Document:

Exhibit 4.2

 

 

INMET MINING CORPORATION

 

 

Consolidated Financial Statements

(In Canadian Dollars)

 

 

For the Years Ended

December 31, 2011 and 2010

 

1

 

Management’s report

Inmet management is responsible for these financial statements and for the information in the Management’s discussion and analysis (MD&A).

 

The MD&A was prepared in accordance with the requirements of the Canadian Securities Administrators and the consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS). In interpreting these requirements, management made decisions about the relevancy of information to be included and made estimates and assumptions that affect reported information, including estimates about the expected impact of current or anticipated events and transactions. Actual results could differ from these estimates. Information in the MD&A and financial statements is consistent.

 

Management has a system of internal controls over financial reporting that ensures that financial information is reliable and that the consolidated financial statements are prepared in accordance with IFRS. Management believes that these controls give reasonable assurance that Inmet’s financial records provide a proper basis for preparing the financial statements and other financial information, that Inmet’s assets are safeguarded, its liabilities are properly accounted for and that Inmet is in compliance with all of the legal and regulatory requirements that apply to it.

 

Role of the Board of Directors

 

The board of directors reviews and approves our annual MD&A and annual consolidated financial statements and is responsible for ensuring that management fulfills its financial reporting responsibilities. The board fulfills these oversight responsibilities directly and through its audit committee, whose members are all independent directors. You can find a copy of the audit committee’s mandate in our Management Proxy Circular.

 

Role of the auditors

KPMG LLP, the company’s auditors, have audited the consolidated financial statements. They have full and free access to the audit committee, the board of directors and management to discuss audit, financial reporting and related matters.

 

 

	

    	
 
    	

    
	
 
    	
 
    	
 
    
	
Jochen   Tilk
    	
 
    	
D.   James Slattery
    
	
President and   Chief Executive Officer
    	
 
    	
Vice-President,   Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
February 9,   2012
    	
 
    	
 
    

 

2

 

Independent auditors’ report

 

To the Shareholders of Inmet Mining Corporation

 

We have audited the accompanying consolidated financial statements of Inmet Mining Corporation, which comprise the consolidated statements of financial position as at December 31, 2011, December 31, 2010 and January 1, 2010, the consolidated statements of earnings, comprehensive income, changes in equity and cash flows for the years ended December 31, 2011 and December 31, 2010, and notes, comprising a summary of significant accounting policies and other explanatory information.

 

Management’s responsibility for the consolidated financial statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated  financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.  An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Inmet Mining Corporation as at December 31, 2011, December 31, 2010 and January 1, 2010, and its consolidated financial performance and its consolidated cash flows for the years ended December 31, 2011 and December 31, 2010 in accordance with International Financial Reporting Standards.

 

 

	

    	
 
    
	
 
    	
 
    
	
Chartered Accountants, Licensed Public   Accountants
    	
 
    
	
 
    	
 
    
	
February 9, 2012
    	
 
    
	
Toronto, Canada
    	
 
    

 

3

 

Consolidated financial statements

 

Consolidated statements of financial position

 

	
As at balance sheet date
    (thousands of Canadian dollars)
    	
 
    	
Note
   Reference
    	
 
    	
December
   31, 2011
    	
 
    	
December
   31, 2010
    	
 
    	
January 1,
   2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
(note 6)
    	
 
    	
(note 6)
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current assets:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and short term investments 
    	
 
    	
7
    	
 
    	
$
    	
1,082,893
    	
 
    	
$
    	
326,425
    	
 
    	
$
    	
533,913
    	
 
    
	
Restricted cash 
    	
 
    	
8
    	
 
    	
810
    	
 
    	
617
    	
 
    	
15,130
    	
 
    
	
Accounts receivable 
    	
 
    	
9
    	
 
    	
105,213
    	
 
    	
119,426
    	
 
    	
155,761
    	
 
    
	
Inventories 
    	
 
    	
10
    	
 
    	
90,533
    	
 
    	
72,154
    	
 
    	
98,324
    	
 
    
	
Current portion of held to maturity investments
    	
 
    	
11
    	
 
    	
181,699
    	
 
    	
53,915
    	
 
    	
9,993
    	
 
    
	
Assets held for sale 
    	
 
    	
12
    	
 
    	
—
    	
 
    	
319,082
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
1,461,148
    	
 
    	
891,619
    	
 
    	
813,121
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Restricted cash 
    	
 
    	
8
    	
 
    	
71,822
    	
 
    	
70,059
    	
 
    	
101,589
    	
 
    
	
Property, plant and equipment 
    	
 
    	
13
    	
 
    	
1,830,992
    	
 
    	
1,736,065
    	
 
    	
1,945,669
    	
 
    
	
Investments in equity securities 
    	
 
    	
14
    	
 
    	
3,161
    	
 
    	
2,694
    	
 
    	
42,411
    	
 
    
	
Held to maturity investments 
    	
 
    	
11
    	
 
    	
441,775
    	
 
    	
318,615
    	
 
    	
89,891
    	
 
    
	
Deferred income tax assets 
    	
 
    	
15
    	
 
    	
327
    	
 
    	
8,721
    	
 
    	
2,360
    	
 
    
	
Other assets 
    	
 
    	
 
    	
 
    	
1,425
    	
 
    	
2,335
    	
 
    	
1,903
    	
 
    
	
Total assets
    	
 
    	
 
    	
 
    	
$
    	
3,810,650
    	
 
    	
$
    	
3,030,108
    	
 
    	
$
    	
2,996,944
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current liabilities:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts payable and accrued liabilities 
    	
 
    	
16
    	
 
    	
$
    	
143,149
    	
 
    	
$
    	
136,345
    	
 
    	
$
    	
170,524
    	
 
    
	
Provisions 
    	
 
    	
17
    	
 
    	
13,517
    	
 
    	
17,668
    	
 
    	
17,417
    	
 
    
	
Derivatives 
    	
 
    	
 
    	
 
    	
—
    	
 
    	
—
    	
 
    	
1,543
    	
 
    
	
Liabilities associated with assets held for sale 
    	
 
    	
12
    	
 
    	
—
    	
 
    	
111,896
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
156,666
    	
 
    	
265,909
    	
 
    	
189,484
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Long-term debt 
    	
 
    	
18
    	
 
    	
17,126
    	
 
    	
16,619
    	
 
    	
200,026
    	
 
    
	
Provisions 
    	
 
    	
17
    	
 
    	
175,609
    	
 
    	
162,399
    	
 
    	
196,430
    	
 
    
	
Other liabilities 
    	
 
    	
19
    	
 
    	
17,719
    	
 
    	
18,117
    	
 
    	
20,695
    	
 
    
	
Derivatives 
    	
 
    	
 
    	
 
    	
—
    	
 
    	
—
    	
 
    	
3,165
    	
 
    
	
Deferred income tax liabilities 
    	
 
    	
15
    	
 
    	
29,282
    	
 
    	
12,525
    	
 
    	
25,732
    	
 
    
	
Total liabilities
    	
 
    	
 
    	
 
    	
396,402
    	
 
    	
475,569
    	
 
    	
635,532
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Commitments and contingencies 
    	
 
    	
13 and 31
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Equity
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Share capital 
    	
 
    	
20
    	
 
    	
1,591,948
    	
 
    	
1,089,576
    	
 
    	
669,952
    	
 
    
	
Contributed surplus 
    	
 
    	
21
    	
 
    	
66,752
    	
 
    	
66,131
    	
 
    	
64,809
    	
 
    
	
Share based compensation 
    	
 
    	
22
    	
 
    	
8,527
    	
 
    	
6,542
    	
 
    	
5,170
    	
 
    
	
Retained earnings
    	
 
    	
 
    	
 
    	
1,911,805
    	
 
    	
1,577,507
    	
 
    	
1,527,109
    	
 
    
	
Accumulated other comprehensive income (loss) 
    	
 
    	
23
    	
 
    	
(164,784
    	
)
    	
(185,217
    	
)
    	
19,093
    	
 
    
	
Total equity attributable to Inmet equity   holders 
    	
 
    	
 
    	
 
    	
3,414,248
    	
 
    	
2,554,539
    	
 
    	
2,286,133
    	
 
    
	
Non-controlling interest 
    	
 
    	
24
    	
 
    	
—
    	
 
    	
—
    	
 
    	
75,279
    	
 
    
	
Total equity
    	
 
    	
 
    	
 
    	
3,414,248
    	
 
    	
2,554,539
    	
 
    	
2,361,412
    	
 
    
	
Total liabilities and equity
    	
 
    	
 
    	
 
    	
$
    	
3,810,650
    	
 
    	
$
    	
3,030,108
    	
 
    	
$
    	
2,996,944
    	
 
    

 

(See accompanying notes)

 

On behalf of the Board:

 

	

    	
 
    	

    
	
Jochen   Tilk 
    	
 
    	
John   Clappison
    
	
Director
    	
 
    	
Director
    

 

4

 

Segmented statements of financial position

 

	
As at December 31, 2011
    	
 
    	
Corporate
    & Other
    	
 
    	
Çayeli
    	
 
    	
Las Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Cobre
   Panama
    	
 
    	
Discontinued
   Operations –
   Ok Tedi
    	
 
    	
Total
    	
 
    
	
(thousands of Canadian
   dollars)
    	
 
    	
 
    	
 
    	
(Turkey)
    	
 
    	
(Spain)
    	
 
    	
(Finland)
    	
 
    	
(Panama)
    	
 
    	
(Papua New
   Guinea)
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and   short-term investments
    	
 
    	
$
    	
734,794
    	
 
    	
$
    	
137,590
    	
 
    	
$
    	
136,128
    	
 
    	
$
    	
47,623
    	
 
    	
$
    	
26,758
    	
 
    	
—
    	
 
    	
$
    	
1,082,893
    	
 
    
	
Other current   assets 
    	
 
    	
189,749
    	
 
    	
46,197
    	
 
    	
86,683
    	
 
    	
53,597
    	
 
    	
2,029
    	
 
    	
—
    	
 
    	
378,255
    	
 
    
	
Restricted cash
    	
 
    	
16,842
    	
 
    	
—
    	
 
    	
53,364
    	
 
    	
1,616
    	
 
    	
—
    	
 
    	
—
    	
 
    	
71,822
    	
 
    
	
Property, plant   and equipment
    	
 
    	
1,236
    	
 
    	
142,260
    	
 
    	
897,860
    	
 
    	
68,274
    	
 
    	
721,362
    	
 
    	
—
    	
 
    	
1,830,992
    	
 
    
	
Investments in   equity securities
    	
 
    	
3,161
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
3,161
    	
 
    
	
Held to maturity   investments
    	
 
    	
359,452
    	
 
    	
82,323
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
441,775
    	
 
    
	
Other   non-current assets 
    	
 
    	
1,303
    	
 
    	
449
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
1,752
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
$
    	
1,306,537
    	
 
    	
$
    	
408,819
    	
 
    	
$
    	
1,174,035
    	
 
    	
$
    	
171,110
    	
 
    	
$
    	
750,149
    	
 
    	
—
    	
 
    	
$
    	
3,810,650
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   liabilities
    	
 
    	
$
    	
22,006
    	
 
    	
$
    	
42,822
    	
 
    	
$
    	
54,898
    	
 
    	
$
    	
16,957
    	
 
    	
$
    	
19,983
    	
 
    	
—
    	
 
    	
$
    	
156,666
    	
 
    
	
Long-term debt
    	
 
    	
17,126
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
17,126
    	
 
    
	
Provisions
    	
 
    	
71,083
    	
 
    	
18,023
    	
 
    	
55,626
    	
 
    	
30,877
    	
 
    	
—
    	
 
    	
—
    	
 
    	
175,609
    	
 
    
	
Other   liabilities
    	
 
    	
676
    	
 
    	
—
    	
 
    	
17,043
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
17,719
    	
 
    
	
Deferred income   tax liabilities
    	
 
    	
—
    	
 
    	
—
    	
 
    	
17,656
    	
 
    	
11,626
    	
 
    	
—
    	
 
    	
—
    	
 
    	
29,282
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
$
    	
110,891
    	
 
    	
$
    	
60,845
    	
 
    	
$
    	
145,223
    	
 
    	
$
    	
59,460
    	
 
    	
$
    	
19,983
    	
 
    	
—
    	
 
    	
$
    	
396,402
    	
 
    

 

	
As at December 31, 2010
    	
 
    	
Corporate
    & Other
    	
 
    	
Çayeli
    	
 
    	
Las
   Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Cobre
   Panama
    	
 
    	
Discontinued
   Operations –
    Ok Tedi
    	
 
    	
Total
    	
 
    
	
(thousands of Canadian
   dollars)
    	
 
    	
 
    	
 
    	
(Turkey)
    	
 
    	
(Spain)
    	
 
    	
(Finland)
    	
 
    	
(Panama)
    	
 
    	
(Papua New
   Guinea)
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and   short-term investments
    	
 
    	
$
    	
53,184
    	
 
    	
$
    	
107,750
    	
 
    	
$
    	
59,866
    	
 
    	
$
    	
97,056
    	
 
    	
$
    	
8,569
    	
 
    	
$
    	
—
    	
 
    	
$
    	
326,425
    	
 
    
	
Other current   assets 
    	
 
    	
60,785
    	
 
    	
58,959
    	
 
    	
59,602
    	
 
    	
66,193
    	
 
    	
686
    	
 
    	
318,969
    	
 
    	
565,194
    	
 
    
	
Restricted cash
    	
 
    	
16,906
    	
 
    	
—
    	
 
    	
51,521
    	
 
    	
1,632
    	
 
    	
—
    	
 
    	
—
    	
 
    	
70,059
    	
 
    
	
Property, plant   and equipment
    	
 
    	
779
    	
 
    	
152,653
    	
 
    	
941,434
    	
 
    	
66,984
    	
 
    	
574,215
    	
 
    	
—
    	
 
    	
1,736,065
    	
 
    
	
Investments in   equity securities
    	
 
    	
2,694
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
2,694
    	
 
    
	
Held to maturity   investments
    	
 
    	
253,749
    	
 
    	
64,866
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
318,615
    	
 
    
	
Other   non-current assets 
    	
 
    	
952
    	
 
    	
5,754
    	
 
    	
4,350
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
11,056
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
$
    	
389,049
    	
 
    	
$
    	
389,982
    	
 
    	
$
    	
1,116,773
    	
 
    	
$
    	
231,865
    	
 
    	
$
    	
583,470
    	
 
    	
$
    	
318,969
    	
 
    	
$
    	
3,030,108
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   liabilities
    	
 
    	
$
    	
30,286
    	
 
    	
$
    	
39,654
    	
 
    	
$
    	
47,220
    	
 
    	
$
    	
28,913
    	
 
    	
$
    	
7,940
    	
 
    	
$
    	
111,896
    	
 
    	
$
    	
265,909
    	
 
    
	
Long-term debt
    	
 
    	
16,619
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
16,619
    	
 
    
	
Provisions
    	
 
    	
57,536
    	
 
    	
21,607
    	
 
    	
56,439
    	
 
    	
26,817
    	
 
    	
—
    	
 
    	
—
    	
 
    	
162,399
    	
 
    
	
Other   liabilities
    	
 
    	
676
    	
 
    	
—
    	
 
    	
17,441
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
18,117
    	
 
    
	
Deferred income   tax liabilities
    	
 
    	
176
    	
 
    	
—
    	
 
    	
—
    	
 
    	
12,349
    	
 
    	
—
    	
 
    	
—
    	
 
    	
12,525
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
$
    	
105,293
    	
 
    	
$
    	
61,261
    	
 
    	
$
    	
121,100
    	
 
    	
$
    	
68,079
    	
 
    	
$
    	
7,940
    	
 
    	
$
    	
111,896
    	
 
    	
$
    	
475,569
    	
 
    

 

5

 

Segmented statements of financial position

 

	
As at January 1, 2010
    	
 
    	
Corporate
   & Other
    	
 
    	
Çayeli
    	
 
    	
Las Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Cobre
   Panama
    	
 
    	
Discontinued
   Operations –
    Ok Tedi
    	
 
    	
Total
    	
 
    
	
(thousands of Canadian
   dollars)
    	
 
    	
 
    	
 
    	
(Turkey)
    	
 
    	
(Spain)
    	
 
    	
(Finland)
    	
 
    	
(Panama)
    	
 
    	
(Papua New
   Guinea)
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and   short-term investments
    	
 
    	
$
    	
251,570
    	
 
    	
$
    	
158,631
    	
 
    	
$
    	
10,039
    	
 
    	
$
    	
66,314
    	
 
    	
$
    	
10,728
    	
 
    	
$
    	
36,631
    	
 
    	
$
    	
533,913
    	
 
    
	
Other current   assets 
    	
 
    	
37,591
    	
 
    	
40,341
    	
 
    	
73,501
    	
 
    	
49,882
    	
 
    	
468
    	
 
    	
77,425
    	
 
    	
279,208
    	
 
    
	
Restricted cash
    	
 
    	
16,492
    	
 
    	
—
    	
 
    	
56,878
    	
 
    	
1,854
    	
 
    	
—
    	
 
    	
26,365
    	
 
    	
101,589
    	
 
    
	
Property, plant   and equipment
    	
 
    	
13,508
    	
 
    	
168,389
    	
 
    	
1,034,947
    	
 
    	
72,183
    	
 
    	
537,251
    	
 
    	
119,391
    	
 
    	
1,945,669
    	
 
    
	
Investments in   equity securities
    	
 
    	
42,411
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
42,411
    	
 
    
	
Held to maturity   investments
    	
 
    	
89,891
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
89,891
    	
 
    
	
Other   non-current assets 
    	
 
    	
729
    	
 
    	
2,196
    	
 
    	
412
    	
 
    	
—
    	
 
    	
—
    	
 
    	
926
    	
 
    	
4,263
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
$
    	
452,192
    	
 
    	
$
    	
369,557
    	
 
    	
$
    	
1,175,777
    	
 
    	
$
    	
190,233
    	
 
    	
$
    	
548,447
    	
 
    	
$
    	
260,738
    	
 
    	
$
    	
2,996,944
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current   liabilities
    	
 
    	
$
    	
42,278
    	
 
    	
$
    	
35,144
    	
 
    	
$
    	
29,173
    	
 
    	
$
    	
27,665
    	
 
    	
$
    	
10,855
    	
 
    	
$
    	
44,369
    	
 
    	
$
    	
189,484
    	
 
    
	
Long-term debt
    	
 
    	
18,094
    	
 
    	
—
    	
 
    	
181,932
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
200,026
    	
 
    
	
Provisions 
    	
 
    	
56,281
    	
 
    	
21,214
    	
 
    	
55,929
    	
 
    	
21,522
    	
 
    	
—
    	
 
    	
41,484
    	
 
    	
196,430
    	
 
    
	
Other   liabilities
    	
 
    	
676
    	
 
    	
—
    	
 
    	
20,019
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
20,695
    	
 
    
	
Derivatives
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
3,165
    	
 
    	
3,165
    	
 
    
	
Deferred income   tax liabilities
    	
 
    	
3,128
    	
 
    	
—
    	
 
    	
—
    	
 
    	
11,448
    	
 
    	
—
    	
 
    	
11,156
    	
 
    	
25,732
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
$
    	
120,457
    	
 
    	
$
    	
56,358
    	
 
    	
$
    	
287,053
    	
 
    	
$
    	
60,635
    	
 
    	
$
    	
10,855
    	
 
    	
$
    	
100,174
    	
 
    	
$
    	
635,532
    	
 
    

 

6

 

Consolidated statements of changes in equity

 

	
 
    	
 
    	
 
    	
 
    	
Attributable to Inmet equity holders
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
(thousands of Canadian
   dollars)
    	
 
    	
Note
   Reference
    	
 
    	
Share
   Capital
    	
 
    	
Retained
   earnings
    	
 
    	
Contributed
   surplus
    	
 
    	
Share
    based
   compensation
    	
 
    	
Accumulated
   other
   comprehensive
   income (loss)
   (note 23)
    	
 
    	
Total
    	
 
    	
Non-
   controlling
   interest
    	
 
    	
Total

Equity
    	
 
    
	
Balance   as at January 1, 2010
    	
 
    	
 
    	
 
    	
$
    	
669,952
    	
 
    	
$
    	
1,527,109
    	
 
    	
$
    	
64,809
    	
 
    	
$
    	
5,170
    	
 
    	
$
    	
19,093
    	
 
    	
$
    	
2,286,133
    	
 
    	
$
    	
75,279
    	
 
    	
$
    	
2,361,412
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Comprehensive   income
    	
 
    	
 
    	
 
    	
—
    	
 
    	
391,876
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(197,405
    	
)
    	
194,471
    	
 
    	
(8,312
    	
)
    	
186,159
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Equity settled   share-based compensation plans 
    	
 
    	
21, 22
    	
 
    	
—
    	
 
    	
—
    	
 
    	
1,322
    	
 
    	
1,372
    	
 
    	
—
    	
 
    	
2,694
    	
 
    	
—
    	
 
    	
2,694
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Dividends on   common shares
    	
 
    	
29
    	
 
    	
—
    	
 
    	
(11,210
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(11,210
    	
)
    	
—
    	
 
    	
(11,210
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Acquisition of   non-controlling interest in Las Cruces
    	
 
    	
24
    	
 
    	
419,624
    	
 
    	
(330,268
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(6,905
    	
)
    	
82,451
    	
 
    	
(66,847
    	
)
    	
15,604
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other
    	
 
    	
 
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(120
    	
)
    	
(120
    	
)
    
	
Balance   as at December 31, 2010
    	
 
    	
 
    	
 
    	
$
    	
1,089,576
    	
 
    	
$
    	
1,577,507
    	
 
    	
$
    	
66,131
    	
 
    	
$
    	
6,542
    	
 
    	
$
    	
(185,217
    	
)
    	
$
    	
2,554,539
    	
 
    	
$
    	
—
    	
 
    	
$
    	
2,554,539
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Comprehensive   income
    	
 
    	
 
    	
 
    	
—
    	
 
    	
348,171
    	
 
    	
—
    	
 
    	
—
    	
 
    	
20,433
    	
 
    	
368,604
    	
 
    	
—
    	
 
    	
368,604
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Equity settled   share-based compensation plans 
    	
 
    	
21, 22
    	
 
    	
204
    	
 
    	
—
    	
 
    	
621
    	
 
    	
1,985
    	
 
    	
—
    	
 
    	
2,810
    	
 
    	
—
    	
 
    	
2,810
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Dividends on   common  shares
    	
 
    	
29
    	
 
    	
—
    	
 
    	
(13,873
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(13,873
    	
)
    	
—
    	
 
    	
(13,873
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Issuance of   share capital
    	
 
    	
20
    	
 
    	
502,168
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
502,168
    	
 
    	
—
    	
 
    	
502,168
    	
 
    
	
Balance   as at December 31, 2011
    	
 
    	
 
    	
 
    	
$
    	
1,591,948
    	
 
    	
$
    	
1,911,805
    	
 
    	
$
    	
66,752
    	
 
    	
$
    	
8,527
    	
 
    	
$
    	
(164,784
    	
)
    	
$
    	
3,414,248
    	
 
    	
—
    	
 
    	
$
    	
3,414,248
    	
 
    

 

7

 

Consolidated statements of earnings

 

	
For the years ended December 31
    (thousands of Canadian dollars except per share
   amounts)
    	
 
    	
Note
   Reference
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
(note 6)
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross sales 
    	
 
    	
 
    	
 
    	
$
    	
979,045
    	
 
    	
$
    	
778,556
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
 
    	
 
    	
(130,726
    	
)
    	
(138,464
    	
)
    
	
Cost of sales (excluding depreciation) 
    	
 
    	
25
    	
 
    	
(327,076
    	
)
    	
(253,859
    	
)
    
	
Depreciation
    	
 
    	
25
    	
 
    	
(108,726
    	
)
    	
(55,988
    	
)
    
	
Earnings from operations
    	
 
    	
 
    	
 
    	
412,517
    	
 
    	
330,245
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Corporate development and exploration 
    	
 
    	
 
    	
 
    	
(29,202
    	
)
    	
(13,495
    	
)
    
	
General and administration 
    	
 
    	
 
    	
 
    	
(34,401
    	
)
    	
(20,364
    	
)
    
	
Investment and other income 
    	
 
    	
26
    	
 
    	
30,725
    	
 
    	
58,344
    	
 
    
	
Stand-by charges
    	
 
    	
 
    	
 
    	
—
    	
 
    	
(6,753
    	
)
    
	
Finance costs 
    	
 
    	
27
    	
 
    	
(9,484
    	
)
    	
(13,176
    	
)
    
	
Income before taxation
    	
 
    	
 
    	
 
    	
370,155
    	
 
    	
334,801
    	
 
    
	
Income tax expense 
    	
 
    	
15
    	
 
    	
(105,423
    	
)
    	
(69,087
    	
)
    
	
Income from continuing operations 
    	
 
    	
 
    	
 
    	
$
    	
264,732
    	
 
    	
$
    	
265,714
    	
 
    
	
Income from discontinued operation (net of taxes)
    	
 
    	
12
    	
 
    	
83,439
    	
 
    	
124,755
    	
 
    
	
Net income
    	
 
    	
 
    	
 
    	
$
    	
348,171
    	
 
    	
$
    	
390,469
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Net income attributable to:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Inmet equity holders 
    	
 
    	
 
    	
 
    	
$
    	
348,171
    	
 
    	
$
    	
391,876
    	
 
    
	
Non-controlling interests
    	
 
    	
 
    	
 
    	
—
    	
 
    	
(1,407
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
$
    	
348,171
    	
 
    	
$
    	
390,469
    	
 
    
	
Earnings per common share 
    	
 
    	
28
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Income from continuing operations 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic
    	
 
    	
 
    	
 
    	
$
    	
3.99
    	
 
    	
$
    	
4.74
    	
 
    
	
Diluted
    	
 
    	
 
    	
 
    	
$
    	
3.98
    	
 
    	
$
    	
4.73
    	
 
    
	
Income from discontinued operations
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic
    	
 
    	
 
    	
 
    	
$
    	
1.26
    	
 
    	
$
    	
2.21
    	
 
    
	
Diluted
    	
 
    	
 
    	
 
    	
$
    	
1.25
    	
 
    	
$
    	
2.21
    	
 
    
	
Net Income
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic
    	
 
    	
 
    	
 
    	
$
    	
5.25
    	
 
    	
$
    	
6.95
    	
 
    
	
Diluted
    	
 
    	
 
    	
 
    	
$
    	
5.23
    	
 
    	
$
    	
6.94
    	
 
    

 

(See accompanying notes)

 

8

 

Segmented statements of earnings

 

	
For the year ended
   December 31, 2011 
    	
 
    	
Corporate
   & Other
    	
 
    	
Çayeli
    	
 
    	
Las Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Cobre
   Panama
    	
 
    	
Discontinued
   Operations -
    Ok Tedi
    	
 
    	
Total
    	
 
    
	
(thousands of Canadian
   dollars)
    	
 
    	
 
    	
 
    	
(Turkey)
    	
 
    	
(Spain)
    	
 
    	
(Finland)
    	
 
    	
(Panama)
    	
 
    	
(Papua
   New
   Guinea)
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross sales
    	
 
    	
$
    	
—
    	
 
    	
$
    	
353,706
    	
 
    	
$
    	
356,918
    	
 
    	
$
    	
268,421
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
979,045
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
—
    	
 
    	
(71,704
    	
)
    	
(1,227
    	
)
    	
(57,795
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(130,726
    	
)
    
	
Cost of sales (excluding depreciation)
    	
 
    	
(16,722
    	
)
    	
(100,267
    	
)
    	
(151,907
    	
)
    	
(58,180
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(327,076
    	
)
    
	
Depreciation
    	
 
    	
—
    	
 
    	
(22,037
    	
)
    	
(77,392
    	
)
    	
(9,297
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(108,726
    	
)
    
	
Earnings from operations
    	
 
    	
(16,722
    	
)
    	
159,698
    	
 
    	
126,392
    	
 
    	
143,149
    	
 
    	
—
    	
 
    	
—
    	
 
    	
412,517
    	
 
    
	
Corporate development  and exploration
    	
 
    	
(21,267
    	
)
    	
(1,665
    	
)
    	
(449
    	
)
    	
(3,592
    	
)
    	
(2,229
    	
)
    	
—
    	
 
    	
(29,202
    	
)
    
	
General and administration
    	
 
    	
(34,401
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(34,401
    	
)
    
	
Investment and other income
    	
 
    	
20,733
    	
 
    	
7,768
    	
 
    	
1,741
    	
 
    	
462
    	
 
    	
21
    	
 
    	
—
    	
 
    	
30,725
    	
 
    
	
Finance costs
    	
 
    	
(3,843
    	
)
    	
(589
    	
)
    	
(4,159
    	
)
    	
(893
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(9,484
    	
)
    
	
Income tax expense
    	
 
    	
2,452
    	
 
    	
(52,620
    	
)
    	
(23,536
    	
)
    	
(31,719
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(105,423
    	
)
    
	
Net income from continuing operations
    	
 
    	
$
    	
(53,048
    	
)
    	
$
    	
112,592
    	
 
    	
$
    	
99,989
    	
 
    	
$
    	
107,407
    	
 
    	
$
    	
(2,208
    	
)
    	
$
    	
—
    	
 
    	
$
    	
264,732
    	
 
    
	
Income from discontinued operations (net of taxes)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
83,439
    	
 
    	
83,439
    	
 
    
	
Net income
    	
 
    	
$
    	
(53,048
    	
)
    	
$
    	
112,592
    	
 
    	
$
    	
99,989
    	
 
    	
$
    	
107,407
    	
 
    	
$
    	
(2,208
    	
)
    	
$
    	
83,439
    	
 
    	
$
    	
348,171
    	
 
    

 

	
For the year ended
   December 31, 2010 
    	
 
    	
Corporate
   & Other
    	
 
    	
Çayeli
    	
 
    	
Las
   Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Cobre
   Panama
    	
 
    	
Discontinued
   Operations -
    Ok Tedi
    	
 
    	
Total
    	
 
    
	
(thousands of Canadian
   dollars)
    	
 
    	
 
    	
 
    	
(Turkey)
    	
 
    	
(Spain)
    	
 
    	
(Finland)
    	
 
    	
(Panama)
    	
 
    	
(Papua
   New
   Guinea)
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross sales
    	
 
    	
$
    	
73,826
    	
 
    	
$
    	
333,611
    	
 
    	
$
    	
128,643
    	
 
    	
$
    	
242,476
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
778,556
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
(4,526
    	
)
    	
(75,268
    	
)
    	
(298
    	
)
    	
(58,372
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(138,464
    	
)
    
	
Cost of sales (excluding depreciation)
    	
 
    	
(48,643
    	
)
    	
(89,262
    	
)
    	
(60,388
    	
)
    	
(55,566
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(253,859
    	
)
    
	
Depreciation
    	
 
    	
(4,062
    	
)
    	
(20,577
    	
)
    	
(23,068
    	
)
    	
(8,281
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(55,988
    	
)
    
	
Earnings from operations
    	
 
    	
16,595
    	
 
    	
148,504
    	
 
    	
44,889
    	
 
    	
120,257
    	
 
    	
—
    	
 
    	
—
    	
 
    	
330,245
    	
 
    
	
Corporate development  and exploration
    	
 
    	
(8,799
    	
)
    	
(700
    	
)
    	
—
    	
 
    	
(3,996
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(13,495
    	
)
    
	
General and administration
    	
 
    	
(20,364
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(20,364
    	
)
    
	
Investment and other income
    	
 
    	
58,957
    	
 
    	
(190
    	
)
    	
(423
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
58,344
    	
 
    
	
Stand-by charges
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(6,753
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(6,753
    	
)
    
	
Finance costs
    	
 
    	
(3,836
    	
)
    	
(590
    	
)
    	
(8,042
    	
)
    	
(708
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(13,176
    	
)
    
	
Income tax expense
    	
 
    	
(8,300
    	
)
    	
(35,885
    	
)
    	
4,094
    	
 
    	
(28,996
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(69,087
    	
)
    
	
Net income from continuing operations
    	
 
    	
$
    	
34,253
    	
 
    	
$
    	
111,139
    	
 
    	
$
    	
33,765
    	
 
    	
$
    	
86,557
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
265,714
    	
 
    
	
Income from discontinued operation (net of tax)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
124,755
    	
 
    	
124,755
    	
 
    
	
Net income
    	
 
    	
$
    	
34,253
    	
 
    	
$
    	
111,139
    	
 
    	
$
    	
33,765
    	
 
    	
$
    	
86,557
    	
 
    	
$
    	
—
    	
 
    	
$
    	
124,755
    	
 
    	
$
    	
390,469
    	
 
    

 

9

 

Consolidated statements of comprehensive income

 

	
For the years ended December 31
    (thousands of Canadian dollars)
    	
 
    	
Note
   Reference
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
(note 6)
    	
 
    
	
Net income 
    	
 
    	
 
    	
 
    	
$
    	
348,171
    	
 
    	
$
    	
390,469
    	
 
    
	
Other comprehensive income (loss) for the year:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Continuing operations
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Changes in fair value of investments 
    	
 
    	
 
    	
 
    	
(3,669
    	
)
    	
21,168
    	
 
    
	
Currency translation adjustments
    	
 
    	
 
    	
 
    	
4,158
    	
 
    	
(168,390
    	
)
    
	
Reclassification to net income of gains/losses realized on:
    	
 
    	
26
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gain on sale of investments
    	
 
    	
 
    	
 
    	
—
    	
 
    	
(50,280
    	
)
    
	
Other
    	
 
    	
 
    	
 
    	
3,553
    	
 
    	
—
    	
 
    
	
Income tax recovery related to investments - other comprehensive   income 
    	
 
    	
15
    	
 
    	
16
    	
 
    	
4,866
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
4,058
    	
 
    	
(192,636
    	
)
    
	
Other comprehensive income from discontinued operation (net of taxes)
    	
 
    	
 
    	
 
    	
16,375
    	
 
    	
(11,674
    	
)
    
	
Comprehensive income 
    	
 
    	
 
    	
 
    	
$
    	
368,604
    	
 
    	
$
    	
186,159
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Comprehensive income attributable to:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Inmet equity holders
    	
 
    	
 
    	
 
    	
$
    	
368,604
    	
 
    	
$
    	
194,471
    	
 
    
	
Non-controlling interests
    	
 
    	
 
    	
 
    	
—
    	
 
    	
(8,312
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
$
    	
368,604
    	
 
    	
$
    	
186,159
    	
 
    

 

(See accompanying notes)

 

10

 

 

Consolidated statements of cash flows

 

	
For the years ended December 31
    (thousands of Canadian dollars)
    	
 
    	
Note
   Reference
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
(note 6)
    	
 
    
	
Cash provided by (used in) operating   activities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Net income from continuing operations
    	
 
    	
 
    	
 
    	
$
    	
264,732
    	
 
    	
$
    	
265,714
    	
 
    
	
Add (deduct) items not affecting cash:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Depreciation
    	
 
    	
 
    	
 
    	
108,726
    	
 
    	
55,988
    	
 
    
	
Deferred income taxes
    	
 
    	
15
    	
 
    	
26,342
    	
 
    	
(2,770
    	
)
    
	
Accretion expense on provisions  and capital leases
    	
 
    	
 
    	
 
    	
7,636
    	
 
    	
6,283
    	
 
    
	
Increase in asset   retirement obligations at closed sites
    	
 
    	
17
    	
 
    	
16,722
    	
 
    	
14,298
    	
 
    
	
Foreign exchange gain
    	
 
    	
 
    	
 
    	
(21,053
    	
)
    	
(652
    	
)
    
	
Gain on disposition of equity securities 
    	
 
    	
26
    	
 
    	
—
    	
 
    	
(50,280
    	
)
    
	
Other
    	
 
    	
 
    	
 
    	
7,660
    	
 
    	
9,107
    	
 
    
	
Settlement of asset retirement obligations 
    	
 
    	
17
    	
 
    	
(10,854
    	
)
    	
(9,719
    	
)
    
	
Net change in non-cash working capital 
    	
 
    	
30
    	
 
    	
4,943
    	
 
    	
(33,051
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
404,854
    	
 
    	
