |  | $ | 34.6   |  
|Provision for asset write-down (note 13)           |  |      | 140.0 |      |  |      |      |   |  |   |       |  
|Depreciation and depletion                         |  |      | 69.4  |      |  |      | 70.9  |   |  |   | 74.3   |  
|Employee future benefits contribution (note 7)     |  |      | (28.6 | )    |  |      | (5.7  | ) |  |   | (5.4   | )
|Employee future benefits expense (note 7)          |  |      | 12.3  |      |  |      | 7.6   |   |  |   | 7.7    |  
|Brooks capital expense (note 12)                   |  |      | 8.2   |      |  |      |      |   |  |   |       |  
|Future income taxes (note 9)                       |  |      | 6.8   |      |  |      | (9.6  | ) |  |   | 11.3   |  
|Reclamation provision, net (note 6)                |  |      | 1.3   |      |  |      | 1.5   |   |  |   | 1.6    |  
|Other operating items, net                         |  |      | 1.8   |      |  |      | (0.8  | ) |  |   | (5.7   | )
|                                                   |  |      |       |      |  |      |       |   |  |   |        |  
|Cash flow                                          |  |      | 140.3 |      |  |      | 158.5 |   |  |   | 118.4  |  
|Change in non-cash working capital (note 15)       |  |      | (31.5 | )    |  |      | (30.3 | ) |  |   | 18.2   |  
|                                                   |  |      |       |      |  |      |       |   |  |   |        |  
|Cash from operations                               |  |      | 108.8 |      |  |      | 128.2 |   |  |   | 136.6  |  
|                                                   |  |      |       |      |  |      |       |   |  |   |        |  
|Financing activities                               |  |      |       |      |  |      |       |   |  |   |        |  
|Dividends                                          |  |      | (28.2 | )    |  |      | (32.2 | ) |  |   | (27.4  | )
|Repurchase of capital stock (note 10)              |  |      | (38.5 | )    |  |      | (14.5 | ) |  |   |       |  
|Issuance of capital stock (note 10)                |  |      | 0.7   |      |  |      | 0.4   |   |  |   |       |  
|Increase (decrease) in long-term debt              |  |      | 4.0   |      |  |      | (13.0 | ) |  |   | (100.2 | )
|Increase (decrease) in bank indebtedness           |  |      | 7.2   |      |  |      | (9.3  | ) |  |   | 2.6    |  
|Capital contributed                                |  |      |      |      |  |      |      |   |  |   | 15.0   |  
|                                                   |  |      |       |      |  |      |       |   |  |   |        |  
|                                                   |  |      | (54.8 | )    |  |      | (68.6 | ) |  |   | (110.0 | )
|                                                   |  |      |       |      |  |      |       |   |  |   |        |  
|Investing activities                               |  |      |       |      |  |      |       |   |  |   |        |  
|Additions to capital assets                        |  |      | (51.5 | )    |  |      | (65.3 | ) |  |   | (39.1  | )
|Proceeds on disposal of capital assets             |  |      | 1.2   |      |  |      | 6.6   |   |  |   | 0.7    |  
|Other                                              |  |      | (0.4  | )    |  |      | 0.2   |   |  |   | 2.0    |  
|                                                   |  |      |       |      |  |      |       |   |  |   |        |  
|                                                   |  |      | (50.7 | )    |  |      | (58.5 | ) |  |   | (36.4  | )
|                                                   |  |      |       |      |  |      |       |   |  |   |        |  
|Increase (decrease) in cash position               |  |      | 3.3   |      |  |      | 1.1   |   |  |   | (9.8   | )
|Cash and temporary investments 
beginning of year |  |      | 3.7   |      |  |      | 2.6   |   |  |   | 12.4   |  
|                                                   |  |      |       |      |  |      |       |   |  |   |        |  
|Cash and temporary investments 
end of year       |  | $    | 7.0   |      |  | $    | 3.7   |   |  | $ | 2.6    |  
|                                                   |  |      |       |      |  |      |       |   |  |   |        |  

Temporary investments are investments maturing within 3 months.

The accompanying notes are an integral part of these financial statements.

14



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##### 



Fording Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

1. CORPORATE REORGANIZATION

On October 1, 2001, as part of a Plan of Arrangement, Canadian Pacific Limited
(CPL) distributed its
interests in Fording Corporation (old Fording Inc.) to a newly created publicly
held corporation, Fording
Inc. As both Fording Corporation and Fording Inc. were under the control of
CPL, the transaction was
accounted for in a manner similar to a pooling of interests, and the historical
financial information of
Fording Corporation became the historical financial information of Fording Inc.
(the Corporation).

The number of Fording shares outstanding on October 5, 2001, being the date
that former shareholders
of CPL became shareholders of Fording Inc., was 52.5 million. The Fording
Corporation common
shares outstanding at the time of the CPL reorganization are wholly owned by
Fording Inc.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements have been prepared in accordance with
Canadian generally
accepted accounting principles and include the accounts of Fording and its
subsidiaries, all of which are
wholly owned. The material differences between Canadian and United States
generally accepted
accounting principles, insofar as they apply to Fording, are discussed in note
21.

Certain mining activities are conducted on a joint venture basis. The
consolidated financial statements
reflect the Corporations proportionate interest in such ventures, as disclosed
in note 15(c). A joint venture
is an economic activity resulting from a contractual arrangement whereby two or
more venturers jointly
control the economic activity. Joint control of an economic activity is the
contractually agreed sharing of
the continuing power to determine its strategic operating, investing and
financing policies.

INVENTORY

Product and raw minerals inventory is valued at the lower of average production
cost and net realizable
value. Production costs include labour, operating materials and supplies and an
applicable portion
of operating overhead.

Stores and materials inventory is valued at the lower of actual cost and net
realizable value. Actual
cost represents the delivered price of the item.

CAPITAL ASSETS

Land, buildings and equipment are recorded at cost; maintenance and repairs of
a routine nature
are expensed as incurred. Buildings are depreciated on the straight-line basis
over their useful lives,
ranging from 15 to 40 years. Equipment is depreciated on the straight-line
basis over its useful life,
based on the number of hours in operation and ranging from 5 to 35 years.

Mineral properties and development include expenditures to acquire and develop
identified mineral
properties and reserves and net costs relating to production during the
development phase. Depletion
on producing properties is provided using a unit of production method based
upon the proven and
probable mineral reserve position of the mine. Development costs incurred to
expand the capacity of
operating mines, to develop new ore bodies or to develop mine areas
substantially in advance of current
production are capitalized and charged to operations on a unit of production
method related to the
mineral reserves position.

Exploration costs are charged to earnings in the period in which they are
incurred, except where
these costs relate to specific properties for which economically recoverable
reserves have been established,
in which case they are deferred. Upon commencement of production, deferred
costs are charged
to operations on a unit of production method related to the mineral reserve
position of the property.

When the net carrying value of a capital asset, less its related provision for
future removal and site
restoration costs and less related future income taxes, exceeds the estimated
undiscounted future net
cash flows together with its residual value, the excess is charged to earnings.

15



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RESEARCH AND DEVELOPMENT

Research costs are charged to earnings in the period in which they are
incurred.

Development costs related to products and processes for which the technical and
economic feasibilities
are established are deferred until commercial production or until the process
is in use.

CAPITALIZED INTEREST

Interest is capitalized on major capital projects under construction based on
the borrowing rate of
debt related to the project or the Corporations average cost of borrowing.

RECLAMATION

Reclamation costs to be incurred at the completion of the current long-range
mine plans are estimated
based on known or estimated costs to reclaim all disturbed sites to meet
existing regulatory
standards. These costs are then accrued on an undiscounted unit of production
basis as mining activities
release the reserves included in the long-range mine plan. The costs include
allowances for the
reclamation of all pits, spoils, tailings ponds and mine infrastructure, and
are based on the existing cost
structure for these activities at each of the operations. Reclamation is
normally carried out continuously
over the life of each mining operation and is largely controlled by the rate
that mining progresses
over specific areas and those areas become available for reclamation.
Reclamation plans and scheduling
are predicated on completing a large proportion of the outstanding reclamation
prior to depleting the
reserves contained in the long-range mine plan. Accrued reclamation costs are
periodically reviewed by
management and are revised for changes in future estimated costs and regulatory
requirements.

LONG-TERM DEBT

Long-term debt includes debt which matures beyond one year, and borrowings on a
revolving basis
which under the borrowing facility can be extended for more than one year at
the option of the Corporation.

FOREIGN CURRENCY TRANSLATION

The functional currency and therefore the unit of measure of the Corporations
industrial mineral
subsidiaries, NYCO Minerals and Minera NYCO, is the US dollar. The functional
currency of the Corporations
Mountain and Prairie operations and the reporting currency of the Corporation
is the Canadian
dollar. The financial statements of the Corporations Minera NYCO operation are
remeasured from Mexican
pesos into US dollars using the year-end exchange rate for monetary assets and
liabilities, and the
historical exchange rates for non-monetary assets and liabilities. Foreign
currency revenues and
expenses are remeasured at the exchange rate in effect on the dates of the
related transactions, except
for provisions for depreciation and depletion, which are remeasured on the same
basis as the related
assets. Foreign currency transaction gains and losses are included in income
immediately.

The US dollar accounts of the Corporations NYCO Minerals and Minera NYCO
operations are translated
into Canadian dollars, the reporting currency of the Corporation, using the
current rate method.
Assets and liabilities are translated using the year-end exchange rates for
assets and liabilities, and revenues
and expenses are translated at the average exchange rates in effect for the
year. Exchange gains
or losses arising from translation are deferred and included under
Shareholders Equity as Foreign Currency
Translation Adjustments.

FINANCIAL INSTRUMENTS

Derivative financial instruments, specifically foreign exchange forward
contracts, are utilized by the
Corporation to manage its foreign currency exposure. The Corporation does not
employ derivative
financial instruments for trading or speculative purposes. The gains and losses
on derivative instruments
used as hedges are recognized in income in the period that the hedged exposure
is recognized in
income, which is the same period in which the instrument is settled. The gain
or loss is netted against
the item that was hedged.

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REVENUE RECOGNITION

Sales revenues are recognized when title passes to the customer. Seaborne coal
sales revenues are
recognized when the coal has been loaded on the vessel. Rail direct sales are
recognized when the ownership
of the coal is transferred to the customer - either when the coal is loaded on
the train, or when
the train arrives at its destination. Industrial minerals sales revenues are
recognized upon shipment to
customers from the plant or warehouse.

Revenues in the Prairie Operations primarily consist of contracted services,
return on investment
and royalties. The revenues are recorded when the services required by the
underlying contract are provided
or the mineral reserve is mined. Return on investment and royalties are
recognized when earned.

MANAGEMENT ESTIMATES

The consolidated financial statements include certain management estimates that
may require
accounting adjustments based on future occurrences. The most significant
estimates relate to depletion,
depreciation, asset impairment test calculations for capital assets, future
reclamation liabilities
and employee future benefits as all of these calculations are based on reserve
estimates and/or estimated
future costs. Actual results could differ from those estimates.

INCOME TAXES

Future tax assets and liabilities are recognized based on differences between
the bases of assets and liabilities
used for financial statement and income tax purposes, using substantially
enacted tax rates. The effect
of changes in income tax rates on future income tax assets and liabilities is
recognized in the period that the
change occurs. Unless a future tax asset is more likely than not to be
realized, the asset is provided for.

STOCK-BASED COMPENSATION

Under the Corporations stock-based compensation plan, the exercise price of
stock options issued to
employees is equivalent to market price at the time of the grant; therefore no
compensation expense is
recognized when options are issued. Pro forma fair-value-based net income and
earnings per share information
are disclosed for stock-based compensation and other stock-based payments
granted on or after
January 1, 2002. Any consideration paid by employees on exercise of stock options
or purchase of stock is
credited to share capital.

EMPLOYEE FUTURE BENEFITS

The costs of pensions and other post-retirement benefits (primarily health care
and life insurance) are
actuarially determined using the projected benefit method prorated on service
and managements best
estimate of expected plan investment performance, salary escalation, retirement
ages of employees and
expected costs. Market related values are used for calculating the expected
return on plan assets. The projected
benefit obligation is discounted using a market interest rate at the end of the
year on high-quality
corporate debt instruments.

For defined benefit plans, employee future benefit expense includes the cost of
pension benefits
earned during the current year, the interest cost on pension obligations, the
expected return on pension
plan assets, the amortization of adjustments arising from pension plan
amendments and the amortization
of the excess of the net actuarial gain or loss over 10% of the greater of the
benefit obligation and
the market related value of plan assets. The amortization period consists of
the expected average
remaining service lives of employees covered by the various plans.

For defined contribution plans, pension costs equal plan contributions made
during the current year.

The costs of post-retirement benefits, other than pension, are recognized on an
accrual basis over the
remaining service life of employees.

3. CHANGES IN ACCOUNTING POLICIES

STOCK-BASED COMPENSATION

Effective January 1, 2002, the Corporation adopted the provisions of CICA
Handbook Section 3870,
Stock-based Compensation and Other Stock-based Payments. The new section
applies to all stock-

17



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based compensation granted on or after January 1, 2002, and encourages
accounting for stock-based
payments and awards using a fair-value-based method of accounting. When a
corporation does not use
the fair-value-based method of accounting, it must disclose pro forma
fair-value-based net income and
earnings per share information.

Under the new recommendations, the Corporations accounting for stock options
is unchanged from
prior periods, except for additional pro forma disclosure as detailed in note
11.

FOREIGN CURRENCY TRANSLATION

Effective January 1, 2002, the Corporation adopted the revised recommendations
of CICA Handbook
Section 1650 Foreign Currency Translation. There was no impact to the
Corporation because of this
change in accounting policy, as the Corporation had no foreign currency
denominated debt as at January
1, 2002, or in the two prior years.

HEDGING RELATIONSHIPS

In
November 2001, the CICA issued Accounting Guideline 13 (AcG 13), Hedging
Relationships, which will
be effective for years beginning on or after July 1, 2003, although earlier
application is encouraged. AcG 13
addresses the identification, designation, documentation and effectiveness of
hedging relationships for
the purposes of applying hedge accounting. In addition, it deals with the
discontinuance of hedge accounting
and establishes conditions for applying hedge accounting. Under the new
guideline, a Corporation is
required to document its hedging relationships and explicitly demonstrate that
the hedges are sufficiently
effective in order to continue accrual accounting for positions hedged with
derivatives. The Corporation
will continue to apply hedge accounting for foreign exchange forward contracts
under AcG 13 after adoption
of the Guideline. There will be no impact to the Corporations income statement
or balance sheet due
to application of this standard.

RECENT PRONOUNCEMENTS

Discontinued Operations

CICA
Handbook Section 3475, Disposal of Long-Lived Assets and Discontinued
Operations, applies to
disposal activities initiated by an enterprises commitment to a plan on or
after May 1, 2003. Application
is prospective with earlier adoption encouraged. The new Section establishes
standards for the recognition,
measurement, presentation and disclosure of the disposal of long-lived assets
and discontinued
operations, and replaces the disposal provisions of
Section 3061, Property,
Plant and Equipment.

Impairment of Long-lived Assets

Effective
for fiscal years beginning on or after April 1, 2003, CICA Handbook
Section 3063, Impairment
of Long-lived Assets, establishes standards for the recognition, measurement
and disclosure of the
impairment of long-lived assets and replaces the write-down provisions of
Section 3061, Property, Plant
and Equipment. Application of the Section is prospective, with earlier
adoption encouraged. Under the
Section, impairment of long-lived assets is determined by a two-step process,
with the first step determining
when impairment is recognized, and the second step measuring the amount of the
impairment.
An impairment is recognized when the carrying amount of a long-lived asset
exceeds the sum of the
undiscounted cash flows expected to result from its use and eventual
disposition. An impairment loss is
measured as the amount by which the long-lived assets carrying amount exceeds
its fair value.

4. INVENTORY

|                               |  |      |       |      |  |   |       | 
|------------------------------ |  | ---- | ----- | ---- |  | - | ----- | 
|(millions of Canadian dollars) |  | 2002 |       | 2001
|                               |  |      |       |     
|Product and raw minerals       |  | $    | 147.1 |      |  | $ | 115.4 | 
|Stores and materials           |  |      | 42.6  |      |  |   | 41.4  | 
|                               |  |      |       |      |  |   |       | 
|                               |  | $    | 189.7 |      |  | $ | 156.8 | 
|                               |  |      |       |      |  |   |       | 

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5. CAPITAL ASSETS

|                                   |  |      |         |              |  |             |       |  |  |   |       | 
|---------------------------------- |  | ---- | ------- | ------------ |  | ----------- | ----- |  |  | - | ----- | 
|                                   |  | 2002
|                                   |  |     
|                                   |  |      |         |              |  | Accumulated |       |  |  |  
|(millions of Canadian dollars)     |  | Cost |         | amortization |  | Net        
|                                   |  |      |         |              |  |            
|Land, buildings and equipment      |  | $    | 1,029.8 |              |  | $           | 600.7 |  |  | $ | 429.1 | 
|Mineral properties and development |  |      | 344.4   |              |  |             | 129.4 |  |  |   | 215.0 | 
|                                   |  |      |         |              |  |             |       |  |  |   |       | 
|                                   |  | $    | 1,374.2 |              |  | $           | 730.1 |  |  | $ | 644.1 | 
|                                   |  |      |         |              |  |             |       |  |  |   |       | 

|                                   |  |      |         |              |  |             |       |  |  |   |       | 
|---------------------------------- |  | ---- | ------- | ------------ |  | ----------- | ----- |  |  | - | ----- | 
|                                   |  | 2001
|                                   |  |     
|                                   |  |      |         |              |  | Accumulated |       |  |  |  
|(millions of Canadian dollars)     |  | Cost |         | amortization |  | Net        
|                                   |  |      |         |              |  |            
|Land, buildings and equipment      |  | $    | 1,133.9 |              |  | $           | 548.6 |  |  | $ | 585.3 | 
|Mineral properties and development |  |      | 332.6   |              |  |             | 110.8 |  |  |   | 221.8 | 
|                                   |  |      |         |              |  |             |       |  |  |   |       | 
|                                   |  | $    | 1,466.5 |              |  | $           | 659.4 |  |  | $ | 807.1 | 
|                                   |  |      |         |              |  |             |       |  |  |   |       | 

During each of the last three years, there was no interest expense capitalized
to projects under construction.
At December 31, 2002, there was $3.5 million capitalized
(2001 - $5.4 million)
for reserves and
coal deposits located on properties upon which there is no current mining
operations and which are not
being amortized.

6. RECLAMATION

The amounts accrued on the unit of production method for reclamation costs were
$2.2 million in
2002; and $2.5 million in 2001. The amounts spent on reclamation activities were
$0.9 million in 2002;
and $1.0 million in 2001. At December 31, 2002, the estimated total of all
future reclamation costs was
approximately $75 million and the balance, which is not provided for, is being
accrued over the remaining
reserve life at each mine which ranges from 12 to 25 years.

7. PENSIONS AND OTHER POST-RETIREMENT BENEFITS

Substantially all of the Corporations employees participate in either defined
benefit or defined contribution
pension plans.

The defined contribution pension cost for the year ended December 31, 2002 was
$1.3 million (2001 -
$1.3 million; 2000 - $1.4 million).

The defined benefit plans are non-contributory and provide for pensions based
principally on years
of service, or years of service and compensation rates near retirement. Annual
contributions to these
plans, which are based on actuarial cost methods, are made on the basis of not
less than the minimum
amounts required by legislation. The defined benefit pension cost for the year
ended December 31, 2002
was $8.7 million (2001 - $5.0 million; 2000 - $5.1 million) and includes the
following components:

|                                                                |  |      |      |      |  |      |      |   |  |   |      |  
|--------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|(millions of Canadian dollars)                                  |  | 2002 |      | 2001 |  | 2000
|                                                                |  |      |      |      |  |     
|Current service cost (benefits earned by employees in the year) |  | $    | 5.6  |      |  | $    | 5.0  |   |  | $ | 4.9  |  
|Interest cost on projected benefit obligation                   |  |      | 9.2  |      |  |      | 8.1  |   |  |   | 7.4  |  
|Expected return on pension fund assets                          |  |      | (7.3 | )    |  |      | (7.8 | ) |  |   | (7.0 | )
|Other                                                           |  |      | 1.2  |      |  |      | (0.3 | ) |  |   | (0.2 | )
|                                                                |  |      |      |      |  |      |      |   |  |   |      |  
|Net expense                                                     |  | $    | 8.7  |      |  | $    | 5.0  |   |  | $ | 5.1  |  
|                                                                |  |      |      |      |  |      |      |   |  |   |      |  

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Information about the Corporations defined
benefit pension plans, in aggregate, is as follows:

|                                                                    |                                 |      |       |       |   |   |       |      |  
|------------------------------------------------------------------- | ------------------------------- | ---- | ----- | ----- | - | - | ----- | ---- | -
|(millions of Canadian dollars)                                      |                                 | 2002 |       | 2001 
|                                                                    |                                 |      |       |      
|Change in benefit obligation                                        |                                 |      |       |       |   |   |       |     
|Benefit obligation at January 1                                     |                                 | $    | 124.0 |       |   | $ | 112.9 |     
|                                                                    | Current service cost            |      |       | 5.6   |   |   |       | 5.0  |  
|                                                                    | Interest cost                   |      |       | 9.2   |   |   |       | 8.1  |  
|                                                                    | Benefits paid                   |      |       | (2.7  | ) |   |       | (2.5 | )
|                                                                    | Foreign currency changes        |      |       | (0.7  | ) |   |       | 0.5  |  
|                                                                    | Change in actuarial assumptions |      |       | 7.7   |   |   |       |     |  
|                                                                    |                                 |      |       |       |   |   |       |     
|Benefit obligation at December 31                                   |                                 |      | 143.1 |       |   |   | 124.0 |     
|                                                                    |                                 |      |       |       |   |   |       |     
|Change in fund assets                                               |                                 |      |       |       |   |   |       |     
|Fair value of fund assets at January 1                              |                                 |      | 103.4 |       |   |   | 104.3 |     
|                                                                    | Actual return on fund assets    |      |       | (11.2 | ) |   |       | (4.4 | )
|                                                                    | Employer contributions          |      |       | 27.1  |   |   |       | 4.4  |  
|                                                                    | Benefits paid                   |      |       | (2.7  | ) |   |       | (2.5 | )
|                                                                    | Other                           |      |       | 0.9   |   |   |       | 1.6  |  
|                                                                    |                                 |      |       |       |   |   |       |     
|Fair value of fund assets at December 31                            |                                 |      | 117.5 |       |   |   | 103.4 |     
|                                                                    |                                 |      |       |       |   |   |       |     
|Funded status  plan deficit                                        |                                 |      | (25.6 | )     |   |   | (20.6 | )   
|Unamortized prior service cost                                      |                                 |      | 3.8   |       |   |   | 0.9   |     
|Unamortized net actuarial loss                                      |                                 |      | 26.1  |       |   |   | 5.5   |     
|                                                                    |                                 |      |       |       |   |   |       |     
|Accrued benefit asset (liability) in the consolidated balance sheet |                                 | $    | 4.3   |       |   | $ | (14.2 | )   
|                                                                    |                                 |      |       |       |   |   |       |     

Included in the above accrued benefit obligation and fair value of
the fund assets at year-end are the following amounts in respect of the
plans that are not fully funded:

|                               |  |      |        |      |  |   |       |  
|------------------------------ |  | ---- | ------ | ---- |  | - | ----- | -
|(millions of Canadian dollars) |  | 2002 |        | 2001
|                               |  |      |        |     
|Benefit obligation             |  | $    | (108.1 | )    |  | $ | (91.2 | )
|Fair value of fund assets      |  |      | 79.1   |      |  |   | 62.1  |  
|                               |  |      |        |      |  |   |       |  
|Funded status  plan deficit   |  | $    | (29.0  | )    |  | $ | (29.1 | )
|                               |  |      |        |      |  |   |       |  

Pension fund assets consisted primarily of pooled funds, bonds and
listed stocks, while health care and life insurance benefits are
unfunded.

Actuarial
assumptions used at December 31, 2002, 2001, and 2000 are
approximately:

|                                       |  |      |     |      |  |      |     |   |  |  |     |  
|-------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                       |  | 2002 |     | 2001 |  | 2000
|                                       |  |      |     |      |  |     
|Discount rate for plan obligation      |  |      | 6.5 | %    |  |      | 6.5 | % |  |  | 6.5 | %
|Projected future salary increases      |  |      | 3.0 | %    |  |      | 3.0 | % |  |  | 3.0 | %
|Expected rate of return on fund assets |  |      | 6.5 | %    |  |      | 6.5 | % |  |  | 6.5 | %

In addition to pension benefits, the Corporation provides
health-care and life-insurance benefits for retired employees. For the
year ended December 31, 2002, the costs of post-retirement benefits other
than pensions amounted to $1.6 million (2001 -
$1.3 million; 2000 - $1.2 million) and consisted of current service costs of $0.6 million and
interest costs on projected benefit obligation of $1.0 million.