254,918
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash provided by (used in) investing   activities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Purchase of property, plant and equipment
    	
 
    	
 
    	
 
    	
(208,541
    	
)
    	
(127,619
    	
)
    
	
Acquisition of held to maturity investments
    	
 
    	
11
    	
 
    	
(301,599
    	
)
    	
(295,846
    	
)
    
	
Maturing of held to maturity investments
    	
 
    	
11
    	
 
    	
68,692
    	
 
    	
26,097
    	
 
    
	
Acquisition of non-controlling Interest in Las Cruces
    	
 
    	
 
    	
 
    	
—
    	
 
    	
(150,600
    	
)
    
	
Funding received under Cobre Panama option agreement
    	
 
    	
31
    	
 
    	
12,714
    	
 
    	
14,427
    	
 
    
	
Sale of equity securities
    	
 
    	
26
    	
 
    	
—
    	
 
    	
61,827
    	
 
    
	
Sale (purchase) of short-term investments, net 
    	
 
    	
 
    	
 
    	
(259,897
    	
)
    	
19,700
    	
 
    
	
Other
    	
 
    	
 
    	
 
    	
(3,875
    	
)
    	
5,008
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
(692,506
    	
)
    	
(447,006
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash provided by (used in) financing   activities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Issuance of common shares
    	
 
    	
20
    	
 
    	
502,168
    	
 
    	
—
    	
 
    
	
Dividends paid on common shares
    	
 
    	
29
    	
 
    	
(13,873
    	
)
    	
(11,210
    	
)
    
	
Financial assurance (payments) receipts
    	
 
    	
 
    	
 
    	
(2,575
    	
)
    	
11,498
    	
 
    
	
Other
    	
 
    	
 
    	
 
    	
(2,859
    	
)
    	
994
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
482,861
    	
 
    	
1,282
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Foreign exchange on cash held in foreign   currencies
    	
 
    	
 
    	
 
    	
(5,375
    	
)
    	
(27,469
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash provided by discontinued operation
    	
 
    	
12
    	
 
    	
306,982
    	
 
    	
123,340
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Reclassification of our share of Ok Tedi   cash to assets held for sale
    	
 
    	
 
    	
 
    	
—
    	
 
    	
(92,853
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Increase (decrease) in cash:
    	
 
    	
 
    	
 
    	
496,816
    	
 
    	
(187,788
    	
)
    
	
Cash:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Beginning of year
    	
 
    	
 
    	
 
    	
319,129
    	
 
    	
506,917
    	
 
    
	
End of year
    	
 
    	
 
    	
 
    	
815,945
    	
 
    	
$
    	
319,129
    	
 
    
	
Short term investments
    	
 
    	
 
    	
 
    	
266,948
    	
 
    	
7,296
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and short-term investments
    	
 
    	
 
    	
 
    	
$
    	
1,082,893
    	
 
    	
$
    	
326,425
    	
 
    

 

(See accompanying notes)

 

11

 

Segmented statements of cash flows

 

	
For the year ended
    December 31, 2011
    	
 
    	
Corporate
   & Other
    	
 
    	
Çayeli
    	
 
    	
Las Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Cobre
   Panama
    	
 
    	
Discontinued
   operations -
    Ok Tedi
    	
 
    	
Total
    	
 
    
	
(thousands of Canadian dollars)
    	
 
    	
 
    	
 
    	
(Turkey)
    	
 
    	
(Spain)
    	
 
    	
(Finland)
    	
 
    	
 
    	
 
    	
(Papua New
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
Guinea)
    	
 
    	
 
    	
 
    
	
Cash   provided by (used in) operating activities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Before net   change in non-cash working capital
    	
 
    	
$
    	
(57,133
    	
)
    	
$
    	
136,402
    	
 
    	
$
    	
205,154
    	
 
    	
$
    	
117,696
    	
 
    	
$
    	
(2,208
    	
)
    	
$
    	
—
    	
 
    	
$
    	
399,911
    	
 
    
	
Net change in   non-cash working capital
    	
 
    	
(4,767
    	
)
    	
20,404
    	
 
    	
(10,511
    	
)
    	
(183
    	
)
    	
—
    	
 
    	
—
    	
 
    	
4,943
    	
 
    
	
 
    	
 
    	
(61,900
    	
)
    	
156,806
    	
 
    	
194,643
    	
 
    	
117,513
    	
 
    	
(2,208
    	
)
    	
—
    	
 
    	
404,854
    	
 
    
	
Cash   provided by (used in) investing activities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Purchase of   property, plant and equipment 
    	
 
    	
(1,090
    	
)
    	
(13,125
    	
)
    	
(53,641
    	
)
    	
(7,255
    	
)
    	
(133,430
    	
)
    	
—
    	
 
    	
(208,541
    	
)
    
	
Acquisition of   held to maturity investments
    	
 
    	
(285,916
    	
)
    	
(15,683
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(301,599
    	
)
    
	
Maturing of held   to maturity investments
    	
 
    	
68,692
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
68,692
    	
 
    
	
Funding received   under Cobre Panama option agreement
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
12,714
    	
 
    	
—
    	
 
    	
12,714
    	
 
    
	
Sale (purchase)   of short-term investments, net
    	
 
    	
(267,174
    	
)
    	
—
    	
 
    	
7,277
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(259,897
    	
)
    
	
Other
    	
 
    	
(3,875
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(3,875
    	
)
    
	
 
    	
 
    	
(489,363
    	
)
    	
(28,808
    	
)
    	
(46,364
    	
)
    	
(7,255
    	
)
    	
(120,716
    	
)
    	
—
    	
 
    	
(692,506
    	
)
    
	
Cash   provided by (used in) financing activities
    	
 
    	
488,059
    	
 
    	
—
    	
 
    	
(5,198
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
482,861
    	
 
    
	
Foreign   exchange on cash held in foreign currencies
    	
 
    	
—
    	
 
    	
663
    	
 
    	
(3,905
    	
)
    	
(2,694
    	
)
    	
561
    	
 
    	
—
    	
 
    	
(5,375
    	
)
    
	
Intergroup   funding (distributions)
    	
 
    	
477,866
    	
 
    	
(98,821
    	
)
    	
(55,618
    	
)
    	
(156,997
    	
)
    	
140,552
    	
 
    	
(306,982
    	
)
    	
—
    	
 
    
	
Cash   provided by discontinued operation
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
306,982
    	
 
    	
306,982
    	
 
    
	
Increase   (decrease) in cash
    	
 
    	
414,662
    	
 
    	
29,840
    	
 
    	
83,558
    	
 
    	
(49,433
    	
)
    	
18,189
    	
 
    	
—
    	
 
    	
496,816
    	
 
    
	
Cash:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Beginning of   year
    	
 
    	
53,184
    	
 
    	
107,750
    	
 
    	
52,570
    	
 
    	
97,056
    	
 
    	
8,569
    	
 
    	
—
    	
 
    	
319,129
    	
 
    
	
End of year
    	
 
    	
467,846
    	
 
    	
137,590
    	
 
    	
136,128
    	
 
    	
47,623
    	
 
    	
26,758
    	
 
    	
(306,982
    	
)
    	
815,945
    	
 
    
	
Short   term investments
    	
 
    	
266,948
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
266,948
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash   and short-term investments 
    	
 
    	
$
    	
734,794
    	
 
    	
$
    	
137,590
    	
 
    	
$
    	
136,128
    	
 
    	
$
    	
47,623
    	
 
    	
$
    	
26,758
    	
 
    	
$
    	
—
    	
 
    	
$
    	
1,082,893
    	
 
    

 

12

 

	
For the year ended
    December 31, 2010 
    	
 
    	
Corporate
   & Other
    	
 
    	
Çayeli
    	
 
    	
Las Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Cobre
   Panama
    	
 
    	
Discontinued
   operations -
    Ok Tedi
    	
 
    	
Total
    	
 
    
	
(thousands of Canadian dollars)
    	
 
    	
 
    	
 
    	
(Turkey)
    	
 
    	
(Spain)
    	
 
    	
(Finland)
    	
 
    	
 
    	
 
    	
(Papua New
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
Guinea)
    	
 
    	
 
    	
 
    
	
Cash   provided by (used in) operating activities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Before net   change in non-cash working capital
    	
 
    	
$
    	
(4,320
    	
)
    	
$
    	
132,739
    	
 
    	
$
    	
61,157
    	
 
    	
$
    	
98,393
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
287,969
    	
 
    
	
Net change in   non-cash working capital
    	
 
    	
2,815
    	
 
    	
(15,901
    	
)
    	
(1,678
    	
)
    	
(18,287
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(33,051
    	
)
    
	
 
    	
 
    	
(1,505
    	
)
    	
116,838
    	
 
    	
59,479
    	
 
    	
80,106
    	
 
    	
—
    	
 
    	
—
    	
 
    	
254,918
    	
 
    
	
Cash   provided by (used in) investing activities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Purchase of   property, plant and equipment
    	
 
    	
(222
    	
)
    	
(14,911
    	
)
    	
(23,978
    	
)
    	
(3,974
    	
)
    	
(84,534
    	
)
    	
—
    	
 
    	
(127,619
    	
)
    
	
Acquisition of   held to maturity investments
    	
 
    	
(228,500
    	
)
    	
(67,346
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(295,846
    	
)
    
	
Maturing of held   to maturity investments
    	
 
    	
26,097
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
26,097
    	
 
    
	
Acquisition of   non-controlling Interest in Las Cruces
    	
 
    	
(150,600
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(150,600
    	
)
    
	
Funding received   under Cobre Panama option agreement
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
14,427
    	
 
    	
—
    	
 
    	
14,427
    	
 
    
	
Sale (net) of   equity investments
    	
 
    	
61,827
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
61,827
    	
 
    
	
Sale (purchase)   of short-term investments
    	
 
    	
26,996
    	
 
    	
—
    	
 
    	
(7,296
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
19,700
    	
 
    
	
Other
    	
 
    	
5,008
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
5,008
    	
 
    
	
 
    	
 
    	
(259,394
    	
)
    	
(82,257
    	
)
    	
(31,274
    	
)
    	
(3,974
    	
)
    	
(70,107
    	
)
    	
$
    	
—
    	
 
    	
(447,006
    	
)
    
	
Cash   provided by (used in) financing activities
    	
 
    	
(11,919
    	
)
    	
—
    	
 
    	
13,201
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
1,282
    	
 
    
	
Foreign   exchange on cash held in foreign currencies
    	
 
    	
—
    	
 
    	
(9,954
    	
)
    	
(2,768
    	
)
    	
(14,388
    	
)
    	
(359
    	
)
    	
—
    	
 
    	
(27,469
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Intergroup   funding (distributions)
    	
 
    	
101,428
    	
 
    	
(75,508
    	
)
    	
3,893
    	
 
    	
(31,002
    	
)
    	
68,307
    	
 
    	
(67,118
    	
)
    	
—
    	
 
    
	
Cash   provided by discontinued operation
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
123,340
    	
 
    	
123,340
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Reclassification   of our share of Ok Tedi cash to assets held for sale
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(92,853
    	
)
    	
(92,853
    	
)
    
	
Increase   (decrease) in cash
    	
 
    	
(171,390
    	
)
    	
(50,881
    	
)
    	
42,531
    	
 
    	
30,742
    	
 
    	
(2,159
    	
)
    	
(36,631
    	
)
    	
(187,788
    	
)
    
	
Cash:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Beginning of   year
    	
 
    	
224,574
    	
 
    	
158,631
    	
 
    	
10,039
    	
 
    	
66,314
    	
 
    	
10,728
    	
 
    	
36,631
    	
 
    	
506,917
    	
 
    
	
End of period
    	
 
    	
53,184
    	
 
    	
107,750
    	
 
    	
52,570
    	
 
    	
97,056
    	
 
    	
8,569
    	
 
    	
—
    	
 
    	
319,129
    	
 
    
	
Short   term investments
    	
 
    	
—
    	
 
    	
—
    	
 
    	
7,296
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
7,296
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash   and short-term investments 
    	
 
    	
$
    	
53,184
    	
 
    	
$
    	
107,750
    	
 
    	
$
    	
59,866
    	
 
    	
$
    	
97,056
    	
 
    	
$
    	
8,569
    	
 
    	
$
    	
—
    	
 
    	
$
    	
326,425
    	
 
    

 

13

 

Notes to the consolidated financial statements

 

	
Note
    	
 
    	
Contents
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
1.
    	
 
    	
Corporate information
    	
 
    	
15
    
	
2.
    	
 
    	
Basis of presentation and statement of compliance
    	
 
    	
15
    
	
3.
    	
 
    	
Summary of significant accounting policies
    	
 
    	
16
    
	
4.
    	
 
    	
Application of critical accounting judgements and estimates
    	
 
    	
26
    
	
5.
    	
 
    	
Standards issued but not yet effective
    	
 
    	
28
    
	
6.
    	
 
    	
First time adoption of IFRS
    	
 
    	
30
    
	
7.
    	
 
    	
Cash and short-term investments
    	
 
    	
39
    
	
8.
    	
 
    	
Restricted cash
    	
 
    	
39
    
	
9.
    	
 
    	
Accounts receivable
    	
 
    	
39
    
	
10.
    	
 
    	
Inventories
    	
 
    	
40
    
	
11.
    	
 
    	
Held to maturity investments
    	
 
    	
40
    
	
12.
    	
 
    	
Sale of our interest in Ok Tedi
    	
 
    	
41
    
	
13.
    	
 
    	
Property, plant and equipment
    	
 
    	
42
    
	
14.
    	
 
    	
Investments in equity securities
    	
 
    	
43
    
	
15.
    	
 
    	
Income tax
    	
 
    	
43
    
	
16.
    	
 
    	
Accounts payable and accrued liabilities
    	
 
    	
45
    
	
17.
    	
 
    	
Provisions
    	
 
    	
45
    
	
18.
    	
 
    	
Long-term debt
    	
 
    	
47
    
	
19.
    	
 
    	
Other liabilities
    	
 
    	
47
    
	
20.
    	
 
    	
Share capital
    	
 
    	
48
    
	
21.
    	
 
    	
Contributed surplus
    	
 
    	
49
    
	
22.
    	
 
    	
Stock based compensation
    	
 
    	
50
    
	
23.
    	
 
    	
Accumulated other comprehensive income (loss)
    	
 
    	
52
    
	
24.
    	
 
    	
Non-controlling Interest
    	
 
    	
53
    
	
25.
    	
 
    	
Expenses
    	
 
    	
53
    
	
26.
    	
 
    	
Investment and other income
    	
 
    	
53
    
	
27.
    	
 
    	
Finance costs
    	
 
    	
54
    
	
28.
    	
 
    	
Net income per share
    	
 
    	
54
    
	
29.
    	
 
    	
Dividends paid
    	
 
    	
54
    
	
30.
    	
 
    	
Statements of cash flows
    	
 
    	
55
    
	
31.
    	
 
    	
Commitments and contingencies
    	
 
    	
55
    
	
32.
    	
 
    	
Related parties
    	
 
    	
57
    
	
33.
    	
 
    	
Key management personnel disclosures
    	
 
    	
58
    
	
34.
    	
 
    	
Financial instruments
    	
 
    	
59
    

 

14

 

1.              Corporate information

 

Inmet Mining Corporation is a publicly traded corporation listed on the Toronto stock exchange. Our registered and head office is 330 Bay Street, Suite 1000, Toronto Canada. Our principal activities are the exploration, development and mining of base metals.

 

On February 9, 2012, the Inmet Board of Directors approved the consolidated financial statements for the year ended December 31, 2011 and authorized them for issue.

 

2.              Basis of presentation and statement of compliance

 

Effective for the year ended December 31, 2011, our consolidated financial statements comply with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Boards (IASB) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as adopted by the Canadian Accounting Standards Board.

 

This is the first year we have prepared our financial statements in accordance with IFRS. See note 6, First time adoption of IFRS, for information about our transition from Canadian GAAP.

 

We have prepared the consolidated financial statements under the historical cost convention, modified by the revaluation of certain financial instruments we have measured in accordance with IFRS. The financial statements are in Canadian dollars and all values are rounded to the nearest thousand except where otherwise indicated.

 

Our segmented statements reflect the management structure of our company in which each operation retains its own management team and compiles its own financial information, following the accounting policies outlined here.

 

·                  Çayeli — a mine in Turkey that produces copper and zinc concentrates. Çayeli is a wholly-owned subsidiary.

·                  Las Cruces — a high grade copper deposit in Spain that produces cathode copper. Las Cruces is a wholly-owned subsidiary.

·                  Pyhäsalmi — a mine in Finland that produces copper and zinc concentrates. Pyhäsalmi is a wholly-owned subsidiary.

·                  Cobre Panama — a copper, gold and molybdenum deposit currently under development in Panama. We have a 100 percent interest in Cobre Panama. Korea Panama Mining Corporation owns an option to acquire a 20 percent interest in Cobre Panama (note 31).

·                  Corporate and other — our head office and closed properties. As a result of the closure of Troilus, we no longer consider it to be a separate reportable operating segment and included its results in Corporate and other retroactively.

 

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3.              Summary of significant accounting policies

 

We have applied the accounting policies set out below consistently for all periods presented in these consolidated financial statements and in preparing the opening IFRS statement of financial position at January 1, 2010 for the purposes of our transition to IFRSs, unless otherwise indicated.

 

Basis of consolidation

 

Entities we control

 

We have control of an entity when we have the right to govern its operating and financial policies (usually when we have more than 50 percent voting power through ownership or agreements), unless a non-controlling interest is able to prevent us from exercising control.

 

We consolidate the results of entities we control and eliminate all intercompany balances and transactions. When we acquire a new entity, we consolidate from the day that control passes to us. We consolidate those we sell until the day control passes to the acquirer.

 

Interests in jointly controlled entities

 

We jointly control an entity when we hold a long-term interest in it, and share joint control over its operating and financial decisions with one or more other parties under a contractual arrangement.

 

We proportionately consolidate our share of any entity we jointly control, combining its line-by-line results with similar line items in our financial statements.

 

Foreign exchange

 

Functional and presentation currency

 

Inmet Mining’s functional currency is the Canadian dollar. We report our consolidated financial statements in Canadian dollars.

 

Our entities measure the items in their financial statements in their functional currency (the currency of the primary economic environment they operate in). Çayeli and Cobre Panama use the US dollar and Pyhäsalmi and Las Cruces use the euro.

 

Foreign currency transactions

 

Monetary items denominated in foreign currencies are translated into each entity’s functional currency at the rate of exchange on the balance sheet date, and gains and losses on translation are recognized in the statement of earnings for the year. We recognize all other transactions in foreign currencies at the exchange rate at the time of the transaction.

 

Financial statements of foreign operations

 

For operations that have a functional currency other than the Canadian dollar, we translate the statement of earnings and balance sheet as follows:

 

·                  assets and liabilities: translated at the closing rate at the end of the year.

·                  revenues and expenses: translated for each statement of earnings at rates approximating the exchange rates at the time of the transactions.

·                  resulting differences: recognized as a separate component of accumulated other comprehensive income.

 

We also recognize exchange differences relating to long-term intercompany loan balances with foreign operations that form part of the net investment in the foreign operation in this separate component of accumulated other comprehensive income.

 

When we sell all or part of a foreign operation, or repay its share capital or intercompany debt considered part of the net investment, we recognize exchange differences arising from the translation of the net investment in the statement of earnings.

 

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Business combinations

 

When we acquire a subsidiary, we account for it using the purchase method.

 

The cost of the business combination is the fair value at the date of exchange of:

 

·                  the assets we gave

·                  the liabilities we incurred or assumed, and

·                  the equity instruments we issued in exchange for control.

 

We allocate total consideration paid to the identifiable assets, liabilities and contingent liabilities (identifiable net assets) we acquired, at their fair value on the date of the acquisition, including mineral reserves and resources that can be reliably valued.

 

We expense transaction costs related to an acquisition as incurred.

 

If the fair value of our share of the identifiable net assets acquired is greater than the fair value of the consideration paid, we recognize the difference in the statement of earnings on the acquisition date.

 

Non controlling interest is the portion of an entity that we do not own (the profit or loss and net assets we are not entitled to). We record non controlling interests in equity, separate from our shareholders’ equity.

 

Revenue

 

Gross sales include the sale of all concentrate, cathode copper and gold doré. It does not include smelter processing charges and freight, which are presented as a separate line item in the statement of earnings.

 

We recognize revenue when all significant risks and rewards of ownership of our products have been transferred to the customer — usually when the customer takes on the insurance risk and the goods have been delivered to the shipping agent.

 

Most of our sales contracts set the sales price at the commodity’s market price on a specified future date. To calculate our revenue from the sale of our products, we use the forward price of the commodity for the day we expect the contract to settle. Variations between the price we record on the date of initial revenue recognition and the final price we receive due to changes in market prices represents an embedded derivative in our sales contracts. We adjust our revenue every period for any change in the value of the contract using the period end forward price for the day the contract is expected to settle. When it settles, we record the difference between the forward price and the final price we receive in revenue.

 

We recognize interest income in investment and other income, based on the principal outstanding and the effective interest rate.

 

We recognize dividends and royalties in investment and other income when we have established the right to receive payment.

 

Inventories

 

Inventories include:

 

·                  stockpiled ore, materials and supplies: ore, goods and supplies that will be consumed directly or indirectly in the production process

·                  work in process: inventory in an intermediate state that has not yet passed through all stages of the production process

·                  finished goods: concentrate, cathode copper and gold doré that are ready for sale.

 

We measure inventory at the lower of cost or net realizable value, as follows:

 

·                  cost: a weighted average that includes all costs directly related to bringing the inventory to its current location and condition, such as mining and milling costs and an allocation of production overheads and depreciation based on normal capacity

 

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·                  net realizable value: the estimated selling price less any additional costs we expect to incur for completion and sale of the related inventory.

 

We classify inventories of stockpiled ore that we do not expect to process in the next year as other assets.

 

See note 10 for a breakdown of our inventories.

 

Property, plant and equipment

 

On initial acquisition, we recognize property, plant and equipment at cost. Cost includes the purchase price, costs that can be directly attributed to acquiring it, and the cost required to bring the asset to the location and the condition necessary to operate in the way we intended it to.

 

In subsequent periods, we recognize it at cost less accumulated depreciation and any impairment in value.

 

We depreciate the cost, less estimated residual values of property, plant and equipment, as follows:

 

·                  property: depreciated in proportion to the depletion of proven and probable reserves on a unit of production basis.

·                  plant and equipment: depreciated using a straight-line method based on estimated useful life. The expected useful lives of plant and equipment range from 5 to 15 years, but do not exceed the life of mine.

 

When different parts (or components) of an asset are significant and have different useful lives, we depreciate the individual components separately, considering both a component’s physical life, and the present estimated mineral reserves at the mine where the component is located.

 

We review estimates in remaining useful lives and residual values at least annually and account for any changes prospectively.

 

When we carry out a major maintenance refit, we may replace or overhaul assets or parts of assets. When we replace an asset or a component that we have been depreciating separately, we capitalize these costs if this extends its useful life and it is probable that this will result in future economic benefits to the operation. In addition, we write off the asset or component that has been replaced. If we replace part of an asset that was not considered a component, we use the replacement value to estimate the carrying amount of the replaced asset and immediately write that off. We expense all other regular maintenance costs as incurred.

 

Exploration and evaluation expenditures

 

We expense the costs of exploration and evaluation as incurred, except for the following:

 

·                      in areas currently under development

·                      where we can reasonably expect to convert existing mineral resources into mineral reserves or add additional mineral resources with further drilling and evaluations

·                     the cost to acquire an early stage entity conducting primarily exploration and evaluation activities.

 

In the first two instances, we capitalize costs as development expenditures. In the third instance, we capitalize costs as exploration and evaluation assets.

 

Development expenditures

 

We capitalize the costs of acquiring and developing mineral reserves and resources on the balance sheet as we incur them. These costs include accessing the ore body, designing and constructing the production infrastructure, interest and financing relating to construction, and costs that can be directly attributed to bringing the assets to the condition necessary for their intended use. This includes costs during the commissioning period when required before the asset can operate at normal levels.

 

18

 

Development expenditures are not depreciated. When production begins, we reclassify these costs to the appropriate category of property, plant and equipment and depreciate them according to our accounting policy.

 

Capitalized stripping

 

In open pit mining operations, we remove overburden and other waste in order to access the ore body (stripping). During development, we capitalize the cost of stripping as part of the cost of mine development and reclassify it to property when production begins.

 

During the production phase, we capitalize these costs to property when stripping activity gives us access to reserves that would not otherwise have been accessible, and that we expect will be mined in the future. We amortize production phase stripping costs over the reserves that are directly affected by the stripping activity on a units-of-production basis.

 

See note 13 for a breakdown of our property, plant and equipment.

 

Leasing

 

We determine whether an arrangement is, or contains, a lease based on the substance of the arrangement, considering whether the arrangement is dependent on the use of a specific asset or whether the arrangement conveys a right to use the asset.

 

We classify a lease as financial when we carry substantially all of the risks and rewards of owning the asset. We capitalize assets under financial leases at either the fair value of the leased asset or the present value of the minimum lease payments over the lease term using the interest rate in the lease agreement — whichever is lower. We determine these amounts at the inception of the lease and depreciate the corresponding asset over its estimated useful life or the lease term — whichever is shorter. We recognize a corresponding amount representing our future obligation for finance leases in Other liabilities in the balance sheet, and recognize the associated accretion expense over time in finance costs in the statement of earnings.

 

We classify a lease as operating when we do not have substantially all the risks and rewards of ownership. We recognize rentals payable under operating leases in the statement of earnings on a straight line basis over the term of the lease.

 

Impairment of assets

 

At each reporting date, we look for indications of impairment of our non-current assets. If there are indicators of impairment, we carry out a formal test to see whether the asset’s carrying amount exceeds its recoverable amount.

 

An asset’s recoverable amount is its fair value less costs to sell or its value-in-use — whichever is higher.

 

·                  Fair value less costs to sell is the amount we would receive from the sale of the asset in an arm’s-length transaction between knowledgeable and willing parties. For our mining assets, we generally use the present value of future cash flows we expect from their continued use, including any expansion prospects, and from their eventual disposal. When assessing cash flows and discounting them to present value, we use assumptions that we believe an arm’s length party would consider appropriate.

 

·                  We calculate the value-in-use of an asset by using the present value of cash flows we expect from its continued use in its present form, and from its disposal, without taking into account any future development. Value-in-use is likely to be different from fair value because we use different assumptions.

 

If the carrying amount of the asset exceeds its recoverable amount, we recognize an impairment loss in the statement of earnings to reflect the lower amount of the asset. We recognize impairment losses related to continuing operations in the statement of earnings in the expense category that relates to the asset’s function.

 

19

 

We carry out these reviews for each asset, unless the asset does not generate cash flows on its own. In this case, we will carry out the review at the cash-generating unit level. Cash generating units are the smallest identifiable group of assets and liabilities that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. This generally results in an evaluation of assets at the mine entity level.

 

We reverse an impairment loss in the statement of earnings if the estimates we used to calculate the recoverable amount have changed since we recognized the impairment. We increase the carrying amount to the recoverable amount, net of the depreciation or amortization that would have arisen if we had not recognized the original impairment loss.

 

After a reversal, we recognize depreciation over the asset’s remaining useful life based on its revised carrying amount, less any residual value.

 

Government subsidies

 

We recognize government subsidies when there is reasonable assurance we will receive the subsidy and will comply with all of the associated conditions. We credit government subsidies related to a capital expenditure against the carrying amount of the related asset, and amortize the subsidy over the expected useful life of the asset. We credit subsidies that are not associated with an asset to income, to match them with the expenses they relate to.

 

Provisions for asset retirement obligations

 

Our mines, closed properties and joint ventures are subject to environmental laws and regulations in Canada and the other countries we operate in. Mining companies are legally obligated to rehabilitate land and other property that has been damaged or contaminated in the course of their business activities. While rehabilitation activities usually happen after the site has been closed, companies are required to estimate reclamation costs from both operating sites and closed sites.

 

We incur obligations to restore and rehabilitate land and the environment as we carry out the regular construction and operation of our mines. Costs can include, among other things, the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas. We recognize a provision for these costs as the related disturbances occur, using our best estimate of future costs based on information available at the balance sheet date, including an adjustment for risk when there is significant variability in possible outcomes. We discount the provision using a current inflation adjusted pre-tax risk free interest rate and include the accretion of the discounted amount over time in finance costs in the statement of earnings.

 

When we recognize a provision, we record a corresponding increase in the carrying amount of the related asset (where we can identify one) and recognize depreciation following our accounting policies for property, plant and equipment.

 

We review these provisions annually for changes to our obligations, legislation or discount rates that affect our cost estimates or lives of operations. We adjust the provision and the cost of the related asset (where we can identify one) when there is a change in the estimated cash flows or discount rate, and depreciate the adjusted cost of the asset prospectively.

 

When we do not identify an asset, such as at our closed sites, we record a provision or a change in provision in cost of sales.

 

See note 17(a) for details about our asset retirement obligations.

 

Other provisions

 

We recognize a provision when we have a legal or constructive obligation because of past events, and it is probable that, to settle the obligation, we will be required to make a payment that we can reliably estimate. If its effect is material, we discount the provision to net present value using a pre-tax risk free interest rate. We recognize the accretion of discounted provisions over the time of the obligation in finance costs in the statement of earnings.

 

20

 

Income taxes

 

We calculate current income tax expense for each of our taxable entities based on the local taxable income at the local statutory tax rate enacted or substantively enacted at the balance sheet date, and include adjustments to income taxes payable or recoverable for previous periods.

 

We calculate deferred tax assets and liabilities based on temporary differences between the carrying amounts in our balance sheet and their tax bases, using income tax rates we expect to be in effect when the temporary differences are likely to be settled. We present all deferred taxes as non-current assets and liabilities on the balance sheet.

 

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

 

We only recognize deferred tax assets when it is probable that we will have enough taxable income in the future to recover them. We include the effects of changes in tax rates in income when the change is enacted or substantively enacted.

 

We recognize deferred tax assets or liabilities for all temporary differences, except for:

 

·                  A deferred tax liability on the initial recognition of goodwill;

·                  A deferred tax asset or liability arising from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting profit or loss nor taxable profit or loss; and

·                  A deferred tax liability with respect to investments in subsidiaries, branches, associates and interests in joint ventures, when we can control the timing of the reversal of the temporary difference and that it is probable that the temporary difference will not reverse in the foreseeable future.

 

We review the carrying amount of deferred income tax assets at each balance sheet date and adjust it if:

 

·                  an asset not previously recognized meets the criteria for recognition

·                  our estimate of future taxable income available to recover them changes.

 

We recognize current and deferred tax that relates to equity items in equity, and not in the statement of earnings.

 

See note 15 for details about our income taxes.

 

Assets held for sale and discontinued operations

 

Assets held for sale

 

We classify assets and disposal groups as held for sale if we will recover their carrying amounts through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the assets or disposal groups are available for immediate sale in their present condition. We must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year of the date of classification.

 

We carry assets (or disposal groups) held for sale at the lower of the carrying amount before being classified as held for sale, and the fair value less costs to sell. We present the assets and liabilities of a disposal group classified as held for sale separately as one line in the assets and liabilities sections on the statement of financial position.

 

Discontinued operations

 

A discontinued operation is a component of an entity that has been disposed of or classified as

 

21

 

held for sale, with operations and cash flows that are clearly distinguished both operationally and for financial reporting purposes from the rest of the entity. To be classified as a discontinued operation, an operation must:

 

·                   represent a separate major line of business or geographical area of operations

·                   be part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or

·                  be a subsidiary acquired only for resale.

 

When the operation is discontinued at the balance sheet date, the results are presented in one line on the statement of earnings, and prior period results are represented as discontinued.

 

See note 12 for a breakdown of our results from discontinued operations.

 

Cash and short-term investments

 

Cash includes cash and money market instruments that mature in 90 days or less from the date of acquisition. Short-term investments mature in 91 days to a year.

 

In the consolidated statements of cash flows, we disclose:

 

·                  short-term investments we buy with cash during the year as cash used in investing activities

·                  short-term investments we sell to generate cash as a source of cash from investing activities

 

See note 7 for a breakdown of our cash and short-term investments.

 

Restricted cash

 

Restricted cash includes cash that has been pledged for other uses, such as reclamation, and is not available for immediate disbursement.

 

See note 8 for a breakdown of our restricted cash.

 

Financial instruments

 

Financial instruments include cash, as well as any contract that gives rise to a financial asset to one party and a financial liability or equity instrument to another party. We classify financial instruments at their initial recognition. We initially recognize financial instruments at their fair value.

 

Fair value is the value a financial instrument can be closed out or sold at, in a transaction with a willing and knowledgeable counterparty. It is usually the instrument’s quoted market price. If a quoted market price is not available, we determine fair value with models using market-based or independent information and assumptions.

 

Cash and short-term investments, accounts receivable from metal sales, restricted cash and accounts payable and accrued liabilities

 

These financial instruments have been designated as fair value through profit and loss and are recorded at fair value. We record any changes in their fair value in net income. We record interest and dividends earned on cash, short-term investments and restricted cash in Investment and other income. For cash, we calculate fair value using published price quotations in an active market where there is one. Otherwise fair value represents cost plus accrued interest, which is reasonable given its short-term nature. We record accounts receivable related to metal sales at fair value based on forward market metal prices on the date of the balance sheet (see our Revenue policy above). We record accounts payable and accrued liabilities at amortized cost, which approximates fair value because of their short-term nature.

 

Investments

 

Our investments in equity securities are designated as available-for-sale and recorded at fair value. We calculate fair value using the bid price of the investment as quoted in an active market. We record changes in the fair value of our investments in Other comprehensive income. The change in fair value of an investment in an equity security appears in Investment and other income only when it is sold or impaired.

 

22

 

See note 14 for a breakdown of our investments in equity securities.

 

Our investments in long-term government and corporate bonds are designated as held to maturity. We initially recognize these investments at fair value and subsequently at amortized cost with the related interest income recorded in Investment and other income. We only designate investments as held to maturity when we intend, and have the ability, to hold them to maturity.

 

We capitalize transaction costs related to investments we make and include these in the investment’s initial carrying value.

 

Loans and receivables

 

All non-metal receivables are designated as loans and receivables. We initially measure these assets at fair value. In subsequent periods, we measure them at amortized cost using the effective interest rate method.

 

Long-term debt

 

Our long-term debt is designated as other liabilities and is accounted for at amortized cost. We record interest expense on long-term debt in finance costs in the statement of earnings unless it relates specifically to a development project, and has been accounted for using our accounting policy for borrowing costs.

 

See note 18 for details of our long-term debt.

 

Derecognition of financial instruments

 

We will derecognize a financial asset when:

 

·                  our rights to receive cash flows from the asset have expired

·                  our right to receive cash flows has been retained, but we have assumed an obligation to pay them in full to a third party without material delay, or

·                  our right to receive cash flows has been transferred, together with substantially all the risks and rewards of ownership.

 

We derecognize financial liabilities when the associated obligation is discharged, cancelled or has expired.

 

Impairment of financial assets

 

We review our investments for impairment at the end of each reporting period based on both quantitative and qualitative criteria, including the extent that cost exceeds market value, the length of a market decline and the financial health of the issuer.

 

For loans and receivables and our investments in long-term bonds, we measure the amount of the loss as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. We reduce the carrying amount of the asset and recognize the amount of the loss in the income statement in investment and other income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, we reverse the previously recognized impairment loss. We recognize any subsequent reversal of an impairment loss in the income statement, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

 

If our investments in equity securities are impaired, we transfer the difference between its cost and its current fair value, less any impairment loss previously recognized in the income statement, from accumulated other comprehensive income to the income statement in investment and other income.

 

Embedded derivatives

 

When we enter into a contract, we determine whether it contains an embedded derivative. We separate an embedded derivative from its host contract if the derivative is not measured at fair value through profit and loss, and when its economic characteristics and risks are not closely

 

23

 

related to the host contract. In these circumstances, we recognize the embedded derivative according to our accounting policy for derivatives.

 

Derivatives and hedging

 

We designate non-financial derivative contracts as held-for-trading and record them at fair value on the balance sheet. We include mark-to-market adjustments on these instruments in net income, unless the instruments are designated as part of a hedge relationship.