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8. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS

|                                                                                        |  |      |       |      |  |   |       | 
|--------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|(millions of Canadian dollars)                                                          |  | 2002 |       | 2001
|                                                                                        |  |      |       |     
|Unsecured bank loans:                                                                   |  |      |       |      |  |   |       | 
|Revolving loans with interest rates varying from
3.63% to 4.50% (2001  2.15% to 4.00%) |  | $    | 135.0 |      |  | $ | 131.0 | 
|                                                                                        |  |      |       |      |  |   |       | 
|                                                                                        |  | $    | 135.0 |      |  | $ | 131.0 | 
|                                                                                        |  |      |       |      |  |   |       | 

The Corporation has $250 million of committed bank credit facilities, divided
between three different
tranches. Tranche A provides a $100-million extendable 3-year revolving credit
facility, and Tranche B
provides a $100-million extendable 1-year revolving, 2-year term out
non-revolving credit facility.
Tranches A and B are available for general corporate purposes. The third
tranche is available for working
capital purposes and for the provision of letters of credit and letters of
guarantee. This working capital
tranche provides a $50-million extendable 3-year revolving credit facility.
Interest rates on the borrowings
vary depending upon the Corporations financial ratios and the tranche drawn.
The borrowing
rates under these facilities averaged 3.40% in 2002 (2001 - 2.81%).

As at December 31, 2002, the Corporation had $51 million of letters of credit
or letters of guarantee
outstanding (2001 - $38 million) leaving available unused lines of credit with
a financial institution of
$64 million (2001 - $81 million).

FOREIGN EXCHANGE FORWARD CONTRACTS

Exposure to changes in the Canadian/US exchange rate on future revenue streams
is managed by
selling forward US dollars at fixed rates in future periods. As at December 31,
2002, the Corporation has
entered into foreign exchange forward contracts to sell approximately US$1,469
million at rates ranging
from 1.39 to 1.62 over the years 2003 to 2006.

|      |  |                   |       |               |  |               |      |         |  |  |      | 
|----- |  | ----------------- | ----- | ------------- |  | ------------- | ---- | ------- |  |  | ---- | 
|      |  |                   |       |               |  | Average       |      | Average
|      |  | Amount Hedged     |       | Exchange Rate |  | Exchange Rate
|Year  |  | (millions of US$) |       | (CDN$/US$)    |  | (US$/CDN$)   
|      |  |                   |       |               |  |              
|2003  |  | $                 | 585   |               |  |               | 1.54 |         |  |  | 0.65 | 
|2004  |  |                   | 434   |               |  |               | 1.53 |         |  |  | 0.66 | 
|2005  |  |                   | 355   |               |  |               | 1.51 |         |  |  | 0.66 | 
|2006  |  |                   | 95    |               |  |               | 1.60 |         |  |  | 0.62 | 
|      |  |                   |       |               |  |               |      |         |  |  |      | 
|Total |  | $                 | 1,469 |               |  |               |      |         |  |  |      | 
|      |  |                   |       |               |  |               |      |         |  |  |      | 

At December 31, 2002, the unrealized loss on foreign exchange forward contracts
was $111.3 million
(2001 - $183.5 million; 2000 - $94.9 million). The Corporations realized loss
on foreign exchange included
in 2002 revenues is $83.5 million (2001 - $54.2 million; 2000 - $13.1 million).

CREDIT RISK MANAGEMENT

Export coal sales represent the principal component of the Corporations
revenues. The Corporation
competes primarily with coal producers from Australia, the United States, and
other Canadian export
coal suppliers. Coal is sold under contract or in the spot market to
approximately 50 customers worldwide,
which are primarily steel or electric power producers. Coal sales are
contracted in US dollars and
terms of payment vary from three to 180 days. To manage its credit risk, the
Corporation obtains either
export trade credit insurance, or confirmed irrevocable letters of credit as
necessary. Credit risk for wollastonite
trade receivables is limited by the large and diversified customer base.

The Corporation is exposed to credit losses in the event of non-performance by
counterparties to
financial instruments; however, the Corporation deals with counterparties of
high credit quality to mitigate
risk of non-performance. In addition, the Corporation does not believe that
there are any significant
concentrations of credit risk.

21



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INTEREST RATE EXPOSURE AND FAIR VALUE

The carrying amounts of short-term financial assets and liabilities as
presented in the Balance Sheet
are reasonable estimates of fair values due to the relatively short periods to
maturity and the commercial
terms of these instruments. The carrying amount of long-term debt of $135.0
million at December
31, 2002 is a reasonable estimate of fair value due to the commercial terms of
the debt.

9. INCOME TAXES

The difference between the income tax expense and the provision obtained by
applying the statutory
tax rate is as follows:

|                                                            |                                   |      |      |       |   |      |      |       |   |   |      |      |  
|----------------------------------------------------------- | --------------------------------- | ---- | ---- | ----- | - | ---- | ---- | ----- | - | - | ---- | ---- | -
|(millions of Canadian dollars)                              |                                   | 2002 |      | 2001  |   | 2000
|                                                            |                                   |      |      |       |   |     
|Expected income tax expense at Canadian statutory tax rates |                                   | $    | (4.7 | )     |   | $    | 74.2 |       |   | $ | 31.8 |     
|Increase (decrease) in taxes resulting from                 |                                   |      |      |       |   |      |      |       |   |   |      |     
|                                                            | Provision for asset write-down    |      |      | 59.6  |   |      |      |      |   |   |      |     |  
|                                                            | Mineral taxes                     |      |      | 21.3  |   |      |      | 18.4  |   |   |      | 7.7  |  
|                                                            | Depletion and resource allowances |      |      | (10.1 | ) |      |      | (13.7 | ) |   |      | (7.0 | )
|                                                            | Reduction in tax rate             |      |      | (0.2  | ) |      |      | (9.4  | ) |   |      |     |  
|                                                            | Losses not tax affected           |      |      | 1.8   |   |      |      | 2.3   |   |   |      | 2.6  |  
|                                                            | Large corporation tax             |      |      | 0.7   |   |      |      | 0.6   |   |   |      | 2.0  |  
|                                                            | Foreign tax rate differentials    |      |      | 0.2   |   |      |      |      |   |   |      | (0.2 | )
|                                                            | Other                             |      |      | (8.7  | ) |      |      | (3.2  | ) |   |      | (1.1 | )
|                                                            |                                   |      |      |       |   |      |      |       |   |   |      |     
|Income tax expense                                          |                                   | $    | 59.9 |       |   | $    | 69.2 |       |   | $ | 35.8 |     
|                                                            |                                   |      |      |       |   |      |      |       |   |   |      |     

The temporary differences comprising the future income tax assets and
liabilities are as follows:

|                                                                        |  |      |       |      |  |   |       |  
|----------------------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|(millions of Canadian dollars)                                          |  | 2002 |       | 2001
|                                                                        |  |      |       |     
|Future income tax assets                                                |  |      |       |      |  |   |       |  
|Liabilities carrying value in excess of tax basis                       |  | $    | 6.1   |      |  | $ | 10.7  |  
|Future site restoration costs                                           |  |      | 16.6  |      |  |   | 15.0  |  
|Foreign tax loss carry forwards and foreign tax assets                  |  |      | 58.7  |      |  |   | 10.3  |  
|Provision against foreign tax loss carryforwards and foreign tax assets |  |      | (58.7 | )    |  |   | (10.3 | )
|Other                                                                   |  |      | 6.8   |      |  |   |      |  
|                                                                        |  |      |       |      |  |   |       |  
|Future income tax assets                                                |  |      | 29.5  |      |  |   | 25.7  |  
|                                                                        |  |      |       |      |  |   |       |  
|Future income tax liabilities                                           |  |      |       |      |  |   |       |  
|Capital assets carrying value in excess of tax basis                    |  |      | 212.5 |      |  |   | 200.3 |  
|Other                                                                   |  |      | 1.9   |      |  |   | 3.7   |  
|                                                                        |  |      |       |      |  |   |       |  
|Future income tax liabilities                                           |  |      | 214.4 |      |  |   | 204.0 |  
|                                                                        |  |      |       |      |  |   |       |  
|Net long-term future income tax liability                               |  | $    | 184.9 |      |  | $ | 178.3 |  
|                                                                        |  |      |       |      |  |   |       |  

As at December 31, 2002, a foreign subsidiary has income tax loss carryforwards
of $82.1 million,
which are available to reduce future years taxable income and expire in the
years 2007 through 2010.

The Corporations US subsidiary, NYCO Minerals, and certain of CPLs other US
subsidiaries filed a consolidated
United States income tax return up to the 2001 reorganization. The Corporation
is jointly and
severally liable for any and all taxes which may be assessed in respect of
periods up to the CPL reorganization.
The following amounts have been recorded in the financial statements related to
this arrangement:

|                                                             |  |      |     |      |  |   |     | 
|------------------------------------------------------------ |  | ---- | --- | ---- |  | - | --- | 
|(millions of Canadian dollars)                               |  | 2001 |     | 2000
|                                                             |  |      |     |     
|Aggregate current and future income tax expense for the year |  | $    | 3.1 |      |  | $ | 4.3 | 
|Tax-related balances due to affiliate at December 31         |  |      |    |      |  |   | 5.4 | 

22



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##### 



10. SHAREHOLDERS EQUITY

CAPITAL STOCK

The Corporations authorized share capital An analysis of common share
balances is as follows:

|                                         |  |        |      |        |  |   |       |  
|---------------------------------------- |  | ------ | ---- | ------ |  | - | ----- | -
|(in millions)                            |  | Number |      | Amount
|                                         |  |        |      |       
|Balance October 5, 2001                  |  |        | 52.5 |        |  | $ | 126.4 |  
|Issued under stock option plans          |  |        | 0.1  |        |  |   | 0.4   |  
|Cancelled under normal course issuer bid |  |        | (0.6 | )      |  |   | (1.3  | )
|                                         |  |        |      |        |  |   |       |  
|Balance December 31, 2001                |  |        | 52.0 |        |  |   | 125.5 |  
|Issued under stock option plans          |  |        | 0.1  |        |  |   | 0.7   |  
|Cancelled under normal course issuer bid |  |        | (1.4 | )      |  |   | (3.8  | )
|                                         |  |        |      |        |  |   |       |  
|Balance December 31, 2002                |  |        | 50.7 |        |  | $ | 122.4 |  
|                                         |  |        |      |        |  |   |       |  

In October 2001, the Corporation announced a program to enable the repurchase
and cancellation of
a maximum of 10% of outstanding common shares. Purchases under the program
commenced October
5, 2001 and terminated on September 30, 2002. Over the course of the program
the Corporation purchased
2.0 million shares at an average price of $27 per share. When stock was
repurchased, the excess
of consideration paid over the carrying amount of stock and any contributed
surplus was charged to
retained earnings.

CAPITAL CONTRIBUTED

As at December 31, 2001, the Corporation had capital contributions totalling
$1.8 million. Capital contributed
was reduced to nil during 2002 for differences between the prevailing market
price of shares
purchased by the Corporation under the share repurchase plan, and average book
value.

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS

Included in equity are the following cumulative foreign currency translation
adjustments:

|                                                                     |  |      |      |      |  |   |      | 
|-------------------------------------------------------------------- |  | ---- | ---- | ---- |  | - | ---- | 
|(millions of Canadian dollars)                                       |  | 2002 |      | 2001
|                                                                     |  |      |      |     
|Balance  January 1                                                  |  | $    | 37.3 |      |  | $ | 22.9 | 
|Change in foreign currency translation rates on foreign subsidiaries |  |      | (2.8 | )    |  |   | 14.4 | 
|                                                                     |  |      |      |      |  |   |      | 
|Balance  December 31                                                |  | $    | 34.5 |      |  | $ | 37.3 | 
|                                                                     |  |      |      |      |  |   |      | 

EARNINGS PER SHARE

For the year ended December 31, 2002, basic earnings per share was calculated
by dividing net income
for the year by the weighted average number of Fording Inc. shares outstanding
during the year. For the
year ended December 31, 2001, the weighted average number of shares outstanding
was calculated
using the number of shares issued as a result of the CPL reorganization for the
first nine months of 2001
(note 1) and actual shares outstanding for the remainder of the year.

For the year ended December 31, 2000, basic earnings per share was calculated
using the number of
shares outstanding immediately after completion of the CPL reorganization. The
dilutive effect of stock
options was calculated based on the number of options outstanding immediately
after the completion
of the CPL reorganization.

23



---



##### 



For the three years presented in calculating diluted earnings per share, net
income remains
unchanged from the basic earnings per share calculation and the number of
shares outstanding is
increased for the dilutive effect of outstanding stock options. The treasury
stock method is used to
determine the dilutive effect of stock options and other dilutive instruments.

|                                                                                  |  |      |      |      |  |      |      |  |  |  |      | 
|--------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|(in millions)                                                                     |  | 2002 |      | 2001 |  | 2000
|                                                                                  |  |      |      |      |  |     
|Weighted average number of common shares
outstanding  basic earnings per share   |  |      | 51.4 |      |  |      | 52.5 |  |  |  | 52.5 | 
|Effect of dilutive securities  stock options                                     |  |      |     |      |  |      | 0.2  |  |  |  | 0.2  | 
|                                                                                  |  |      |      |      |  |      |      |  |  |  |      | 
|Weighted average number of common shares
outstanding  diluted earnings per share |  |      | 51.4 |      |  |      | 52.7 |  |  |  | 52.7 | 
|                                                                                  |  |      |      |      |  |      |      |  |  |  |      | 

For the year ended December 31, 2002, the dilutive effect of 0.2 million stock
options has been excluded
from the diluted earnings per share calculations on the basis that they would
be anti-dilutive to the
loss per share.