 

We record derivatives on the balance sheet at fair value. On the date we enter into a derivative, we designate it as a hedging instrument or a non-hedge derivative. A hedging instrument is designated in either:

 

·                  a fair value hedge relationship with a recognized asset or liability, or

·                  a cash flow hedge relationship with either a forecasted transaction, the variable future cash flows arising from a recognized asset or liability, or a foreign currency risk in an unrecognized firm commitment.

 

When we enter into a hedging contract, we formally document the relationship between the hedging instrument and the items it hedges, and the related risk-management strategy. This documentation:

 

·                  links the hedging instrument to a specific asset or liability, specific forecasted transaction, firm commitment or variable future cash flows

·                  defines how we assess retrospective and prospective hedge effectiveness.

 

At the end of every quarter, we determine whether we expect a hedging instrument to be highly effective in offsetting risk in the future. If we do not expect it to be highly effective, we stop hedge accounting prospectively, and keep accumulated gains or losses in other comprehensive income until the hedged item affects earnings.

 

We also stop hedge accounting prospectively if:

 

·                  a derivative is settled

·                  it is no longer highly probable that a forecasted transaction will occur

·                  we de-designate a hedging relationship.

 

If we conclude that it is probable that a forecasted transaction will not happen within the documented time frame, we immediately transfer all gains and losses accumulated in other comprehensive income to earnings. When hedge accounting stops, we reclassify the derivative as a non-hedge derivative prospectively.

 

We classify cash flows from a derivative in the same category as the cash flows from the item it hedges. We record cash flows from non-hedge derivatives as operating cash flows.

 

We record derivatives on the balance sheet at fair value and record changes in the fair value of derivatives at the end of every period:

 

·                  fair value hedges: we record the change in the fair value of the derivative and the item it hedges in earnings

·                 cash flow hedges: we record the change in the fair value of the derivative in other comprehensive income until earnings are affected by the item it hedges, except for any hedge ineffectiveness which we immediately record in earnings

·                  non-hedge derivatives: we record the change in the fair value of the derivative in investment and other income.

 

Borrowing costs

 

When we can attribute borrowing costs directly to the acquisition, construction or production of an asset that takes a substantial period of time to get ready for its intended use, we capitalize these costs as part of the asset’s carrying value and amortize them over its useful life. Otherwise, we capitalize borrowing costs related to the establishment of a loan facility as long-term debt, and amortize them over the life of the loan facility.

 

24

 

We recognize other borrowing costs as an expense when we incur them.

 

Share capital

 

When we issue common shares, we recognize them in share capital at the net proceeds received (the fair value of the consideration we received, less costs we incurred to issue the shares).

 

Share-based compensation plans

 

We have a number of equity-settled and cash settled share-based compensation plans for senior management under which we issue either Inmet common shares or make cash payments based on the value of Inmet common shares. We calculate the cumulative expense at each balance sheet date before vesting, basing it on the vesting period remaining and our best estimate of the fair value of awards that we ultimately expect to vest, and recognize any change in the statement of earnings in general and administration. Annually, we adjust the estimated forfeiture rate for actual forfeitures in the year. For equity settled awards, we determine the fair value at the grant date and recognize our obligation in equity. For cash-settled awards, we recalculate the fair value at each balance sheet date until the awards are settled and recognize our obligation as a liability. Our share-based compensation plans comprise the following:

 

Stock option plan: Stock options are equity-settled by issuing shares from treasury. We estimate the fair value of stock options at the grant date using the Black-Scholes option pricing model. Options vest evenly over a four-year period.

 

Performance share unit (PSU) plan: PSUs are cash-settled and are subject to certain vesting requirements and vest at the end of a three year performance period. Vesting requirements are based on performance criteria established by the board of directors (Board). We re-measure the fair value of PSUs at each balance sheet date using a Monte Carlo pricing model that takes into account expected volatility, expected dividend yield and the risk-free interest rate over the life of the PSUs to generate potential outcomes for share prices, which are used to estimate the probability of the PSUs vesting at the end of the three year performance measurement period. A Monte Carlo pricing model is a technique used to approximate the probability of certain outcomes, called simulations, based on normally distributed random variables and highly subjective assumptions. This model generates potential outcomes for stock prices and allows for the simulation of multiple stocks in tandem resulting in an estimated probability of vesting.

 

Deferred share unit (DSU) program: this program allows Inmet directors to receive director fees in the form of DSUs rather than cash. DSUs are equity-settled by issuing shares from treasury and directors can only redeem their units for Inmet common shares when they retire. DSUs are fully vested when granted. We determine the fair value of DSUs at the grant date based on the closing trading price of an Inmet common share.

 

Long-term incentive plan (LTIP): this plan ties a portion of incentive compensation to the completion of specific development projects as defined under the plan. LTIP units are equity-settled by issuing shares from treasury. The Board uses its discretion to determine the vesting date for an award, but vesting is generally when the development project is determined to be substantially complete and has operated for enough time to be able to assess its ongoing operating parameters. The Board determines the number of units that vest by assessing senior management’s performance against the expectations underlying the Board’s original decision to develop the project. We calculate the stock based compensation expense using the estimated vesting date for the project associated with an award, and an estimate of senior management’s ultimate performance for an award based on performance to date (estimated performance). We determine the fair value of LTIP units at the grant date based on the closing trading price of an Inmet common share.

 

Share award plan (SAP): at the time a share award is made, it is equity-settled by purchasing an equivalent number of Inmet common shares on the open market and we record this amount against contributed surplus. The share awards vest evenly over a period of four years.

 

See note 22 for more information related to our share based compensation plans.

 

25

 

Net income per share

 

We calculate basic net income per share by dividing net income available to the common shareholders of Inmet Mining by the weighted average number of common shares outstanding for the year.

 

We calculate diluted net income per share by taking into consideration the dilutive effects of stock options, DSUs and LTIP units. For stock options, we calculate dilution based upon the net number of common shares to be issued assuming in-the-money options are exercised and the proceeds are used to repurchase common shares at the average market price in the period. We also adjust the weighted average number of common shares by the number of DSUs outstanding and the number of LTIP units that are expected to vest.

 

See note 28 for our calculation of basic and diluted net income per share.

 

Employee future benefits

 

We provide a defined contribution retirement benefit to employees in Canada.

 

Employees in the other jurisdictions where we operate either have state pension arrangements or do not receive pension benefits.

 

Certain employees take part in the defined contribution employee benefit plans. Our cost for these plans is the required contributions based on specified percentages of salaries we are required to make.

 

For certain executives, our total contribution to the defined contribution component of the registered plan, including the annual cash payment in lieu of a supplementary pension plan, is equivalent to 9 to 12 percent of their salary and bonus.

 

We expense contributions as they come due.

 

4.              Application of critical accounting judgements and estimates

 

Preparing our consolidated financial statements in conformity with IFRS requires us to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements, and reported amounts of revenues and expenses during the reporting period. Our estimates and assumptions are based on our experience and other factors, including expectations of future events that we believe to be reasonable under the circumstances. We continuously evaluate these estimates, but actual outcomes could be different.

 

The most critical judgements, estimates and assumptions are described below.

 

Purchase price allocation  

 

We account for acquisitions by the purchase method of accounting whereby the purchase price is allocated to the assets acquired and the liabilities assumed based on fair value at the time of the acquisition. The excess purchase price over the fair value of identifiable assets and liabilities acquired is goodwill. The determination of fair value often requires us to make assumptions and estimates about future events. The assumptions and estimates with respect to determining the fair value of property, plant and equipment acquired generally require a high degree of judgement, and include estimates of mineral reserves acquired, future metal prices and discount rates. Changes in any of the assumptions or estimates used in determining the fair value of acquired assets and liabilities could impact the amounts assigned to assets, liabilities and goodwill in the purchase price allocation.

 

Estimated mineral reserves  

 

Our mineral reserves are estimates of the amount of ore that can be economically and legally extracted from our mining properties. To calculate reserves, we use estimates and assumptions

 

26

 

about a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production and freight costs, commodity prices and exchange rates. Our reserves for all operations are estimated based on information compiled by or under the supervision of a qualified person as defined under National Instrument 43-101.

 

Changes in our reserve estimates can affect:

 

·                  asset carrying values due to changes in estimated future cash flows and impairment analysis

·                  depreciation in the statement of earnings, when depreciation is based on units of production, or when the useful economic life of an asset changes

·                  asset retirement obligations where changes in estimated reserves affect expectations about the timing or cost of these activities.

 

Provision for asset retirement obligations

 

Our closed mines, operations and joint ventures are subject to environmental laws and regulations in Canada, the United States and the other countries in which we operate.

 

Our provision for asset retirement obligations is our best estimate of the present value of the future costs of mine closure, and involves a significant number of technical issues, estimates and assumptions, with many uncertainties, including changes to the relevant legal and regulatory framework, the magnitude of possible contamination and the timing and extent of the cost of required restoration activities. We will record any changes that arise prospectively, as follows:

 

·                  operating mines: we record changes in the balance sheet by adjusting the reclamation asset and provision, which affects both future depreciation and finance costs

·                  closed properties: we immediately recognize changes to estimated costs in the statement of earnings as cost of sales.

 

Impairment of assets

 

If we believe an asset may be impaired, we calculate its recoverable amount as either its fair value less costs to sell, or its value in use (whichever is higher), following our Impairment of assets accounting policy described in note 3.

 

When following this policy, we make estimates and assumptions about future production and sales volumes, future commodity prices, recoverable mineral reserves, discount rates, foreign exchange rates, future operating and capital costs. We may also make assumptions about our ability to obtain financing for a project or to recover costs by selling an asset. Actual outcomes could be different.

 

Income taxes

 

We operate in a number of countries around the world and are subject to, and pay annual income taxes under the regimes in countries in which we operate. These tax regimes are determined under general corporate income tax laws in those countries. We file all required income tax returns and pay the taxes reasonably determined to be due.

 

The tax laws in many countries can be complex and subject to interpretation. From time to time, there may be disagreement with the taxing authorities over our interpretation of the country’s income tax rules. The final outcome of these disputes could be materially different from our estimated tax liabilities.

 

We have significant Canadian tax benefits from capital losses, capital cost allowances and mining resource pools. We only recognize deferred tax assets arising from tax loss carry forwards, capital losses and temporary differences when it is probable that we will have enough taxable income in the future to recover them, therefore this is dependent on the generation of sufficient future taxable income.

 

Our estimates of future taxable income include assumptions about interest rates, foreign currency exchange rates and other factors. Our deferred tax asset could be reduced if future taxable income is reduced resulting in a corresponding charge to income tax expense in the statement of earnings.

 

27

 

See note 15 for a breakdown of our deferred tax asset.

 

Plant construction

 

In the construction of plant and equipment, we capitalize costs that can be directly attributed to bringing the asset into working condition for its intended use, including costs during a commissioning period, before the asset is able to operate at normal levels.

 

We use several criteria to determine when an asset is able to operate at normal levels. These are complex, and depend on each development property’s plan and its economic, political and environmental condition. Criteria can include:

 

·                  producing saleable material

·                  completing a reasonable period of testing of the plant and equipment in the mine, mill and/or plant

·                  achieving certain level of recoveries from the ore mined and processed

·                  sustaining ongoing production and reaching a certain level of production.

 

Once these criteria are met, we stop capitalizing the costs related to the commissioning period, and begin to recognize production costs in the statement of earnings.

 

5.              Standards issued but not yet effective

 

The IASB has issued the following new standards and amendments to existing standards. These changes in accounting are not yet effective at December 31, 2011, and could have an impact in future periods:

 

	
IFRS 9
    	
 
    	
Financial   instruments
    	
 
    	
IFRS 9   simplifies the current measurement model for financial instruments under IFRS   and establishes two measurement categories for financial assets: amortized   cost and fair value. Existing IAS 39 categories of loans and receivables,   held-to-maturity investments, and available-for-sale financial assets will be   eliminated. A financial asset can be measured at amortized cost when:

 

·      the objective of the business model is to hold   assets in order to collect contractual cash flows, and

·      the contractual terms give rise, on   contractual dates, to cash flows that are solely payments of principal and   interest on principal outstanding.

 

All other   financial assets are measured at fair value.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
IFRS 7 and IAS   32
    	
 
    	
Offsetting   financial assets and liabilities
    	
 
    	
The IASB   published amendments to IFRS 7 and IAS 32, the standards that address   disclosure and presentation requirements for financial instruments,   respectively, related to offsetting financial assets and liabilities. The   amendments provide new disclosure requirements relating to offsetting of   financial asset and financial liabilities and do not change the criteria   required for offsetting. We expect this standard will not result in a   significant impact to our consolidated financial statements.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
IFRS 10
    	
 
    	
Consolidated   financial statements
    	
 
    	
IFRS 10   provides a definition of control determined by the following three elements:   power over an investee, exposure to variable returns from an investee, and   the ability to use power to affect the reporting entity’s returns. Power is   not defined as the legal or contractual right to direct activities, but is   based on the ability to direct activities, which requires the entity to   exercise significant judgment. Accounting requirements and consolidation procedures   remain unchanged from IAS 27.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
IFRS 11
    	
 
    	
Joint   arrangements
    	
 
    	
IFRS 11   introduces a principle-based approach where a party to a joint arrangement   recognizes its own rights and obligations arising from the arrangement. Joint   arrangements not structured through a separate vehicle are classified as a   “joint operation” and the accounting for transactions is in accordance with   the contractual arrangement. Joint arrangements structured through a separate   vehicle must be evaluated based on their legal form and the terms of the   contractual arrangement; these arrangements are classified as either a joint   operation or a joint venture based on this evaluation. Joint ventures
    

 

28

 

	
 
    	
 
    	
 
    	
 
    	
are accounted   for using the equity method. The most significant impact of this standard is   therefore the elimination of proportionate consolidation as a method to   account for joint arrangements.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
IFRS 12
    	
 
    	
Disclosure of   interests in other entities
    	
 
    	
IFRS 12   enhances, and replaces the disclosure requirements for subsidiaries, joint   arrangements, associates and unconsolidated structured entities. The standard   requires a reporting entity to disclose information that helps users assess   the nature and financial effects of the reporting entity’s relationship with   other entities. Disclosure requirements include information that helps users   in understanding the judgments and assumptions made by a reporting entity   when deciding how to classify its involvement with another entity, understand   the interest that non-controlling interests have in consolidated entities,   and assess the nature of the risks associated with interests in other   entities.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
IFRS 13
    	
 
    	
Fair value   measurement
    	
 
    	
IFRS 13 defines   fair value, sets a framework for measuring fair value, and requires   disclosures about fair value measurements. Generally, the standard does not   introduce new requirements to measure assets or liabilities at fair value,   change what is measured at fair value in IFRS, or address how to present changes   in fair value, but rather consolidates guidance on fair value into a single   standard and better clarifies measurement and disclosure objectives.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
IAS 19
    	
 
    	
Employee   benefits
    	
 
    	
The IASB   published amendments to IAS 19, the standard dealing with accounting for   pensions and other post-retirement and post-employment benefits, most   significantly:

 

·    Immediate recognition of all changes in a   plan’s funded status (i.e. removal of the corridor approach option for   recognizing actuarial gains and losses)

·    streamlining the presentation of changes in   assets and liabilities arising from defined benefit plans, including   requiring re-measurements to be presented in other comprehensive income   (OCI), thereby separating those changes from changes that many perceive to be   the result of an entity’s day-to-day operations

·    expanded disclosures about defined benefit   plans, with an additional focus on describing the risks to which the plan   sponsor is exposed because of the plan and the effect of the plan on the plan   sponsor’s future cash flows

·    We expect this standard will not result in a   significant impact to our consolidated financial statements.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
IFRIC 20
    	
 
    	
Stripping costs   in the production phase of a surface mine
    	
 
    	
IFRIC 20 is a   new interpretation issued to provide guidance on stripping costs incurred in   the production phase of a surface mine. The interpretation requires that   production stripping costs incurred as part of a stripping campaign are   capitalized as a component of the larger asset to which they relate.   Subsequent to initial recognition, the component is recognized at cost less   amortization, based on the expected useful life of the specific section of   ore body that becomes directly accessible as a result of the stripping   campaign, and less any impairment losses. As this guidance is consistent with   our current accounting policy for stripping costs, we do not expect this   interpretation to have a significant effect on our consolidated financial   statements.
    

 

We are currently assessing the impact that IFRS’s 9, 10, 11 and 12 will have on our consolidated financial statements.

 

29

 

6.              First time adoption of IFRS

 

We have adopted IFRS from January 1, 2011, as required for publicly accountable enterprises in Canada.

 

Our transition date is January 1, 2010 and we have adjusted the 2010 comparative information from what was previously reported under Canadian GAAP in order to conform to IFRS.

 

Under IFRS 1 — First time adoption of International Financial Reporting Standards, we must apply IFRS retrospectively at the transition date, changing retained earnings to incorporate all adjustments to assets and liabilities as stated previously under Canadian GAAP, except where we apply any exemptions that are available. We have applied the following significant exemptions:

 

·            we did not restate acquisitions we made prior January 1, 2010 in accordance with IFRS 3 — Business combinations

·            we reset the cumulative translation gains and losses in accumulated other comprehensive income to nil at January 1, 2010 and made the corresponding adjustment to retained earnings

·            we applied IFRS 2 — Share based payments only to equity settled share based payment awards we granted after November 7, 2002 and that had not vested by January 1, 2010

·            for certain mines, we used a transitional calculation to determine the property, plant and equipment associated with our provision for asset retirement obligations. Under this calculation, we measured the provision at the transition date and discounted to the date the liability first arose. The result became the initial asset value we applied depreciation to.

 

30

 

Balance sheet reconciliations

 

The schedule below reconciles our Canadian GAAP and IFRS balance sheets as at January 1, 2010 (our transition date to IFRS).

 

	
 
    	
 
    	
Canadian
   GAAP
    	
 
    	
Re-
   classifications
    	
 
    	
Subtotal
    	
 
    	
Adjustments
    	
 
    	
Notes
    	
 
    	
IFRS
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current assets:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and short-term investments 
    	
 
    	
$
    	
533,913
    	
 
    	
$
    	
—
    	
 
    	
$
    	
533,913
    	
 
    	
$
    	
—
    	
 
    	
 
    	
 
    	
$
    	
533,913
    	
 
    
	
Restricted cash
    	
 
    	
15,130
    	
 
    	
—
    	
 
    	
15,130
    	
 
    	
—
    	
 
    	
 
    	
 
    	
15,130
    	
 
    
	
Accounts receivable 
    	
 
    	
129,987
    	
 
    	
—
    	
 
    	
129,987
    	
 
    	
25,774
    	
 
    	
i
    	
 
    	
155,761
    	
 
    
	
Inventories
    	
 
    	
103,108
    	
 
    	
—
    	
 
    	
103,108
    	
 
    	
(4,784
    	
)
    	
i, ii
    	
 
    	
98,324
    	
 
    
	
Current portion of held to maturity investments
    	
 
    	
9,993
    	
 
    	
—
    	
 
    	
9,993
    	
 
    	
—
    	
 
    	
 
    	
 
    	
9,993
    	
 
    
	
Deferred income tax assets
    	
 
    	
8,466
    	
 
    	
(8,466
    	
)
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
800,597
    	
 
    	
(8,466
    	
)
    	
792,131
    	
 
    	
20,990
    	
 
    	
 
    	
 
    	
813,121
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Restricted cash 
    	
 
    	
101,589
    	
 
    	
—
    	
 
    	
101,589
    	
 
    	
—
    	
 
    	
 
    	
 
    	
101,589
    	
 
    
	
Property, plant and equipment
    	
 
    	
1,860,616
    	
 
    	
—
    	
 
    	
1,860,616
    	
 
    	
85,053
    	
 
    	
ii, iii, iv, v
    	
 
    	
1,945,669
    	
 
    
	
Investments 
    	
 
    	
42,411
    	
 
    	
—
    	
 
    	
42,411
    	
 
    	
—
    	
 
    	
 
    	
 
    	
42,411
    	
 
    
	
Held to maturity investments
    	
 
    	
89,891
    	
 
    	
—
    	
 
    	
89,891
    	
 
    	
—
    	
 
    	
 
    	
 
    	
89,891
    	
 
    
	
Deferred income tax assets
    	
 
    	
6,151
    	
 
    	
5,076
    	
 
    	
11,227
    	
 
    	
(8,867
    	
)
    	
vii, viii
    	
 
    	
2,360
    	
 
    
	
Other assets
    	
 
    	
2,894
    	
 
    	
—
    	
 
    	
2,894
    	
 
    	
(991
    	
)
    	
 
    	
 
    	
1,903
    	
 
    
	
 
    	
 
    	
$
    	
2,904,149
    	
 
    	
$
    	
(3,390
    	
)
    	
$
    	
2,900,759
    	
 
    	
$
    	
96,185
    	
 
    	
 
    	
 
    	
$
    	
2,996,944
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current liabilities:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts payable and accrued liabilities
    	
 
    	
$
    	
185,145
    	
 
    	
$
    	
(15,047
    	
)
    	
$
    	
170,098
    	
 
    	
$
    	
426
    	
 
    	
i
    	
 
    	
$
    	
170,524
    	
 
    
	
Provisions
    	
 
    	
—
    	
 
    	
17,417
    	
 
    	
17,417
    	
 
    	
—
    	
 
    	
 
    	
 
    	
17,417
    	
 
    
	
Derivatives
    	
 
    	
1,543
    	
 
    	
—
    	
 
    	
1,543
    	
 
    	
—
    	
 
    	
 
    	
 
    	
1,543
    	
 
    
	
Deferred income tax liabilities
    	
 
    	
4,612
    	
 
    	
(4,612
    	
)
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
191,300
    	
 
    	
(2,242
    	
)
    	
189,058
    	
 
    	
426
    	
 
    	
 
    	
 
    	
189,484
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Long-term debt
    	
 
    	
200,026
    	
 
    	
—
    	
 
    	
200,026
    	
 
    	
—
    	
 
    	
 
    	
 
    	
200,026
    	
 
    
	
Asset retirement obligations
    	
 
    	
145,038
    	
 
    	
(145,038
    	
)
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
—
    	
 
    
	
Provisions
    	
 
    	
—
    	
 
    	
156,456
    	
 
    	
156,456
    	
 
    	
39,974
    	
 
    	
vi
    	
 
    	
196,430
    	
 
    
	
Other liabilities
    	
 
    	
32,113
    	
 
    	
(11,418
    	
)
    	
20,695
    	
 
    	
—
    	
 
    	
 
    	
 
    	
20,695
    	
 
    
	
Derivatives
    	
 
    	
3,165
    	
 
    	
—
    	
 
    	
3,165
    	
 
    	
—
    	
 
    	
 
    	
 
    	
3,165
    	
 
    
	
Deferred income tax liabilities
    	
 
    	
16,357
    	
 
    	
(1,148
    	
)
    	
15,209
    	
 
    	
10,523
    	
 
    	
vii, viii
    	
 
    	
25,732
    	
 
    
	
Non-controlling interest
    	
 
    	
78,005
    	
 
    	
(78,005
    	
)
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
666,004
    	
 
    	
(81,395
    	
)
    	
584,609
    	
 
    	
50,923
    	
 
    	
 
    	
 
    	
635,532
    	
 
    
	
Equity
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Share capital 
    	
 
    	
669,952
    	
 
    	
—
    	
 
    	
669,952
    	
 
    	
—
    	
 
    	
 
    	
 
    	
669,952
    	
 
    
	
Contributed surplus
    	
 
    	
63,296
    	
 
    	
—
    	
 
    	
63,296
    	
 
    	
1,513
    	
 
    	
 
    	
 
    	
64,809
    	
 
    
	
Stock based compensation
    	
 
    	
5,170
    	
 
    	
—
    	
 
    	
5,170
    	
 
    	
—
    	
 
    	
 
    	
 
    	
5,170
    	
 
    
	
Retained earnings
    	
 
    	
1,541,803
    	
 
    	
—
    	
 
    	
1,541,803
    	
 
    	
(14,694
    	
)
    	
 
    	
 
    	
1,527,109
    	
 
    
	
Accumulated other comprehensive income (loss)
    	
 
    	
(42,076
    	
)
    	
—
    	
 
    	
(42,076
    	
)
    	
61,169
    	
 
    	
ix
    	
 
    	
19,093
    	
 
    
	
Total equity attributable to Inmet equity   holders 
    	
 
    	
2,238,145
    	
 
    	
—
    	
 
    	
2,238,145
    	
 
    	
47,988
    	
 
    	
 
    	
 
    	
2,286,133
    	
 
    
	
Non-controlling interest
    	
 
    	
—
    	
 
    	
78,005
    	
 
    	
78,005
    	
 
    	
(2,726
    	
)
    	
 
    	
 
    	
75,279
    	
 
    
	
Total equity
    	
 
    	
2,238,145
    	
 
    	
78,005
    	
 
    	
2,316,150
    	
 
    	
45,262
    	
 
    	
 
    	
 
    	
2,361,412
    	
 
    
	
Total liabilities and equity
    	
 
    	
$
    	
2,904,149
    	
 
    	
$
    	
(3,390
    	
)
    	
$
    	
2,900,759
    	
 
    	
$
    	
96,185
    	
 
    	
 
    	
 
    	
$
    	
2,996,944
    	
 
    

 

31

 

The schedule below reconciles our Canadian GAAP and IFRS balance sheets as at December 31, 2010.

 

	
 
    	
 
    	
Canadian
   GAAP
    	
 
    	
Re-
   classifications
    	
 
    	
Subtotal
    	
 
    	
Adjustments
    	
 
    	
Notes
    	
 
    	
IFRS
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current assets:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and short-term investments 
    	
 
    	
$
    	
326,425
    	
 
    	
$
    	
—
    	
 
    	
$
    	
326,425
    	
 
    	
$
    	
—
    	
 
    	
 
    	
 
    	
$
    	
326,425
    	
 
    
	
Restricted cash
    	
 
    	
617
    	
 
    	
—
    	
 
    	
617
    	
 
    	
—
    	
 
    	
 
    	
 
    	
617
    	
 
    
	
Accounts receivable 
    	
 
    	
91,893
    	
 
    	
—
    	
 
    	
91,893
    	
 
    	
27,533
    	
 
    	
i
    	
 
    	
119,426
    	
 
    
	
Inventories
    	
 
    	
84,077
    	
 
    	
—
    	
 
    	
84,077
    	
 
    	
(11,923
    	
)
    	
i, x
    	
 
    	
72,154
    	
 
    
	
Current portion of held to maturity investments
    	
 
    	
53,915
    	
 
    	
—
    	
 
    	
53,915
    	
 
    	
—
    	
 
    	
 
    	
 
    	
53,915
    	
 
    
	
Deferred income tax assets
    	
 
    	
27,614
    	
 
    	
(27,614
    	
)
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
—
    	
 
    
	
Assets held for sale
    	
 
    	
282,255
    	
 
    	
—
    	
 
    	
282,255
    	
 
    	
36,827
    	
 
    	
xi
    	
 
    	
319,082
    	
 
    
	
 
    	
 
    	
866,796
    	
 
    	
(27,614
    	
)
    	
839,182
    	
 
    	
52,437
    	
 
    	
 
    	
 
    	
891,619
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Restricted cash 
    	
 
    	
70,059
    	
 
    	
—
    	
 
    	
70,059
    	
 
    	
—
    	
 
    	
 
    	
 
    	
70,059
    	
 
    
	
Property, plant and equipment
    	
 
    	
1,921,843
    	
 
    	
—
    	
 
    	
1,921,843
    	
 
    	
(185,778
    	
)
    	
ii, iii, iv, v, x
    	
 
    	
1,736,065
    	
 
    
	
Investments in equity securities
    	
 
    	
2,694
    	
 
    	
—
    	
 
    	
2,694
    	
 
    	
—
    	
 
    	
 
    	
 
    	
2,694
    	
 
    
	
Held to maturity investments
    	
 
    	
318,615
    	
 
    	
—
    	
 
    	
318,615
    	
 
    	
—
    	
 
    	
 
    	
 
    	
318,615
    	
 
    
	
Deferred income tax assets
    	
 
    	
1,336
    	
 
    	
12,782
    	
 
    	
14,118
    	
 
    	
(5,397
    	
)
    	
vii, viii
    	
 
    	
8,721
    	
 
    
	
Goodwill
    	
 
    	
76,368
    	
 
    	
—
    	
 
    	
76,368
    	
 
    	
(76,368
    	
)
    	
x
    	
 
    	
—
    	
 
    
	
Other assets
    	
 
    	
4,865
    	
 
    	
—
    	
 
    	
4,865
    	
 
    	
(2,530
    	
)
    	
 
    	
 
    	
2,335
    	
 
    
	
 
    	
 
    	
$
    	
3,262,576
    	
 
    	
$
    	
(14,832
    	
)
    	
$
    	
3,247,744
    	
 
    	
$
    	
(217,636
    	
)
    	
 
    	
 
    	
$
    	
3,030,108
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current liabilities:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts payable and accrued liabilities
    	
 
    	
$
    	
153,111
    	
 
    	
$
    	
(17,668
    	
)
    	
$
    	
135,443
    	
 
    	
$
    	
902
    	
 
    	
i
    	
 
    	
$
    	
136,345
    	
 
    
	
Provisions
    	
 
    	
—
    	
 
    	
17,668
    	
 
    	
17,668
    	
 
    	
—
    	
 
    	
 
    	
 
    	
17,668
    	
 
    
	
Liabilities associated with assets held for sale
    	
 
    	
102,447
    	
 
    	
—
    	
 
    	
102,447
    	
 
    	
9,449
    	
 
    	
 
    	
 
    	
111,896
    	
 
    
	
 
    	
 
    	
255,558
    	
 
    	
—
    	
 
    	
255,558
    	
 
    	
10,351
    	
 
    	
 
    	
 
    	
265,909
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Long-term debt
    	
 
    	
16,619
    	
 
    	
—
    	
 
    	
16,619
    	
 
    	
—
    	
 
    	
 
    	
 
    	
16,619
    	
 
    
	
Asset retirement obligations
    	
 
    	
108,592
    	
 
    	
(108,592
    	
)
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
—
    	
 
    
	
Provisions
    	
 
    	
—
    	
 
    	
118,598
    	
 
    	
118,598
    	
 
    	
43,801
    	
 
    	
vi
    	
 
    	
162,399
    	
 
    
	
Other liabilities
    	
 
    	
28,123
    	
 
    	
(10,006
    	
)
    	
18,117
    	
 
    	
—
    	
 
    	
 
    	
 
    	
18,117
    	
 
    
	
Deferred income tax liabilities
    	
 
    	
95,200
    	
 
    	
(14,832
    	
)
    	
80,368
    	
 
    	
(67,843
    	
)
    	
vii, viii
    	
 
    	
12,525
    	
 
    
	
 
    	
 
    	
504,092
    	
 
    	
(14,832
    	
)
    	
489,260
    	
 
    	
(13,691
    	
)
    	
 
    	
 
    	
475,569
    	
 
    
	
Equity
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Share capital 
    	
 
    	
1,015,698
    	
 
    	
—
    	
 
    	
1,015,698
    	
 
    	
73,878
    	
 
    	
x
    	
 
    	
1,089,576
    	
 
    
	
Contributed surplus
    	
 
    	
64,972
    	
 
    	
—
    	
 
    	
64,972
    	
 
    	
1,159
    	
 
    	
 
    	
 
    	
66,131
    	
 
    
	
Stock based compensation
    	
 
    	
6,542
    	
 
    	
—
    	
 
    	
6,542
    	
 
    	
—
    	
 
    	
 
    	
 
    	
6,542
    	
 
    
	
Retained earnings
    	
 
    	
1,889,491
    	
 
    	
—
    	
 
    	
1,889,491
    	
 
    	
(311,984
    	
)
    	
 
    	
 
    	
1,577,507
    	
 
    
	
Accumulated other comprehensive income (loss)
    	
 
    	
(218,219
    	
)
    	
—
    	
 
    	
(218,219
    	
)
    	
33,002
    	
 
    	
ix
    	
 
    	
(185,217
    	
)
    
	
Total equity
    	
 
    	
2,758,484
    	
 
    	
—
    	
 
    	
2,758,484
    	
 
    	
(203,945
    	
)
    	
 
    	
 
    	
2,554,539
    	
 
    
	
Total liabilities and equity
    	
 
    	
$
    	
3,262,576
    	
 
    	
$
    	
(14,832
    	
)
    	
$
    	
3,247,744
    	
 
    	
$
    	
(217,636
    	
)
    	
 
    	
 
    	
$
    	
3,030,108
    	
 
    

 

32

 

 

Notes to the balance sheet reconciliations as at January 1, 2010 and December 31, 2010

 

Reclassifications

 

We reclassified several items to conform to IFRS. The following are the most significant:

 

·                  non-controlling interests are under a separate component of equity. Under Canadian GAAP, we reported these as a liability.

 

·                  current deferred income tax assets and liabilities are under long term assets and liabilities. Under IFRS, all deferred income taxes assets and liabilities must be classified as long term.

 

·                  asset retirement obligations are under provisions. We previously reported these as a separate long term liability.

 

·                  certain employee compensation obligations are under current and long term provisions. Under Canadian GAAP, we reported them in accounts payable if they were current obligations, or as other liabilities if they were long term obligations.

 

Adjustments

 

(i)                 Revenue  recognition— at January 1, 2010 we increased accounts receivable by $25.8 million (December 31, 2010 - $27.5 million) and reduced inventory by $5.6 million (December 31, 2010 - $6.3 million).

 

Under IFRS, we recognize revenue when all significant risks and rewards of ownership of our products are transferred to the purchaser. Under Canadian GAAP, title also had to legally transfer to the purchaser before revenue was recognized. For certain shipments at Çayeli, Pyhäsalmi and Ok Tedi, we transfer title when we receive the first provisional payment, which is later than the transfer point for risks and rewards of ownership.

 

(ii)             Reversal of impairment of assets — at January 1, 2010, we increased property plant and equipment by $51.9 million (December 31, 2010 - $41.1 million) to reverse an impairment charge we recognized for Çayeli in 1996. The increase is the IFRS carrying amount we would have calculated, net of depreciation, if we had not recognized the original impairment.

 

Canadian GAAP did not allow for reversal of impairment charges after they were initially recognized. Under IFRS, we must reverse an impairment loss if there is a change in the estimates we used to determine the recoverable amount. In 1996, after Çayeli’s first 2 years of operations, we recognized an impairment charge of $128 million against property, plant and equipment. At the time, zinc and copper recoveries were significantly lower than feasibility levels, and were continuing to deteriorate. The complex mineralogy of the Çayeli ore body, continuing poor metallurgical results and the possibility that no improvements may have been achievable were the main reasons for the impairment. After many initiatives and capital improvements, and many years of significantly improved production performance since that time, we concluded the extensive uncertainties underlying the original impairment no longer apply and, that Çayeli’s recoverable amount exceeds its carrying value on our transition to IFRS.

 

(iii)          Plant and equipment at Ok Tedi — at January 1, 2010, we increased property, plant and equipment by $14.5 million. For plant and equipment that has been purchased after our initial proportionate consolidation of Ok Tedi, we used Ok Tedi’s accumulated depreciation, which Ok Tedi has used historically under IFRS.

 

(iv)         Property, plant and equipment associated with asset retirement obligations — at January 1, 2010, we increased property, plant and equipment by $8.8 million on our transition to IFRS (December 31, 2010 - $12.1 million).

 

Under both IFRS and Canadian GAAP, we recognize a corresponding change in the provision for asset retirement obligations in the carrying value of the related property, plant and equipment and depreciate this amount prospectively. The amount of our asset retirement obligations under IFRS is different from the amount under Canadian GAAP as described in (vi) below, and therefore has an impact on our related assets.

 

33

 

(v)             Foreign exchange forward contract — at January 1, 2010, we increased property, plant and equipment by $13.4 million on our transition to IFRS (December 31, 2010 - $11.5 million).

 

To fix the amount of euros under its credit facility upon conversion to a US dollar denominated loan, Las Cruces entered into a forward contract to exchange US $215 million for €171.1 million. In 2008, this derivative settled on a net basis with Las Cruces receiving cash of €32.6 million ($52.3 million).

 

Under Canadian GAAP, we applied hedge accounting for this contract. During the period that the credit facility was outstanding, Las Cruces capitalized the related interest under its credit facility as a cost of deferred development. We amortized the gain in property, plant and equipment, as a reduction of this capitalized interest. Under IFRS, this instrument does not qualify as a hedge for accounting purposes, and we reclassed the amount we had recognized against property, plant and equipment to retained earnings.

 

(vi)         Provision for asset retirement obligations — at January 1, 2010, we increased our provision for asset retirement obligations by $39.8 million (December 31, 2010 - $43.6 million).

 

Under IFRS, we measure asset retirement obligations using a risk free interest rate and revalue for changes in market risk free interest rates. Under Canadian GAAP, we used a credit adjusted risk free interest rate and were not required to remeasure for changes in market rates.

 

(vii)      Deferred income taxes — translation of non-monetary items — at January 1, 2010, we increased deferred income tax assets by $3.3 million (December 31, 2010 - $1.0 million).

 

Under IFRS, when an entity’s taxes are denominated in a currency that is not its functional currency (Çayeli and Ok Tedi), we are required to recognize deferred income taxes and liabilities related to the foreign exchange gains and losses for foreign non-monetary assets and liabilities that are re-measured into the functional currency, using historical foreign exchange rates. This was not required under Canadian GAAP.

 

(viii)   Deferred income taxes — as a result of the tax effect of changes to our opening balances under IFRS, we decreased deferred income tax assets by $12.2 million (December 31, 2010 - $6.4 million) and increased deferred income tax liabilities by $10.7 million (December 31, 2010 — decrease of $65.9 million).

 

(ix)           Cumulative translation adjustment — at January 1, 2010, we reset the cumulative translation gains and losses in accumulated other comprehensive income to nil, and recognized a corresponding decrease of $61.2 million in retained earnings, using an election under IFRS 1.

 

(x)              Acquisition of non-controlling interest in Las Cruces — at December 31, 2010, we decreased inventory by $6.8 million, decreased property, plant and equipment by $247.0 million, decreased goodwill by $76.4 million and increased share capital by $73.9 million.

 

Under Canadian GAAP, companies that acquire an additional interest in an entity they already control must account for it as a step acquisition. Under IFRS, acquiring a non-controlling interest is not considered a business combination, and is instead accounted for as an equity transaction. Under IFRS, we have accounted for our acquisition of the remaining 30 percent interest in Las Cruces which closed in December 2010, as an equity transaction, because we already controlled it.

 

(xi)           Assets and liabilities held for sale for Ok Tedi - on January 29, 2011, Ok Tedi Mining Limited repurchased our 18 percent equity interest in Ok Tedi for US $335 million, and we 

 

34

 

classified it as held for sale at December 31, 2010 (consistent to our Canadian GAAP presentation). Our share of Ok Tedi’s assets and liabilities classified as held for sale under IFRS were $36.8 million and $9.4 million higher respectively than they were under Canadian GAAP because of the adjustments outlined above.

 

(xii)        Equity reconciliation - The table below reconciles total equity under Canadian GAAP to total equity under IFRS, and illustrates the after-tax effect of each of the most significant adjustments had on equity.

 

	
 
    	
 
    	
Notes
    	
 
    	
January 1, 2010
    	
 
    	
December 31, 2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Canadian GAAP equity
    	
 
    	
 
    	
 
    	
$
    	
2,238,145
    	
 
    	
$
    	
2,758,484
    	
 
    
	
IFRS adjustments:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Reclassification of non-controlling interest to equity
    	
 
    	
 
    	
 
    	
78,005
    	
 
    	
—
    	
 
    
	
Revenue recognition
    	
 
    	
i
    	
 
    	
14,210
    	
 
    	
30,023
    	
 
    
	
Reversal of impairment of assets — Çayeli
    	
 
    	
ii
    	
 
    	
42,395
    	
 
    	
34,005
    	
 
    
	
Plant and equipment - Ok Tedi
    	
 
    	
iii
    	
 
    	
10,184
    	
 
    	
11,179
    	
 
    
	
Property, plant and equipment associated with asset retirement   obligations
    	
 
    	
iv
    	
 
    	
8,304
    	
 
    	
12,175
    	
 
    
	
Foreign exchange forward contract — Las Cruces
    	
 
    	
v
    	
 
    	
9,386
    	
 
    	
8,034
    	
 
    
	
Provision for asset retirement obligations
    	
 
    	
vi
    	
 
    	
(38,349
    	
)
    	
(41,310
    	
)
    
	
Deferred income taxes
    	
 
    	
vii
    	
 
    	
3,481
    	
 
    	
2,870
    	
 
    
	
Acquisition of the non-controlling interest in Las Cruces
    	
 
    	
x
    	
 
    	
—
    	
 
    	
(254,056
    	
)
    
	
Other
    	
 
    	
 
    	
 
    	
(4,349
    	
)
    	
(6,865
    	
)
    
	
IFRS equity
    	
 
    	
 
    	
 
    	
$
    	
2,361,412
    	
 
    	
$
    	
2,554,539
    	
 
    

 

35

 

The schedule below reconciles our Canadian GAAP and IFRS net income for the year ended December 31, 2010. The Canadian GAAP statement of earnings is presented in an IFRS format(1).

 

	
 
    	
 
    	
Canadian
    GAAP
    	
 
    	
Reclassifications
    	
 
    	
Ok Tedi
    	
 
    	
Adjustments
    	
 
    	
Notes
    	
 
    	
IFRS
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross sales
    	
 
    	
$
    	
1,098,087
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(356,629
    	
)
    	
$
    	
37,098
    	
 
    	
i
    	
 
    	
$
    	
778,556
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
(166,754
    	
)
    	
—
    	
 
    	
36,448
    	
 
    	
(8,158
    	
)
    	
i
    	
 
    	
(138,464
    	
)
    
	
Cost of sales (excluding depreciation)
    	
 
    	
(345,764
    	
)
    	
6,343
    	
 
    	
95,871
    	
 
    	
(10,309
    	
)
    	
i, v
    	
 
    	
(253,859
    	
)
    
	
Depreciation
    	
 
    	
(81,844
    	
)
    	
—
    	
 
    	
27,513
    	
 
    	
(1,657
    	
)
    	
i, iii, iv
    	
 
    	
(55,988
    	
)
    
	
Earnings from operations
    	
 
    	
503,725
    	
 
    	
6,343
    	
 
    	
(196,797
    	
)
    	
16,974
    	
 
    	
 
    	
 
    	
330,245
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Corporate development and exploration
    	
 
    	
(12,036
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(1,459
    	
)
    	
 
    	
 
    	
(13,495
    	
)
    
	
General and administration 
    	
 
    	
(20,638
    	
)
    	
—
    	
 
    	
—
    	
 
    	
274
    	
 
    	
 
    	
 
    	
(20,364
    	
)
    
	
Investment and other income 
    	
 
    	
35,416
    	
 
    	
—
    	
 
    	
(32
    	
)
    	
22,960
    	
 
    	
ii
    	
 
    	
58,344
    	
 
    
	
Stand-by costs
    	
 
    	
(6,753
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
 
    	
 
    	
(6,753
    	
)
    
	
Finance costs
    	
 
    	
(6,873
    	
)
    	
(7,148
    	
)
    	
910
    	
 
    	
(65
    	
)
    	
 
    	
 
    	
(13,176
    	
)
    
	
Income before taxation
    	
 
    	
492,841
    	
 
    	
(805
    	
)
    	
(195,919
    	
)
    	
38,684
    	
 
    	
 
    	
 
    	
334,801
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Income tax expense
    	
 
    	
(135,055
    	
)
    	
805
    	
 
    	
71,164
    	
 
    	
(6,001
    	
)
    	
vi
    	
 
    	
(69,087
    	
)
    
	
Income from continuing operations 
    	
 
    	
$
    	
357,786
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(124,755
    	
)
    	
$
    	
32,683
    	
 
    	
 
    	
 
    	
$
    	
265,714
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Income from discontinued operation
    	
 
    	
—
    	
 
    	
—
    	
 
    	
124,755
    	
 
    	
—
    	
 
    	
 
    	
 
    	
124,755
    	
 
    
	
Net income
    	
 
    	
$
    	
357,786
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
32,683
    	
 
    	
 
    	
 
    	
$
    	
390,469
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Net income attributable to:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Inmet equity holders 
    	
 
    	
$
    	
358,898
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
32,978
    	
 
    	
 
    	
 
    	
$
    	
391,876
    	
 
    
	
Non-controlling interest
    	
 
    	
(1,112
    	
)
    	
—
    	
 
    	
—
    	
 
    	
(295
    	
)
    	
 
    	
 
    	
(1,407
    	
)
    
	
 
    	
 
    	
$
    	
357,786
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
32,683
    	
 
    	
 
    	
 
    	
$
    	
390,469
    	
 
    

 

(1)         Under Canadian GAAP, we deducted the non-controlling interest’s share of Las Cruces’ income when calculating net income. Under IFRS, no deduction for this is made and net income is presented as separately attributable to the equity holders of Inmet Mining and to the non-controlling interest

 

Notes to the reconciliation of the statement of earnings for the year ended December 31, 2010:

 

Reclassifications

 

When we adopted IFRS, we reclassified accretion of asset retirement obligations and capital lease obligations to finance costs. We recognized it as part of cost of sales under Canadian GAAP.

 

Ok Tedi

 

In January 2011, we sold our 18 percent equity interest in Ok Tedi. As the operations and cash flows for Ok Tedi have been eliminated as a result of this disposal and we have no continuing involvement with this operation, we have presented our proportionately consolidated results from Ok Tedi as discontinued operations retroactively. The sale of our investment in Ok Tedi did not qualify for treatment as discontinued operations under Canadian GAAP. This change affects our entire income statement so we have disclosed it separately.

 

Adjustments

 

(i)                Revenue recognition — for the year ended December, 2010 we increased revenue by $37.1 million and made associated adjustments to smelter processing charges and freight, cost of sales and depreciation.

 

Under IFRS, we recognize revenue when all significant risks and rewards of ownership of our products are transferred to the purchaser. Under Canadian GAAP, title also had to legally transfer to the purchaser before revenue was recognized. For certain shipments at 

 

36

 

Çayeli, Pyhäsalmi and Ok Tedi, we transfer title when we receive the first provisional payment, which is later than the transfer point for risks and rewards of ownership.

 

(ii)             Foreign exchange gains and losses — for the year ended December 31, 2010, we reversed foreign exchange losses recognized under Canadian GAAP which increased investment and other income by $22.7 million.

 

Under IFRS, only dividends that represent a return on capital invested in a foreign operation require recognition of previously deferred foreign exchange gains or losses. Under Canadian GAAP, dividends, including those related to the accumulation of earnings are considered a return on investment, and we recognized the deferred foreign exchange gains or losses on these amounts in investment and other income.

 

(iii)          Depreciation — we increased property, plant and equipment relating to the reversal of an impairment charge recognized for Çayeli, and made an associated increase in depreciation of $7.9 million for the year ended December 31, 2010.

 

(iv)         Depreciation of property, plant and equipment associated with asset retirement obligations — we recognized a $6.3 million decrease in depreciation for the year ended December 31, 2010.

 

Under both IFRS and Canadian GAAP, we recognize a corresponding change in the provision for asset retirement obligations in the carrying value of the related property, plant and equipment and depreciate this amount prospectively. The amount of our asset retirement obligations under IFRS is different from the amount under Canadian GAAP, and therefore has an impact on our related assets and depreciation expense.

 

(v)             Provision for asset retirement obligations — we increased cost of sales by $6.5 million for the year ended December 31, 2010 to increase our asset retirement obligations at our closed properties as a result of changes in discount rates.

 

Under IFRS, we measure asset retirement obligations using a risk free interest rate, and revalue for changes in market risk free interest rates. Under Canadian GAAP, we used a credit adjusted risk free interest rate and were not required to remeasure for changes in market rates.

 

(vi)         Deferred income taxes — as a result of the tax effect of changes recognized in our income statement under IFRS, we increased income tax expense by $4.8 million for year ended December 31, 2010.

 

37

 

 

The schedule below reconciles our Canadian GAAP and IFRS comprehensive income for the year ended December 31, 2010. The Canadian GAAP statement of comprehensive income has been presented in an IFRS format.

 

	
 
    	
 
    	
Notes
    	
 
    	
year ended
   December 31, 2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Comprehensive income reported under Canadian GAAP
    	
 
    	
 
    	
 
    	
$
    	
181,643
    	
 
    
	
Total adjustments to net income 
    	
 
    	
 
    	
 
    	
32,683
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Adjustments to other comprehensive income:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Currency translation adjustments
    	
 
    	
I, ii
    	
 
    	
(28,167
    	
)
    
	
Comprehensive income under IFRS
    	
 
    	
 
    	
 
    	
$
    	
186,159
    	
 
    

 

Notes to the reconciliation of the statement of comprehensive income for the year ended December 31, 2010

 

Adjustments

 

(i)      Currency translation adjustments — for the year ended December 31, 2010, we reversed foreign exchange losses previously recognized in the statement of earnings under Canadian GAAP, which decreased other comprehensive income by $22.7 million.

 

Under IFRS, only dividends that represent a return on capital invested in a foreign operation require recognition of previously deferred foreign exchange gains or losses. Under Canadian GAAP, dividends, including those related to the accumulation of earnings and repayment of intercompany debt, are considered a return on investment, and we recognized the deferred foreign exchange gains or losses on these amounts in investment and other income.

 

(ii)     Currency translation adjustments - as a result of the currency translation impact of recognizing changes to our balance sheet under IFRS, we decreased other comprehensive income by $5.5 million for the year ended December 31, 2010.

 

Cash flow statement

 

The IFRS transition adjustments above did not have an impact on our cash and short-term investments. Differences in our cash flow statements between Canadian GAAP and IFRS are the result of non-cash adjustments to items in the statements of earnings outlined above and the presentation of Ok Tedi cash flows as discontinued operations (note 12).

 

38

 

7.     Cash and short-term investments

 

	
 
    	
 
    	
December 31,
   2011
    	
 
    	
December 31,
   2010
    	
 
    	
January 1,
   2010
    	
 
    
	
Cash and cash equivalents:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Liquidity funds
    	
 
    	
$
    	
387,857
    	
 
    	
$
    	
194,603
    	
 
    	
$
    	
205,190
    	
 
    
	
Term deposits
    	
 
    	
6,763
    	
 
    	
52,991
    	
 
    	
40,140
    	
 
    
	
Overnight deposits
    	
 
    	
72,701
    	
 
    	
4,319
    	
 
    	
54,435
    	
 
    
	
Bankers’ acceptances
    	
 
    	
920
    	
 
    	
—
    	
 
    	
92,200
    	
 
    
	
Money market funds
    	
 
    	
130,485
    	
 
    	
40,048
    	
 
    	
19,951
    	
 
    
	
Bank deposits
    	
 
    	
32,764
    	
 
    	
27,168
    	
 
    	
95,001
    	
 
    
	
Provincial short-term notes
    	
 
    	
172,481
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Corporate
    	
 
    	
11,974
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
815,945
    	
 
    	
319,129
    	
 
    	
506,917
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Short-term investments:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Corporate
    	
 
    	
50,184
    	
 
    	
—
    	
 
    	
26,996
    	
 
    
	
Term deposits
    	
 
    	
—
    	
 
    	
7,296
    	
 
    	
—
    	
 
    
	
Provincial notes
    	
 
    	
193,339
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Bankers’ acceptances
    	
 
    	
23,425
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
266,948
    	
 
    	
7,296
    	
 
    	
26,996
    	
 
    
	
Total cash and short-term instruments
    	
 
    	
$
    	
1,082,893
    	
 
    	
$
    	
326,425
    	
 
    	
$
    	
533,913
    	
 
    

 

8.     Restricted cash

 

	
 
    	
 
    	
December 31,
   2011
    	
 
    	
December 31,
   2010
    	
 
    	
January 1,
   2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Collateralized cash for letter of credit facility — Inmet Mining (note   31)
    	
 
    	
$
    	
16,842
    	
 
    	
$
    	
16,906
    	
 
    	
$
    	
16,492
    	
 
    
	
In trust for Ok Tedi reclamation (note 12)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
26,365
    	
 
    
	
Collateralized cash for letters of credit — Las Cruces (note 31)
    	
 
    	
54,174
    	
 
    	
52,138
    	
 
    	
72,008
    	
 
    
	
Collateralized cash for Pyhäsalmi reclamation (note 31)
    	
 
    	
1,616
    	
 
    	
1,632
    	
 
    	
1,854
    	
 
    
	
 
    	
 
    	
72,632
    	
 
    	
70,676
    	
 
    	
116,719
    	
 
    
	
Less current portion:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Collateralized cash for letters of credit — Las Cruces
    	
 
    	
(810
    	
)
    	
(617
    	
)
    	
(15,130
    	
)
    
	
 
    	
 
    	
$
    	
71,822
    	
 
    	
$
    	
70,059
    	
 
    	
$
    	
101,589
    	
 
    

 

9.     Accounts receivable

 

	
 
    	
 
    	
December 31,
   2011
    	
 
    	
December 31,
   2010
    	
 
    	
January 1,
   2010
    	
 
    
	
Accounts receivable from sale of metal (a)
    	
 
    	
$
    	
64,049
    	
 
    	
$
    	
89,917
    	
 
    	
$
    	
112,435
    	
 
    
	
Value-added and other taxes receivable
    	
 
    	
16,889
    	
 
    	
9,619
    	
 
    	
22,132
    	
 
    
	
Advances and prepaid expenses
    	
 
    	
14,577
    	
 
    	
12,940
    	
 
    	
13,948
    	
 
    
	
Other amounts receivable
    	
 
    	
9,698
    	
 
    	
6,950
    	
 
    	
7,246
    	
 
    
	
 
    	
 
    	
$
    	
105,213
    	
 
    	
$
    	
119,426
    	
 
    	
$
    	
155,761
    	
 
    

 

(a)     At December 31, 2011, we had recorded revenue of $82.7 million (December 31, 2010 - $45.1 million, January 1, 2010 - $135.9 million) for shipments that had not yet settled. This included:

 

·    21 million pounds of copper valued using an average forward rate of US $3.45 per pound (December 31, 2010 – 6 million pounds at US $4.37 per pound, January 1, 2010 – 31 million pounds at US $3.34 per pound)

·    10 million pounds of zinc valued using an average forward rate of US $0.83 per pound (December 31, 2010 – 15 million pounds at US $1.11 per pound, January 1, 2010 – 23 million pounds at US $1.15 per pound)

 

39

 

10.  Inventories

 

	
 
    	
 
    	
December
   31, 2011
    	
 
    	
December
   31, 2010
    	
 
    	
January 1,
   2010
    	
 
    
	
Finished goods inventory
    	
 
    	
$
    	
24,622
    	
 
    	
23,327
    	
 
    	
28,668
    	
 
    
	
Work in process
    	
 
    	
8,504
    	
 
    	
7,407
    	
 
    	
14,253
    	
 
    
	
Stockpiled ore
    	
 
    	
34,565
    	
 
    	
22,077
    	
 
    	
16,812
    	
 
    
	
Materials and supplies 
    	
 
    	
22,842
    	
 
    	
19,343
    	
 
    	
38,591
    	
 
    
	
 
    	
 
    	
$
    	
90,533
    	
 
    	
$
    	
72,154
    	
 
    	
$
    	
98,324
    	
 
    
											

 

11.   Held to maturity investments

 

In 2011, we purchased $287 million (2010 – $67 million) of US Treasury bonds and $15 million (2010 – $229 million) of long-term Canadian and Provincial government bonds. During the year, bonds with a face value of $69 million matured (2010 – $26 million).

 

	
 
    	
 
    	
December 31,
   2011
    	
 
    	
December 31,
   2010
    	
 
    	
January 1,
    2010
    	
 
    
	
Government of Canada 
    	
 
    	
24,124
    	
 
    	
$
    	
28,114
    	
 
    	
29,924
    	
 
    
	
Provincial government
    	
 
    	
207,578
    	
 
    	
240,740
    	
 
    	
51,907
    	
 
    
	
Corporate
    	
 
    	
28,305
    	
 
    	
38,810
    	
 
    	
18,053
    	
 
    
	
US Treasury
    	
 
    	
363,467
    	
 
    	
64,866
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
623,474
    	
 
    	
372,530
    	
 
    	
99,884
    	
 
    
	
Less current portion
    	
 
    	
(181,699
    	
)
    	
(53,915
    	
)
    	
(9,993
    	
)
    
	
 
    	
 
    	
$
    	
441,775
    	
 
    	
$
    	
318,615
    	
 
    	
$
    	
89,891
    	
 
    
											

 

The bonds have an annual yield to maturity of 1.6 percent. We have designated these bonds as held to maturity, measuring them initially at fair value and subsequently at amortized cost. Note 34 provides information on the fair value, maturity and credit risk of these bonds.

 

40

 

12.  Sale of our interest in Ok Tedi

 

On January 29, 2011, Ok Tedi Mining Limited repurchased our 18 percent equity interest in Ok Tedi for US $335 million. Our interest in Ok Tedi met the criteria of an asset held for sale, so we presented our share of the results of operations of Ok Tedi as discontinued operations in the consolidated statements of earnings and the consolidated statements of cash flow retroactively. In 2011, after-tax income of $83 million from this discontinued operation includes net earnings of $17 million in January, before the sale, and a gain on sale of $66 million net of withholding taxes. Papua New Guinea withholding taxes of $28 million were paid on the sale and no Canadian taxes were payable because we utilized our Canadian tax attributes. The following tables provide a breakdown of our share of the earnings and cash flows at Ok Tedi for the years ended December 31, 2010 and 2011.

 

Statements of earnings

 

	
 
    	
 
    	
December 31, 2011
    	
 
    	
December 31, 2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross sales 
    	
 
    	
$
    	
44,865
    	
 
    	
$
    	
356,629
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
(4,051
    	
)
    	
(36,448
    	
)
    
	
Cost of sales (excluding depreciation)
    	
 
    	
(12,116
    	
)
    	
(95,871
    	
)
    
	
Depreciation
    	
 
    	
(2,272
    	
)
    	
(27,513
    	
)
    
	
 
    	
 
    	
26,426
    	
 
    	
196,797
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Investment and other income 
    	
 
    	
(80
    	
)
    	
32
    	
 
    
	
Finance costs
    	
 
    	
(33
    	
)
    	
(910
    	
)
    
	
Income tax expense
    	
 
    	
(9,670
    	
)
    	
(71,164
    	
)
    
	
 
    	
 
    	
16,643
    	
 
    	
124,755
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gain on sale of our interest
    	
 
    	
79,029
    	
 
    	
—
    	
 
    
	
Income tax expense on sale of our interest
    	
 
    	
(12,233
    	
)
    	
—
    	
 
    
	
Net income from discontinued operation
    	
 
    	
$
    	
83,439
    	
 
    	
$
    	
124,755
    	
 
    

 

Statements of cash flow

 

	
 
    	
 
    	
December 31,
    2011
    	
 
    	
December 31,
    2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash provided by operating activities
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Before net change in non-cash working capital
    	
 
    	
$
    	
—
    	
 
    	
153,962
    	
 
    
	
Net change in non-cash working capital
    	
 
    	
—
    	
 
    	
455
    	
 
    
	
 
    	
 
    	
—
    	
 
    	
154,417
    	
 
    
	
Cash provided by (used in) investing   activities
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash proceeds on sale, net of withholding tax
    	
 
    	
306,982
    	
 
    	
—
    	
 
    
	
Purchase of property, plant and equipment
    	
 
    	
—
    	
 
    	
(16,344
    	
)
    
	
 
    	
 
    	
306,982
    	
 
    	
(16,344
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash used in financing activities
    	
 
    	
—
    	
 
    	
(10,556
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Foreign exchange change on cash held in   foreign currency
    	
 
    	
—
    	
 
    	
(4,177
    	
)
    
	
Net cash from discontinued operation
    	
 
    	
$
    	
306,982
    	
 
    	
$
    	
123,340
    	
 
    
								

 

41

 

13.       Property, plant and equipment

 

	
 
    	
 
    	
Property
    	
 
    	
Plant and
   equipment
    	
 
    	
Development
   expenditures
    	
 
    	
Total
    	
 
    
	
January 1,   2010, net of accumulated depreciation
    	
 
    	
$
    	
135,127
    	
 
    	
$
    	
238,344
    	
 
    	
$
    	
1,572,198
    	
 
    	
$
    	
1,945,669
    	
 
    
	
Additions
    	
 
    	
33,994
    	
 
    	
53,969
    	
 
    	
96,213
    	
 
    	
184,176
    	
 
    
	
Depreciation
    	
 
    	
(32,803
    	
)
    	
(71,690
    	
)
    	
—
    	
 
    	
(104,493
    	
)
    
	
Reclassification to   property, plant and equipment
    	
 
    	
282,004
    	
 
    	
626,347
    	
 
    	
(908,351
    	
)
    	
—
    	
 
    
	
Reclassification to   assets held for sale (note 12)
    	
 
    	
(11,822
    	
)
    	
(92,100
    	
)
    	
—
    	
 
    	
(103,922
    	
)
    
	
Asset retirement   obligations adjustments
    	
 
    	
5,074
    	
 
    	
7,247
    	
 
    	
—
    	
 
    	
12,321
    	
 
    
	
Disposals
    	
 
    	
—
    	
 
    	
(8,887
    	
)
    	
—
    	
 
    	
(8,887
    	
)
    
	
Funding received   under Cobre Panama option agreement
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(14,427
    	
)
    	
(14,427
    	
)
    
	
Other
    	
 
    	
—
    	
 
    	
(75
    	
)
    	
—
    	
 
    	
(75
    	
)
    
	
Foreign exchange
    	
 
    	
(2,702
    	
)
    	
(177
    	
)
    	
(171,418
    	
)
    	
(174,297
    	
)
    
	
December 31,   2010, net of accumulated depreciation
    	
 
    	
$
    	
408,872
    	
 
    	
$
    	
752,978
    	
 
    	
$
    	
574,215
    	
 
    	
$
    	
1,736,065
    	
 
    
	
Additions
    	
 
    	
39,283
    	
 
    	
39,203
    	
 
    	
143,404
    	
 
    	
221,890
    	
 
    
	
Depreciation
    	
 
    	
(49,760
    	
)
    	
(71,813
    	
)
    	
—
    	
 
    	
(121, 573
    	
)
    
	
Asset retirement   obligations adjustments
    	
 
    	
(4,942
    	
)
    	
3,605
    	
 
    	
—
    	
 
    	
(1,337
    	
)
    
	
Disposals
    	
 
    	
(574
    	
)
    	
(2,149
    	
)
    	
—
    	
 
    	
(2,723
    	
)
    
	
Funding received   under Cobre Panama option agreement
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(12,714
    	
)
    	
(12,714
    	
)
    
	
Foreign exchange
    	
 
    	
(1,420
    	
)
    	
(3,653
    	
)
    	
16,457
    	
 
    	
11,384
    	
 
    
	
December 31,   2011, net of accumulated depreciation
    	
 
    	
$
    	
391,459
    	
 
    	
$
    	
718,171
    	
 
    	
$
    	
721,362
    	
 
    	
$
    	
1,830,992
    	
 
    

 

	
 
    	
 
    	
Property
    	
 
    	
Plant and
   equipment
    	
 
    	
Development
   expenditures
    	
 
    	
Total
    	
 
    
	
January 1,   2010
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cost
    	
 
    	
$
    	
293,542
    	
 
    	
$
    	
502,562
    	
 
    	
$
    	
1,572,198
    	
 
    	
$
    	
2,368,302
    	
 
    
	
Accumulated   depreciation
    	
 
    	
(158,415
    	
)
    	
(264,218
    	
)
    	
—
    	
 
    	
(422,633
    	
)
    
	
Net carrying value
    	
 
    	
$
    	
135,127
    	
 
    	
$
    	
238,344
    	
 
    	
$
    	
1,572,198
    	
 
    	
$
    	
1,945,669
    	
 
    
	
December 31,   2010
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cost
    	
 
    	
$
    	
600,090
    	
 
    	
$
    	
1,088,886
    	
 
    	
$
    	
574,215
    	
 
    	
$
    	
2,263,191
    	
 
    
	
Accumulated   depreciation
    	
 
    	
(191,218
    	
)
    	
(335,908
    	
)
    	
—
    	
 
    	
(527,126
    	
)
    
	
Net carrying value
    	
 
    	
$
    	
408,872
    	
 
    	
$
    	
752,978
    	
 
    	
$
    	
574,215
    	
 
    	
$
    	
1,736,065
    	
 
    
	
December 31,   2011
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cost
    	
 
    	
$
    	
632,381
    	
 
    	
$
    	
1,120,926
    	
 
    	
$
    	
721,362
    	
 
    	
$
    	
2,474,669
    	
 
    
	
Accumulated   depreciation
    	
 
    	
(240,922
    	
)
    	
(402,755
    	
)
    	
—
    	
 
    	
(643,677
    	
)
    
	
Net carrying value
    	
 
    	
$
    	
391,459
    	
 
    	
$
    	
718,171
    	
 
    	
$
    	
721,362
    	
 
    	
$
    	
1,830,992
    	
 
    

 

Property includes $127 million of capitalized deferred stripping costs at December 31, 2011, $131 million at December 31, 2010 and $152 million at January 1, 2010.

 

Plant and equipment includes assets held under finance leases at December 31, 2011 of $18 million, $20 million at December 31, 2010 and $23 million at January 1, 2010.

 

Our operations had the following capital commitments as at December 31, 2011:

 

·                  Las Cruces committed $3.4 million for the purchase of plant and water equipment.

·                  Cobre Panama committed $187.0 million for the design and supply of two SAG mills, four ball mills and the related gearless drives, basic engineering, resource drilling and early works.

 

42

 

14.       Investments in equity securities

 

	
 
    	
 
    	
December
   31, 2011
    	
 
    	
December
   31, 2010
    	
 
    	
January 1,
   2010
    	
 
    
	
Available-for-sale equity securities:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Premier Gold Mines Ltd. (note 26)
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
39,501
    	
 
    
	
Other
    	
 
    	
3,161
    	
 
    	
2,694
    	
 
    	
2,910
    	
 
    
	
 
    	
 
    	
$
    	
3,161
    	
 
    	
$
    	
2,694
    	
 
    	
$
    	
42,411
    	
 
    

 

15.        Income tax

 

2011

 

	
 
    	
 
    	
Corporate
    	
 
    	
Çayeli
    (Turkey)
    	
 
    	
Las Cruces
   (Spain)
    	
 
    	
Pyhäsalmi
    (Finland)
    	
 
    	
Cobre
   Panama
    (Panama)
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current income taxes 
    	
 
    	
$
    	
(2,242
    	
)
    	
$
    	
48,378
    	
 
    	
$
    	
625
    	
 
    	
$
    	
32,320
    	
 
    	
$
    	
—
    	
 
    	
$
    	
79,081
    	
 
    
	
Deferred income taxes
    	
 
    	
(210
    	
)
    	
4,242
    	
 
    	
22,911
    	
 
    	
(601
    	
)
    	
—
    	
 
    	
26,342
    	
 
    
	
Income tax expense
    	
 
    	
$
    	
(2,452
    	
)
    	
$
    	
52,620
    	
 
    	
$
    	
23,536
    	
 
    	
$
    	
31,719
    	
 
    	
$
    	
—
    	
 
    	
$
    	
105,423
    	
 
    

 

2010

 

	
 
    	
 
    	
Corporate
    	
 
    	
Çayeli
    (Turkey)
    	
 
    	
Las Cruces
   (Spain)
    	
 
    	
Pyhäsalmi
    (Finland)
    	
 
    	
Cobre
   Panama
    (Panama)
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current income taxes 
    	
 
    	
$
    	
6,386
    	
 
    	
$
    	
38,706
    	
 
    	
$
    	
—
    	
 
    	
$
    	
26,765
    	
 
    	
$
    	
—
    	
 
    	
$
    	
71,857
    	
 
    
	
Deferred income taxes
    	
 
    	
1,914
    	
 
    	
(2,821
    	
)
    	
(4,094
    	
)
    	
2,231
    	
 
    	
—
    	
 
    	
(2,770
    	
)
    
	
Income tax expense
    	
 
    	
$
    	
8,300
    	
 
    	
$
    	
35,885
    	
 
    	
$
    	
(4,094
    	
)
    	
$
    	
28,996
    	
 
    	
$
    	
—
    	
 
    	
$
    	
69,087
    	
 
    

 

The table below shows the breakdown of income tax recovery (expense) included in Other comprehensive income for the years ended December 31.

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Changes in fair value of investments
    	
 
    	
$
    	
16
    	
 
    	
$
    	
4,866
    	
 
    
	
Total
    	
 
    	
$
    	
16
    	
 
    	
$
    	
4,866
    	
 
    

 

The table below reconciles income tax expense at Canadian statutory rates with the pre-tax income and income tax expenses reported in our statement of earnings.

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Income before income taxes 
    	
 
    	
$
    	
370,155
    	
 
    	
$
    	
334,801
    	
 
    
	
Canadian combined federal and provincial income tax rate (a)
    	
 
    	
28.3
    	
%
    	
29.6
    	
%
    
	
Expected income taxes
    	
 
    	
$
    	
104,569
    	
 
    	
$
    	
98,890
    	
 
    
	
Tax effect of:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Difference between Canadian rate and rates applicable in entities in   other countries
    	
 
    	
(31,177
    	
)
    	
(18,036
    	
)
    
	
Change in unrecognized deferred tax assets
    	
 
    	
9,577
    	
 
    	
(4,833
    	
)
    
	
Non taxable income
    	
 
    	
(4,571
    	
)
    	
(26,149
    	
)
    
	
Non deductible expenses
    	
 
    	
10,182
    	
 
    	
7,828
    	
 
    
	
Foreign exchange differences
    	
 
    	
12,359
    	
 
    	
773
    	
 
    
	
Mining taxes
    	
 
    	
—
    	
 
    	
4,778
    	
 
    
	
Withholding taxes
    	
 
    	
7,998
    	
 
    	
6,473
    	
 
    
	
Tax rate changes (b)
    	
 
    	
(552
    	
)
    	
—
    	
 
    
	
Others
    	
 
    	
(2,962
    	
)
    	
(637
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Income tax expense 
    	
 
    	
$
    	
105,423
    	
 
    	
$
    	
69,087
    	
 
    

 

(a)          The Canadian federal statutory income tax rate decreased by 1.5% in 2011.

(b)         Effective January 1, 2012, the Finnish statutory income tax rate decreased from 26% to 24.5%, which gives rise to a reduction of the deferred tax liability.

 

43

 

The table below breaks down the deferred tax assets and liabilities on the balance sheet:

 

	
 
    	
 
    	
Deferred tax assets
    	
 
    	
Deferred tax liabilities
    	
 
    	
Net deferred tax liabilities
    	
 
    
	
Temporary
   difference
    	
 
    	
Dec. 31,
   2011
    	
 
    	
Dec. 31,
   2010
    	
 
    	
Jan. 1,
   2010
    	
 
    	
Dec. 31,
   2011
    	
 
    	
Dec. 31,
   2010
    	
 
    	
Jan. 1,
   2010
    	
 
    	
Dec. 31,
   2011
    	
 
    	
Dec. 31,
   2010
    	
 
    	
Jan. 1,
   2010
    	
 
    
	
Property, plant and equipment
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
2,693
    	
 
    	
$
    	
57,484
    	
 
    	
$
    	
35,754
    	
 
    	
$
    	
48,316
    	
 
    	
$
    	
57,484
    	
 
    	
$
    	
35,754
    	
 
    	
$
    	
45,623
    	
 
    
	
Non-capital losses
    	
 
    	
16,453
    	
 
    	
16,646
    	
 
    	
13,184
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(16,453
    	
)
    	
(16,646
    	
)
    	
(13,184
    	
)
    
	
Asset retirement obligations
    	
 
    	
2,928
    	
 
    	
6,417
    	
 
    	
18,517
    	
 
    	
266
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(2,662
    	
)
    	
(6,417
    	
)
    	
(18,517
    	
)
    
	
Other
    	
 
    	
9,414
    	
 
    	
9,089
    	
 
    	
10,787
    	
 
    	
—
    	
 
    	
202
    	
 
    	
20,237
    	
 
    	
(9,414
    	
)
    	
(8,887
    	
)
    	
9,450
    	
 
    
	
 
    	
 
    	
$
    	
28,795
    	
 
    	
$
    	
32,152
    	
 
    	
$
    	
45,181
    	
 
    	
$
    	
57,750
    	
 
    	
$
    	
35,956
    	
 
    	
$
    	
68,553
    	
 
    	
$
    	
28,955
    	
 
    	
$
    	
3,804
    	
 
    	
$
    	
23,372
    	
 
    

 

Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same tax authority and we have the legal right to offset.