11. STOCK-BASED COMPENSATION

At December 31, 2002, the Corporation had several stock-based compensation
arrangements including
a stock option plan, a replacement stock option plan, replacement stock
appreciation rights (SARs),
a deferred share unit plan, an employee stock purchase plan and a directors
stock option plan. These
plans resulted in compensation expense in the year of $3.4 million (2001 - $5.7
million).

REPLACEMENT OPTIONS AND SARS

Due to the reorganization of CPL, all employees who were members of CPLs
stock-based compensation
program received, in exchange for their CPL options and SARs, fully vested
replacement options and
SARs in the spunoff companies according to the reorganization ratio used for
common shares. The exercise
price of the CPL options and SARs was allocated among the replacement options
and SARs of each of
the spunoff companies based on a formula using the average trading price of the
spunoff companies
for their first 10 days of trading.

By agreement between Fording Inc. and its former affiliates, the difference
between the strike price
and the exercise price of the SARs of the former affiliates held by Fording
Inc. employees are recognized
as an expense by Fording, while the difference between the strike price and the
exercise price of Fording
Inc. SARs held by employees of the former affiliates are recovered from the
former affiliates.

Stock options are not expensed when issued or exercised; however, an expense
for SARs is recognized
on the incremental change in the market value of the underlying stock between
reporting periods.
There is a one-to-one cancellation ratio between stock options and SARs.

Details of the stock options outstanding are as follows:

|                          |  |               |         |                    |  |          |       |                |  |  |        |          |  |   |       | 
|------------------------- |  | ------------- | ------- | ------------------ |  | -------- | ----- | -------------- |  |  | ------ | -------- |  | - | ----- | 
|                          |  | 2002         
|                          |  |              
|                          |  | Stock Options |         | Directors' Options
|                          |  |               |         |                   
|                          |  |               |         |                    |  | Weighted |       |                |  |  |        | Weighted
|                          |  |               |         |                    |  | Average  |       |                |  |  |        | Average 
|                          |  | Number        |         | Exercise Price     |  | Number   |       | Exercise Price
|                          |  |               |         |                    |  |          |       |               
|Options  January 1       |  |               | 596,766 |                    |  | $        | 15.90 |                |  |  | 48,000 |          |  | $ | 21.43 | 
|Granted                   |  |               | 224,960 |                    |  |          | 27.60 |                |  |  | 32,000 |          |  |   | 31.06 | 
|Exercised                 |  |               | (64,237 | )                  |  |          | 11.15 |                |  |  |       |          |  |   |      | 
|Cancelled                 |  |               | (62,301 | )                  |  |          | 20.36 |                |  |  |       |          |  |   |      | 
|                          |  |               |         |                    |  |          |       |                |  |  |        |          |  |   |       | 
|Outstanding  December 31 |  |               | 695,188 |                    |  |          | 19.73 |                |  |  | 80,000 |          |  |   | 25.28 | 
|                          |  |               |         |                    |  |          |       |                |  |  |        |          |  |   |       | 

Options exercisable at December 31, 2002 were 290,760 at a weighted average
price of $13.48.

24



---



##### 



|                                |  |               |         |                    |  |          |       |                |  |  |        |          |  |   |       | 
|------------------------------- |  | ------------- | ------- | ------------------ |  | -------- | ----- | -------------- |  |  | ------ | -------- |  | - | ----- | 
|                                |  | 2001         
|                                |  |              
|                                |  | Stock Options |         | Directors' Options
|                                |  |               |         |                   
|                                |  |               |         |                    |  | Weighted |       |                |  |  |        | Weighted
|                                |  |               |         |                    |  | Average  |       |                |  |  |        | Average 
|                                |  | Number        |         | Exercise Price     |  | Number   |       | Exercise Price
|                                |  |               |         |                    |  |          |       |               
|Replacement options  October 5 |  |               | 364,444 |                    |  | $        | 11.80 |                |  |  |       |          |  | $ |      | 
|Granted                         |  |               | 272,238 |                    |  |          | 20.86 |                |  |  | 48,000 |          |  |   | 21.43 | 
|Exercised                       |  |               | (39,416 | )                  |  |          | 12.21 |                |  |  |       |          |  |   |      | 
|Cancelled                       |  |               | (500    | )                  |  |          | 20.86 |                |  |  |       |          |  |   |      | 
|                                |  |               |         |                    |  |          |       |                |  |  |        |          |  |   |       | 
|Outstanding  December 31       |  |               | 596,766 |                    |  |          | 15.90 |                |  |  | 48,000 |          |  |   | 21.43 | 
|                                |  |               |         |                    |  |          |       |                |  |  |        |          |  |   |       | 

Options exercisable at December 31, 2001 were 325,028 at a weighted average
price of $11.76.

On April 23, 2002, under the Directors Stock Option Plan, the Corporation
granted 32,000 options to
purchase common shares at $31.06, being the five-day weighted average trading
price of the shares on
the Toronto Stock Exchange. The expiry date of options is 10 years after the
grant date and the options
become exercisable following the next annual shareholders meeting. The
Corporation granted 224,960
options under the Key Employee Stock Option Plan on February 15, 2002, at an
exercise price of $27.60,
being the five-day weighted average trading price of the shares on the Toronto
Stock Exchange. Options
issued under the Key Employee Stock Option Plan expire 10 years after the grant
date and become exercisable
over a three-year vesting period.

On a pro forma basis, had compensation cost for the Corporations stock options
issued in 2002 been
determined based on the fair-value method, the Corporations net income and
earnings per share
would have been reduced to the amounts shown below.

|                                                         |  |             |  |   |       |      |  | 
|-------------------------------------------------------- |  | ----------- |  | - | ----- | ---- |  | 
|(millions of Canadian dollars, except per share amounts) |  |             |  |   |       | 2002
|                                                         |  |             |  |   |       |     
|Net loss                                                 |  | As reported |  | $ | (70.9 | )   
|                                                         |  | Pro forma   |  |   | (71.9 | )   
|Basic loss per share                                     |  | As reported |  | $ | (1.38 | )   
|                                                         |  | Pro forma   |  |   | (1.40 | )   
|Diluted loss per share                                   |  | As reported |  | $ | (1.38 | )   
|                                                         |  | Pro forma   |  |   | (1.40 | )   

On a pro forma basis, the fair value of options is amortized to
compensation expense over the vesting period of the options, and would
have resulted in a $1.0 million pro forma adjustment in 2002.

The fair value of options granted during 2002 was estimated at $2.5
million, using the Black-Scholes model with the following weighted
average assumptions:

|                        |  |      |      |  
|----------------------- |  | ---- | ---- | -
|                        |  | 2002
|                        |  |     
|Expected life (years)   |  |      | 6    |  
|Risk-free interest rate |  |      | 4.9  | %
|Expected volatility     |  |      | 33.0 | %
|Dividend yield          |  |      | 1.8  | %

25



---



##### 



At December 31, 2002, the details of all stock options outstanding were as
follows:

|         |  |             |         |                  |  |                |     |             |  |                |       |  |  |          |         |  |  |   |       | 
|-------- |  | ----------- | ------- | ---------------- |  | -------------- | --- | ----------- |  | -------------- | ----- |  |  | -------- | ------- |  |  | - | ----- | 
|         |  |             |         |                  |  | Weighted       |     |             |  |                |       |  |  |          |         |  |  |  
|Range of |  |             |         |                  |  | Average        |     | Weighted    |  |                |       |  |  | Weighted
|Exercise |  | Number      |         | Remaining        |  | Average        |     | Number      |  | Average       
|Prices   |  | Outstanding |         | Contractual Life |  | Exercise Price |     | Exercisable |  | Exercise Price
|         |  |             |         |                  |  |                |     |             |  |               
|$7 - 10  |  |             | 48,275  |                  |  |                | 1.6 |             |  | $              | 8.88  |  |  |          | 48,275  |  |  | $ | 8.88  | 
|12 - 16  |  |             | 194,485 |                  |  |                | 7.1 |             |  |                | 12.66 |  |  |          | 194,485 |  |  |   | 12.66 | 
|20 - 22  |  |             | 294,838 |                  |  |                | 8.9 |             |  |                | 20.95 |  |  |          | 48,000  |  |  |   | 21.43 | 
|27 - 32  |  |             | 237,590 |                  |  |                | 9.2 |             |  |                | 28.07 |  |  |          |        |  |  |   |      | 
|         |  |             |         |                  |  |                |     |             |  |                |       |  |  |          |         |  |  |   |       | 
|7 - 32   |  |             | 775,188 |                  |  |                | 8.1 |             |  |                | 20.30 |  |  |          | 290,760 |  |  |   | 13.48 | 
|         |  |             |         |                  |  |                |     |             |  |                |       |  |  |          |         |  |  |   |       | 

EMPLOYEE SHARE PURCHASE PLAN

In October 2001, the Corporation created an employee share purchase plan
whereby employee and
Corporation contributions are used to purchase shares on the open market for
the employee. An expense
is recognized over a one-year vesting period on the Corporations
contributions.

The plan allowed all employees to contribute up to 6% of their base earnings
during the first six
months of the plan and the Corporation matched employee contributions, up to
$1,700. After the threshold
of $1,700 was reached or after the initial six months of the program, the
Corporation contributed $1
for every $3 contributed by the employee.

At December 31, 2002, 916 employees (2001-904) were participating in the plan.
The total number of
shares purchased on behalf of employees, including the Corporations
contributions, was 134,693 shares
(2001 - 47,533). In 2002, the Corporations contributions totalled $1.3 million
(2001 - $0.6 million).

12. BROOKS CAPITAL EXPENSE

During 2002 the Corporation decided to expense all amounts that had been
capitalized relating to
the Brooks power project. Due to the present state of economic and
environmental uncertainties in the
power industry, transmission congestion issues and the current absence of a
partner for the project, the
future recovery of the project costs is uncertain.

13. PROVISION FOR ASSET WRITE-DOWN

Due to a history of operating losses and uncertainty around future improvement,
the Corporation
assessed the recoverability of its investment in long-lived assets related to
the Minera NYCO operation
in Mexico. The Corporation projected the undiscounted future net cash flows of
these assets and determined
that they were less than the carrying value. Accordingly, the Corporation
recorded a provision for
asset impairment of $140 million. Estimates of undiscounted future net cash
flows are subject to significant
uncertainties and assumptions, therefore actual results could vary
significantly from such estimates.
The write-down has been reflected in the asset balance of the Industrial
Minerals segment in
note 18, and is shown below Income from Operations for the segment.

The excess of tax basis over net book value created by the write-down has not
been recognized. The
asset can only be recognized if its realization is more likely than not. The
only tax effect recognized on
the write-down was reversal of a $2.8 million future tax liability associated
with assets recorded in
Canada related to the Minera NYCO operation.

14. REORGANIZATION COSTS

Costs of $11.5 million were incurred in 2002 for the Corporations Plan of
Arrangement (note 20) and
response to the unsolicited offer by Sherritt Coal Acquisition Inc. Costs of
$3.9 million in 2001 were related
to the CPL reorganization (note 1).

26



---



##### 



15. SUPPLEMENTAL INFORMATION

A) CHANGE IN NON-CASH WORKING CAPITAL

|                                           |                                              |      |       |       |   |      |       |       |   |   |      |       |  
|------------------------------------------ | -------------------------------------------- | ---- | ----- | ----- | - | ---- | ----- | ----- | - | - | ---- | ----- | -
|(millions of Canadian dollars)             |                                              | 2002 |       | 2001  |   | 2000
|                                           |                                              |      |       |       |   |     
|Decrease (increase) in current assets      |                                              |      |       |       |   |      |       |       |   |   |      |      
|                                           | Accounts receivable                          |      | $     | 6.8   |   |      | $     | (6.7  | ) |   | $    | 13.4  |  
|                                           | Inventory                                    |      |       | (32.9 | ) |      |       | (28.2 | ) |   |      | 17.5  |  
|                                           | Prepaid expenses                             |      |       | (3.4  | ) |      |       | (2.7  | ) |   |      | (3.3  | )
|Increase (decrease) in current liabilities |                                              |      |       |       |   |      |       |       |   |   |      |      
|                                           | Accounts payable, excluding capital accruals |      |       | (3.5  | ) |      |       | 9.7   |   |   |      | 8.1   |  
|                                           | Income taxes payable                         |      |       | 1.5   |   |      |       | (2.4  | ) |   |      | (17.5 | )
|                                           |                                              |      |       |       |   |      |       |       |   |   |      |       |  
|                                           |                                              | $    | (31.5 | )     |   | $    | (30.3 | )     |   | $ | 18.2 |      
|                                           |                                              |      |       |       |   |      |       |       |   |   |      |       |  

The change in accounts payable excludes capital accruals of $6.6 million as
at December 31, 2002.