 

The table below summarizes the movement in net deferred tax liabilities:

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Net deferred tax liabilities — balance at the beginning of the year
    	
 
    	
$
    	
3,804
    	
 
    	
$
    	
23,372
    	
 
    
	
Recognized in income tax expense of continuing operations
    	
 
    	
26,342
    	
 
    	
(2,770
    	
)
    
	
Recognized in other comprehensive income
    	
 
    	
2,411
    	
 
    	
(5,278
    	
)
    
	
Related to discontinued operations
    	
 
    	
(2,427
    	
)
    	
(10,744
    	
)
    
	
Other
    	
 
    	
(1,175
    	
)
    	
(776
    	
)
    
	
Net deferred tax liabilities — balance at the end of the year
    	
 
    	
$
    	
28,955
    	
 
    	
$
    	
3,804
    	
 
    

 

Unrecognized deferred tax assets

 

Deferred tax assets have not been recognized in respect of the following tax attributes:

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Non-capital losses
    	
 
    	
$
    	
11,896
    	
 
    	
$
    	
—
    	
 
    
	
Capital losses
    	
 
    	
885
    	
 
    	
7,874
    	
 
    
	
Deductible temporary differences
    	
 
    	
76,115
    	
 
    	
70,260
    	
 
    
	
Total
    	
 
    	
$
    	
88,896
    	
 
    	
$
    	
78,134
    	
 
    

 

The unrecognized non-capital losses, capital losses and foreign tax credits in the above table are all from Canadian sources. The unrecognized capital losses are available indefinitely under the current tax legislation. The unrecognized non-capital losses and the foreign tax credits are expected to expire from 2030 to 2031.

 

Of the total unrecognized deductible temporary differences of $76,115 in 2011 ($70,260 in 2010), $69,135 ($63,851 in 2010) is from Canadian sources and $6,979 ($6,409 in 2010) is from foreign sources. The unrecognized deductible temporary differences are also available indefinitely under the current tax legislation.

 

Temporary differences associated with our investments

 

No deferred taxes are recognized on the temporary differences associated with our investments to the extent that we are able to control the timing of the reversal of the temporary differences and it is probable that these differences will not reverse in the foreseeable future. The aggregate amount of temporary differences associated with investments for which deferred tax liabilities have not been recognized as at December 31, 2011 is nil (December 31, 2010 – nil).

 

44

 

16.       Accounts payable and accrued liabilities

 

The table below shows the significant components of our accounts payable and accrued liabilities balance.

 

	
 
    	
 
    	
December 31,
   2011
    	
 
    	
December 31,
   2010
    	
 
    	
January 1,
   2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts payables and accrued liabilities
    	
 
    	
$
    	
121,592
    	
 
    	
$
    	
94,792
    	
 
    	
$
    	
106,701
    	
 
    
	
Amounts payable related to metal sales 
    	
 
    	
761
    	
 
    	
592
    	
 
    	
103
    	
 
    
	
Income taxes payable
    	
 
    	
20,796
    	
 
    	
40,961
    	
 
    	
63,720
    	
 
    
	
 
    	
 
    	
$
    	
143,149
    	
 
    	
$
    	
136,345
    	
 
    	
$
    	
170,524
    	
 
    

 

17.       Provisions

 

The table below shows the significant components of our provisions.

 

	
 
    	
 
    	
December 31,
   2011
    	
 
    	
December 31,
   2010
    	
 
    	
January 1,
   2010
    	
 
    
	
Asset retirement obligations (a)
    	
 
    	
$
    	
176,007
    	
 
    	
$
    	
168,589
    	
 
    	
$
    	
198,291
    	
 
    
	
Employee benefits and other (b)
    	
 
    	
13,119
    	
 
    	
11,478
    	
 
    	
15,556
    	
 
    
	
 
    	
 
    	
$
    	
189,126
    	
 
    	
$
    	
180,067
    	
 
    	
$
    	
213,847
    	
 
    
	
Less current portion:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Asset retirement obligations (a)
    	
 
    	
(11,279
    	
)
    	
(16,417
    	
)
    	
(13,500
    	
)
    
	
Employee benefits and other (b)
    	
 
    	
(2,238
    	
)
    	
(1,251
    	
)
    	
(3,917
    	
)
    
	
 
    	
 
    	
(13,517
    	
)
    	
(17,668
    	
)
    	
(17,417
    	
)
    
	
 
    	
 
    	
$
    	
175,609
    	
 
    	
$
    	
162,399
    	
 
    	
$
    	
196,430
    	
 
    

 

(a)   Asset retirement obligations

 

	
 
    	
 
    	
December 31,
   2011
    	
 
    	
December 31,
   2010
    	
 
    	
January 1,
   2010
    	
 
    
	
Present value of future water treatment costs
    	
 
    	
$
    	
46,512
    	
 
    	
$
    	
34,722
    	
 
    	
$
    	
30,032
    	
 
    
	
Obligations at closed properties
    	
 
    	
31,279
    	
 
    	
35,209
    	
 
    	
35,490
    	
 
    
	
Obligations at operating and developing mines
    	
 
    	
98,216
    	
 
    	
98,658
    	
 
    	
132,769
    	
 
    
	
 
    	
 
    	
176,007
    	
 
    	
168,589
    	
 
    	
198,291
    	
 
    
	
Less current portion
    	
 
    	
(11,279
    	
)
    	
(16,417
    	
)
    	
(13,500
    	
)
    
	
 
    	
 
    	
$
    	
164,728
    	
 
    	
$
    	
152,172
    	
 
    	
$
    	
184,791
    	
 
    

 

The table below shows how our asset retirement obligations changed in 2011.

 

2011

 

	
 
    	
 
    	
Çayeli
    	
 
    	
Las Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Closed sites
    	
 
    	
Total
    	
 
    
	
Opening balance at  January 1, 2011
    	
 
    	
$
    	
15,402
    	
 
    	
$
    	
56,439
    	
 
    	
$
    	
26,817
    	
 
    	
$
    	
69,931
    	
 
    	
$
    	
168,589
    	
 
    
	
Liabilities settled
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(10,854
    	
)
    	
(10,854
    	
)
    
	
Accretion expense charged through interest expense 
    	
 
    	
589
    	
 
    	
2,648
    	
 
    	
893
    	
 
    	
1,995
    	
 
    	
6,125
    	
 
    
	
Liabilities incurred
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Revisions in discount rates, timing and amount of estimated cash flows   
    	
 
    	
(2,051
    	
)
    	
(2,818
    	
)
    	
3,605
    	
 
    	
16,722
    	
 
    	
15,458
    	
 
    
	
Foreign exchange
    	
 
    	
(2,227
    	
)
    	
(643
    	
)
    	
(438
    	
)
    	
(3
    	
)
    	
(3,311
    	
)
    
	
Closing balance at December 31, 2011
    	
 
    	
$
    	
11,713
    	
 
    	
$
    	
55,626
    	
 
    	
$
    	
30,877
    	
 
    	
$
    	
77,791
    	
 
    	
$
    	
176,007
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Undiscounted cash flows
    	
 
    	
$
    	
16,849
    	
 
    	
$
    	
111,910
    	
 
    	
$
    	
41,020
    	
 
    	
$
    	
90,885
    	
 
    	
$
    	
260,664
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Secured by letters of credit, trusts or   reclamation bonds (note 31)
    	
 
    	
$
    	
—
    	
 
    	
$
    	
34,409
    	
 
    	
$
    	
1,616
    	
 
    	
$
    	
13,444
    	
 
    	
$
    	
49,469
    	
 
    

 

45

 

The table below shows how our asset retirement obligations changed in 2010.

 

2010

 

	
 
    	
 
    	
Çayeli
    	
 
    	
Las Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Closed
   sites
    	
 
    	
Discontinued
   operations -
   Ok Tedi
    	
 
    	
Total
    	
 
    
	
Opening balance at  January 1, 2010
    	
 
    	
$
    	
15,673
    	
 
    	
$
    	
55,929
    	
 
    	
$
    	
21,522
    	
 
    	
$
    	
65,522
    	
 
    	
$
    	
39,645
    	
 
    	
$
    	
198,291
    	
 
    
	
Liabilities settled
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(9,719
    	
)
    	
—
    	
 
    	
(9,719
    	
)
    
	
Accretion expense charged through finance costs 
    	
 
    	
590
    	
 
    	
2,160
    	
 
    	
708
    	
 
    	
2,066
    	
 
    	
910
    	
 
    	
6,434
    	
 
    
	
Liabilities incurred
    	
 
    	
—
    	
 
    	
4,953
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
4,953
    	
 
    
	
Revisions in discount rates, timing and amount of estimated cash flows   
    	
 
    	
—
    	
 
    	
—
    	
 
    	
7,263
    	
 
    	
14,298
    	
 
    	
1,585
    	
 
    	
23,146
    	
 
    
	
Reclassification to held for sale
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(39,981
    	
)
    	
(39,981
    	
)
    
	
Foreign exchange and other
    	
 
    	
(861
    	
)
    	
(6,603
    	
)
    	
(2,676
    	
)
    	
(2,236
    	
)
    	
(2,159
    	
)
    	
(14,535
    	
)
    
	
Closing balance at December 31, 2010
    	
 
    	
$
    	
15,402
    	
 
    	
$
    	
56,439
    	
 
    	
$
    	
26,817
    	
 
    	
$
    	
69,931
    	
 
    	
$
    	
—
    	
 
    	
$
    	
168,589
    	
 
    

 

We recorded an additional $17 million this year for post-closure liabilities at our closed properties: $12 million as a result of a decrease in the discount rates we applied in determining the liabilities, and a $5 million increase in our estimated closure obligations at Troilus for on-going treatment of tailings effluent for suspended solids and associated labour costs. In 2010, we recorded increased asset retirement obligations of $14 million at our closed properties: $8 million for closure liabilities at Troilus to reflect the longer time we expect will be required for post-closure monitoring, as well as higher owner and other costs, and $6 million from a decrease in the discount rates we applied. Additionally in 2010, we recognized an increase to our liabilities at Pyhäsalmi of $7 million mainly as a result of a change in our mine waste and tailings reclamation approach.

 

To settle these liabilities, we estimate that we need $209 million (2010 - $213 million) in undiscounted cash flows, payable over the next 13 years, with subsequent annual undiscounted cash flows of approximately $1 million for long-term water treatment obligations. We discount cash flows at interest rates that range from 1.0 percent to 10.0 percent (2010 – 1.5 percent to 5.0 percent).

 

(b)    Employee benefits and other

 

	
 
    	
 
    	
Employee
   benefits
    	
 
    	
Other
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Opening balance at January 1, 2011
    	
 
    	
$
    	
11,478
    	
 
    	
$
    	
—
    	
 
    	
$
    	
11,478
    	
 
    
	
Liabilities settled
    	
 
    	
(934
    	
)
    	
(552
    	
)
    	
(1,486
    	
)
    
	
Accretion expense 
    	
 
    	
571
    	
 
    	
—
    	
 
    	
571
    	
 
    
	
Revisions in discount rates, timing and amount of estimated cash flows   
    	
 
    	
1,355
    	
 
    	
2,275
    	
 
    	
3,630
    	
 
    
	
Foreign exchange
    	
 
    	
(1,123
    	
)
    	
49
    	
 
    	
(1,074
    	
)
    
	
Closing balance at December 31, 2011
    	
 
    	
$
    	
11,347
    	
 
    	
$
    	
1,772
    	
 
    	
$
    	
13,119
    	
 
    

 

Employee benefits include:

 

·                  payments to employees whose employment is terminated

·                  payments for long service leave available to employees who have met certain requirements, including length of employment

·                  obligations related to a supplementary executive retirement plan for a former executive that are secured by a letter of credit

·                  obligations related to a performance share unit plan for senior management (note 22b).

 

We expect to incur these costs over the next 10 years (2010 – 10 years).

 

46

 

18.       Long-term debt

 

	
 
    	
 
    	
December
   31, 2011
    	
 
    	
December
   31, 2010
    	
 
    	
January 1,
   2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Promissory note
    	
 
    	
$
    	
17,126
    	
 
    	
$
    	
16,619
    	
 
    	
$
    	
18,094
    	
 
    
	
Loans from non-controlling shareholder
    	
 
    	
—
    	
 
    	
—
    	
 
    	
181,932
    	
 
    
	
 
    	
 
    	
$
    	
17,126
    	
 
    	
$
    	
16,619
    	
 
    	
$
    	
200,026
    	
 
    

 

Promissory note

 

As part of our purchase of Pyhäsalmi, we issued a €14 million unsecured promissory note. The note was for a 10-year term at an interest rate of 6 percent. We recorded the note at €9 million ($12.7 million), which was its fair value on the date of issue (in March 2002). In October 2003, we amended our note payable agreement, extending the note’s maturity date to October 3, 2013. We received a payment of $0.9 million, which we are recognizing in income over the term of loan. We are not required to repay any of the principal until the note matures.

 

Loans from non-controlling shareholder

 

Las Cruces had intercompany loans with an affiliate. Up to December 15, 2010, seventy percent of these loans were owed to Inmet and did not appear on the consolidated balance sheet. In 2010, intergroup promissory note agreements bore interest at EURIBOR plus 6.1 percent and were due to be repaid on February 25, 2020. On December 15, 2010 we acquired these loans for $173.7 million, eliminating these loans from our consolidated balance sheet (note 24).

 

19.        Other liabilities

 

	
 
    	
 
    	
December
   31, 2011
    	
 
    	
December
   31, 2010
    	
 
    	
January 1,
   2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Finance lease obligations (a)
    	
 
    	
$
    	
17,043
    	
 
    	
$
    	
17,441
    	
 
    	
$
    	
20,019
    	
 
    
	
Other
    	
 
    	
676
    	
 
    	
676
    	
 
    	
676
    	
 
    
	
 
    	
 
    	
$
    	
17,719
    	
 
    	
$
    	
18,117
    	
 
    	
$
    	
20,695
    	
 
    

 

(a)                    Las Cruces has a contract for the supply of oxygen from a plant owned and operated by a third party and located at the mine site. This arrangement contains a capital lease with minimum lease payments (based on contractually fixed monthly payments) of:

 

	
2012
    	
 
    	
$
    	
2,389
    	
 
    
	
2013
    	
 
    	
2,389
    	
 
    
	
2014
    	
 
    	
2,232
    	
 
    
	
2015
    	
 
    	
2,201
    	
 
    
	
2016
    	
 
    	
2,201
    	
 
    
	
Thereafter
    	
 
    	
16,137
    	
 
    
	
Total 
    	
 
    	
$
    	
27,549
    	
 
    

 

We have recognized the oxygen plant in property, plant and equipment (note 13) based on the total minimum future lease payments discounted at Las Cruces’ incremental borrowing rate (at contract inception) of 8.2 percent.

 

47

 

20.       Share capital

 

While our articles of incorporation allow us to issue an unlimited number of preferred shares, subordinate voting participating shares and common shares, we only have common shares issued and outstanding. Our common shares have no par value.

 

The table below lists the shares that have been issued.

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
 
    	
 
    	
Common
    shares
    	
 
    	
Amount
    	
 
    	
Common
    shares
    	
 
    	
Amount
    	
 
    
	
Balance, beginning of year
    	
 
    	
61,549
    	
 
    	
$
    	
1,089,576
    	
 
    	
56,107
    	
 
    	
$
    	
669,952
    	
 
    
	
Issuance of common shares (net of transactions costs (a))
    	
 
    	
7,780
    	
 
    	
502,168
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Deferred share unit redemption (note 22)
    	
 
    	
3
    	
 
    	
204
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Acquisition of Las Cruces (b)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
5,442
    	
 
    	
419,624
    	
 
    
	
Balance, end of year
    	
 
    	
69,332
    	
 
    	
$
    	
1,591,948
    	
 
    	
61,549
    	
 
    	
$
    	
1,089,576
    	
 
    

 

(a) On May 17, 2011, we issued 7.78 million Inmet common shares to Temasek Holdings (Private) Ltd. pursuant to a subscription agreement and we received cash of $500 million, plus accrued interest on funds in escrow during the subscription period.

 

(b) In 2010, we issued 5.4 million common shares as part of the acquisition of the non-controlling interest in Las Cruces (note 24).

 

Capital management

 

Our objectives when managing capital are to:

 

·                  ensure we have the financial capacity to support our operations throughout the metals and materials cycles with sufficient capability to manage unforeseen operational or industry developments

·                  ensure we have the capital and capacity to support our long-term growth strategy

·                  provide investors with superior returns over time.

 

Our capital structure reflects the requirements of a company focused on significant growth in a capital intensive industry. We face lengthy development lead times, as well as risks associated with rising capital costs and project delays that can arise from the availability of resources, permits and other factors beyond our control. Our operations are also affected by potentially significant volatility of the metals and materials cycles.

 

We continually assess the adequacy of our capital structure and make adjustments within the context of our strategy, the base metal mining industry, economic conditions and the risk characteristics of our assets. To adjust or maintain our capital structure, we may adjust the amount of our long-term debt, enter into new credit facilities and adjust the amount of dividends paid to our shareholders or issue new shares.

 

We have several key policy guidelines for managing our capital structure:

 

·                  maintain a liquidity cushion that allows us to address operational and/or industry disruptions or downturns

·                  make sure we have enough funding to complete our development programs at or around the time we make a definitive decision to move forward with a project

·                  maintain a conservative level of debt relative to total capital and earnings within the context of our financial forecasts for pricing, costs and production

·                  outperform the TSX/S&P Diversified Metals and Mining Index over time, providing superior returns to our shareholders.

 

48

 

We monitor our capital using the following measures:

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Target
   requirement
    	
 
    
	
Gross debt to total capitalization
    	
 
    	
1
    	
%
    	
1
    	
%
    	
< 25
    	
%%
    
	
Interest coverage ratio
    	
 
    	
488
    	
 
    	
456
    	
 
    	
>3
    	
 
    
	
Total debt service ratio
    	
 
    	
488
    	
 
    	
456
    	
 
    	
>1.5
    	
 
    

 

	
Gross debt to total capitalization
    	
 
    	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Total long-term debt
    	
 
    	
(A)
    	
 
    	
$
    	
17,126
    	
 
    	
$
    	
16,619
    	
 
    
	
Total shareholders’ equity
    	
 
    	
(B)
    	
 
    	
$
    	
3,414,248
    	
 
    	
$
    	
2,554,539
    	
 
    
	
Gross debt to total capitalization
    	
 
    	
(A)/(B)
    	
 
    	
1
    	
%
    	
1
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Interest coverage ratio
    	
 
    	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Earnings before interest, taxes, depreciation, amortization (EBITDA):
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Net income attributable to Inmet equity holders
    	
 
    	
 
    	
 
    	
$
    	
348,171
    	
 
    	
$
    	
391,876
    	
 
    
	
Add back: 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Interest expense on long-term debt 
    	
 
    	
 
    	
 
    	
1,848
    	
 
    	
6,873
    	
 
    
	
Income tax expense
    	
 
    	
 
    	
 
    	
105,423
    	
 
    	
69,087
    	
 
    
	
Depreciation 
    	
 
    	
 
    	
 
    	
108,726
    	
 
    	
55,988
    	
 
    
	
EBITDA
    	
 
    	
(A)
    	
 
    	
$
    	
564,168
    	
 
    	
$
    	
523,824
    	
 
    
	
Interest paid on long-term debt
    	
 
    	
(B)
    	
 
    	
$
    	
1,156
    	
 
    	
$
    	
1,148
    	
 
    
	
Interest coverage ratio
    	
 
    	
(A)/(B)
    	
 
    	
488
    	
 
    	
456
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total debt service ratio
    	
 
    	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
EBITDA
    	
 
    	
(A)
    	
 
    	
$
    	
564,168
    	
 
    	
$
    	
523,824
    	
 
    
	
Debt service:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Interest paid on long-term debt
    	
 
    	
 
    	
 
    	
$
    	
1,156
    	
 
    	
$
    	
1,148
    	
 
    
	
Total debt service
    	
 
    	
(B)
    	
 
    	
$
    	
1,156
    	
 
    	
$
    	
1,148
    	
 
    
	
Total debt service ratio
    	
 
    	
(A)/(B)
    	
 
    	
488
    	
 
    	
456
    	
 
    
																	

 

21.       Contributed surplus

 

The table below summarizes the changes in contributed surplus.

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Contributed surplus, beginning of year
    	
 
    	
$
    	
66,131
    	
 
    	
$
    	
64,809
    	
 
    
	
Compensation expense — share award plan 
    	
 
    	
621
    	
 
    	
1,322
    	
 
    
	
Contributed surplus, end of year
    	
 
    	
$
    	
66,752
    	
 
    	
$
    	
66,131
    	
 
    

 

Share award plan

 

A share award plan (SAP) formed part of senior management’s performance-based compensation. At the time a share award was made, an equivalent number of Inmet common shares was purchased on the open market and recorded against contributed surplus. The share awards vest evenly over a period of four years.

 

The share award plan has been terminated for the 2011 year onwards in conjunction with the establishment of the SOP and PSUP (note 22 (c)). Shares already awarded under the plan will continue to vest according to the original vesting period and no additional shares will be awarded.

 

We recognized a stock based compensation expense for the SAP of $0.6 million in 2011 and $1.3 million in 2010.

 

49

 

The table below is a breakdown of unrecognized share awards under the plan by year of award.

 

	
Year
    	
 
    	
Amount
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
2008
    	
 
    	
$
    	
200
    	
 
    
	
2009
    	
 
    	
45
    	
 
    
	
 
    	
 
    	
$
    	
245
    	
 
    

 

22.        Stock based compensation

 

The table below shows the change in the stock based compensation in equity during the years ended December 31:

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Balance, beginning of year
    	
 
    	
$
    	
6,542
    	
 
    	
$
    	
5,170
    	
 
    
	
Stock based compensation expense 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Stock option plan (a)
    	
 
    	
3,808
    	
 
    	
—
    	
 
    
	
Long-term incentive plan (c)
    	
 
    	
759
    	
 
    	
382
    	
 
    
	
Deferred share unit plan (d)
    	
 
    	
1,030
    	
 
    	
990
    	
 
    
	
Long-term incentive plan redemption — Las Cruces (c)
    	
 
    	
(3,408
    	
)
    	
—
    	
 
    
	
Deferred share unit redemption (d)
    	
 
    	
(204
    	
)
    	
—
    	
 
    
	
Balance, end of year
    	
 
    	
$
    	
8,527
    	
 
    	
$
    	
6,542
    	
 
    

 

(a)                               Stock option plan

 

On June 27, 2011, shareholders approved a share option plan (SOP) for senior management, enabling them to purchase Inmet common shares, with a reserve of 2.8 million common shares. The exercise price is determined by the Board at the time the option is granted, and may not be less than the volume weighted average price of Inmet common shares for the five preceding trading days (5 day VWAP). In the absence of specific vesting conditions determined by the Board at the grant date, each grant will vest 25 percent per year for four years, with each amount vesting on the anniversary of the grant date (graded vesting).

 

An initial grant of 380,000 options was made to senior management on May 10, 2011, with an exercise price of $65.11, graded vesting and an expiry date of May 10, 2018. We calculated the compensation expense for these options using the Black Scholes valuation model assuming the following weighted average parameters, resulting in a weighted average fair value per option of $28.86 per option: 5 year expected life, 49 percent expected volatility, expected dividend rate of 0.3 percent annually and a risk free interest rate of 2 percent.

 

(b)                               Performance share unit plan

 

Effective May 10, 2011, we adopted a performance share unit plan (PSUP) for senior management with an initial grant of 29,488 performance share units (PSUs). The Board grants PSUs at its sole discretion with grants generally being equal in value to a percentage of an executive’s annual base salary. The vesting period for the PSUs is the three year period commencing on January 1 of the year in which a PSU grant is made and ending on November 25th of the second year following the year in which the grant is made. Each PSU is settled in cash based on the 5 day VWAP prior to November 25 of the second year following the year of the grant.

 

We used a Monte Carlo simulation model to calculate the compensation expense for the PSUs assuming no forfeitures, 3 year historical average volatilities and a risk free interest rate of 0.95%, resulting in a December 31, 2011 fair value of $101.87 per PSU.

 

(c)           Long-term incentive plan

 

We have a long-term incentive plan (LTIP) that ties a portion of Canadian based executive officer incentive compensation to the completion of specific development projects as defined under the plan.

 

50

 

A maximum of 500,000 performance units (each exchangeable for one common share of Inmet Mining) can be issued under the LTIP. The board uses its discretion to determine the vesting date for an award, but vesting is generally when the development project is determined to be substantially complete and has operated for enough time to be able to assess its ongoing operating parameters.

 

The board determines the number of units that vest by assessing senior management’s performance against the expectations underlying the board’s original decision to develop the project. We calculate the stock based compensation expense using the estimated vesting date for the project associated with an award, and an estimate of senior management’s ultimate performance for an award based on performance to date (estimated performance).

 

On May 10, 2011, the LTIP units associated with Las Cruces were redeemed with a vesting performance factor of 60 percent, based on the board’s assessment of senior management performance for the project. The board decided to redeem the LTIP units for $3.4 million in cash based on the 5 day VWAP of $65.11.

 

Additionally, the LTIP has been replaced by the SOP and PSUP described herein. The 312,000 LTIP units associated with Cobre Panama remain in place and will be redeemed in accordance with the LTIP provisions. However, no additional LTIP units will be granted as a result of the replacement of the plan.

 

The table below shows the changes to the LTIP units during the year.

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
LTIP units
    	
 
    	
Units
   (thousands)
    	
 
    	
Amount
    	
 
    	
Units
   (thousands)
    	
 
    	
Amount
    	
 
    
	
Balance, beginning of year
    	
 
    	
398
    	
 
    	
$
    	
3,797
    	
 
    	
398
    	
 
    	
$
    	
3,415
    	
 
    
	
Stock based compensation expense
    	
 
    	
—
    	
 
    	
759
    	
 
    	
—
    	
 
    	
382
    	
 
    
	
Redeemed 
    	
 
    	
(86
    	
)
    	
(3,408
    	
)
    	
—
    	
 
    	
—
    	
 
    
	
Balance, end of year
    	
 
    	
312
    	
 
    	
$
    	
1,148
    	
 
    	
398
    	
 
    	
$
    	
3,797
    	
 
    

 

The table below provides the details of the outstanding LTIP awards by project at December 31.

 

2011

 

	
Project
    	
 
    	
Number of units
   (thousands)
    	
 
    	
Grant date fair
   value
    	
 
    	
Estimated
   performance
    	
 
    	
Estimated vesting
   date
    	
 
    	
Cumulative
   expense
    	
 
    
	
Cobre   Panama
    	
 
    	
312
    	
 
    	
$
    	
16,886
    	
 
    	
—
    	
%
    	
December 31, 2015
    	
 
    	
$
    	
—
    	
 
    
	
Las   Cruces
    	
 
    	
—
    	
 
    	
n/a
    	
 
    	
n/a
    	
 
    	
n/a
    	
 
    	
1,148
    	
(1)
    
	
Total
    	
 
    	
312
    	
 
    	
$
    	
16,886
    	
 
    	
—
    	
%
    	
n/a
    	
 
    	
$
    	
1,148
    	
 
    

 

(1)          Amount remains because Las Cruces units were settled in cash instead of shares.

 

2010

 

	
Project
    	
 
    	
Number of units
   (thousands)
    	
 
    	
Grant date fair
   value
    	
 
    	
Estimated
   performance
    	
 
    	
Estimated vesting
   date
    	
 
    	
Cumulative
   expense
    	
 
    
	
Cobre Panama
    	
 
    	
312
    	
 
    	
$
    	
16,886
    	
 
    	
—
    	
%
    	
December 31, 2015
    	
 
    	
$
    	
—
    	
 
    
	
Las Cruces
    	
 
    	
86
    	
 
    	
7,594
    	
 
    	
50
    	
%
    	
March 31, 2010
    	
 
    	
3,797
    	
 
    
	
Total
    	
 
    	
398
    	
 
    	
$
    	
24,480
    	
 
    	
—
    	
%
    	
n/a
    	
 
    	
$
    	
3,797
    	
 
    

 

51

 

(d)    Deferred share unit program for non-employee directors

 

Our deferred share unit (DSU) program requires non-employee directors take at least 50 percent of their annual retainer fees in the form of DSUs rather than cash. Directors have the option of increasing this percentage up to 100 percent. Each DSU can be redeemed for one common share of Inmet Mining. Directors can only redeem their DSUs for Inmet common shares when they retire, at which point shares are issued from treasury.

 

DSUs are granted at the end of each quarter by dividing the amount of retainer fees they elected to receive as DSUs in that quarter by the average of the high and low prices of our common shares on the 10 business days preceding the last date of that quarter. DSUs vest when they are granted.

 

We recognize DSUs based on their fair value at the grant date.

 

The table below shows the changes to the deferred share units during the year.

 

Deferred share units

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
 
    	
 
    	
Units
   (thousands)
    	
 
    	
Amount
    	
 
    	
Units
   (thousands)
    	
 
    	
Amount
    	
 
    
	
Balance, beginning of year
    	
 
    	
108
    	
 
    	
$
    	
2,746
    	
 
    	
91
    	
 
    	
$
    	
1,756
    	
 
    
	
Granted during the year
    	
 
    	
17
    	
 
    	
1,030
    	
 
    	
17
    	
 
    	
990
    	
 
    
	
Redeemed for common shares
    	
 
    	
(3
    	
)
    	
(204
    	
)
    	
—
    	
 
    	
—
    	
 
    
	
Balance, end of year
    	
 
    	
122
    	
 
    	
$
    	
3,572
    	
 
    	
108
    	
 
    	
$
    	
2,746
    	
 
    

 

23.        Accumulated other comprehensive income (loss)

 

Accumulated other comprehensive income (loss) includes:

 

	
 
    	
 
    	
December
   31, 2011
    	
 
    	
December
   31, 2010
    	
 
    	
January
   1, 2010
    	
 
    
	
Unrealized losses on gold forward sales contracts (net of tax of $nil)   (December 31, 2010 - $2,427, January 1, 2010 - $2,015))
    	
 
    	
$
    	
—
    	
 
    	
$
    	
(5,661
    	
)
    	
$
    	
(4,701
    	
)
    
	
Unrealized gains (losses) on investments (net of tax of $94)   (December 31, 2010 - $78, January 1, 2010 - $4,788))
    	
 
    	
(552
    	
)
    	
(452
    	
)
    	
23,794
    	
 
    
	
Currency translation adjustment
    	
 
    	
(164,232
    	
)
    	
(179,104
    	
)
    	
—
    	
 
    
	
Accumulated other comprehensive income   (loss)
    	
 
    	
$
    	
(164,784
    	
)
    	
$
    	
(185,217
    	
)
    	
$
    	
19,093
    	
 
    

 

In 2012, we do not expect to reclassify an amount from Accumulated other comprehensive income to net income.

 

Currency translation adjustments

 

The table below is breakdown of our currency translation adjustments.

 

	
 
    	
 
    	
December
   31, 2011
    	
 
    	
December
   31, 2010
    	
 
    	
January 1,
   2010
    	
 
    
	
Pyhäsalmi (euro functional currency)
    	
 
    	
$
    	
(28,277
    	
)
    	
$
    	
(24,354
    	
)
    	
$
    	
—
    	
 
    
	
Las Cruces (euro functional currency)
    	
 
    	
(106,456
    	
)
    	
(93,427
    	
)
    	
—
    	
 
    
	
Çayeli (US dollar functional currency)
    	
 
    	
(15,563
    	
)
    	
(20,908
    	
)
    	
—
    	
 
    
	
Cobre Panama (US dollar functional currency)
    	
 
    	
(13,936
    	
)
    	
(29,701
    	
)
    	
—
    	
 
    
	
Ok Tedi (US dollar functional currency)
    	
 
    	
—
    	
 
    	
(10,714
    	
)
    	
—
    	
 
    
	
 
    	
 
    	
$
    	
(164,232
    	
)
    	
$
    	
(179,104
    	
)
    	
$
    	
—
    	
 
    

 

The Canadian dollar to US dollar exchange rate was $1.02 at December 31, 2011, $0.99 at December 31, 2010 and $1.05 at January 1, 2010. The Canadian dollar to euro exchange rate was $1.32 at December 31, 2011, $1.33 at December 31, 2010 and $1.50 at January 1, 2010.

 

52

 

24.       Non-controlling Interest

 

On December 15, 2010, we acquired Leucadia National Corporation’s (Leucadia’s) 30 percent indirect equity interest and subordinated sponsor loans in Las Cruces. The purchase consideration comprised of $150.6 million cash and the issuance of 5.4 million Inmet common shares. In addition, Leucadia was released from its guarantee of US $72 million debt owed by Las Cruces to an affiliate of Inmet as a result of the re-financing of its project facility in 2009 (note 18).

 

Since we controlled Las Cruces prior to this transaction, it was accounted for as an equity transaction and we recognized the difference between our carrying value of the non-controlling interest in Las Cruces of $67 million and our acquisition cost of $397 million against retained earnings. We have included 70 percent of Las Cruces’ net earnings in our consolidated statement of earnings to December 15, 2010 and 100 percent thereafter.

 

25.        Expenses

 

The table below provides supplementary information for certain expenses for the year.

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Included in cost of sales:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Inventory recognized as an expense
    	
 
    	
$
    	
237,751
    	
 
    	
$
    	
152,363
    	
 
    
	
Depreciation of assets under finance leases
    	
 
    	
1,552
    	
 
    	
771
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Included in net income:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Employee benefits expense
    	
 
    	
88,102
    	
 
    	
78,367
    	
 
    
								

 

26.       Investment and other income

 

	
 
    	
 
    	
December 31,
   2011
    	
 
    	
December 31,
   2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Interest income
    	
 
    	
$
    	
16,627
    	
 
    	
$
    	
8,234
    	
 
    
	
Dividend and royalty income 
    	
 
    	
3,041
    	
 
    	
3,173
    	
 
    
	
Foreign exchange gain (loss) 
    	
 
    	
10,789
    	
 
    	
(968
    	
)
    
	
Gain on sale of   investment in Premier Gold Mines Ltd.
    	
 
    	
—
    	
 
    	
50,505
    	
 
    
	
Other
    	
 
    	
268
    	
 
    	
(2,600
    	
)
    
	
 
    	
 
    	
$
    	
30,725
    	
 
    	
$
    	
58,344
    	
 
    

 

Gain on sale of investment in Premier Gold Mines Ltd (Premier Gold)

 

In 2010, we sold our 9.45 million common shares of Premier Gold for $61.4 million in cash, or $6.50 per share, and recognized a gain of $50.5 million.

 

Foreign exchange gain (loss) is a result of:

 

	
 
    	
 
    	
December 31,
   2011
    	
 
    	
December 31,
   2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Translation of US dollar cash and held-to-maturity investments
    	
 
    	
$
    	
3,338
    	
 
    	
$
    	
(47
    	
)
    
	
Translation of Turkish lira taxes payable at Çayeli
    	
 
    	
4,027
    	
 
    	
(672
    	
)
    
	
Translation of other monetary assets and liabilities
    	
 
    	
3,424
    	
 
    	
(249
    	
)
    
	
 
    	
 
    	
$
    	
10,789
    	
 
    	
$
    	
(968
    	
)
    

 

53

 

27.          Finance costs

 

	
 
    	
 
    	
December
   31, 2011
    	
 
    	
December 31,
   2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Interest on note payable
    	
 
    	
$
    	
1,156
    	
 
    	
$
    	
1,148
    	
 
    
	
Accretion on note payable 
    	
 
    	
692
    	
 
    	
618
    	
 
    
	
Interest on loans from non-controlling shareholder  In Las Cruces
    	
 
    	
—
    	
 
    	
5,107
    	
 
    
	
Accretion on provisions and capital lease obligations
    	
 
    	
7,636
    	
 
    	
6,303
    	
 
    
	
 
    	
 
    	
$
    	
9,484
    	
 
    	
$
    	
13,176
    	
 
    

 

28.       Net income per share

 

The tables below show our calculation of basic and diluted net income per share as at December 31.

 

	
(thousands)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Income from continuing operations available to common shareholders
    	
 
    	
$
    	
264,732
    	
 
    	
$
    	
267,121
    	
 
    
	
Income from discontinued operations available to common shareholders
    	
 
    	
83,439
    	
 
    	
$
    	
124,755
    	
 
    
	
Net income available to common shareholders
    	
 
    	
348,171
    	
 
    	
$
    	
391,876
    	
 
    
								

 

	
(thousands)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Weighted average common shares outstanding
    	
 
    	
66,432
    	
 
    	
56,345
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Plus incremental shares from assumed conversions(1):
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Deferred share units
    	
 
    	
122
    	
 
    	
108
    	
 
    
	
Long-term incentive plan units
    	
 
    	
18
    	
 
    	
43
    	
 
    
	
Diluted weighted average common shares outstanding
    	
 
    	
66,572
    	
 
    	
56,496
    	
 
    

 

(1)       The impact of stock options has been excluded as it was anti-dilutive.

 

The table below shows our earnings per common share for the year ended December 31.

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
(Canadian dollars per share)
    	
 
    	
Basic
    	
 
    	
Diluted
    	
 
    	
Basic
    	
 
    	
Diluted
    	
 
    
	
Net income from continuing operations per share
    	
 
    	
$
    	
3.99
    	
 
    	
$
    	
3.98
    	
 
    	
$
    	
4.74
    	
 
    	
$
    	
4.73
    	
 
    
	
Income from discontinued operations per share
    	
 
    	
1.26
    	
 
    	
1.25
    	
 
    	
2.21
    	
 
    	
2.21
    	
 
    
	
Net income per share
    	
 
    	
$
    	
5.25
    	
 
    	
$
    	
5.23
    	
 
    	
$
    	
6.95
    	
 
    	
$
    	
6.94
    	
 
    

 

29.       Dividends paid

 

The table below shows a breakdown of dividends declared and paid during the year.

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Final dividend for 2011 - $0.10 per share (2010 - $0.10 per share)
    	
 
    	
$
    	
6,940
    	
 
    	
$
    	
5,600
    	
 
    
	
Interim dividend for 2011 - $0.10 per share (2010 - $0.10 per share)
    	
 
    	
6,933
    	
 
    	
5,610
    	
 
    
	
Declared and paid
    	
 
    	
$
    	
13,873
    	
 
    	
$
    	
11,210
    	
 
    
	
Declared and paid per common share
    	
 
    	
$
    	
0.20
    	
 
    	
$
    	
0.20
    	
 
    

 

54

 

30.       Statements of cash flows

 

The tables below show the components of our net change in non-cash working capital by segment for the year.

 

2011

 

	
 
    	
 
    	
Corporate
   and other
    	
 
    	
Çayeli
    (Turkey)
    	
 
    	
Las Cruces
   (Spain)
    	
 
    	
Pyhäsalmi
    (Finland)
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts receivable
    	
 
    	
$
    	
(185
    	
)
    	
$
    	
13,319
    	
 
    	
$
    	
(11,271
    	
)
    	
$
    	
16,396
    	
 
    	
$
    	
18,259
    	
 
    
	
Inventories
    	
 
    	
—
    	
 
    	
(1,158
    	
)
    	
(7,966
    	
)
    	
(1,372
    	
)
    	
(10,496
    	
)
    
	
Accounts payable and accrued liabilities
    	
 
    	
1,179
    	
 
    	
7,865
    	
 
    	
8,815
    	
 
    	
(242
    	
)
    	
17,617
    	
 
    
	
Taxes payable
    	
 
    	
(5,048
    	
)
    	
(829
    	
)
    	
(89
    	
)
    	
(14,701
    	
)
    	
(20,667
    	
)
    
	
Provisions
    	
 
    	
(713
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(713
    	
)
    
	
Other
    	
 
    	
—
    	
 
    	
1,207
    	
 
    	
—
    	
 
    	
(264
    	
)
    	
943
    	
 
    
	
 
    	
 
    	
$
    	
(4,767
    	
)
    	
$
    	
20,404
    	
 
    	
$
    	
(10,511
    	
)
    	
$
    	
(183
    	
)
    	
$
    	
4,943
    	
 
    

 

2010

 

	
 
    	
 
    	
Corporate
   and other
    	
 
    	
Çayeli
    (Turkey)
    	
 
    	
Las Cruces
   (Spain)
    	
 
    	
Pyhäsalmi
    (Finland)
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts receivable
    	
 
    	
$
    	
10,289
    	
 
    	
$
    	
(15,559
    	
)
    	
$
    	
(1,290
    	
)
    	
$
    	
(22,859
    	
)
    	
$
    	
(29,419
    	
)
    
	
Inventories
    	
 
    	
9,881
    	
 
    	
(5,263
    	
)
    	
(11,975
    	
)
    	
32
    	
 
    	
(7,325
    	
)
    
	
Accounts payable and accrued liabilities
    	
 
    	
(9,791
    	
)
    	
(2,009
    	
)
    	
11,802
    	
 
    	
(1,207
    	
)
    	
(1,205
    	
)
    
	
Taxes payable
    	
 
    	
(8,853
    	
)
    	
8,118
    	
 
    	
—
    	
 
    	
5,747
    	
 
    	
5,012
    	
 
    
	
Other
    	
 
    	
1,289
    	
 
    	
(1,188
    	
)
    	
(215
    	
)
    	
—
    	
 
    	
(114
    	
)
    
	
 
    	
 
    	
$
    	
2,815
    	
 
    	
$
    	
(15,901
    	
)
    	
$
    	
(1,678
    	
)
    	
$
    	
(18,287
    	
)
    	
$
    	
(33,051
    	
)
    

 

We paid $95 million in taxes in 2011 and $76 million in 2010. We paid $1 million in interest on long-term debt in 2011 and $1 million in 2010.

 

31.        Commitments and contingencies

 

Las Cruces subsidies

 

Las Cruces received subsidies of €53 million related to its development. The operation must meet certain employment and share capital requirements for a five year period ending September 30, 2014, or these subsidies must be repaid. Las Cruces reasonably expects to meet these requirements and we have recognized the subsidies as a reduction of the cost of the related property, plant and equipment (note 13).

 

55

 

Financial Assurance

 

At December 31, 2011, we provided $78 million in financial assurance to meet obligations related to environmental and other matters. The following table shows the security we are providing assurance for and how it has been secured.

 

	
Obligation requiring security
    	
 
    	
Secured by cash
   (restricted cash –
    note 8)
    	
 
    	
Secured by
   bank facility
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Reclamation and restoration (note 17)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Inmet Mining
    	
 
    	
$
    	
13,444
    	
 
    	
$
    	
—
    	
 
    	
$
    	
13,444
    	
 
    
	
Pyhäsalmi
    	
 
    	
1,616
    	
 
    	
—
    	
 
    	
1,616
    	
 
    
	
Las Cruces
    	
 
    	
34,409
    	
 
    	
—
    	
 
    	
34,409
    	
 
    
	
Cobre Panama
    	
 
    	
—
    	
 
    	
5,339
    	
 
    	
5,339
    	
 
    
	
 
    	
 
    	
49,469
    	
 
    	
5,339
    	
 
    	
54,808
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Executive pension obligation of Inmet Mining
    	
 
    	
3,211
    	
 
    	
—
    	
 
    	
3,211
    	
 
    
	
Labour bond at Las Cruces
    	
 
    	
6,597
    	
 
    	
—
    	
 
    	
6,597
    	
 
    
	
Dewatering and water treatment at Las Cruces
    	
 
    	
11,945
    	
 
    	
—
    	
 
    	
11,945
    	
 
    
	
Other at Las Cruces
    	
 
    	
1,223
    	
 
    	
—
    	
 
    	
1,223
    	
 
    
	
 
    	
 
    	
$
    	
72,445
    	
 
    	
$
    	
5,339
    	
 
    	
$
    	
77,784
    	
 
    

 

Las Cruces was required to post a restoration bond and a labour bond before mining activity could begin.

 

The restoration bond is based on the amount of money it would take to restore the site to its post-mining land use at any point in the mine’s life. This takes into consideration the mine’s expected life, the corresponding land disturbance and estimated closure costs, and is secured with cash. In 2011, the bond increased by €1.6 million (2010 - €1.2 million) because of mining and development activity at the property.

 

The labour bond is fixed at €5 million for the life of the mine, and is secured with a cash collateralized letter of credit.

 

Las Cruces has also cash collateralized another €10 million for the following letters of credit:

 

·                  €9 million for dewatering and other purposes

·                  €1 million for other suppliers.

 

Option Agreement with KPMC — Cobre Panama

 

In 2009, we entered into an option agreement with KPMC, a joint venture between LS-Nikko Copper Inc. and Korean Resources Corporation, which gave it the option to acquire a 20 percent interest in MPSA, the owner and developer of Cobre Panama. In January 2012, we received notice from KPMC that it has elected, under the option agreement, to acquire a 20 percent interest in MPSA, which would leave Inmet with an 80 percent interest. Subject to the terms of the acquisition, at closing KPMC will be required to invest an amount into MPSA representing a 20 percent share of development costs to closing, over the US $30 million of such costs KPMC has already funded.

 

56

 

32.       Related parties

 

The table below is a list of all parties related to Inmet Mining. Transactions between Inmet Mining and our subsidiaries and joint ventures have been eliminated on consolidation and are not disclosed in this note.

 

	
Name
    	
 
    	
Country of
   Incorporation
    	
 
    	
Principal Activities
    	
 
    	
Effective
   interest (%)
    	
 
    
	
Subsidiaries
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·  Çayeli   Bakir Isletmeleri A.S. 
    	
 
    	
Turkey
    	
 
    	
Copper and zinc   operation
    	
 
    	
100
    	
 
    
	
·  Cobre   Las Cruces S.A. 
    	
 
    	
Spain
    	
 
    	
Copper   operation
    	
 
    	
100
    	
 
    
	
·  Pyhäsalmi   Mine Oy 
    	
 
    	
Finland
    	
 
    	
Copper and zinc   operation
    	
 
    	
100
    	
 
    
	
·  Minera   Panama S.A. 
    	
 
    	
Panama
    	
 
    	
Copper and gold   development property
    	
 
    	
100
    	
 
    
	
·  2877571   Canada Ltd.
    	
 
    	
Canada
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  HV   Mining Limited Partnership 
    	
 
    	
Canada
    	
 
    	
Holding company
    	
 
    	
62.14
    	
 
    
	
·  157094   Canada Ltd.
    	
 
    	
Canada
    	
 
    	
Holding company
    	
 
    	
62.14
    	
 
    
	
·  MNR   Mining Inc. 
    	
 
    	
Canada
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  Inmet   Anatolia Ltd.
    	
 
    	
Canada
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  Inmet   Bakir Ltd.
    	
 
    	
Canada
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  Inmet   Karadeniz Ltd.
    	
 
    	
Canada
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  702785   Ontario Ltd.
    	
 
    	
Canada
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  6770177   Canada Ltd.
    	
 
    	
Canada
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  0836389   B.C. Ltd.
    	
 
    	
Canada
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  Petaquilla   Copper S.A.
    	
 
    	
Panama
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  Inmet   Mining (Australia) Pty Ltd. 
    	
 
    	
Australia
    	
 
    	
Exploration
    	
 
    	
100
    	
 
    
	
·  Inmet   Mining Sweden AB 
    	
 
    	
Sweden
    	
 
    	
Exploration
    	
 
    	
100
    	
 
    
	
·  Minera   Inmet De Costa Rica S.A.
    	
 
    	
Costa Rica
    	
 
    	
Exploration
    	
 
    	
100
    	
 
    
	
·  Minera   Inmet Peru S.A. 
    	
 
    	
Peru
    	
 
    	
Exploration
    	
 
    	
100
    	
 
    
	
·  Minera   Vista Oro S.A. 
    	
 
    	
Peru
    	
 
    	
Exploration
    	
 
    	
100
    	
 
    
	
·  Minera   Inmet Chile S.A.
    	
 
    	
Chile
    	
 
    	
Exploration
    	
 
    	
100
    	
 
    
	
·  Minera   Inmet Mexico S.A. de C.V 
    	
 
    	
Mexico
    	
 
    	
Exploration
    	
 
    	
100
    	
 
    
	
·  Inmet   Finance Company S.a.r.l.
    	
 
    	
Luxembourg
    	
 
    	
Finance company
    	
 
    	
100
    	
 
    
	
·  Inmet   Mining (U.S.) Inc. 
    	
 
    	
United States
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  Copper   Range Company 
    	
 
    	
United States
    	
 
    	
Closed property
    	
 
    	
80
    	
 
    
	
·  Unlimited   Development Inc. 
    	
 
    	
United States
    	
 
    	
Holding company
    	
 
    	
80
    	
 
    
	
·  Inmet Sweden Holdings AB 
    	
 
    	
Sweden
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  Inmet Cobre Espana, S.A. 
    	
 
    	
Spain
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  Inmet   Finland Oy 
    	
 
    	
Finland
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  CLC   Copper I B.V. 
    	
 
    	
Netherlands
    	
 
    	
Finance company
    	
 
    	
70
    	
 
    
	
·  CLC   Copper II B.V. 
    	
 
    	
Netherlands
    	
 
    	
Finance company
    	
 
    	
100
    	
 
    
	
·  Artvin   Bakir Madencilik Islemeleri A.S.
    	
 
    	
Turkey
    	
 
    	
Copper   development property
    	
 
    	
100
    	
 
    
	
·  CLC   Holdings Oy
    	
 
    	
Finland
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    
	
·  7563191   Canada Inc
    	
 
    	
Canada
    	
 
    	
Holding company
    	
 
    	
100
    	
 
    

 

57

 

33.       Key management personnel disclosures

 

During the reporting periods, key management personnel of Inmet Mining includes the following:

 

·                  members of the Board of Directors

·                  President and Chief Executive Officer

·                  Vice President and Chief Financial Officer

·                  Vice President, General Counsel and Secretary

·                  Vice President, Corporate Development

·                  Vice President, Mining

 

The table below provides a breakdown of the compensation of key management personnel (as listed above) included in net income.

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Short-term employee benefits
    	
 
    	
$
    	
6,844
    	
 
    	
$
    	
5,009
    	
 
    
	
Contributions to defined contribution pension plan
    	
 
    	
115
    	
 
    	
112
    	
 
    
	
Share based compensation
    	
 
    	
5,846
    	
 
    	
1,587
    	
 
    
	
 
    	
 
    	
$
    	
12,805
    	
 
    	
$
    	
6,708
    	
 
    

 

58

 

34.       Financial instruments

 

(a)          Fair value

 

The table below shows the carrying values and fair values of our financial instruments at December 31:

 

	
 
    	
 
    	
December 31, 2011
    	
 
    	
December 31, 2010
    	
 
    	
January 1, 2010
    	
 
    
	
 
    	
 
    	
Carrying
   value
    	
 
    	
Fair value
    	
 
    	
Carrying
   value
    	
 
    	
Fair value
    	
 
    	
Carrying value
    	
 
    	
Fair value
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Financial assets
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and short-term investments
    	
 
    	
$
    	
1,082,893
    	
 
    	
$
    	
1,082,893
    	
 
    	
$
    	
326,425
    	
 
    	
$
    	
326,425
    	
 
    	
$
    	
533,913
    	
 
    	
$
    	
533,913
    	
 
    
	
Restricted cash
    	
 
    	
72,632
    	
 
    	
72,632
    	
 
    	
70,676
    	
 
    	
70,676
    	
 
    	
116,719
    	
 
    	
116,719
    	
 
    
	
Accounts receivable from metal sales
    	
 
    	
64,049
    	
 
    	
64,049
    	
 
    	
89,917
    	
 
    	
89,917
    	
 
    	
112,435
    	
 
    	
112,435
    	
 
    
	
Held to maturity investments
    	
 
    	
623,474
    	
 
    	
638,484
    	
 
    	
372,530
    	
 
    	
373,893
    	
 
    	
99,884
    	
 
    	
100,882
    	
 
    
	
Investments in equity securities
    	
 
    	
3,161
    	
 
    	
3,161
    	
 
    	
2,694
    	
 
    	
2,694
    	
 
    	
42,411
    	
 
    	
42,411
    	
 
    
	
 
    	
 
    	
$
    	
1,846,209
    	
 
    	
$
    	
1,861,219
    	
 
    	
$
    	
862,242
    	
 
    	
$
    	
863,605
    	
 
    	
$
    	
905,362
    	
 
    	
$
    	
906,360
    	
 
    
	
Financial liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts payable and accrued liabilities
    	
 
    	
$
    	
122,353
    	
 
    	
$
    	
122,353
    	
 
    	
$
    	
95,384
    	
 
    	
$
    	
95,384
    	
 
    	
$
    	
106,804
    	
 
    	
$
    	
106,804
    	
 
    
	
Long-term debt(i)
    	
 
    	
17,126
    	
 
    	
19,029
    	
 
    	
16,619
    	
 
    	
19,744
    	
 
    	
200,026
    	
 
    	
204,857
    	
 
    
	
Derivative liabilities
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
4,708
    	
 
    	
4,708
    	
 
    
	
 
    	
 
    	
$
    	
139,479
    	
 
    	
$
    	
141,382
    	
 
    	
$
    	
112,003
    	
 
    	
$
    	
115,128
    	
 
    	
$
    	
311,538
    	
 
    	
$
    	
316,369
    	
 
    

 

	
(i)
    	
The fair values of the loans to   non-controlling shareholder approximated their carrying value because they   accrued interest at prevailing market rates. We calculate the fair value of   the promissory note by discounting future cash flows by 4.1 percent, a factor   based on market rates adjusted for our credit quality.
    

 

We classify fair value measurements based on a three-level hierarchy that prioritizes the inputs to valuation techniques as follows:

 

·             Level 1 — quoted prices in active markets for the same instrument;

·             Level 2 — quoted prices in active markets for similar assets or liabilities or other valuation techniques for which all significant inputs are based on observable market data; and

·             Level 3 — valuation techniques for which any significant input is not based on observable market data.

 

The table below discloses the classification level for financial instruments we measured at fair value in the balance sheet at December 31.

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Financial assets
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and short-term investments
    	
 
    	
Level 1
    	
 
    	
Level 1
    	
 
    
	
Restricted cash
    	
 
    	
Level 1
    	
 
    	
Level 1
    	
 
    
	
Accounts receivable from metal sales
    	
 
    	
Level 2
    	
 
    	
Level 2
    	
 
    
	
Investments in equity securities
    	
 
    	
Level 1
    	
 
    	
Level 1
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Financial liabilities
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Derivative liabilities 
    	
 
    	
n/a
    	
 
    	
Level 2
    	
 
    

 

59

 

(b)          Risks associated with financial instruments

 

Credit risk

 

Credit risk is the risk that a third party to a financial instrument might fail to meet its obligations under the terms of the financial instrument.

 

For cash and short-term investments, accounts receivable and held to maturity investments, our credit risk is limited to the carrying amount on the balance sheet. Based on our profile at December 31, 2011, we do not anticipate any losses.

 

For derivatives, we have a credit risk when its fair value is positive and no credit risk when its fair value is negative.

 

We manage credit risk by:

 

·                  entering into transactions with high credit-quality counterparties

·                  limiting the amount of exposure to each counterparty where possible

·                  monitoring the financial condition of counterparties.

 

The table below shows the credit quality of our financial assets that are neither past due nor impaired, not including accounts receivable, as at December 31, 2011:

 

	
 
    	
 
    	
Standard & Poor’s (S&P) credit rating
    	
 
    
	
 
    	
 
    	
AA- or
   higher
    	
 
    	
A- or
   higher
    	
 
    	
B to BBB
    	
 
    	
Unrated(1)
    	
 
    	
Total
    	
 
    
	
Cash and short-term investments
    	
 
    	
$
    	
872,962
    	
 
    	
$
    	
209,893
    	
 
    	
$
    	
31
    	
 
    	
$
    	
7
    	
 
    	
$
    	
1,082,893
    	
 
    
	
Restricted cash
    	
 
    	
1,616
    	
 
    	
71,016
    	
 
    	
—
    	
 
    	
—
    	
 
    	
72,632
    	
 
    
	
Held to maturity investments
    	
 
    	
555,345
    	
 
    	
68,129
    	
 
    	
—
    	
 
    	
—
    	
 
    	
623,474
    	
 
    
	
Balance, end of year
    	
 
    	
$
    	
1,429,923
    	
 
    	
$
    	
349,038
    	
 
    	
$
    	
31
    	
 
    	
$
    	
7
    	
 
    	
$
    	
1,778,999
    	
 
    
	
Number of counterparties
    	
 
    	
22
    	
 
    	
7
    	
 
    	
3
    	
 
    	
1
    	
 
    	
33
    	
 
    
	
Largest counterparty (percent)
    	
 
    	
25
    	
%
    	
32
    	
%
    	
84
    	
%
    	
100
    	
%
    	
20
    	
%
    

 

(1) represents our investment in a Canadian money market fund that is unrated as is common in the Canadian fund marketplace. The underlying securities of the fund are with counterparties with S&P ratings of A- or higher at December 31, 2011.

 

Accounts receivable

 

We only sell the metal we produce to counterparties that are considered credit-worthy and are experienced in the base metals industry. We carry out counterparty credit checks following our authorization policy and do not expect any losses. Counterparties we contract must have an S&P rating of at least B or its equivalent or, for those without a credit rating, a good credit history based on a credit search. Some companies are required to pay cash in advance of delivery.

 

For the year ended December 31, 2011, one customer accounted for 29 percent of total sales and 37 percent of accounts receivable. In 2010, one customer accounted for 31 percent of total sales and 19 percent of accounts receivable at year-end.

 

Liquidity risk

 

Liquidity risk is the risk that we will not be able to meet the obligations associated with our financial liabilities. Our objectives and key guidelines for capital management, including our management of long-term debt, are described in note 22.

 

We also have a liquidity policy to help us manage this risk that requires us to:

 

·      invest only in highly liquid instruments with high quality counterparties

·      ensure adequate liquidity lines are in place to support our investments

·      ensure our investments are aligned with our liquidity requirements

 

60

 

·      limit the amount of our investment exposure to individual counterparties.

 

The table below shows our liquidity risk profile at December 31, 2011:

 

	
 
    	
 
    	
Falling due
   within 1
   year
    	
 
    	
Falling
   due
   between
   1-2 years
    	
 
    	
Falling
   due
   between
   2-3 years
    	
 
    	
Falling
   due
   between
   3-4 years
    	
 
    	
Falling
   due
   between
   4-5 years
    	
 
    	
Falling due
   more than
   5 years
    	
 
    	
December
   31,
    2011
   balance
    	
 
    
	
Cash and short-term investments (see also credit quality table on   previous page)
    	
 
    	
$
    	
1,082,893
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
1,082,893
    	
 
    
	
Restricted cash
    	
 
    	
810
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
71,822
    	
 
    	
72,632
    	
 
    
	
Accounts receivable
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Held to maturity investments
    	
 
    	
241,044
    	
 
    	
47,764
    	
 
    	
137,368
    	
 
    	
149,108
    	
 
    	
48,190
    	
 
    	
—
    	
 
    	
623,474
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts payable and accrued liabilities
    	
 
    	
(122,353
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(122,353
    	
)
    
	
Promissory note 
    	
 
    	
—
    	
 
    	
(17,126
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(17,126
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
$
    	
1,202,394
    	
 
    	
$
    	
30,638
    	
 
    	
$
    	
137,368
    	
 
    	
$
    	
149,108
    	
 
    	
$
    	
48,190
    	
 
    	
$
    	
71,822
    	
 
    	
$
    	
1,639,520
    	
 
    

 

Market risk

 

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as market prices change. These include changes in metal prices, foreign exchange rates and interest rates.

 

Metal prices

 

The most significant factor affecting our earnings is the price of the metals we produce and sell, which has a direct impact on our sales revenues. Copper and zinc prices are affected by factors beyond our control and mainly by the fundamentals of supply and demand. They are also affected to some extent by exchange rates and demand from the investment community, in particular hedge funds.

 

Metal prices also have a significant impact on smelter processing charges. We sell concentrate mainly to smelters, which process it into refined metal. Smelter processing charges are made up of the contracted price for treatment and refining charges and costs to cover metal losses in the smelting process. Some contracts also include a price participation clause where the smelter participates to some extent in the upward and downward movement in metal prices.

 

Foreign exchange rates

 

Some of our operations can have financial instruments that are denominated in a currency that is not their functional currency, creating foreign exchange risk. Las Cruces and Pyhäsalmi have accounts receivable denominated in US dollars, but their functional currencies are the euro. Additionally, Corporate has US dollar denominated held to maturity investments whereas its functional currency is the Canadian dollar. Changes in the exchange rates between the Canadian dollar and the US dollar and between the US dollar and the euro can therefore have a significant effect on revenues and net income.

 

Interest rates

 

Interest rate risk is the risk that the value of our assets and liabilities will change when the related interest rates change. We consider interest rate risk related to our cash, short-term investments and restricted cash to be low because of the short-term nature of these securities. Changes in interest rates related to our held to maturity investments do not affect net income and Other comprehensive income because we measure these assets at amortized cost. Changes in interest rates do not currently have a significant impact on our interest expense because interest on our promissory note payable is fixed and we acquired Leucadia’s interest in Las Cruces’ sponsor loans in 2010 (note 24).

 

The table below summarizes a sensitivity analysis for significant unsettled market risk exposure with respect to our financial instruments as at December 31, 2011 with all other variables held 

 

61

 

constant. It shows how net income and other comprehensive income would have been affected by changes in the relevant risk variable that were reasonably possible at that date.

 

Sensitivity analysis

 

	
 
    	
 
    	
A change of:
    	
 
    	
Would have changed
   our 2011 after-tax net
   income by:
    	
 
    	
Would have changed
   our 2011 other
   comprehensive
   income by:
    	
 
    
	
Metal   prices
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper (per pound) 
    	
 
    	
US $
    	
0.30
    	
 
    	
$
    	
5 million
    	
(1)
    	
$
    	
—
    	
 
    
	
Zinc (per pound)
    	
 
    	
US $
    	
0.10
    	
 
    	
$
    	
1 million
    	
(2)
    	
$
    	
—
    	
 
    
	
Exchange   rates(7)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
US dollar per   Canadian dollar
    	
 
    	
US $
    	
0.10
    	
 
    	
$
    	
27 million
    	
(3)
    	
$
    	
—
    	
 
    
	
US dollar per euro 
    	
 
    	
US $
    	
0.10
    	
 
    	
$
    	
4 million
    	
(4)
    	
$
    	
—
    	
 
    

 

	
(1)
    	
impact on gross   sales awaiting final settlement and related smelter processing charges and   the fair value of Ok Tedi’s non-hedge copper forward sales contracts.
    
	
(2)
    	
impact on gross   sales awaiting final settlement and related smelter processing charges.
    
	
(3)
    	
Impact on US   dollar dominated held to maturity investments
    
	
(4)
    	
impact on US   dollar-denominated accounts receivable at Pyhäsalmi.
    

 

(c)          Derivatives and hedging

 

We use three kinds of derivatives to manage our exposure to market risks:

 

·                  forward sales contracts to hedge against changes in commodity prices for a portion of forecasted gold production

·                  foreign exchange forward contracts to hedge against changes in the value of one currency relative to another

·                  interest rate swap contracts to hedge against the impact of changes to interest rates on floating rate interest payments

 

Our risk management policy is designed to help us mitigate the impact of these market risks, to provide certainty for a portion of our revenues, to control costs and to allow us to plan our business with greater control. We believe that derivatives can be effective means of managing these risks. The primary objective of the hedging elements of any derivative positions is to offset changes in the values of hedged items. Most of the derivatives we use are designated in a hedge accounting relationship.

 

Our use of derivatives is based on established practices and parameters, which are subject to the oversight of the Board of Directors. We do not use derivatives for speculative or trading purposes.

 

62Exhibit 4.3

 

INMET MINING CORPORATION

 

Management’s Discussion and Analysis of Results of

Operations and Financial Condition

 

For the Year Ended

December 31, 2011

 

1

 

MANAGEMENT’S DISCUSSION & ANALYSIS

	
 
    	
 
    	
 
    
	
04
    	
 
    	
Our business
    
	
 
    	
 
    	
 
    
	
05
    	
 
    	
Selected annual information
    
	
 
    	
 
    	
 
    
	
08
    	
 
    	
Financial review
    
	
 
    	
 
    	
 
    
	
08
    	
 
    	
A. Overview of our 2010 earnings
    
	
 
    	
 
    	
 
    
	
10
    	
 
    	
B. Consolidated financial review — income   statement analysis and outlook
    
	
 
    	
 
    	
 
    
	
19
    	
 
    	
C. Financial review by operation
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
–    Çayeli (p.20)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
–    Las Cruces (p.23)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
–    Pyhäsalmi (p.26)
    
	
 
    	
 
    	
 
    
	
29
    	
 
    	
D. Status of our development project
    
	
 
    	
 
    	
 
    
	
31
    	
 
    	
Quarterly impacts
    
	
 
    	
 
    	
 
    
	
33
    	
 
    	
Financial strength
    
	
 
    	
 
    	
 
    
	
35
    	
 
    	
Managing our liquidity
    
	
 
    	
 
    	
 
    
	
39
    	
 
    	
Financial instruments
    
	
 
    	
 
    	
 
    
	
41
    	
 
    	
Accounting policies
    
	
 
    	
 
    	
 
    
	
46
    	
 
    	
Risk factors
    
	
 
    	
 
    	
 
    
	
50
    	
 
    	
Supplementary information
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
–    Non-GAAP measures   (p.50)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
–    Quarterly review   (p.52)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
–    Five year   information (p.54)
    

 

The management’s discussion and analysis (MD&A) contains important information that can help you make an informed decision about Inmet Mining Corporation. It describes our business, our risks, our performance and prospects, our financial condition and other factors that affect us.

 

2

 

ABOUT THIS DOCUMENT

 

Throughout this MD&A, the terms we, us, our and Inmet mean Inmet Mining Corporation and its subsidiaries and joint ventures. Inmet Mining means Inmet Mining Corporation only. All information in this MD&A is as of March 2, 2012 unless otherwise indicated. All currency amounts are in Canadian dollars unless otherwise indicated.

 

At December 31, 2011, our principal subsidiaries included:

 

	
 
    	
 
    	
Ownership (%)
    	
 
    	
Jurisdiction
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Çayeli Bakir Isletmeleri A.S. (Çayeli)
    	
 
    	
100
    	
 
    	
Turkey
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cobre   Las Cruces S.A. (Las Cruces)
    	
 
    	
100
    	
 
    	
Spain
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Pyhäsalmi Mine Oy (Pyhäsalmi)
    	
 
    	
100
    	
 
    	
Finland
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Minera   Panamá S.A. (Cobre Panamá)
    	
 
    	
100
    	
 
    	
Panamá
    	
 
    

 

Caution with respect to forward-looking statements and information

 

Securities regulators encourage companies to disclose forward-looking information to help investors understand a company’s future prospects. This MD&A contains statements about our business, results of operation and future financial condition.

 

These statements are “forward-looking” because we have used what we know and expect today to make a statement about the future. Forward-looking statements usually include words like may, expect, anticipate, believe or other similar words. Our objectives and outlook have been prepared based on our existing operations, expectations and circumstances. Actual events and results could be substantially different, however, because of the risks and uncertainties associated with our business or events that happen after the date of this MD&A.

 

You should not place undue reliance on forward-looking statements. As a general policy, we do not update forward-looking statements except if there is an offering document or where securities legislation requires us to do so.

 

Although we have attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements or information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Also, many of the factors are beyond the control of Inmet. Accordingly, readers should not place undue reliance on forward-looking statements or information. Inmet undertakes no obligation to update forward-looking statements or information as a result of new information after the date of this MD&A except as required by law. All forward-looking statements and information herein are qualified by this cautionary statement.

 

Controls and procedures

 

DISCLOSURE

 

We have controls and procedures designed to make sure all important information about Inmet, including our operating and financial activities, is communicated fully, accurately and in a timely way. We believe these controls are effective, which gives us reasonable assurance that all material information is included in this report.

 

INTERNAL CONTROLS OVER FINANCIAL REPORTING

 

No changes were made to the design of Inmet’s internal control over financial reporting during the three months ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  The financial statements and MD&A were reviewed by the audit committee and the board of directors, which approved them prior to their publication.

 

Inmet’s management, including the CEO and CFO, does not expect that Inmet’s controls and procedures will prevent or detect all misstatements due to error or fraud. Due to the inherent limitations in all control systems, an evaluation of controls can provide only reasonable, not absolute assurance, that all control issues and instances of fraud or error, if any, within Inmet have been detected. Inmet is continually evolving and enhancing its systems of controls and procedures.

 

Inmet has also established adequate disclosure controls and procedures and internal control over financial reporting to provide reasonable assurance regarding their responsibility of Inmet’s financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS. Inmet’s CEO and CFO assessed, or caused an assessment under their direct supervision, of the effectiveness of Inmet’s disclosure controls and procedures and internal control over financial reporting (as defined in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings) as at December 31, 2011.  Based on this assessment, it was determined that Inmet’s disclosure controls and procedures and internal control over financial reporting were effective as at December 31, 2011.

 

Additional Information

 

Additional information about Inmet, including the company’s Annual Information Form, is available on SEDAR at www.sedar.com.

 

3

 

OUR BUSINESS

 

Inmet is a Canadian-based global mining company that produces base metals with a focus on copper. Our strategy is to grow responsibly as a base metal mining company, providing superior returns to shareholders. We offer investors a unique value proposition: stable, low cost operations, significant near term growth with Las Cruces, a strong financial position and, over the medium term, a significant increase in exposure to copper through the Cobre Panama development opportunity. We have extensive expertise, having been in the base metal mining business around the world since 1986.  We operate and develop underground and open pit mines safely, responsibly and cost effectively.

 

At December 31, 2011, we had three operating properties and one development property around the world, all in politically stable, low risk jurisdictions:

 

ÇAYELI

 

Çayeli is an underground mine on the Black Sea coast of northeastern Turkey. It produces copper and zinc concentrates, which are sold to international and domestic smelters and traders.

 

LAS CRUCES

 

Las Cruces is an open pit mine in southern Spain. Las Cruces uses leaching and electrowinning technology to produce copper cathode which are sold to buyers in the Spanish and Mediterranean markets.

 

PYHASÄLMI

 

Pyhäsalmi is an underground copper and zinc mine in central Finland. It produces copper, zinc and pyrite concentrates. Copper and zinc concentrates are sold under long-term contracts to smelters in Finland. Pyrite is sold under contract to customers in Europe and Asia as well as in the spot market.

 

COBRE PANAMA

 

Cobre Panama is an open pit copper development project in Panama that has the potential to significantly increase our copper production by 2016. On January 10, 2012, Korea Panama Mining Corp. exercised its option to acquire a 20 percent interest in Minera Panama S.A. (MPSA), the owner of Cobre Panama.

 

CLOSED PROPERTIES

 

We have six primary closed sites in North America, with the most recent closure being Troilus in 2010. Our closed sites are Copper Range (Michigan), Norbec (Quebec), Samatosum (British Columbia), Troilus (Quebec), Sturgeon Lake (Ontario) and Winston Lake (Ontario). At all of our closed sites we are responsible for reclamation activities and monitoring. Some sites perform long-term water treatment.

 

EXPLORATION

 

Our exploration strategy has three components which we believe offer the greatest potential for growth, including exploring:

 

·      within our operational areas to potentially capitalize on existing infrastructure and to extend the life of the mines and/or increase mill output.