B) CASH TRANSACTIONS

These amounts are actual cash outlays made during the respective
periods and will not agree with amounts reported on the financial
statements due to accruals.

|                               |  |      |      |      |  |      |      |  |  |   |      | 
|------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|(millions of Canadian dollars) |  | 2002 |      | 2001 |  | 2000
|                               |  |      |      |      |  |     
|Income taxes paid              |  | $    | 59.1 |      |  | $    | 85.5 |  |  | $ | 31.6 | 
|Interest paid                  |  |      | 5.5  |      |  |      | 8.3  |  |  |   | 16.1 | 

C) INTEREST IN JOINT VENTURES

A portion of the Corporations
mining activities are conducted through its interests in joint ventures.
As disclosed in note 2, these are accounted for on a proportionate consolidation basis. The
financial statements include the Corporations proportionate share of joint venture activities as follows:

|                                                  |  |      |       |      |  |      |       |  |  |   |       | 
|------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|(millions of Canadian dollars)                    |  | 2002 |       | 2001 |  | 2000
|                                                  |  |      |       |      |  |     
|Total revenues                                    |  | $    | 131.4 |      |  | $    | 146.1 |  |  | $ | 134.1 | 
|Total cost of sales                               |  |      | 97.0  |      |  |      | 110.9 |  |  |   | 98.6  | 
|Total operating expenses                          |  |      | 113.7 |      |  |      | 128.4 |  |  |   | 116.3 | 
|Income from operations (joint venture net income) |  |      | 17.7  |      |  |      | 17.7  |  |  |   | 17.8  | 
|Total current assets                              |  |      | 28.9  |      |  |      | 24.0  |  |  |   | 26.7  | 
|Long-term assets                                  |  |      | 200.3 |      |  |      | 188.1 |  |  |   | 186.2 | 
|Total current liabilities                         |  |      | 11.5  |      |  |      | 10.6  |  |  |   | 6.6   | 
|Long-term obligations                             |  |      |      |      |  |      |      |  |  |   |      | 
|Cash from operating activities                    |  |      | 30.4  |      |  |      | 41.3  |  |  |   | 31.9  | 
|Cash used in financing activities                 |  |      | 1.5   |      |  |      | 22.6  |  |  |   | 13.9  | 
|Cash used in investing activities                 |  |      | 28.8  |      |  |      | 19.4  |  |  |   | 17.4  | 

D) SECURITIZATION OF RECEIVABLES

The Corporation has entered into an Agreement with a Canadian
Schedule 1 bank, whereby the Corporation may sell on a non-recourse
basis certain of its US dollar coal receivables for 100% of the invoiced
amount less the applicable market financing rate as applied to the
period from the date of discount to the date of maturity of the
receivable. In selling a receivable, the Corporation assigns to the bank
ownership of the receivable and its interest in any applicable trade
credit insurance coverage; deductibles under the insurance policy are
the responsibility of the Corporation. The Corporation

27



---



##### 



reports the cost of the discounting as interest expense. Receivables sold in
2002 amounted to US $233.3
million (2001-US $292.3 million). Accounts receivable sold and outstanding
under this Agreement as at
December 31, 2002, amounted to US $21.5 million
(2001-US $35.6 million).

16. RELATED PARTY TRANSACTIONS

There were no related party transactions in 2002. Prior to the CPL
reorganization, the Corporation, in
the ordinary course of business, entered into arrangements with related
companies for the provision of
rail services, natural gas, financing and other management services. Related
party expenses for the first
nine months of 2001, prior to the reorganization were $198 million. The related
party expenses for the
year ended December 31, 2000 were $252 million.

17. COMMITMENTS AND CONTINGENCIES

The Corporation leases various mining equipment and vehicles at several of its
operations. The minimum
lease payments as at December 31, 2002 are as follows:

|                               |  |   |      | 
|------------------------------ |  | - | ---- | 
|(millions of Canadian dollars) |  |   |      | 
|2003                           |  | $ | 11.1 | 
|2004                           |  |   | 2.3  | 
|2005                           |  |   | 0.5  | 
|2006                           |  |   | 0.2  | 
|Thereafter                     |  |   | 0.1  | 

During the normal course of business activity, the Corporation is occasionally
involved in litigation
proceedings. Management considers the aggregate liability, if any, to the
Corporation in respect of these
actions and proceedings not material.

The Corporation does not have any outstanding environmental claims asserted
against it, and there
are no known additional environmental liabilities outside of the ongoing
reclamation obligations created
through the continuance of the Corporations business operations except as
noted below. Reclamation
obligations are subject to estimation, and the eventual amounts expended may be
materially different
from current estimates.

On October 30, 2001, the Canadian Pacific Railway Corporation (CPR), by notice
under Article 6 of the
Arrangement Agreement entered into in connection with the Plan of Arrangement,
asserted a claim
against Fording relating to purported environmental damage at the former Mount
Washington minesite
on Vancouver Island. The notice states that CPR, as the parent corporation to
the registered titleholder
of the mineral rights, was served with an Inspectors Direction under the
Fisheries Act (Canada)
on June 26, 2001 wherein CPR and the third-party owner of the surface rights
were directed to remediate
the Mount Washington minesite. CPR is claiming indemnification against Fording
under the
Arrangement Agreement on the basis that responsibility for remediation of the
Mount Washington
minesite relates to Fordings business. On April 4, 2002, CPR, by letter,
directed Fording, together with
two other parties, to assume care and control of the remediation of the Mount
Washington minesite.
Fording disputes that it has any liability to CPR in connection with the
Inspectors Direction or under the
Arrangement Agreement.

The Corporation is involved in proceedings pertaining to one of its pension
plans which, in the event
of an unfavourable outcome, would not have a material effect on the pension
benefit obligation, but
could result in a significant increase in funding requirements.

28



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##### 



18. SEGMENT INFORMATION

The Corporation has three operating segments: Mountain Operations, Prairie
Operations and Industrial
Minerals Operations. The Mountain Operations mine and process primarily
metallurgical coal,
principally for export, from three mines: Fording River, Greenhills and Coal
Mountain, all of which are
located in the Elk Valley region of southeastern British Columbia. The Prairie
Operations primarily mine
thermal coal for mine-mouth power plants from two mines at Genesee and
Whitewood, both of which
are located in central Alberta. The Prairie Operations also collect royalties
from third-party mining of
the Corporations mineral reserves at locations throughout the Prairie
Provinces. A contract to remove
overburden for an oil sand project at Mildred Lake, Alberta, expired in the
third quarter of 2001. The
Industrial Minerals Operations mine and process wollastonite and other
industrial minerals from two
operations in the United States and one operation in Mexico. Revenue is
attributed on the origin of the
product or service.

The Corporations reportable segments are distinct, strategic business units
that offer different products
and services. They are managed separately due to the different operational and
marketing strategies
required for each segment.

|                                         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |       | 
|---------------------------------------- | -------- | ---------- | ----------------- | ---------- | ------- | -------- | ---------- | --------- | --------- | ----- | ----- | - |  | - | ----- | - |  | - | ----- | ----- | 
|                                         |          |            | December 31, 2002
|                                         |          |            |                  
|                                         |          |            | Mountain          |            | Prairie |          | Industrial |           | Corporate |       |       |   | 
|(millions of Canadian dollars)           |          | Operations |                   | Operations |         | Minerals |            | and Other |           | Total
|                                         |          |            |                   |            |         |          |            |           |           |      
|Revenues                                 |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |      
|Canada                                   |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |      
|                                         | Domestic |            | $                 | 40.5       |         |          | $          | 66.9      |           |       | $     |  |  |   | $     |  |  |   | $     | 107.4 | 
|                                         | Export   |            |                   | 727.3      |         |          |            |          |           |       |       |  |  |   |       |  |  |   |       | 727.3 | 
|Foreign                                  |          |            |                  |            |         |          |           |           |           |       | 47.5  |   |  |   |      |   |  |   | 47.5  |      
|                                         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |       | 
|                                         |          |            | 767.8             |            |         |          | 66.9       |           |           |       | 47.5  |   |  |   |      |   |  |   | 882.2 |      
|                                         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |       | 
|Cost of sales                            |          |            | 588.4             |            |         |          | 22.5       |           |           |       | 30.8  |   |  |   |      |   |  |   | 641.7 |      
|Selling, general and administration      |          |            | 2.8               |            |         |          |           |           |           |       | 6.4   |   |  |   | 7.2   |   |  |   | 16.4  |      
|Depreciation and depletion               |          |            | 50.3              |            |         |          | 7.3        |           |           |       | 10.7  |   |  |   | 1.6   |   |  |   | 69.9  |      
|Brooks capital expense                   |          |            |                  |            |         |          |           |           |           |       |      |   |  |   | 8.2   |   |  |   | 8.2   |      
|                                         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |       | 
|                                         |          |            | 641.5             |            |         |          | 29.8       |           |           |       | 47.9  |   |  |   | 17.0  |   |  |   | 736.2 |      
|                                         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |       | 
|Income from operations                   |          | $          | 126.3             |            |         | $        | 37.1       |           |           | $     | (0.4  | ) |  | $ | (17.0 | ) |  |   | 146.0 |      
|                                         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |      
|Provision for asset write-down (note 13) |          |            |                   |            |         |          |            |           |           |       | 140.0 |   |  |   |       |   |  |   | 140.0 |      
|Reorganization costs                     |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   | 11.5  |      
|Interest, net                            |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   | 5.5   |      
|Income taxes                             |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   | 59.9  |      
|                                         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |      
|Net loss                                 |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  | $ | (70.9 | )    
|                                         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |      
|Total assets                             |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |      
|Canada                                   |          | $          | 656.8             |            |         | $        | 107.3      |           |           | $     |      |   |  | $ | 9.1   |   |  | $ | 773.2 |      
|Foreign (note 13)                        |          |            |                  |            |         |          |           |           |           |       | 136.2 |   |  |   |      |   |  |   | 136.2 |      
|                                         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |       | 
|                                         |          | $          | 656.8             |            |         | $        | 107.3      |           |           | $     | 136.2 |   |  | $ | 9.1   |   |  | $ | 909.4 |      
|                                         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |       | 
|Additions to capital assets              |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |      
|Canada                                   |          | $          | 37.2              |            |         | $        | 10.1       |           |           | $     |      |   |  | $ | 7.2   |   |  | $ | 54.5  |      
|Foreign                                  |          |            |                  |            |         |          |           |           |           |       | 3.6   |   |  |   |      |   |  |   | 3.6   |      
|                                         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |       | 
|                                         |          | $          | 37.2              |            |         | $        | 10.1       |           |           | $     | 3.6   |   |  | $ | 7.2   |   |  | $ | 58.1  |      
|                                         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |       |   |  |   |       |       | 

29



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##### 



|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |       | 
|----------------------------------- | -------- | ---------- | ----------------- | ---------- | ------- | -------- | ---------- | --------- | --------- | ----- | ----- | - |  | - | ---- | - |  | - | ------- | ----- | 
|                                    |          |            | December 31, 2001
|                                    |          |            |                  
|                                    |          |            | Mountain          |            | Prairie |          | Industrial |           | Corporate |       |       |   | 
|(millions of Canadian dollars)      |          | Operations |                   | Operations |         | Minerals |            | and Other |           | Total
|                                    |          |            |                   |            |         |          |            |           |           |      
|Revenues                            |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |      
|Canada                              |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |      
|                                    | Domestic |            | $                 | 12.7       |         |          | $          | 80.2      |           |       | $     |  |  |   | $    |  |  |   | $       | 92.9  | 
|                                    | Export   |            |                   | 859.9      |         |          |            |          |           |       |       |  |  |   |      |  |  |   |         | 859.9 | 
|Foreign                             |          |            |                  |            |         |          |           |           |           |       | 47.6  |   |  |   |     |   |  |   | 47.6    |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |       | 
|                                    |          |            | 872.6             |            |         |          | 80.2       |           |           |       | 47.6  |   |  |   |     |   |  |   | 1,000.4 |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |       | 
|Cost of sales                       |          |            | 676.1             |            |         |          | 32.6       |           |           |       | 30.3  |   |  |   |     |   |  |   | 739.0   |      
|Selling, general and administration |          |            | 2.4               |            |         |          |           |           |           |       | 6.1   |   |  |   | 6.7  |   |  |   | 15.2    |      
|Depreciation and depletion          |          |            | 52.1              |            |         |          | 7.4        |           |           |       | 8.8   |   |  |   | 1.5  |   |  |   | 69.8    |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |       | 
|                                    |          |            | 730.6             |            |         |          | 40.0       |           |           |       | 45.2  |   |  |   | 8.2  |   |  |   | 824.0   |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |       | 
|Income from operations              |          | $          | 142.0             |            |         | $        | 40.2       |           |           | $     | 2.4   |   |  | $ | (8.2 | ) |  |   | 176.4   |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |      
|Reorganization costs                |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   | 3.9     |      
|Interest, net                       |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   | 8.4     |      
|Other                               |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   | 0.3     |      
|Income taxes                        |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   | 69.2    |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |      
|Net income                          |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  | $ | 94.6    |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |      
|Total assets                        |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |      
|Canada                              |          | $          | 641.1             |            |         | $        | 98.3       |           |           | $     |      |   |  | $ | 16.6 |   |  | $ | 756.0   |      
|Foreign                             |          |            |                  |            |         |          |           |           |           |       | 284.3 |   |  |   |     |   |  |   | 284.3   |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |       | 
|                                    |          | $          | 641.1             |            |         | $        | 98.3       |           |           | $     | 284.3 |   |  | $ | 16.6 |   |  | $ | 1,040.3 |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |       | 
|Additions to capital assets         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |      
|Canada                              |          | $          | 52.5              |            |         | $        | 5.2        |           |           | $     |      |   |  | $ | 5.0  |   |  | $ | 62.7    |      
|Foreign                             |          |            |                  |            |         |          |           |           |           |       | 2.6   |   |  |   |     |   |  |   | 2.6     |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |       | 
|                                    |          | $          | 52.5              |            |         | $        | 5.2        |           |           | $     | 2.6   |   |  | $ | 5.0  |   |  | $ | 65.3    |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |         |       | 