·     the Cobre Panama property to find additional copper mineralization that would have a material impact on the project.

·      worldwide for copper deposits that are consistent with our overall corporate growth objectives.

 

We have teams and field offices in Mexico, Peru, Chile and Finland.

 

4

 

SELECTED ANNUAL INFORMATION

 

	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
Change
    	
 
    
	
Financial highlights
    	
 
    	
2011
    	
 
    	
2010(1)
    	
 
    	
2009(2)
    	
 
    	
(2010 to 2011)
    	
 
    
	
(millions, except per share amounts, and in Canadian dollars)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Sales
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross sales
    	
 
    	
$
    	
979
    	
 
    	
$
    	
779
    	
 
    	
$
    	
984
    	
 
    	
+26
    	
%
    
	
Net income
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Net income from continuing operations
    	
 
    	
$
    	
265
    	
 
    	
$
    	
266
    	
 
    	
$
    	
269
    	
 
    	
—
    	
 
    
	
Net income from continuing operations per share:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic
    	
 
    	
$
    	
3.99
    	
 
    	
$
    	
4.74
    	
 
    	
$
    	
5.14
    	
 
    	
-16
    	
%
    
	
Diluted
    	
 
    	
$
    	
3.98
    	
 
    	
$
    	
4.73
    	
 
    	
$
    	
5.13
    	
 
    	
-16
    	
%
    
	
Net income from discontinued operations
    	
 
    	
$
    	
83
    	
 
    	
$
    	
125
    	
 
    	
—
    	
 
    	
-34
    	
%
    
	
Net income from discontinued operations per share:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic
    	
 
    	
$
    	
1.26
    	
 
    	
$
    	
2.21
    	
 
    	
—
    	
 
    	
-43
    	
%
    
	
Diluted
    	
 
    	
$
    	
1.25
    	
 
    	
$
    	
2.21
    	
 
    	
—
    	
 
    	
-43
    	
%
    
	
Net income attributable to Inmet shareholders
    	
 
    	
$
    	
348
    	
 
    	
$
    	
392
    	
 
    	
$
    	
269
    	
 
    	
-11
    	
%
    
	
Net income per share:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Basic
    	
 
    	
$
    	
5.25
    	
 
    	
$
    	
6.95
    	
 
    	
$
    	
5.14
    	
 
    	
-24
    	
%
    
	
Diluted
    	
 
    	
$
    	
5.23
    	
 
    	
$
    	
6.94
    	
 
    	
$
    	
5.13
    	
 
    	
-24
    	
%
    
	
Cash flow
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash flow provided by operating activities
    	
 
    	
$
    	
405
    	
 
    	
$
    	
255
    	
 
    	
$
    	
323
    	
 
    	
+59
    	
%
    
	
Cash flow provided by operating activities per   share(3)
    	
 
    	
$
    	
6.09
    	
 
    	
$
    	
4.52
    	
 
    	
$
    	
6.17
    	
 
    	
+35
    	
%
    
	
Capital spending
    	
 
    	
$
    	
209
    	
 
    	
$
    	
128
    	
 
    	
$
    	
268
    	
 
    	
+63
    	
%
    
	
Dividends per share declared   and paid
    	
 
    	
$
    	
0.20
    	
 
    	
$
    	
0.20
    	
 
    	
$
    	
0.20
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Dec 31
    	
 
    	
Dec 31
    	
 
    	
Dec 31
    	
 
    	
Change
    	
 
    
	
Financial condition
    	
 
    	
2011
    	
 
    	
2010(1)
    	
 
    	
2009(2)
    	
 
    	
(2010 to 2011)
    	
 
    
	
Current ratio
    	
 
    	
9.3 to 1
    	
 
    	
3.4 to 1
    	
 
    	
4.2 to 1
    	
 
    	
+174
    	
%
    
	
Gross debt to total equity(4)
    	
 
    	
1
    	
%
    	
1
    	
%
    	
1
    	
%
    	
—
    	
 
    
	
Net working capital balance (millions)
    	
 
    	
$
    	
1,304
    	
 
    	
$
    	
626
    	
 
    	
$
    	
609
    	
 
    	
+108
    	
%
    
	
Cash balance and long-term bonds (millions)
    	
 
    	
$
    	
1,706
    	
 
    	
$
    	
699
    	
 
    	
$
    	
634
    	
 
    	
+144
    	
%
    
	
Total assets
    	
 
    	
$
    	
3,811
    	
 
    	
$
    	
3,030
    	
 
    	
$
    	
2,904
    	
 
    	
+26
    	
%
    
	
Gross debt (millions)(4)
    	
 
    	
$
    	
17
    	
 
    	
$
    	
17
    	
 
    	
$
    	
17
    	
 
    	
—
    	
 
    
	
Shareholders’ equity (millions)
    	
 
    	
$
    	
3,414
    	
 
    	
$
    	
2,555
    	
 
    	
$
    	
2,238
    	
 
    	
+34
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
Change
    	
 
    
	
Operating highlights
    	
 
    	
2011
    	
 
    	
2010(1)
    	
 
    	
2009(2)
    	
 
    	
(2010 to 2011)
    	
 
    
	
Production(5)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper (tonnes)
    	
 
    	
84,800
    	
 
    	
65,500
    	
 
    	
83,600
    	
 
    	
+29
    	
%
    
	
Zinc (tonnes)
    	
 
    	
80,400
    	
 
    	
81,400
    	
 
    	
78,000
    	
 
    	
-1
    	
%
    
	
Gold (ounces)
    	
 
    	
—
    	
 
    	
37,900
    	
 
    	
228,400
    	
 
    	
-100
    	
%
    
	
Cash costs(6)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper (US$ per pound)
    	
 
    	
$
    	
0.86
    	
 
    	
$
    	
0.64
    	
 
    	
$
    	
0.44
    	
 
    	
+34
    	
%
    

 

(1) Information from 2010 restated in accordance with IFRS, including presentation of our share of Ok Tedi as discontinued operation.

(2) Information from 2009 is presented in accordance with Canadian GAAP and was not required to be restated to IFRS.

(3) Cash flow provided by operating activities divided by average shares outstanding for the period.

(4) Gross debt includes long-term debt and the current portion of long-term debt. For comparative purposes, the 2009 balance excludes the non-recourse note that was owed from Las Cruces to its non-controlling shareholder.

(5) Inmet’s share.

(6) Cash cost per pound of copper is a non-GAAP measure — see Supplementary information on pages 50 and 51.

 

5

 

Developments

 

The following developments contributed to the evolution of our company and set the stage to continue delivering superior returns while growing responsibly as a base metal mining company.

 

Las Cruces production process improvements

 

At Las Cruces, plant reliability and process stability continued to improve throughout the year while the operation achieved increasing copper recoveries. Our share of Las Cruces production in 2011 more than doubled, increasing to 42,100 tonnes of copper cathode from 20,600 tonnes in 2010. In the fourth quarter of 2011, Las Cruces produced 14,100 tonnes, and finished the year with monthly production above 5,000 tonnes. In the last two weeks of 2011, we sustained recoveries above 88 percent at throughput levels and cathode production approaching design capacity. We believe that the commissioning phase of the operation is now essentially complete and anticipate output in 2012 to stabilize at the plant design capacity of 72,000 tonnes per year.

 

Cobre Panama moves toward a final notice to proceed with construction

 

Cobre Panama is a critical element of our growth strategy. We believe it will be a world class project, with the potential to significantly increase our annual copper production. We achieved and/or moved forward on several important milestones in our decision making process, as follows:

 

·            We progressed basic engineering and expect to announce revised capital and operating cost estimates in the second quarter of 2012. During 2011, we advanced several construction projects, including road and bridge development to facilitate a rapid transition into full construction following a final notice to proceed.

 

·            In December 2011, the Government of Panama, through the Autoridad Nacional del Ambiente (ANAM), Panama’s environmental regulatory authority, approved the Environmental and Social Impact Assessment (ESIA) required for the development of Cobre Panama, including the mining operations and related infrastructure, a port facility, and a coal-fired power plant.

 

·            During the year, we also initiated a process to engage potential new partners in Cobre Panama. At this point, multiple interested parties have executed confidentiality agreements with us and are engaged at various stages of due diligence on the project.  At the same time we are advancing on alternative strategies to ensure we have the necessary financial and development capacity if we determine that available partnership opportunities do not maximize the value for Inmet’s shareholders.

 

Korea Panama Mining Corp. (KPMC) decision to exercise Cobre Panama option

 

In 2009, we entered into an agreement with KPMC, a joint venture between LS-Nikko Copper Inc. and Korean Resources Corporation, giving it the option to acquire a 20 percent interest in MPSA, the owner and developer of Cobre Panama. In January 2012, we received notice from KPMC that it elected to exercise its option to acquire a 20 percent interest in MPSA, which would leave Inmet with an 80 percent interest. The option exercise closing has been extended to April 20, 2012 by mutual consent to allow for additional time to finalize the shareholders’ agreement.

 

Significant corporate transactions in 2011

 

On January 29, 2011, we sold our 18 percent interest in Ok Tedi for US $335 million. Our net proceeds after Papua New Guinea withholding taxes were US $307 million.

 

On May 17, 2011, a subsidiary of Temasek Holdings (Private) Ltd. (Temasek) exchanged its subscription receipts for 7.78 million Inmet common shares increasing our cash by approximately $500 million and our outstanding common shares by 13 percent to 69.33 million.

 

On January 12, 2011, we entered into an arrangement agreement with Lundin Mining Corporation to merge and create Symterra Corporation, a significant international copper producer. On March 29, 2011, we mutually agreed to terminate our arrangement agreement.

 

6

 

Operational and financial highlights

 

STRONG CASH BALANCE

 

On December 31, 2011 our cash and held to maturity investments totaled $1.7 billion. This represents an increase in 2011 of $1 billion and is the result of the sale of our interest in Ok Tedi, our share issuance to Temasek and strong cash flow from our operations.

 

HIGHER OPERATING EARNINGS AND OPERATING CASH FLOW IN 2011 COMPARED TO 2010

 

Operating earnings and operating cash flow were significantly higher in 2011 mainly as a result of increased production and sales volumes from Las Cruces, where operating earnings increased by $81 million and operating cash flows increased by $136 million in 2011 (see page 23).  This was partly offset by the conclusion of Troilus operations in 2010. This decreased net income by $30 million and decreased operating cash flows by $44 million.

 

Operating earnings and operating cash flow for 2010 were lower than 2009 as increased earnings at Las Cruces in 2010 were offset by the inclusion of Ok Tedi’s results in 2009.

 

Global economy and metal markets

 

2011

 

During 2011, global economic activity proceeded broadly at two speeds. Recovery in the developed world was significantly hampered by the ongoing European sovereign debt crisis and the earthquake and tsunami in Japan, although US economic activity weakened less than expected considering its continued high unemployment. By contrast, emerging economies continued to record strong growth rates, most notably China and India.

 

2011 was a remarkable year for commodity prices, with base metals prices remaining higher than many other commodities for much of the year, before falling sharply in the fourth quarter on a wave of concerns that the European sovereign debt crisis could lead to a global economic recession, which would lead to a sharp drop in demand. Copper was one of the top-performing metals, averaging US $4.00 per pound in 2011, 17 percent higher than in 2010. Zinc prices averaged US $0.99 per pound this year, slightly higher than 2010. Our realized prices this year were US $3.84 per pound of copper and US $0.97 per pound of zinc sold.

 

OUTLOOK FOR 2012

 

Looking ahead, the economies that drive the bulk of demand for copper and zinc, largely Chinese and other Asian economies, continue to grow rapidly. China’s growth continues to be underpinned by growing domestic consumption and continued urbanization and significant infrastructure investment. Developed economies remain subject to a number of risks and uncertainties, most significantly the potential economic and financial impact of the European sovereign debt crisis and the outlook for growth in the US economy. While there is potential for short-term risks to dominate sentiment in the near-term, it appears that the US economy is settling down to a lower, but positive, growth rate.

 

According to international research, copper supply should grow modestly in 2012. New production should be mostly offset by declining production at large existing copper mines and possible labour disruptions. Continued strong demand is expected in China, with increasing economic recovery in Europe and the United States, and continued interest from investors. Increasing demand, combined with tighter supply, should mean copper prices will remain close to all-time highs during 2012.

 

For zinc, modest increases are expected in both market supply and demand with a decreasing market surplus compared to 2011, which should continue to support prices in 2012 at levels consistent with those of 2011.

 

7

 

FINANCIAL REVIEW

 

A.                                    OVERVIEW OF OUR 2011 EARNINGS

 

The table below is a summary of our consolidated earnings.

 

	
(millions, except per share amounts)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Change
    	
 
    
	
EARNINGS FROM OPERATIONS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross sales
    	
 
    	
$
    	
979
    	
 
    	
$
    	
779
    	
 
    	
+26
    	
%
    
	
Smelter processing charges and freight
    	
 
    	
(131
    	
)
    	
(138
    	
)
    	
-5
    	
%
    
	
Cost of sales:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Direct production costs
    	
 
    	
(303
    	
)
    	
(236
    	
)
    	
+28
    	
%
    
	
Finished goods inventory changes
    	
 
    	
1
    	
 
    	
6
    	
 
    	
-83
    	
%
    
	
Provisions for mine rehabilitation and other   non-cash charges
    	
 
    	
(25
    	
)
    	
(25
    	
)
    	
—
    	
 
    
	
Depreciation
    	
 
    	
(109
    	
)
    	
(56
    	
)
    	
+95
    	
%
    
	
 
    	
 
    	
413
    	
 
    	
330
    	
 
    	
+25
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
SPENDING ON DEVELOPMENT AND   EXPLORATION
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Corporate development and exploration
    	
 
    	
(29
    	
)
    	
(13
    	
)
    	
+123
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
CORPORATE COSTS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
General and administration
    	
 
    	
(34
    	
)
    	
(20
    	
)
    	
+70
    	
%
    
	
Investment and other income
    	
 
    	
31
    	
 
    	
58
    	
 
    	
-47
    	
%
    
	
Stand-by charges
    	
 
    	
—
    	
 
    	
(7
    	
)
    	
-100
    	
%
    
	
Finance costs
    	
 
    	
(10
    	
)
    	
(13
    	
)
    	
-23
    	
%
    
	
Income and capital taxes
    	
 
    	
(106
    	
)
    	
(69
    	
)
    	
+54
    	
%
    
	
Income from continuing operations
    	
 
    	
265
    	
 
    	
266
    	
 
    	
—
    	
 
    
	
Income from discontinued operation (net of taxes)
    	
 
    	
83
    	
 
    	
125
    	
 
    	
+34
    	
%
    
	
Non-controlling interest
    	
 
    	
—
    	
 
    	
1
    	
 
    	
-100
    	
%
    
	
Net income attributable to Inmet shareholders
    	
 
    	
$
    	
348
    	
 
    	
$
    	
392
    	
 
    	
-11
    	
%
    
	
Income from continuing operations per common share
    	
 
    	
$
    	
3.99
    	
 
    	
$
    	
4.74
    	
 
    	
-16
    	
%
    
	
Diluted income from continuing operations per common   share
    	
 
    	
$
    	
3.98
    	
 
    	
$
    	
4.73
    	
 
    	
-16
    	
%
    
	
Basic net income per common share
    	
 
    	
$
    	
5.25
    	
 
    	
$
    	
6.95
    	
 
    	
-24
    	
%
    
	
Diluted net income per common share
    	
 
    	
$
    	
5.23
    	
 
    	
$
    	
6.94
    	
 
    	
-25
    	
%
    
	
Weighted average shares outstanding
    	
 
    	
66,432
    	
 
    	
56,345
    	
 
    	
+18
    	
%
    

 

8

 

The table below shows the year over year impact major economic and business factors had on our net income. The table further below shows the realized unit price or realized unit cost in 2011 and 2010 for most of these factors.

 

	
(millions)
    	
 
    	
Change
    	
 
    	
See page
    	
 
    
	
MARKET FACTORS
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Copper prices — higher copper prices   denominated in Canadian dollars
    	
 
    	
$
    	
36
    	
 
    	
10
    	
 
    
	
·   Zinc prices — lower zinc prices   denominated in Canadian dollars
    	
 
    	
(7
    	
)
    	
10
    	
 
    
	
·   Other metal prices — higher other prices   denominated in Canadian dollars
    	
 
    	
16
    	
 
    	
10
    	
 
    
	
·   Lower smelter processing charges
    	
 
    	
7
    	
 
    	
12
    	
 
    
	
·   Foreign exchange — decreased operating   costs
    	
 
    	
9
    	
 
    	
21
    	
 
    
	
OPERATIONAL FACTORS
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Higher sales volumes at Las Cruces, net of   production costs
    	
 
    	
114
    	
 
    	
23
    	
 
    
	
·   2010 earnings from Troilus
    	
 
    	
(30
    	
)
    	
 
    	
 
    
	
·   Higher sales volumes at our other mines
    	
 
    	
18
    	
 
    	
11
    	
 
    
	
·   Higher operating costs at our other mines
    	
 
    	
(19
    	
)
    	
21 & 27
    	
 
    
	
·   Higher depreciation due to Las Cruces   increased production
    	
 
    	
(57
    	
)
    	
15
    	
 
    
	
·   Other
    	
 
    	
(4
    	
)
    	
 
    	
 
    
	
Increase in operating earnings,   compared to 2010
    	
 
    	
83
    	
 
    	
 
    	
 
    
	
Higher taxes from higher income
    	
 
    	
(37
    	
)
    	
17
    	
 
    
	
Higher exploration and administrative costs
    	
 
    	
(30
    	
)
    	
15
    	
 
    
	
Foreign exchange changes
    	
 
    	
12
    	
 
    	
16
    	
 
    
	
Gain on sale of investment in Premier Gold Mines   Ltd. in 2010
    	
 
    	
(51
    	
)
    	
16
    	
 
    
	
Higher interest income
    	
 
    	
9
    	
 
    	
16
    	
 
    
	
Las Cruces standby charges in 2010
    	
 
    	
7
    	
 
    	
17
    	
 
    
	
Other
    	
 
    	
6
    	
 
    	
 
    	
 
    
	
Lower net income from continuing operations   compared to 2010
    	
 
    	
(1
    	
)
    	
 
    	
 
    
	
Lower income from discontinued operation — Ok Tedi
    	
 
    	
(42
    	
)
    	
18
    	
 
    
	
Non-controlling interest in 2010
    	
 
    	
(2
    	
)
    	
 
    	
 
    
	
Lower net income, compared to 2010
    	
 
    	
$
    	
(44
    	
)
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
METAL PRICES (average sales   prices as realized by Inmet)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper (per pound)
    	
 
    	
US   $
    	
3.84
    	
 
    	
US   $
    	
3.55
    	
 
    
	
Zinc (per pound)
    	
 
    	
US   $
    	
0.97
    	
 
    	
US   $
    	
0.96
    	
 
    
	
AVERAGE ANNUAL EXCHANGE RATES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
1 US$ to C$
    	
 
    	
$
    	
0.99
    	
 
    	
$
    	
1.03
    	
 
    
	
1 € to C$
    	
 
    	
$
    	
1.38
    	
 
    	
$
    	
1.37
    	
 
    
	
1 Turkish lira to US dollar
    	
 
    	
US   $
    	
1.65
    	
 
    	
US   $
    	
1.50
    	
 
    
	
TREATMENT CHARGES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper (per dry metric tonne of concentrate)
    	
 
    	
US   $
    	
57
    	
 
    	
US   $
    	
51
    	
 
    
	
Zinc (per dry metric tonne of concentrate)
    	
 
    	
US   $
    	
216
    	
 
    	
US   $
    	
244
    	
 
    
	
PRICE PARTICIPATION
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper (per pound)
    	
 
    	
US   $
    	
0.02
    	
 
    	
US   $
    	
0.02
    	
 
    
	
Zinc (per pound)
    	
 
    	
US   $
    	
(0.01
    	
)
    	
US   $
    	
(0.01
    	
)
    
	
FREIGHT CHARGES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper (per dry metric tonne of concentrate)
    	
 
    	
US   $
    	
51
    	
 
    	
US   $
    	
50
    	
 
    
	
Zinc (per dry metric tonne of concentrate)
    	
 
    	
US   $
    	
22
    	
 
    	
US   $
    	
26
    	
 
    
	
STATUTORY TAX RATES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Çayeli
    	
 
    	
24
    	
%
    	
24
    	
%
    
	
Las Cruces
    	
 
    	
30
    	
%
    	
30
    	
%
    
	
Pyhäsalmi
    	
 
    	
26
    	
%
    	
26
    	
%
    

 

9

 

B.                                    CONSOLIDATED FINANCIAL REVIEW —

 

INCOME STATEMENT ANALYSIS AND OUTLOOK

 

Gross sales up 26 percent from 2010

 

Higher copper prices and new sales at Las Cruces somewhat offset by closure of Troilus.

 

	
(Millions)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Change
    	
 
    
	
GROSS SALES BY OPERATION
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Çayeli
    	
 
    	
$
    	
354
    	
 
    	
$
    	
334
    	
 
    	
+6
    	
%
    
	
·   Las   Cruces
    	
 
    	
357
    	
 
    	
129
    	
 
    	
+177
    	
%
    
	
·   Pyhäsalmi
    	
 
    	
268
    	
 
    	
242
    	
 
    	
+11
    	
%
    
	
·   Other   (Troilus)
    	
 
    	
—
    	
 
    	
74
    	
 
    	
-100
    	
%
    
	
 
    	
 
    	
$
    	
979
    	
 
    	
$
    	
779
    	
 
    	
+26
    	
%
    
	
GROSS SALES BY METAL
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Copper
    	
 
    	
$
    	
696
    	
 
    	
$
    	
470
    	
 
    	
+48
    	
%
    
	
·   Zinc
    	
 
    	
177
    	
 
    	
176
    	
 
    	
+1
    	
%
    
	
·   Gold
    	
 
    	
—
    	
 
    	
57
    	
 
    	
-100
    	
%
    
	
·   Other
    	
 
    	
106
    	
 
    	
76
    	
 
    	
+39
    	
%
    
	
 
    	
 
    	
$
    	
979
    	
 
    	
$
    	
779
    	
 
    	
+26
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
The table below shows the effect metal prices and   sales volumes had on gross sales.
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
(Millions)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
Change
    	
 
    
	
METAL PRICES
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Higher copper   price, denominated in Canadian dollars
    	
 
    	
 
    	
 
    	
 
    	
 
    	
$
    	
36
    	
 
    
	
·   Lower zinc   price, denominated in Canadian dollars
    	
 
    	
 
    	
 
    	
 
    	
 
    	
(7
    	
)
    
	
·   Higher other   metal prices, denominated in Canadian dollars
    	
 
    	
 
    	
 
    	
 
    	
 
    	
16
    	
 
    
	
SALES VOLUMES
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
2010 sales from Troilus
    	
 
    	
 
    	
 
    	
 
    	
 
    	
(74
    	
)
    
	
Higher sales volumes at Las Cruces
    	
 
    	
 
    	
 
    	
 
    	
 
    	
205
    	
 
    
	
Higher sales volumes at our other operations
    	
 
    	
 
    	
 
    	
 
    	
 
    	
25
    	
 
    
	
OTHER
    	
 
    	
 
    	
 
    	
 
    	
 
    	
(1
    	
)
    
	
Higher gross sales, compared to   2010
    	
 
    	
 
    	
 
    	
 
    	
 
    	
$
    	
200
    	
 
    

 

METAL PRICES

 

The table below shows the average metal prices, in US dollars and Canadian dollars, and the average foreign exchange rates we realized in 2011 and 2010.

 

	
 
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
C $ change
    	
 
    
	
·   Copper (per pound)
    	
 
    	
US   $
    	
3.84
    	
 
    	
US   $
    	
3.55
    	
 
    	
C   $
    	
3.80
    	
 
    	
C   $
    	
3.66
    	
 
    	
+4
    	
%
    
	
·   Zinc (per pound)
    	
 
    	
US   $
    	
0.97
    	
 
    	
US   $
    	
0.96
    	
 
    	
C   $
    	
0.96
    	
 
    	
C   $
    	
0.99
    	
 
    	
-3
    	
%
    
	
·   1 US$ to C$
    	
 
    	
$
    	
0.99
    	
 
    	
$
    	
1.03
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

10

 

We record sales that settle during the reporting period using the metal price on the day of settlement. For sales that have not settled, we use an estimate based on the month we expect the sale to settle and the forward price of the metal at the end of the reporting period. We recognize the difference between our estimate and the final price by adjusting our gross sales in the period when we settle the sale (finalization adjustment).

 

At December 31, 2011, unsettled sales included 21 million pounds of copper provisionally priced (before finalization adjustments) at US $3.45 per pound, and 10 million pounds of zinc provisionally priced at US $0.83 per pound. The finalization adjustment we record in the first quarter of 2012 will depend on the actual price we receive on final settlement.

 

We expect these sales to settle in the following months:

 

	
(millions of pounds)
    	
 
    	
copper
    	
 
    	
zinc
    	
 
    
	
January 2012
    	
 
    	
11
    	
 
    	
10
    	
 
    
	
February 2012
    	
 
    	
4
    	
 
    	
—
    	
 
    
	
March 2012
    	
 
    	
6
    	
 
    	
—
    	
 
    
	
Unsettled sales at December 31, 2011
    	
 
    	
21
    	
 
    	
10
    	
 
    

 

SALES VOLUMES

 

We record sales using the volume of contained metal in concentrate we sell to smelters and the volume of copper cathode sold to customers. Smelters charge us for the metal content they lose during the smelting and refining process and we record it in smelter processing charges and freight.

 

The table below shows our 2011 sales volumes by metal compared to 2010.

 

	
 
    	
 
    	
2011
    	
 
    	
2010(1)
    	
 
    	
Change
    	
 
    
	
SALES VOLUMES(2)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper contained in concentrate
    	
 
    	
41,200
    	
 
    	
43,300
    	
 
    	
-5
    	
%
    
	
Copper cathode (tonnes)
    	
 
    	
42,000
    	
 
    	
19,100
    	
 
    	
+120
    	
%
    
	
·   Total copper (tonnes)
    	
 
    	
83,200
    	
 
    	
62,400
    	
 
    	
+33
    	
%
    
	
·   Zinc (tonnes)
    	
 
    	
84,400
    	
 
    	
80,700
    	
 
    	
+5
    	
%
    
	
·   Gold (ounces)
    	
 
    	
—
    	
 
    	
47,300
    	
 
    	
-100
    	
%
    
	
·   Pyrite (tonnes)
    	
 
    	
809,200
    	
 
    	
573,300
    	
 
    	
+41
    	
%
    

 

(1)     2010 volumes exclude Ok Tedi.

(2)     Sales volumes reflect Inmet’s share: 100% for Çayeli, Pyhäsalmi and Troilus. Our share of Las Cruces was 70 percent until December 15, 2010 and 100 percent after that.

 

Our sales volumes are directly affected by the amount of ore our mines produce and their ability to ship to our customers. In 2011, copper and zinc sales volumes were lower and higher, respectively, than production volumes mainly because of the timing of shipments at Çayeli.

 

	
Production
    	
 
    	
2012
    	
 
    	
2011
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Change
    	
 
    	
Change
    	
 
    
	
Inmet’s share(2)
    	
 
    	
objective
    	
 
    	
results
    	
 
    	
target
    	
 
    	
results(1)
    	
 
    	
(target to 2011)
    	
 
    	
(2010 to 2011)
    	
 
    
	
COPPER   (TONNES)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Çayeli
    	
 
    	
27,000 - 30,000
    	
 
    	
28,700
    	
 
    	
30,900
    	
 
    	
28,200
    	
 
    	
-7
    	
%
    	
+2
    	
%
    
	
·   Las   Cruces
    	
 
    	
61,700 - 68,600
    	
 
    	
42,100
    	
 
    	
50,200
    	
 
    	
20,600
    	
 
    	
-16
    	
%
    	
+104
    	
%
    
	
·   Pyhäsalmi
    	
 
    	
11,300 - 12,600
    	
 
    	
14,000
    	
 
    	
13,300
    	
 
    	
14,700
    	
 
    	
+5
    	
%
    	
-5
    	
%
    
	
·   Other   (Troilus)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
2,000
    	
 
    	
—
    	
 
    	
-100
    	
%
    
	
 
    	
 
    	
100,000 - 111,200
    	
 
    	
84,800
    	
 
    	
94,400
    	
 
    	
65,500
    	
 
    	
-10
    	
%
    	
+29
    	
%
    
	
ZINC (TONNES)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Çayeli
    	
 
    	
36,000 - 39,800
    	
 
    	
48,100
    	
 
    	
48,600
    	
 
    	
51,300
    	
 
    	
-1
    	
%
    	
-6
    	
%
    
	
·   Pyhäsalmi
    	
 
    	
22,800 - 25,200
    	
 
    	
32,300
    	
 
    	
31,900
    	
 
    	
30,100
    	
 
    	
+1
    	
%
    	
+7
    	
%
    
	
 
    	
 
    	
58,800 - 65,000
    	
 
    	
80,400
    	
 
    	
80,500
    	
 
    	
81,400
    	
 
    	
-1
    	
%
    	
-1
    	
%
    
	
GOLD (OUNCES)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Other   (Troilus)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
37,900
    	
 
    	
-100
    	
%
    	
—
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
PYRITE (TONNES)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Pyhäsalmi
    	
 
    	
800,000
    	
 
    	
804,900
    	
 
    	
600,000
    	
 
    	
584,100
    	
 
    	
+34
    	
%
    	
+38
    	
%
    

 

(1)     2010 volumes exclude Ok Tedi.

(2)     Inmet’s share: 100% for Çayeli, Pyhäsalmi and Troilus. Our share of Las Cruces was 70 percent until December 15, 2010 and 100 percent after that.

 

11

 

2011 production compared to target

 

Copper production was below target mainly because there were delays in the ramp-up at Las Cruces and because of lower recoveries at Çayeli. Zinc production was on target. We produced more pyrite at Pyhäsalmi than our target to meet the increased customer demand in China.

 

2011 production compared to 2010

 

Copper production was significantly higher mainly from Las Cruces. Additionally in late 2010, we acquired the 30 percent non-controlling interest in Las Cruces to increase our ownership to 100 percent. Zinc production was in line with 2010. We did not produce any gold this year as Troilus ceased production in 2010. Pyhäsalmi increased pyrite production this year to meet higher demand.

 

2012 outlook for sales

 

We use our production objectives to estimate our sales target.

 

We expect copper production in 2012 to be significantly higher than 2011 as Las Cruces operates more consistently towards its nameplate capacity of 72,000 tonnes of copper cathode per year. Pyhäsalmi expects its copper production to decrease in 2012 as fewer higher grade stopes are available in the short-term mining sequence.

 

We expect zinc sales volumes to decrease in 2012 as a result of lower zinc production from Çayeli and Pyhäsalmi as they each move towards their average reserve grade of 4.3 percent and 2.1 percent, respectively.

 

Our Canadian dollar sales revenues are affected by the US dollar denominated metal price we receive and the exchange rate between the US dollar and Canadian dollar.

 

According to international research, global copper supply should grow modestly in 2012. New production should be mostly offset by declining production at large existing copper mines and possible labour disruptions. Continued strong demand is expected in China, with increasing economic recovery in the United States, and continued interest from investors. Increasing demand, combined with tighter supply, should translate into historically elevated copper prices during 2012.

 

For zinc, modest increases are expected in both market supply and demand, with a decreasing market surplus compared to 2011, which should continue to support prices in 2012 at levels consistent with those of 2011.

 

Lower zinc treatment charges

 

Smelter processing charges include treatment and refining charges, content losses and price participation. The table below shows our smelter processing charges and freight by operation, by metal and by type.

 

	
(Millions)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Change
    	
 
    
	
SMELTER PROCESSING CHARGES AND   FREIGHT BY OPERATION
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Çayeli
    	
 
    	
$
    	
72
    	
 
    	
$
    	
75
    	
 
    	
-4
    	
%
    
	
·   Las Cruces
    	
 
    	
1
    	
 
    	
—
    	
 
    	
+100
    	
%
    
	
·   Pyhäsalmi
    	
 
    	
58
    	
 
    	
58
    	
 
    	
—
    	
 
    
	
·   Other (Troilus)
    	
 
    	
—
    	
 
    	
5
    	
 
    	
-100
    	
%
    
	
 
    	
 
    	
$
    	
131
    	
 
    	
$
    	
138
    	
 
    	
-5
    	
%
    
	
SMELTER PROCESSING CHARGES AND   FREIGHT BY METAL
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Copper
    	
 
    	
$
    	
44
    	
 
    	
$
    	
44
    	
 
    	
—
    	
 
    
	
·   Zinc
    	
 
    	
66
    	
 
    	
71
    	
 
    	
-7
    	
%
    
	
·   Other
    	
 
    	
21
    	
 
    	
23
    	
 
    	
-9
    	
%
    
	
 
    	
 
    	
$
    	
131
    	
 
    	
$
    	
138
    	
 
    	
-5
    	
%
    
	
SMELTER PROCESSING CHARGES BY   TYPE AND FREIGHT
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Copper treatment and refining charges
    	
 
    	
$
    	
15
    	
 
    	
$
    	
15
    	
 
    	
—
    	
 
    
	
·   Zinc treatment charges
    	
 
    	
35
    	
 
    	
40
    	
 
    	
-13
    	
%
    
	
·   Copper price participation/escalation   clauses
    	
 
    	
2
    	
 
    	
2
    	
 
    	
—
    	
 
    
	
·   Zinc price participation
    	
 
    	
(2
    	
)
    	
(2
    	
)
    	
—
    	
 
    
	
·   Content losses
    	
 
    	
44
    	
 
    	
45
    	
 
    	
-2
    	
%
    
	
·   Freight
    	
 
    	
36
    	
 
    	
37
    	
 
    	
-3
    	
%
    
	
·   Other
    	
 
    	
1
    	
 
    	
1
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
$
    	
131
    	
 
    	
$
    	
138
    	
 
    	
-5
    	
%
    

 

12

 

2011 smelter processing charges and freight compared to 2010

 

We sell concentrate mainly to smelters, which process it into refined metal. Smelter processing charges are made up of the contracted price for treatment and refining charges and costs to cover metal losses in the smelting process (referred to as content losses). Some contracts also include a price participation clause where the smelter participates to some extent in the upward and downward movement in metal prices. Contract terms dealing with processing fees are normally negotiated once a year and depend on forecasted supply of concentrate, and smelter demand.

 

Close to 90 percent of our copper concentrates are sold under long-term contracts and therefore are not subject to the volatile spot market. Our copper contracts with the smelters for 2011 had higher payment terms than 2010, consistent with the overall industry. Additionally, spot smelter processing charges for a portion of the year were significantly higher as the earthquake in Japan in March 2011 caused temporary stoppages in copper smelter production, lowering short-term demand for copper concentrates.

 

Zinc treatment charges were lower in 2011 compared to 2010 despite higher sales volumes this year, reflecting a tightening zinc concentrate market.

 

2012 outlook for smelter processing charges and freight

 

We expect our costs for copper treatment and refining to be slightly higher in 2012 than in 2011. A tight concentrate supply is expected to keep the copper market in a deficit position in 2012 and treatment costs close to this year’s level. We do not expect to pay copper price participation in 2012.

 

We expect total zinc smelter processing charges, including price participation, to be lower than in 2011 and a continued deficit to exist in the zinc concentrate market.

 

Las Cruces sells its copper cathode production directly to buyers in the Spanish and Mediterranean markets and therefore does not incur smelting processing charges and has relatively low freight costs.

 

We expect our ocean freight costs to be similar to rates realized in 2011.

 

13

 

Direct production costs and cost of sales higher than 2010

 

We measure cost performance at our operations by tracking costs per tonne of ore milled (cost per pound of copper produced at Las Cruces). See Financial review by operation starting on page 19 for more information. Many of the costs at our operations are fixed, so the quantity of ore produced has a significant impact on per tonne costs.

 

Costs are affected by the type of mine and the country it operates in. For example, an open pit mine uses more fuel than an underground mine. Labour costs are determined by factors that vary by country, like general wage levels, inflation and foreign exchange rates.

 

The table below shows direct production costs by operation.