30



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##### 



|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |       | 
|----------------------------------- | -------- | ---------- | ----------------- | ---------- | ------- | -------- | ---------- | --------- | --------- | ----- | ----- | - |  | - | ---- | - |  | - | ----- | ----- | 
|                                    |          |            | December 31, 2000
|                                    |          |            |                  
|                                    |          |            | Mountain          |            | Prairie |          | Industrial |           | Corporate |       |       |   | 
|(millions of Canadian dollars)      |          | Operations |                   | Operations |         | Minerals |            | and Other |           | Total
|                                    |          |            |                   |            |         |          |            |           |           |      
|Revenues                            |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |      
|Canada                              |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |      
|                                    | Domestic |            | $                 | 3.5        |         |          | $          | 84.7      |           |       | $     |  |  |   | $    |  |  |   | $     | 88.2  | 
|                                    | Export   |            |                   | 752.4      |         |          |            |          |           |       |       |  |  |   |      |  |  |   |       | 752.4 | 
|Foreign                             |          |            |                  |            |         |          |           |           |           |       | 55.5  |   |  |   |     |   |  |   | 55.5  |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |       | 
|                                    |          |            | 755.9             |            |         |          | 84.7       |           |           |       | 55.5  |   |  |   |     |   |  |   | 896.1 |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |       | 
|Cost of sales                       |          |            | 654.2             |            |         |          | 36.9       |           |           |       | 32.8  |   |  |   |     |   |  |   | 723.9 |      
|Selling, general and administration |          |            | 2.0               |            |         |          | 0.6        |           |           |       | 6.9   |   |  |   | 2.9  |   |  |   | 12.4  |      
|Depreciation and depletion          |          |            | 53.6              |            |         |          | 8.8        |           |           |       | 9.0   |   |  |   | 2.9  |   |  |   | 74.3  |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |       | 
|                                    |          |            | 709.8             |            |         |          | 46.3       |           |           |       | 48.7  |   |  |   | 5.8  |   |  |   | 810.6 |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |       | 
|Income from operations              |          | $          | 46.1              |            |         | $        | 38.4       |           |           | $     | 6.8   |   |  | $ | (5.8 | ) |  |   | 85.5  |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |       | 
|Interest, net                       |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   | 14.7  |      
|Other                               |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   | 0.4   |      
|Income taxes                        |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   | 35.8  |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |      
|Net income                          |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  | $ | 34.6  |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |      
|Total assets                        |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |      
|Canada                              |          | $          | 579.9             |            |         | $        | 128.8      |           |           | $     |      |   |  | $ | 7.9  |   |  | $ | 716.6 |      
|Foreign                             |          |            |                  |            |         |          |           |           |           |       | 278.1 |   |  |   |     |   |  |   | 278.1 |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |       | 
|                                    |          | $          | 579.9             |            |         | $        | 128.8      |           |           | $     | 278.1 |   |  | $ | 7.9  |   |  | $ | 994.7 |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |       | 
|Additions to capital assets         |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |      
|Canada                              |          | $          | 28.4              |            |         | $        | 5.3        |           |           | $     |      |   |  | $ | 1.3  |   |  | $ | 35.0  |      
|Foreign                             |          |            |                  |            |         |          |           |           |           |       | 4.1   |   |  |   |     |   |  |   | 4.1   |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |       | 
|                                    |          | $          | 28.4              |            |         | $        | 5.3        |           |           | $     | 4.1   |   |  | $ | 1.3  |   |  | $ | 39.1  |      
|                                    |          |            |                   |            |         |          |            |           |           |       |       |   |  |   |      |   |  |   |       |       | 

The accounting policies used in these operating segments are the same as those
described in the
summary of significant accounting policies (note 2).

The Corporation exports coal to one customer who accounts for 16.3% (2001 -
11.2%; 2000 - 13.6%) of
the revenues of the Corporation. Another customer accounted for 10.6% of the
revenues of the Corporation
in 2002, and one customer accounted for 10.0% of the revenues of the
Corporation in 2001. Substantially
all of the Corporations export coal is transported by one rail company to a
Pacific coast port for
which there are limited alternatives. Interruption of rail or port services
could materially affect the Corporations
results.

19. RECLASSIFICATION

Certain prior years figures have been reclassified to conform with the
presentation adopted in 2002.

20. SUBSEQUENT EVENTS

On January 12, 2003, the Corporation entered into a Combination Agreement with
Teck Cominco Limited
(Teck), Westshore Terminals Income Fund (Westshore), Ontario Teachers
Pension Plan Board
(OTPP) and Sherritt International Corporation (Sherritt) that, among other
things, required that the
Corporation reorganize the way in which equity in the business of the
Corporation was held through a
conversion into an income trust known as the Fording Canadian Coal Trust (the
Fund). The reorganiza-

31



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##### 



tion proceeded by Plan of Arrangement (the Arrangement) after receipt of
shareholder approval at a
meeting held February 19, 2003, and approval by the Court of Queens Bench of
Alberta.

Pursuant to the Arrangement, shareholders could elect to receive cash, units of
the Fund, or a combination
of cash and units. The Corporation purchased metallurgical coal assets from the
Luscar/CONSOL
Joint Ventures in exchange for 6.4 million units of the Fund. Luscar is
controlled by OTPP and Sherritt.
The Arrangement also provided for the sale of the Corporations Prairie assets
to Sherritt Coal Partnership
II, a partnership owned by OTPP and Sherritt, for cash consideration of $225
million plus an amount
for working capital and a royalty on future expansion of production from the
Prairie assets beyond current
levels up to 5% of gross revenues from such expansion.

Teck and Westshore each paid $150 million for 4.3 million units of the Fund,
OTPP paid $275 million
for 7.9 million units and Sherritt paid $100 million for 2.9 million units of
the Fund. On completion of
the transaction there were 47.1 million units of the Fund outstanding. The
Corporation made a payment
of $50 million to OTPP and Sherritt, and a payment of $25 million to Teck and
Westshore under the terms
of the Arrangement. The Corporation also arranged a new credit facility whereby
it drew down $335 million
to replace existing debt, pay costs of the transaction, pay two special
distributions, complete the
funding to existing shareholders, and for issued and outstanding Letters of
Credit.

The Arrangement also provided for the creation of the Fording Coal Partnership
(the Partnership).
Pursuant to the Arrangement, Fording transferred its metallurgical coal and
other assets (including the
assets purchased from Luscar, but excluding the Industrial Minerals Operations)
and Teck transferred its
Elkview mine and other metallurgical coal assets into the Partnership that is
owned 65% by the Fund
and 35% by Teck. Teck will have the opportunity to increase its interest in the
Partnership by a total of 5%
over the first four years of the Partnership if certain synergy levels are
achieved.

The Corporation has recorded costs of $12 million in 2002 related to the
transaction, and estimates a
further $26 million to complete the transaction.

All outstanding options to purchase shares of the Corporation became fully
vested at the effective
date of the transaction.

The Combination Agreement also provides for two special distributions to
unitholders. The special
distributions in the aggregate amount of $70 million are to be paid to holders
of record on March 31,
2003 and June 30, 2003.

21. UNITED STATES ACCOUNTING PRINCIPLES AND REPORTING

The consolidated financial statements of the Corporation have been prepared in
accordance with
generally accepted accounting principles (GAAP) in Canada. The material
differences between Canadian
and United States GAAP (US GAAP) relating to measurement and recognition are
explained below, along
with their effect on the Corporations statements of consolidated income and
consolidated balance
sheet. There are no material differences on the consolidated cash flow
statements. Certain additional
disclosures as required under US GAAP have not been provided as permitted by
the Securities and
Exchange Commission (SEC).

DERIVATIVE INSTRUMENTS AND HEDGING

For US GAAP purposes, the Corporation adopted FASB Statement No. 133 (FAS 133)
Accounting for
Derivative Instruments and Hedging Activities effective January 1, 2001. FAS
133 requires that all derivatives
be recorded on the balance sheet as either assets or liabilities at their fair
value. Changes in the
derivatives fair values are recognized in current period net income unless
specific hedge accounting criteria
are met. As of December 31, 2001, management had not designated any instruments
as hedges for
US GAAP purposes under FAS 133. Effective January 1, 2002, the Corporation
chose to designate all new
foreign exchange forward contracts as hedges under FAS 133 and implement hedge
accounting for those
contracts. Forward contracts designated as hedges will not impact current
period earnings under US or
Canadian GAAP.

32



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##### 



COMPREHENSIVE INCOME

FASB Statement No. 130 Reporting Comprehensive Income requires the
disclosure, as other comprehensive
income, of the change in equity from transactions and other events from
non-owner sources
during the period. Canadian GAAP does not require similar disclosure. Other
comprehensive income
arose from foreign currency translation, minimum pension liability adjustments
and the unrealized
loss on derivative instruments identified as hedges.

JOINT VENTURES

US GAAP requires investments in joint ventures to be accounted for under the
equity method, while
under Canadian GAAP the accounts of joint ventures are proportionately
consolidated. However, under
rules promulgated by the SEC, a foreign registrant may, subject to the
provision of additional information,
continue to follow proportionate consolidation for the purposes of registration
and other filings,
notwithstanding the departure from US GAAP. Consequently, the consolidated
balance sheets have not
been adjusted to restate the accounting for joint ventures under US GAAP.
Additional information concerning
the Corporations interests in joint ventures is presented in note 15(C). There
are no material differences
between the information in note 15(C) prepared under Canadian GAAP and US GAAP.

START-UP COSTS

Effective for years beginning on or after December 15, 1998, US GAAP requires
that expenses associated
with the start-up of an operation be recognized in income during the period
that the costs are
incurred. Under Canadian GAAP, start-up costs are capitalized and amortized
over future periods.

EMPLOYEE FUTURE BENEFITS

In accordance with FASB Statement No. 87 Employers Accounting for Pensions
the Corporation
recorded an additional pension liability for underfunded pension plans
representing the excess of
unfunded accumulated benefit obligations over the pension liabilities recorded
under Canadian GAAP.
The increase in liabilities required for US GAAP is charged directly to
shareholders equity, net of related
deferred income taxes.

ASSET IMPAIRMENT

Effective December 15, 2001, US GAAP requires following the provisions of
Statement of Financial
Accounting Standards No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets, which
applies to all long-lived assets.

Under Canadian GAAP, when conditions exist that indicate long-lived assets may
be impaired, the
Corporation compares the net cash flows, including interest costs, from the
long-lived assets to the carrying
amount. If the carrying amount exceeds the net cash flows, the asset is written
down by a charge
to earnings for the excess amount. Under US GAAP, when conditions exist that
indicate a long-lived
asset may be impaired, the Corporation compares the net cash flows, excluding
interest costs, from the
long-lived assets to the carrying amount. If the carrying amount exceeds such
net cash flows, the asset
is written down to its fair value by a charge to earnings. This difference in
accounting principles did not
result in a different value for the Corporation as the write-down, as
determined under Canadian GAAP,
approximates the write-down to fair value that would be required under US GAAP.
The $140 million
write-down recognized on the Industrial Minerals Mexican operations would have
been included in
income from operations for US GAAP purposes.

33



---



##### 



STOCK-BASED COMPENSATION

Under FASB Interpretation No. 44 Accounting for Certain Transactions involving
Stock Compensation,
a compensation expense must be recorded if the intrinsic value of stock options
is not exactly the same
immediately before and after an equity restructuring. As a result of the CPL
reorganization (note 1), CPL
underwent an equity restructuring which resulted in replacement options in new
Fording Inc. stock
having a different intrinsic value after the restructuring than prior to the
restructuring. Canadian GAAP
does not require revaluation of these options.

DISCLOSURE OF GUARANTEES

FASB Interpretation No. 45 Guarantors Accounting and Disclosure Requirements
for Guarantees,
Including Indirect Guarantees of Indebtedness of Others elaborates on the
disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees
that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial
recognition and initial measurement provisions of this Interpretation are
applicable on a prospective
basis to guarantees issued or modified after December 31, 2002, irrespective of
the guarantors fiscal
year-end. The disclosure requirements in this Interpretation are effective for
financial statements of
interim or annual periods ending after December 15, 2002. There is no impact on
disclosure made by the
Corporation as a result of this interpretation.

RECENT PRONOUNCEMENTS

The following pronouncements are currently being evaluated by the Corporation.
In June 2001, FASB issued Statement No. 143, Accounting for Asset Retirement
Obligations (FAS 143).
FAS 143 requires that an asset retirement obligation be recognized as a
liability, measured at fair value,
in the period in which the obligation is incurred if a reasonable estimate of
fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset
and amortized to expense over the assets useful life. FAS 143 is effective for
financial statements issued
for fiscal years beginning after June 15, 2002. The impact of FAS 143 on the
financial statements of the
Corporation has not yet been determined.

FASB issued Statement No. 146 (FAS 146) Accounting for Costs Associated with
Exit or Disposal Activities
which is effective for exit or disposal activities initiated after December 31,
2002. FAS 146 requires
recognition of a liability for costs associated with an exit or disposal
activity only when the liability is
incurred, and establishes that initial measurement of the liability be at fair
value.

FASB issued Statement No. 145 (FAS 145) Rescission of FASB Statements No. 4, 44
and 64, Amendment
of FASB Statement No. 13, and Technical Corrections in 2002. This Statement
rescinds or amends several
FASB statements and other existing authoritative pronouncements to make various
technical corrections,
clarify meanings, or describe their applicability under changed conditions.
Adoption of FAS 145 is
not expected to have an impact on the Corporation.

FASB Statement No. 148 (FAS 148) Accounting for Stock-based Compensation
amends FASB Statement
No. 123 Accounting for Stock-based Compensation to provide alternative
methods of transition
for an entity that changes to the fair-value-based method of accounting for
stock-based employee compensation.
FAS 148 also requires disclosure in annual and interim financial statements
about the
method of accounting for stock-based employee compensation and the effect of
the method used on
reported results.

In July 2002, the FASB issued an exposure draft Consolidation of certain
special-purpose entities,
and interpretation of ARB 51. The proposed Interpretation would address
consolidation of special-purpose
entities (SPEs) to which the usual conditions for consolidation as described in
Accounting Research
Bulletin No. 51 Consolidated Financial Statements do not apply. The new
interpretation is not expected
to have an impact on the Corporation.

34



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##### 



Net income is reconciled from Canadian to US GAAP in the following manner:

|                                                                                                                                    |                                                             |      |                         |       |   |      |      |       |   |   |       |        |  
|----------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ---- | ----------------------- | ----- | - | ---- | ---- | ----- | - | - | ----- | ------ | -
|                                                                                                                                    |                                                             |      | Years ended December 31
|                                                                                                                                    |                                                             |      |                        
|(millions of Canadian dollars)                                                                                                      |                                                             | 2002 |                         | 2001  |   | 2000
|                                                                                                                                    |                                                             |      |                         |       |   |     
|Net (loss) income  Canadian GAAP                                                                                                   |                                                             | $    | (70.9                   | )     |   | $    | 94.6 |       |   | $ | 34.6  |       
|Increase (decrease) by                                                                                                              |                                                             |      |                         |       |   |      |      |       |   |   |       |       
|                                                                                                                                    | Derivative instruments  foreign exchange forward contracts |      |                         | 78.5  |   |      |      | (88.6 | ) |   |       | (103.0 | )
|                                                                                                                                    | Income tax recovery (expense) on the above item             |      |                         | (23.1 | ) |      |      | 32.8  |   |   |       | 38.1   |  
|                                                                                                                                    | Stock-based compensation expense                            |      |                         | (1.8  | ) |      |      | (3.2  | ) |   |       |       |  
|                                                                                                                                    |                                                             |      |                         |       |   |      |      |       |   |   |       |        |  
|Net (loss) income  United States GAAP                                                                                              |                                                             | $    | (17.3                   | )     |   | $    | 35.6 |       |   | $ | (30.3 | )     
|                                                                                                                                    |                                                             |      |                         |       |   |      |      |       |   |   |       |        |  
|Other comprehensive income                                                                                                          |                                                             |      |                         |       |   |      |      |       |   |   |       |       
|Pension costs net of tax of $3.5 million
(2001  $2 million; 2000  Nil)                                                            |                                                             | $    | (4.7                    | )     |   | $    | (3.3 | )     |   | $ |      |       
|Unrealized loss on derivative instruments  foreign
exchange forward contracts, net of tax of
$2.6 million (2001  Nil; 2000  Nil) |                                                             |      | (3.6                    | )     |   |      |     |       |   |   |      |       
|Foreign currency translation adjustments                                                                                            |                                                             |      | (2.8                    | )     |   |      | 14.4 |       |   |   | 6.9   |       
|                                                                                                                                    |                                                             |      |                         |       |   |      |      |       |   |   |       |        |  
|Comprehensive (loss) income                                                                                                         |                                                             | $    | (28.4                   | )     |   | $    | 46.7 |       |   | $ | (23.4 | )     
|                                                                                                                                    |                                                             |      |                         |       |   |      |      |       |   |   |       |        |  
|Basic (loss) earnings per share                                                                                                     |                                                             | $    | (0.34                   | )     |   | $    | 0.68 |       |   | $ | (0.58 | )     
|                                                                                                                                    |                                                             |      |                         |       |   |      |      |       |   |   |       |        |  
|Diluted (loss) earnings per share                                                                                                   |                                                             | $    | (0.34                   | )     |   | $    | 0.68 |       |   | $ | (0.57 | )     
|                                                                                                                                    |                                                             |      |                         |       |   |      |      |       |   |   |       |       

Had the consolidated balance sheet been prepared under US GAAP,
the balances would have been higher (lower) under US GAAP as follows:

|                                           |                                                             |      |                   |      |  |   |        |      | 
|------------------------------------------ | ----------------------------------------------------------- | ---- | ----------------- | ---- |  | - | ------ | ---- | 
|                                           |                                                             |      | As at December 31
|                                           |                                                             |      |                  
|(millions of Canadian dollars)             |                                                             | 2002 |                   | 2001
|                                           |                                                             |      |                   |     
|Assets                                     |                                                             |      |                   |      |  |   |        |     
|Capital assets                             |                                                             | $    | (0.8              | )    |  | $ | (0.8   | )   
|Deferred income tax asset                  |                                                             |      | 53.0              |      |  |   | 69.9   |     
|                                           |                                                             |      |                   |      |  |   |        |     
|Total assets                               |                                                             | $    | 52.2              |      |  | $ | 69.1   |     
|                                           |                                                             |      |                   |      |  |   |        |     
|Liabilities and shareholders equity       |                                                             |      |                   |      |  |   |        |     
|Current liabilities                        |                                                             |      |                   |      |  |   |        |     
|                                           | Derivative instruments  foreign exchange forward contracts |      | $                 | 31.3 |  |   | $      | 95.4 | 
|Deferred liabilities                      
|                                           | Derivative instruments  foreign exchange forward contracts |      |                   | 80.0 |  |   |        | 88.1 | 
|                                           | Pension liability                                           |      |                   | 13.5 |  |   |        | 5.3  | 
|                                           |                                                             |      |                   |      |  |   |        |     
|Total liabilities                          |                                                             |      | 124.8             |      |  |   | 188.8  |     
|                                           |                                                             |      |                   |      |  |   |        |     
|Equity                                     |                                                             |      |                   |      |  |   |        |     
|Other paid in capital                      |                                                             |      | 5.0               |      |  |   | 3.2    |     
|Foreign currency translation adjustments   |                                                             |      | (34.5             | )    |  |   | (37.3  | )   
|Accumulated other comprehensive income     |                                                             |      | 22.9              |      |  |   | 34.0   |     
|Retained earnings                          |                                                             |      | (66.0             | )    |  |   | (119.6 | )   
|                                           |                                                             |      |                   |      |  |   |        |     
|                                           |                                                             |      | (72.6             | )    |  |   | (119.7 | )   
|                                           |                                                             |      |                   |      |  |   |        |     
|Total liabilities and shareholders equity |                                                             | $    | 52.2              |      |  | $ | 69.1   |     
|                                           |                                                             |      |                   |      |  |   |        |     

35



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##### 



10-YEAR SUMMARY

|                                       |                   |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |  |   |       |      |  |   |       |      |  |   |       |      |  |   |       |     | 
|-------------------------------------- | ----------------- | - | ----- | ---- | ---- | - | ----- | ---- | ---- | - | ----- | ---- | ---- | - | ----- | ---- | ---- | - | ----- | ---- | ---- | - | ----- | ---- |  | - | ----- | ---- |  | - | ----- | ---- |  | - | ----- | ---- |  | - | ----- | --- | 
|                                       |                   |   | 2002  |      | 2001 |   | 2000  |      | 1999 |   | 1998  |      | 1997 |   | 1996  |      | 1995 |   | 1994  |      | 1993
|                                       |                   |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |     
|MOUNTAIN OPERATIONS                    |                   |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |  |   |       |      |  |   |       |      |  |   |       |      |  |   |       |    
|Sales (millions of MTCC)               |                   |   | 12.3  |      |      |   | 15.0  |      |      |   | 15.1  |      |      |   | 14.2  |      |      |   | 12.4  |      |      |   | 13.5  |      |  |   | 12.1  |      |  |   | 11.4  |      |  |   | 9.2   |      |  |   | 7.6   |    
|Average $US price per MT               |                   | $ | 44    |      |      | $ | 40    |      |      | $ | 34    |      |      | $ | 36    |      |      | $ | 44    |      |      | $ | 46    |      |  | $ | 46    |      |  | $ | 44    |      |  | $ | 42    |      |  | $ | 46    |    
|Average $CDN price per MT              |                   | $ | 62    |      |      | $ | 58    |      |      | $ | 50    |      |      | $ | 50    |      |      | $ | 62    |      |      | $ | 65    |      |  | $ | 64    |      |  | $ | 60    |      |  | $ | 56    |      |  | $ | 60    |    
|Production (millions of MTCC)          |                   |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |  |   |       |      |  |   |       |      |  |   |       |      |  |   |       |    
|                                       | Total             |   |       | 14.0 |      |   |       | 16.8 |      |   |       | 15.7 |      |   |       | 14.6 |      |   |       | 13.7 |      |   |       | 14.8 |  |   |       | 13.9 |  |   |       | 12.1 |  |   |       | 10.1 |  |   |       | 8.4 | 
|                                       | Net production(1) |   |       | 13.3 |      |   |       | 15.8 |      |   |       | 14.8 |      |   |       | 13.8 |      |   |       | 12.9 |      |   |       | 13.9 |  |   |       | 13.0 |  |   |       | 11.3 |  |   |       | 9.5  |  |   |       | 8.0 | 
|Total material moved (millions of BCM) |                   |   | 131.1 |      |      |   | 151.4 |      |      |   | 144.9 |      |      |   | 133.0 |      |      |   | 136.9 |      |      |   | 149.5 |      |  |   | 131.8 |      |  |   | 120.0 |      |  |   | 101.9 |      |  |   | 81.3  |    
|                                       |                   |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |  |   |       |      |  |   |       |      |  |   |       |      |  |   |       |    
|PRAIRIE OPERATIONS (thermal coal only) |                   |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |  |   |       |      |  |   |       |      |  |   |       |      |  |   |       |    
|Coal delivered (millions of MT)        |                   |   | 6.4   |      |      |   | 5.6   |      |      |   | 5.5   |      |      |   | 5.9   |      |      |   | 6.2   |      |      |   | 6.4   |      |  |   | 6.2   |      |  |   | 6.3   |      |  |   | 6.2   |      |  |   | 4.3   |    
|Total material moved (millions of BCM) |                   |   | 55.2  |      |      |   | 45.4  |      |      |   | 44.6  |      |      |   | 46.1  |      |      |   | 46.3  |      |      |   | 46.6  |      |  |   | 46.6  |      |  |   | 45.4  |      |  |   | 48.1  |      |  |   | 29.8  |    
|                                       |                   |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |  |   |       |      |  |   |       |      |  |   |       |      |  |   |       |    
|INDUSTRIAL MINERALS OPERATIONS         |                   |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |  |   |       |      |  |   |       |      |  |   |       |      |  |   |       |    
|Sales (thousands of MT)                |                   |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |  |   |       |      |  |   |       |      |  |   |       |      |  |   |       |    
|                                       | Wollastonite      |   |       | 84   |      |   |       | 99   |      |   |       | 125  |      |   |       | 123  |      |   |       | 110  |      |   |       | 100  |  |   |       | 86   |  |   |       | 81   |  |   |       | 75   |  |   |       | 64  | 
|                                       | Tripoli and other |   |       | 15   |      |   |       | 16   |      |   |       | 21   |      |   |       | 20   |      |   |       | 21   |      |   |       | 22   |  |   |       | 19   |  |   |       | 19   |  |   |       | 22   |  |   |       | 20  | 
|                                       |                   |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |  |   |       |      |  |   |       |      |  |   |       |      |  |   |       |    
|EMPLOYEES AT YEAR-END                  |                   |   | 1,855 |      |      |   | 1,917 |      |      |   | 1,909 |      |      |   | 1,924 |      |      |   | 1,970 |      |      |   | 1,937 |      |  |   | 1,816 |      |  |   | 1,786 |      |  |   | 1,737 |      |  |   | 1,712 |    
|                                       |                   |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |      |   |       |      |  |   |       |      |  |   |       |      |  |   |       |      |  |   |       |    

FINANCIAL SUMMARY (millions of Canadian dollars, except per share amounts)

|                                     |  |  |       |   |  |  |         |   |  |  |       |   |  |  |         |   |  |    |         |    |  |    |         |    |  |    |       |    |  |  |         |   |  |  |         |   |  |  |         |  
|------------------------------------ |  |  | ----- | - |  |  | ------- | - |  |  | ----- | - |  |  | ------- | - |  | -- | ------- | -- |  | -- | ------- | -- |  | -- | ----- | -- |  |  | ------- | - |  |  | ------- | - |  |  | ------- | -
|Operating Results                    |  |  |       |   |  |  |         |   |  |  |       |   |  |  |         |   |  |    |         |    |  |    |         |    |  |    |       |    |  |  |         |   |  |  |         |   |  |  |         |  
|Revenues                             |  |  | 882.2 |   |  |  | 1,000.4 |   |  |  | 896.1 |   |  |  | 855.6   |   |  |    | 906.1   |    |  |    | 1,014.3 |    |  |    | 915.0 |    |  |  | 821.9   |   |  |  | 648.8   |   |  |  | 566.8   |  
|EBITDA(2)                            |  |  | 224.1 |   |  |  | 246.2   |   |  |  | 159.8 |   |  |  | 137.1   |   |  |    | 197.8   |    |  |    | 258.0   |    |  |    | 213.2 |    |  |  | 183.9   |   |  |  | 138.7   |   |  |  | 123.3   |  
|Income from operations               |  |  | 146.0 |   |  |  | 176.4   |   |  |  | 85.5  |   |  |  | 63.3    |   |  |    | 129.3   |    |  |    | 196.7   |    |  |    | 162.4 |    |  |  | 138.3   |   |  |  | 96.5    |   |  |  | 85.3    |  
|Net (loss) income                    |  |  | (70.9 | ) |  |  | 94.6    |   |  |  | 34.6  |   |  |  | 26.7    |   |  |    | 65.7    |    |  |    | 146.4   |    |  |    | 109.4 |    |  |  | 86.0    |   |  |  | 61.6    |   |  |  | 52.8    |  
|Cash flow                            |  |  | 140.3 |   |  |  | 158.5   |   |  |  | 118.4 |   |  |  | 99.3    |   |  |    | 142.8   |    |  |    | 235.8   |    |  |    | 175.1 |    |  |  | 161.0   |   |  |  | 124.4   |   |  |  | 108.1   |  
|Capital expenditures                 |  |  | 51.5  |   |  |  | 65.3    |   |  |  | 39.1  |   |  |  | 38.2    |   |  |    | 68.4    |    |  |    | 223.4   |    |  |    | 159.8 |    |  |  | 114.3   |   |  |  | 65.4    |   |  |  | 117.0   |  
|Basic (loss) earnings per share(3)   |  |  | (1.38 | ) |  |  | 1.80    |   |  |  | 0.66  |   |  |  | 0.51    |   |  | NM |         | NM |  | NM |         | NM |  | NM |       | NM
|Diluted (loss) earnings per share(3) |  |  | (1.38 | ) |  |  | 1.80    |   |  |  | 0.66  |   |  |  | 0.51    |   |  | NM |         | NM |  | NM |         | NM |  | NM |       | NM
|Return on capital employed           |  |  | 17    | % |  |  | 19      | % |  |  | 9     | % |  |  | 6       | % |  |    | 13      | %  |  |    | 24      | %  |  |    | 22    | %  |  |  | 21      | % |  |  | 16      | % |  |  | 16      | %
|Balance Sheet                        |  |  |       |   |  |  |         |   |  |  |       |   |  |  |         |   |  |    |         |    |  |    |         |    |  |    |       |    |  |  |         |   |  |  |         |   |  |  |         |  
|Working capital                      |  |  | 161.7 |   |  |  | 140.6   |   |  |  | 99.7  |   |  |  | 129.7   |   |  |    | 184.2   |    |  |    | 159.0   |    |  |    | 88.8  |    |  |  | 65.8    |   |  |  | 70.9    |   |  |  | 35.5    |  
|Total assets(4)                      |  |  | 909.4 |   |  |  | 1,040.3 |   |  |  | 994.7 |   |  |  | 1,076.9 |   |  |    | 1,174.2 |    |  |    | 1,121.1 |    |  |    | 922.1 |    |  |  | 1,350.6 |   |  |  | 1,266.0 |   |  |  | 1,090.1 |  
|Net debt(4,5)                        |  |  | 136.1 |   |  |  | 128.2   |   |  |  | 151.8 |   |  |  | 239.6   |   |  |    | 340.4   |    |  |    | 328.5   |    |  |    | 234.8 |    |  |  | 737.7   |   |  |  | 730.3   |   |  |  | 622.7   |  
|Shareholders equity                 |  |  | 448.7 |   |  |  | 588.2   |   |  |  | 525.5 |   |  |  | 562.0   |   |  |    | 571.0   |    |  |    | 530.1   |    |  |    | 445.3 |    |  |  | 296.7   |   |  |  | 257.8   |   |  |  | 234.2   |  
|Net debt to net debt plus equity(6)  |  |  | 23    | % |  |  | 18      | % |  |  | 22    | % |  |  | 30      | % |  |    | 37      | %  |  |    | 38      | %  |  |    | 35    | %  |  |  | 71      | % |  |  | 74      | % |  |  | 73      | %

QUARTERLY SUMMARY (millions of Canadian dollars, except per share amounts)

|                                |                         |   |       |       |       |   |        |      |       |   |       |      |      |   |       |      |       |   |       |      |       |   |         |       |   |   |       |      |   |    |       |      |   |    |       |      |   |   |       |      |  
|------------------------------- | ----------------------- | - | ----- | ----- | ----- | - | ------ | ---- | ----- | - | ----- | ---- | ---- | - | ----- | ---- | ----- | - | ----- | ---- | ----- | - | ------- | ----- | - | - | ----- | ---- | - | -- | ----- | ---- | - | -- | ----- | ---- | - | - | ----- | ---- | -
|                                |                         |   | 2002  |       | Q4'02 |   | Q3'02  |      | Q2'02 |   | Q1'02 |      | 2001 |   | Q4'01 |      | Q3'01 |   | Q2'01 |      | Q1'01
|                                |                         |   |       |       |       |   |        |      |       |   |       |      |      |   |       |      |       |   |       |      |      
|Revenues                        |                         |   | 882.2 |       |       |   | 212.4  |      |       |   | 212.2 |      |      |   | 236.1 |      |       |   | 221.5 |      |       |   | 1,000.4 |       |   |   | 234.9 |      |   |    | 239.3 |      |   |    | 283.4 |      |   |   | 242.8 |     
|Income from operations          |                         |   |       |       |       |   |        |      |       |   |       |      |      |   |       |      |       |   |       |      |       |   |         |       |   |   |       |      |   |    |       |      |   |    |       |      |   |   |       |     
|                                | Mountain Operations     |   |       | 126.3 |       |   |        | 36.1 |       |   |       | 28.8 |      |   |       | 34.9 |       |   |       | 26.5 |       |   |         | 142.0 |   |   |       | 39.3 |   |    |       | 37.6 |   |    |       | 44.1 |   |   |       | 21.0 |  
|                                | Prairie Operations      |   |       | 37.1  |       |   |        | 9.6  |       |   |       | 7.7  |      |   |       | 10.6 |       |   |       | 9.2  |       |   |         | 40.0  |   |   |       | 7.8  |   |    |       | 9.8  |   |    |       | 11.4 |   |   |       | 11.0 |  
|                                | Industrial Minerals Ops |   |       | (0.4  | )     |   |        | (0.3 | )     |   |       | (1.1 | )    |   |       | 0.6  |       |   |       | 0.4  |       |   |         | 2.4   |   |   |       | (0.4 | ) |    |       | 1.1  |   |    |       | 1.8  |   |   |       | (0.1 | )
|                                | Corporate               |   |       | (17.0 | )     |   |        | (2.8 | )     |   |       | (9.8 | )    |   |       | (2.6 | )     |   |       | (1.8 | )     |   |         | (8.0  | ) |   |       | (3.1 | ) |    |       | (1.7 | ) |    |       | (1.5 | ) |   |       | (1.7 | )
|                                |                         |   |       |       |       |   |        |      |       |   |       |      |      |   |       |      |       |   |       |      |       |   |         |       |   |   |       |      |   |    |       |      |   |    |       |      |   |   |       |     
|                                |                         |   | 146.0 |       |       |   | 42.6   |      |       |   | 25.6  |      |      |   | 43.5  |      |       |   | 34.3  |      |       |   | 176.4   |       |   |   | 43.6  |      |   |    | 46.8  |      |   |    | 55.8  |      |   |   | 30.2  |     
|Interest and other expenses     |                         |   | 17.0  |       |       |   | 12.8   |      |       |   | 1.8   |      |      |   | 1.3   |      |       |   | 1.1   |      |       |   | 12.6    |       |   |   | 3.8   |      |   |    | 2.5   |      |   |    | 3.4   |      |   |   | 2.9   |     
|Write-down of fixed assets(7)   |                         |   | 140.0 |       |       |   | 140.0  |      |       |   |      |      |      |   |      |      |       |   |      |      |       |   |        |       |   |   |      |      |   |    |      |      |   |    |      |      |   |   |      |     
|Income taxes                    |                         |   | 59.9  |       |       |   | 9.1    |      |       |   | 14.8  |      |      |   | 20.0  |      |       |   | 16.0  |      |       |   | 69.2    |       |   |   | 11.6  |      |   |    | 22.0  |      |   |    | 21.4  |      |   |   | 14.2  |     
|                                |                         |   |       |       |       |   |        |      |       |   |       |      |      |   |       |      |       |   |       |      |       |   |         |       |   |   |       |      |   |    |       |      |   |    |       |      |   |   |       |     
|Net (loss) income               |                         |   | (70.9 | )     |       |   | (119.3 | )    |       |   | 9.0   |      |      |   | 22.2  |      |       |   | 17.2  |      |       |   | 94.6    |       |   |   | 28.2  |      |   |    | 22.3  |      |   |    | 31.0  |      |   |   | 13.1  |     
|                                |                         |   |       |       |       |   |        |      |       |   |       |      |      |   |       |      |       |   |       |      |       |   |         |       |   |   |       |      |   |    |       |      |   |    |       |      |   |   |       |     
|Basic (loss) earnings per share |                         | $ | (1.38 | )     |       | $ | (2.35  | )    |       | $ | 0.18  |      |      | $ | 0.43  |      |       | $ | 0.33  |      |       | $ | 1.80    |       |   | $ | 0.54  |      |   | $  | 0.42  |      |   | $  | 0.59  |      |   | $ | 0.25  |     
|Dividends per share             |                         |   |       |       |       | $ | 0.15   |      |       | $ | 0.15  |      |      | $ | 0.125 |      |       | $ | 0.125 |      |       |   |         |       |   | $ | 0.125 |      |   | NM |       | NM   |   | NM



---

|Notes: |  | 
|------ |  | 
|      

|(1) |  | A joint venture partner in the Greenhills Operations takes its 20% share of
production in kind.                                                                                                                                                              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | EBITDA is defined as earnings before depreciation, depletion, non-operating
expenses, interest and taxes.                                                                                                                                                    
|   
|(3) |  | Fording shares began trading on the TSX and NYSE during 2001. Prior year
EPS figures may not be meaningful (NM).                                                                                                                                             
|   
|(4) |  | During the period 1992 through 1995, Fording was involved with specific
investment and associated debt financing arrangements with companies within the
Canadian Pacific Limited group. These transactions were not directly related
to Fordings operations.
|   
|(5) |  | Long- and short-term debt minus cash.                                                                                                                                                                                                                        
|   
|(6) |  | Net debt divided by sum of net debt and equity.                                                                                                                                                                                                              
|   
|(7) |  | The Corporation recorded a provision for asset impairment related to the
Minera NYCO operation in Mexico in the fourth quarter of 2002.                                                                                                                      

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