 

	
(Millions)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Change
    	
 
    
	
DIRECT PRODUCTION COSTS BY   OPERATION
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Çayeli
    	
 
    	
$
    	
96
    	
 
    	
$
    	
91
    	
 
    	
+5
    	
%
    
	
·   Las   Cruces
    	
 
    	
148
    	
 
    	
67
    	
 
    	
+121
    	
%
    
	
·   Pyhäsalmi
    	
 
    	
59
    	
 
    	
55
    	
 
    	
+7
    	
%
    
	
·   Other   (Troilus)
    	
 
    	
—
    	
 
    	
23
    	
 
    	
-100
    	
%
    
	
·   Total direct production costs
    	
 
    	
303
    	
 
    	
236
    	
 
    	
+28
    	
%
    
	
·   Inventory   change
    	
 
    	
(1
    	
)
    	
(6
    	
)
    	
-83
    	
%
    
	
·   Charges for   mine rehabilitation and other non-cash charges
    	
 
    	
25
    	
 
    	
25
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
$
    	
327
    	
 
    	
$
    	
255
    	
 
    	
+29
    	
%
    

 

2011 direct production costs compared to 2010

 

Direct production costs were $67 million (or 28 percent) higher in 2011 than they were in 2010 mainly because we began recognizing operating results at Las Cruces in our consolidated income statement effective July 1, 2010, somewhat offset by the closure of Troilus in mid-2010.

 

2011 charges for mine rehabilitation and other non-cash charges compared to 2010

 

These charges include accruals for asset retirement obligations, provisions for severance and retirement and other non-cash expenses. We recorded an additional $17 million this year for post-closure liabilities at our closed properties primarily as a result of a decrease in the discount rates we applied in determining the liabilities. Under IFRS, we are required to revalue our asset retirement obligations for changes in market risk-free interest rates — this discount rate decrease reflects the significantly reduced current interest rate environment and resulted in a charge of $12 million. See note 3 to our consolidated financial statements for more detail on how we recognize our asset retirement obligations. Additionally, we recognized a $5 million increase in our estimated closure obligations at Troilus for on-going treatment of tailings effluent for suspended solids and associated labour costs. In 2010, we recorded increased asset retirement obligations of $14 million: $8 million for closure liabilities at Troilus to reflect the longer time we expect will be required for post-closure monitoring, as well as higher owner and other costs, and $6 million from a decrease in the discount rates we applied.

 

2012 outlook for costs

 

We expect consolidated direct production costs to be higher in 2012 because higher production at Las Cruces will increase total variable costs, primarily electricity and royalties.

 

Our budget for 2012 assumes our costs at Çayeli and Pyhäsalmi will be similar to 2011.

 

Certain variable costs may continue to affect our earnings, depending on metal prices:

 

·  royalties at Çayeli are affected by its net income

·  royalties at Las Cruces are affected by its net sales.

 

The total amount we spend in Canadian dollars will also be affected by the value of the US dollar and euro relative to the Canadian dollar.

 

Additionally, changes in market risk-free interest rates could significantly increase or decrease our costs related to mine rehabilitation at our closed properties.

 

14

 

Depreciation was higher

 

We depreciate most of the cost of our capital investments for each operation over the life of the mine as reserves are depleted. Other capital items are depreciated over their useful lives, which range from five to 15 years.

 

	
(Millions)
    	
 
    	
2012
   objective
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Change
    	
 
    
	
DEPRECIATION BY OPERATION
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Çayeli
    	
 
    	
$
    	
24
    	
 
    	
$
    	
22
    	
 
    	
$
    	
21
    	
 
    	
+5
    	
%
    
	
·   Las Cruces
    	
 
    	
91
    	
 
    	
78
    	
 
    	
23
    	
 
    	
+239
    	
%
    
	
·   Pyhäsalmi
    	
 
    	
10
    	
 
    	
9
    	
 
    	
8
    	
 
    	
+13
    	
%
    
	
·   Other (Troilus)
    	
 
    	
—
    	
 
    	
—
    	
 
    	
4
    	
 
    	
-100
    	
%
    
	
 
    	
 
    	
$
    	
125
    	
 
    	
$
    	
109
    	
 
    	
$
    	
56
    	
 
    	
+95
    	
%
    

 

2011 depreciation compared to 2010

 

Depreciation was higher this year than last mainly because Las Cruces only began to depreciate its operating assets in our consolidated income statement on July 1, 2010 and because this operation’s production was higher for 2011 than 2010. There was no depreciation at Troilus in 2011 because it stopped operating in June 2010.

 

2012 outlook for depreciation

 

We expect depreciation to be higher in 2012 because of higher production volumes at Las Cruces.

 

Spending on corporate development and exploration

 

We divided our exploration efforts in 2011 and 2010 between world class copper opportunities that meet our growth objectives — specifically copper dominant polymetallic systems that would generate a minimum of 100,000 tonnes of copper production per year over a minimum 20 year mine life, and the areas around our existing properties to add to their reserve base. Other exploration includes expenditures related to finding base metal deposits in North and South America. The costs associated with the evaluation of merger, acquisition and other growth opportunities are also included in this category.

 

The table below shows our spending on corporate development and exploration in the past two years and our target for 2012.

 

	
(Millions)
    	
 
    	
2012
   objective
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Change
    	
 
    
	
·   Exploration at operations
    	
 
    	
$
    	
6
    	
 
    	
$
    	
6
    	
 
    	
$
    	
5
    	
 
    	
+20
    	
%
    
	
·   Other exploration
    	
 
    	
24
    	
 
    	
15
    	
 
    	
4
    	
 
    	
+275
    	
%
    
	
·   Mergers and acquisitions
    	
 
    	
3
    	
 
    	
8
    	
 
    	
4
    	
 
    	
+100
    	
%
    
	
 
    	
 
    	
$
    	
 33
    	
 
    	
$
    	
29
    	
 
    	
$
    	
13
    	
 
    	
+123
    	
%
    

 

2011 spending on corporate development and exploration compared to 2010

 

Costs were approximately $16 million higher than 2010. In early 2011, we incurred approximately $6 million of expenses related to the arrangement agreement to merge with Lundin Mining Corporation. We mutually agreed to terminate our arrangement agreement on March 29, 2011. All of the costs incurred in connection with the proposed merger were expensed and classified as corporate development and exploration in the consolidated statement of earnings. Increased costs compared to 2010 also reflect our higher budget for 2011 to explore for world class deposits.

 

2012 outlook for corporate development and exploration

 

We expect to spend more on exploration in 2012, focusing on Mexico, Chile and Peru, where we have established field offices, and on Cobre Panama to drill more exploration targets on the concession there. We will also continue exploring in areas around our existing operations.

 

15

 

Corporate costs

 

The table below shows what we include as corporate costs.

 

	
(Millions)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Change
    	
 
    
	
·   General and administration
    	
 
    	
$
    	
(34
    	
)
    	
$
    	
(20
    	
)
    	
+70
    	
%
    
	
·   Investment and other income
    	
 
    	
31
    	
 
    	
58
    	
 
    	
-47
    	
%
    
	
·   Stand-by charges
    	
 
    	
—
    	
 
    	
(7
    	
)
    	
-100
    	
%
    
	
·   Finance costs
    	
 
    	
(9
    	
)
    	
(13
    	
)
    	
-31
    	
%
    
	
·   Income and capital taxes
    	
 
    	
(106
    	
)
    	
(69
    	
)
    	
+54
    	
%
    
	
 
    	
 
    	
$
    	
(118
    	
)
    	
$
    	
(51
    	
)
    	
+131
    	
%
    

 

GENERAL AND ADMINISTRATION

 

General and administration costs are largely for management remuneration, governance and strategy. Costs in 2011 were $14 million higher than 2010 mainly because of increased human resources and other spending as we plan our move forward with Cobre Panama, and the impact of share-based compensation plans adopted this year.

 

2012 outlook for general and administration

 

We expect general and administration costs to be higher than 2011 as we expect to continue to increase our human resources as we plan our move forward with Cobre Panama.

 

INVESTMENT AND OTHER INCOME

 

The table below shows our income from investments and other transactions.

 

	
(Millions)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
·   Interest income from cash and long-term   investments
    	
 
    	
$
    	
17
    	
 
    	
$
    	
8
    	
 
    
	
·   Dividend and royalty income
    	
 
    	
3
    	
 
    	
3
    	
 
    
	
·   Sale of investment in Premier Gold Mines   Ltd.
    	
 
    	
—
    	
 
    	
51
    	
 
    
	
·   Foreign exchange gain (loss)
    	
 
    	
11
    	
 
    	
(1
    	
)
    
	
·   Other
    	
 
    	
—
    	
 
    	
(3
    	
)
    
	
 
    	
 
    	
$
    	
31
    	
 
    	
$
    	
58
    	
 
    

 

Interest income from cash and long-term investments

 

We recognized higher interest income this year because of higher yields on our held to maturity bond portfolio and because of higher cash balances this year.

 

Gain on sale of investment in Premier Gold Mines Ltd (Premier Gold) — 2010

 

We sold 9.45 million common shares of Premier Gold Mines Ltd. in 2010 for $61 million in cash and recognized a gain of $51 million.

 

FOREIGN EXCHANGE

 

We have a foreign exchange gain or loss when we revalue certain foreign denominated assets and liabilities.

 

Foreign exchange gains (losses) in 2011 and 2010 are a result of the following:

 

	
(Millions)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
·   Translation of USD cash and   held-to-maturity investments held at corporate
    	
 
    	
$
    	
3
    	
 
    	
—
    	
 
    
	
·   Translation of Turkish lira taxes payable   at Çayeli
    	
 
    	
4
    	
 
    	
(1
    	
)
    
	
·   Translation of other monetary assets and   liabilities
    	
 
    	
4
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
$
    	
11
    	
 
    	
$
    	
(1
    	
)
    
								

 

We continue to hold proceeds from the sale of our equity interest in Ok Tedi in US dollars and plan to use this to fund our US dollar denominated capital program at Cobre Panama. We have recognized total foreign exchange gains of $3 million this year on these funds because the US dollar appreciated relative to the Canadian dollar. Çayeli’s income taxes are denominated in Turkish lira. This operation recognized a foreign exchange gain of $4 million this year from the revaluation of its taxes payable due to the appreciation of the US dollar (Çayeli’s functional currency) relative to the Turkish lira.

 

2012 outlook for investment and other income

 

Investment and other income is affected by our cash and held to maturity investment balances, and by interest rates and exchange rates. At December 31, 2011, we held US $276 million in cash and held to maturity investments subject to translation in our Canadian accounts. At the end of January 2012,

 

16

 

we converted €150 million to US $200 million in one of our euro functional currency subsidiaries. This US $200 million will also be subject to translation, but in our euro accounts.

 

Stand-by charges — 2010

 

We could not mine ore at Las Cruces early in 2010 because of the water levels in the pit. We expensed $7 million in operating and maintenance costs for the water purification plant because they did not relate to production activities.

 

Income and capital taxes

 

Our operations pay tax based on their income before taxes in their local currency (the currency they use to prepare their annual tax returns). They expense tax based on their income before taxes in their functional currency. These can be different where the functional and local currency are not the same (as with Çayeli in Turkey which has a US dollar functional currency and a Turkish lira local currency) because of differences between the time an operation incurs an expense and when we record it for accounting purposes. Timing differences should not result in a change in the effective tax rate of an operation.

 

Differences can also arise from changes in foreign exchange rates. The foreign exchange gains or losses that affect local currency financial statements, used as the basis for taxes paid, may be different from the foreign exchange gains or losses that affect the functional currency financial statements. These are permanent differences and will change the effective tax rate of an operation.

 

The tables below show the taxes we expensed (recovered) in 2011 and 2010.

 

	
2011
    	
 
    	
Çayeli
    	
 
    	
Pyhäsalmi
    	
 
    	
Las Cruces
    	
 
    	
Corporate
   and Other
    	
 
    	
Total
    	
 
    
	
(Millions)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Corporate taxes
    	
 
    	
$
    	
41
    	
 
    	
$
    	
32
    	
 
    	
$
    	
1
    	
 
    	
$
    	
(2
    	
)
    	
$
    	
72
    	
 
    
	
·   Withholding taxes
    	
 
    	
8
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
8
    	
 
    
	
·   Future taxes
    	
 
    	
4
    	
 
    	
—
    	
 
    	
23
    	
 
    	
(1
    	
)
    	
26
    	
 
    
	
 
    	
 
    	
$
    	
53
    	
 
    	
$
    	
32
    	
 
    	
$
    	
24
    	
 
    	
$
    	
(3
    	
)
    	
$
    	
106
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
Corporate
    	
 
    	
 
    	
 
    
	
2010
    	
 
    	
Çayeli
    	
 
    	
Pyhäsalmi
    	
 
    	
Las Cruces
    	
 
    	
and Other
    	
 
    	
Total
    	
 
    
	
(Millions)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·   Corporate taxes
    	
 
    	
$
    	
32
    	
 
    	
$
    	
27
    	
 
    	
$
    	
—
    	
 
    	
$
    	
6
    	
 
    	
$
    	
65
    	
 
    
	
·   Withholding taxes
    	
 
    	
6
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
6
    	
 
    
	
·   Future taxes
    	
 
    	
(2
    	
)
    	
2
    	
 
    	
(4
    	
)
    	
2
    	
 
    	
(2
    	
)
    
	
 
    	
 
    	
$
    	
36
    	
 
    	
$
    	
29
    	
 
    	
$
    	
(4
    	
)
    	
$
    	
8
    	
 
    	
$
    	
69
    	
 
    

 

2011 income taxes compared to 2010

 

For corporate (including Troilus prior to the conclusion of operations), Inmet Mining has sufficient tax losses in Canada to offset any taxes payable on its earnings.

 

The current corporate tax expense was for:

 

·      taxes owing from Canadian subsidiaries (separate legal entities) that do not have prior year tax losses to offset taxable income

·      mining duties payable on Troilus’ earnings before it stopped operating in mid-2010.

 

Inmet Mining has $328 million in Canadian tax losses that we can use to offset future taxable income and taxable capital gains in Canada. Of this amount, $1 million relates to taxable capital losses, which can only be used to offset future taxable capital gains.

 

We assess the chances for recovery of these tax losses and, when it seems more likely than not that we will use part of the losses, we establish a deferred tax asset. As of December 31, 2011, we calculated that it was probable that the future taxes payable on future taxable income would be nominal in Canada so we did not recognize any deferred tax asset on our remaining Canadian tax pools. Our Canadian taxable income includes earnings from interest income offset by general and administration costs, among other things.

 

The table below shows the statutory and effective tax rates for each of our operations.

 

	
 
    	
 
    	
2012
    	
 
    	
2011
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
2010
    	
 
    
	
 
    	
 
    	
statutory rate
    	
 
    	
statutory rate
    	
 
    	
effective rate
    	
 
    	
statutory rate
    	
 
    	
effective rate
    	
 
    
	
·   Çayeli (Turkey)
    	
 
    	
24
    	
%
    	
24
    	
%
    	
32
    	
%
    	
24
    	
%
    	
24
    	
%
    
	
·   Las Cruces (Spain)
    	
 
    	
30
    	
%
    	
30
    	
%
    	
19
    	
%
    	
30
    	
%
    	
(14
    	
)%
    
	
·   Pyhäsalmi (Finland)
    	
 
    	
24.5
    	
%
    	
26
    	
%
    	
23
    	
%
    	
26
    	
%
    	
25
    	
%
    
	
·   Corporate and other (Canada)
    	
 
    	
26
    	
%
    	
28
    	
%
    	
—
    	
 
    	
30
    	
%
    	
—
    	
 
    

 

17

 

The differences between the statutory and effective tax rates at Çayeli, Pyhäsalmi and Las Cruces are explained below:

 

	
Çayeli taxes
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
·   Statutory tax rate
    	
 
    	
24
    	
%
    	
24
    	
%
    
	
·   Foreign exchange gains in Turkish lira tax   accounts
    	
 
    	
9
    	
%
    	
1
    	
%
    
	
·   Other permanent differences
    	
 
    	
(1
    	
)%
    	
(1
    	
)%
    
	
Effective tax rate
    	
 
    	
32
    	
%
    	
24
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Pyhäsalmi taxes
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
·   Statutory tax rate
    	
 
    	
26
    	
%
    	
26
    	
%
    
	
·   Tax recovery from intergroup loans
    	
 
    	
(3
    	
)%
    	
(3
    	
)%
    
	
·   Non-deductible expense — asset retirement   obligations
    	
 
    	
1
    	
%
    	
1
    	
%
    
	
·   Other permanent differences
    	
 
    	
(1
    	
)%
    	
1
    	
%
    
	
Effective tax rate
    	
 
    	
23
    	
%
    	
25
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Las Cruces taxes
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
·   Statutory tax rate
    	
 
    	
30
    	
%
    	
30
    	
%
    
	
·   Tax recovery from interest expense on   intergroup loans
    	
 
    	
(15
    	
)%
    	
(22
    	
)%
    
	
·   Tax recovery from foreign exchange gain   (loss) on intergroup loans
    	
 
    	
2
    	
%
    	
(19
    	
)%
    
	
·   Other permanent differences
    	
 
    	
2
    	
%
    	
(3
    	
)%
    
	
Effective tax rate
    	
 
    	
19
    	
%
    	
(14
    	
)%
    

 

2012 outlook for income tax expense

 

For Pyhäsalmi, the statutory rate should decrease from 26 percent to 24.5 percent based on changes to enacted rates in Finland. We expect all other statutory tax rates at our operations in 2012 to remain the same as they were in 2011, unless a statutory tax rate change is enacted.

 

Discontinued operation

 

We sold our 18 percent equity interest in Ok Tedi in January 2011, and have reported our results relating to Ok Tedi as discontinued operations retroactively. After-tax income of $83 million in 2011 includes net earnings of $17 million in January, before the sale, and a gain on sale of $66 million net of withholding taxes. We paid Papua New Guinea withholding taxes of $28 million on the sale. We did not pay any Canadian taxes, and we have reduced our tax-effected Canadian tax pools by about $3 million.

 

18

 

C.                                    FINANCIAL REVIEW BY OPERATION

 

We analyze our earnings from operations to understand:

 

·      the impact of metal prices on our performance (determined by the price in Canadian dollars we received on the sale of metal)

·      how we are growing (determined by sales volumes, a direct result of production)

·      how well we are managing costs (determined by looking at how much is driven by external factors such as foreign exchange and demand, and how much is driven by internal factors where we have more control).

 

We report our results from our operations by business segment, which in our case is by operation, consistent with the way we manage our business. When we analyze and review our financial results, we look at our segmented results and then look at our consolidated results.

 

The table below shows our earnings from operations on a segmented basis.

 

	
(millions)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Change
    	
 
    	
See page
    	
 
    
	
Earnings from operations(1)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Çayeli
    	
 
    	
$
    	
160
    	
 
    	
$
    	
149
    	
 
    	
+7
    	
%
    	
20
    	
 
    
	
Las   Cruces
    	
 
    	
126
    	
 
    	
45
    	
 
    	
+180
    	
%
    	
23
    	
 
    
	
Pyhäsalmi
    	
 
    	
143
    	
 
    	
120
    	
 
    	
+19
    	
%
    	
26
    	
 
    
	
Other   (Troilus)
    	
 
    	
—
    	
 
    	
30
    	
 
    	
-100
    	
%
    	
 
    	
 
    
	
Provisions for mine rehabilitation at closed sites
    	
 
    	
(16
    	
)
    	
(14
    	
)
    	
+14
    	
%
    	
14
    	
 
    
	
 
    	
 
    	
$
    	
413
    	
 
    	
$
    	
330
    	
 
    	
+25
    	
%
    	
 
    	
 
    

 

(1) Gross sales less smelter processing charges and freight, cost of sales including depreciation and provisions for mine reclamation at closed properties.

 

Over the next several pages we will discuss by operation:

 

·      production performance at the mine comparing 2011 to targets and 2010

·      earnings and cash flow

·      an outlook of 2012 performance using the following assumptions:

·      copper price: US $3.80 per pound

·      zinc price: US $0.95 per pound

·      US$ to C$ foreign exchange rate: $1.00

·      € to C$ foreign exchange rate: $1.30

·      no working capital changes

·      operating earnings and cash flow objectives determined using midpoints in production volumes ranges.

 

19

 

	
Çayeli
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Location
    	
 
    	
Turkey
    
	
Ownership
    	
 
    	
100%
    
	
Type   of mine
    	
 
    	
underground
    
	
Primary   metal
    	
 
    	
copper
    
	
Secondary   metal
    	
 
    	
zinc
    
	
End   product
    	
 
    	
copper   and zinc concentrate
    

 

Çayeli is an underground mine located on the Black Sea coast of northeastern Turkey.

 

Key data

 

	
 
    	
 
    	
2011
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Change
    	
 
    	
Change
    	
 
    
	
Production
    	
 
    	
results
    	
 
    	
target
    	
 
    	
results
    	
 
    	
(target to 2011)
    	
 
    	
(2010 to 2011)
    	
 
    
	
Tonnes of ore milled (thousands)
    	
 
    	
1,195
    	
 
    	
1,200
    	
 
    	
1,147
    	
 
    	
—
    	
 
    	
+4
    	
%
    
	
Tonnes of ore milled per day
    	
 
    	
3,300
    	
 
    	
3,300
    	
 
    	
3,150
    	
 
    	
—
    	
 
    	
+4
    	
%
    
	
Grades (percent)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
copper
    	
 
    	
3.2
    	
 
    	
3.2
    	
 
    	
3.2
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
zinc
    	
 
    	
6.0
    	
 
    	
5.6
    	
 
    	
6.3
    	
 
    	
+7
    	
%
    	
-5
    	
%
    
	
Mill recoveries (percent)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
copper
    	
 
    	
75
    	
 
    	
80
    	
 
    	
76
    	
 
    	
-6
    	
%
    	
-1
    	
%
    
	
zinc
    	
 
    	
68
    	
 
    	
73
    	
 
    	
71
    	
 
    	
-7
    	
%
    	
-4
    	
%
    
	
Metal production (tonnes)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
copper
    	
 
    	
28,700
    	
 
    	
30,900
    	
 
    	
28,200
    	
 
    	
-7
    	
%
    	
+2
    	
%
    
	
zinc
    	
 
    	
48,100
    	
 
    	
48,600
    	
 
    	
51,300
    	
 
    	
-1
    	
%
    	
-6
    	
%
    
	
Cost per tonne of ore milled (C$)
    	
 
    	
$
    	
81
    	
 
    	
$
    	
81
    	
 
    	
$
    	
79
    	
 
    	
—
    	
 
    	
+3
    	
%
    
	
Capital expenditures (C$)
    	
 
    	
$
    	
13
    	
 
    	
$
    	
19
    	
 
    	
$
    	
15
    	
 
    	
-32
    	
%
    	
-13
    	
%
    

 

	
Operating earnings and cash flow
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Objective 2012
    	
 
    
	
(millions of Canadian dollars, unless otherwise stated)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
SALES ANALYSIS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper sales (tonnes)
    	
 
    	
27,500
    	
 
    	
26,300
    	
 
    	
28,500
    	
 
    
	
Zinc sales (tonnes)
    	
 
    	
50,000
    	
 
    	
51,200
    	
 
    	
37,900
    	
 
    
	
Gross copper sales
    	
 
    	
$
    	
221
    	
 
    	
$
    	
205
    	
 
    	
$
    	
239
    	
 
    
	
Gross zinc sales
    	
 
    	
105
    	
 
    	
109
    	
 
    	
79
    	
 
    
	
Other metal sales
    	
 
    	
28
    	
 
    	
20
    	
 
    	
17
    	
 
    
	
Gross sales
    	
 
    	
354
    	
 
    	
334
    	
 
    	
335
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
(72
    	
)
    	
(75
    	
)
    	
(65
    	
)
    
	
Net sales
    	
 
    	
$
    	
282
    	
 
    	
$
    	
259
    	
 
    	
$
    	
270
    	
 
    
	
COST ANALYSIS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Tonnes of ore milled (thousands)
    	
 
    	
1,195
    	
 
    	
1,147
    	
 
    	
1,200
    	
 
    
	
Direct production costs (per tonne)
    	
 
    	
$
    	
81
    	
 
    	
$
    	
79
    	
 
    	
$
    	
80
    	
 
    
	
Direct costs of production
    	
 
    	
$
    	
96
    	
 
    	
$
    	
91
    	
 
    	
$
    	
96
    	
 
    
	
Change in inventory
    	
 
    	
(1
    	
)
    	
(4
    	
)
    	
—
    	
 
    
	
Depreciation and other non-cash costs
    	
 
    	
27
    	
 
    	
23
    	
 
    	
32
    	
 
    
	
Operating costs
    	
 
    	
$
    	
122
    	
 
    	
$
    	
110
    	
 
    	
$
    	
128
    	
 
    
	
Operating earnings
    	
 
    	
$
    	
160
    	
 
    	
$
    	
149
    	
 
    	
$
    	
142
    	
 
    
	
Operating cash flow
    	
 
    	
$
    	
157
    	
 
    	
$
    	
116
    	
 
    	
$
    	
130
    	
 
    

 

20

 

Operating earnings and cash flow

 

The table below shows what contributed to the change in operating earnings and operating cash flow between 2011 and 2010.

 

	
(Millions)
    	
 
    	
Change
    	
 
    
	
Higher metal prices, denominated in Canadian   dollars
    	
 
    	
$
    	
13
    	
 
    
	
Higher sales volumes from timing of shipments
    	
 
    	
3
    	
 
    
	
Lower smelter processing charges and freight
    	
 
    	
4
    	
 
    
	
Foreign exchange — decreased costs
    	
 
    	
9
    	
 
    
	
Higher operating costs denominated in local   currencies
    	
 
    	
(14
    	
)
    
	
Higher amortization and other
    	
 
    	
(4
    	
)
    
	
Higher operating earnings,   compared to 2010
    	
 
    	
11
    	
 
    
	
Higher tax expense because taxable earnings were   higher
    	
 
    	
(10
    	
)
    
	
Changes in working capital
    	
 
    	
36
    	
 
    
	
Other
    	
 
    	
4
    	
 
    
	
Higher operating cash flow,   compared to 2010
    	
 
    	
$
    	
41
    	
 
    

 

Financial and operations review

 

FINANCIAL REVIEW

 

Operating earnings were higher this year because we received higher prices for our products in 2011. The increase in operating cash flow is even higher because of a decrease in working capital mainly because metal prices and therefore accounts receivable were lower at the end of 2011 compared to the end of 2010, and the timing of payments from customers. Cost per tonne of ore milled was higher than 2010 mainly because consumables, ground control and royalty costs were higher, somewhat offset by the impact of the depreciation of the Turkish lira relative to the US dollar on Turkish lira costs.

 

OPERATIONS REVIEW

 

Çayeli’s mine production reached a record 1.2 million tonnes this year and set new records for weekly tonnage of 30,160 tonnes and monthly tonnage of 108,100 tonnes. This increase in performance is the result of improved mine planning processes, the implementation of a mine control system, and additional rehabilitation resources. Çayeli’s ground conditions require constant monitoring and reinforcement, including the need to minimize any underground void area. The underground void volume was reduced to an all-time low during the year.

 

Mill production this year also reached a record 1.2 million tonnes despite difficult metallurgy from milling five different ore types with some ore types containing bornite minerals. Bornite activates zinc leading to its inclusion in Çayeli’s copper concentrate rather than reporting to the zinc concentrate. This reduced the overall metallurgical recoveries for both copper and zinc this year. Copper grades this year were in line with our target and with last year. Copper production was therefore slightly below our expectations. Zinc production was essentially on target because higher grades offset the impact of lower recoveries.

 

We spent $13 million this year to engineer a pair of new ore pass upgrades, add to the underground mobile equipment fleet, install copper concentrate column flotation cells, install a conveyor dust collection system in the mill, add surface storm water runoff capacity, and to continue our mine development. In 2010, we spent $15 million to upgrade underground mobile equipment, remediate the head frame, install a new double deck screen for the crusher and mine development.

 

Outlook for 2012

 

In 2012, production levels should remain at approximately 1.2 million tonnes. As the ore pass project progresses, the mine will rely on two rather than three ore passes for much of 2012, reducing flexibility and increasing ore mixing. This will be mitigated by the introduction of a new mining block in 2012 in close proximity to one of the functioning ore passes.

 

Both copper and zinc recoveries should remain near 2011 levels in 2012, reflecting the ongoing metallurgical challenges presented by the higher percentages of bornite containing ores and the decreasing zinc grade.

 

We expect to produce between 27,000 tonnes and 30,000 tonnes of copper and between 36,000 and 39,800 tonnes of zinc. Zinc production at Çayeli from 2008 to 2011 benefitted from grades well above the average reserve grade of 4.3 percent. In 2012, lower zinc grades expected account for the anticipated decline in zinc production.

 

We expect operating earnings and cash flows to decrease in line with lower expected zinc sales volumes.

 

We expect operating costs in 2012 to be consistent with 2011 levels. The current three-year labour agreement will expire in May 2012. We expect the negotiation of a new labour agreement will require most of 2012 and we will make a strong effort to manage labour cost escalations to remain a low-cost mine.

 

We expect to spend $20 million on capital in 2012, including $7 million to upgrade our ore pass system to address deterioration that has accumulated over time from normal abrasion, and to extend the shotcrete slickline and replace certain mobile equipment.

 

21

 

Planning for the future

 

Underground infrastructure additions and improvements such as the concrete delivery line extension, an additional internal exhaust raise, and the ore pass rehabilitation should enhance Çayeli’s ability to sustain production at a level of 1.2 million tonnes per year in the coming years.

 

Initial bulk emulsion explosives trials are underway. This technological improvement, coupled with the introduction of pastefill barricade pressure monitoring to allow continuous pastefill placement, should speed up the stope cycle time, and allow us to sustain high productivity as the percentage of secondary stopes increases.

 

The installation of the Pitram mine control system, complete with a manned surface control centre, has greatly assisted with underground resource allocation and optimization. The purchase of modules to enhance grade control and shift planning functions should add further efficiencies. As the mine planners become more proficient with the new mine scheduling program, better short and long term planning scenarios will be developed.

 

In 2011, Çayeli received its Integrated Environmental Permit from the Turkish regulators which governs the environmental requirements at the site. In compliance with applicable Turkish approvals, Çayeli disposes of mine waste tailings at a depth of 275 metres in the Black Sea (Deep Sea Tailings Placement, or DSTP). At this depth in the Black Sea, the water is naturally rich in hydrogen sulphide and low in dissolved oxygen, which is an environment that does not support marine life and consequently the tailings are benign. Turkey is currently developing Mines Waste Regulations to align with European Union standards, and we are working with the regulators toward the continuing acceptance of DSTP within these regulations. We do not anticipate any challenge to DSTP given the long-standing acceptance of this practice, our strong long-term environmental performance, the evidence indicating no change in water quality, and Çayeli’s robust monitoring program.

 

We expect bornite to continue to be present in different ore types for the remainder of the mine life. With better mine modeling and reconciliation, we have made advances in our ability to optimize the blending of challenging ore types with types that are more straightforward to process. We will continue our efforts to maximize recovery conditions at the mill through ongoing studies and initiatives.

 

22

 

Las Cruces

 

	
Location
    	
 
    	
Spain
    
	
Ownership
    	
 
    	
100%
    
	
Type   of mine
    	
 
    	
open   pit
    
	
Primary   metal
    	
 
    	
copper
    
	
End   product
    	
 
    	
copper   cathode
    

 

Las Cruces is an open pit mine located in southern Spain.

 

Key data

 

	
 
    	
 
    	
2011
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Change
    	
 
    	
Change
    	
 
    
	
Production (100%)
    	
 
    	
results
    	
 
    	
target
    	
 
    	
results
    	
 
    	
(target to 2011)
    	
 
    	
(2010 to 2011)
    	
 
    
	
Tonnes of ore processed (thousands)
    	
 
    	
776
    	
 
    	
750
    	
 
    	
495
    	
 
    	
+3
    	
%
    	
+57
    	
%
    
	
Copper grades (percent)
    	
 
    	
6.5
    	
 
    	
7.5
    	
 
    	
7.0
    	
 
    	
-13
    	
%
    	
-7
    	
%
    
	
Plant recoveries (percent)
    	
 
    	
84
    	
 
    	
89
    	
 
    	
83
    	
 
    	
-6
    	
%
    	
+1
    	
%
    
	
Copper production (tonnes)
    	
 
    	
42,100
    	
 
    	
50,200
    	
 
    	
28,500
    	
 
    	
-16
    	
%
    	
+48
    	
%
    
	
Cost per pound of cathode produced (C$)
    	
 
    	
$
    	
1.59
    	
 
    	
$
    	
1.14
    	
 
    	
1.74
    	
(1)
    	
+39
    	
%
    	
-9
    	
%
    
	
Capital expenditures (C$)
    	
 
    	
$
    	
54
    	
 
    	
$
    	
52
    	
 
    	
$
    	
24
    	
 
    	
+4
    	
%
    	
+125
    	
%
    
															

 

(1)  Subsequent to July 1, 2010

 

	
Operating earnings and cash flow
    	
 
    	
2011
    	
 
    	
2010(1)
    	
 
    	
Objective 2012
    	
 
    
	
(Millions of Canadian dollars, unless otherwise stated)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
SALES ANALYSIS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper sales (tonnes)
    	
 
    	
42,000
    	
 
    	
15,600
    	
 
    	
65,200
    	
 
    
	
Gross copper sales
    	
 
    	
$
    	
357
    	
 
    	
$
    	
129
    	
 
    	
$
    	
551
    	
 
    
	
Freight
    	
 
    	
(1
    	
)
    	
—
    	
 
    	
(3
    	
)
    
	
Net sales
    	
 
    	
$
    	
356
    	
 
    	
$
    	
129
    	
 
    	
$
    	
548
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
COST ANALYSIS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Pounds of copper produced (millions)
    	
 
    	
93
    	
 
    	
38
    	
 
    	
144
    	
 
    
	
Direct production costs (per pound of copper)
    	
 
    	
$
    	
1.59
    	
 
    	
1.74
    	
 
    	
$
    	
1.14
    	
 
    
	
Direct production costs
    	
 
    	
$
    	
148
    	
 
    	
67
    	
 
    	
$
    	
164
    	
 
    
	
Change in inventory
    	
 
    	
1
    	
 
    	
(11
    	
)
    	
—
    	
 
    
	
Depreciation and other non-cash costs
    	
 
    	
81
    	
 
    	
28
    	
 
    	
92
    	
 
    
	
Operating costs
    	
 
    	
$
    	
230
    	
 
    	
$
    	
84
    	
 
    	
$
    	
256
    	
 
    
	
Operating earnings
    	
 
    	
$
    	
126
    	
 
    	
$
    	
45
    	
 
    	
$
    	
292
    	
 
    
	
Operating cash flow
    	
 
    	
$
    	
195
    	
 
    	
$
    	
59
    	
 
    	
$
    	
385
    	
 
    

 

(1)  Subsequent to July 1, 2010

 

23

 

Operating earnings and cash flow

 

The table below shows what contributed to the change in operating earnings and operating cash flow between 2011 and 2010.

 

	
(Millions)
    	
 
    	
Change
    	
 
    
	
Higher metal prices, denominated in Canadian   dollars
    	
 
    	
$
    	
23
    	
 
    
	
Higher sales volumes due to higher production
    	
 
    	
193
    	
 
    
	
Higher smelter processing charges and freight
    	
 
    	
(1
    	
)
    
	
Higher operating costs
    	
 
    	
(80
    	
)
    
	
Higher depreciation
    	
 
    	
(54
    	
)
    
	
Higher operating earnings,   compared to 2010
    	
 
    	
81
    	
 
    
	
Changes in working capital
    	
 
    	
(9
    	
)
    
	
Higher depreciation
    	
 
    	
54
    	
 
    
	
Standby charges in 2010
    	
 
    	
7
    	
 
    
	
Other
    	
 
    	
3
    	
 
    
	
Higher operating cash flow,   compared to 2010
    	
 
    	
$
    	
136
    	
 
    

 

OPERATIONS REVIEW

 

Mining

 

We mined a total of 1.1 million tonnes of ore this year. More than 750,000 tonnes remained in the run of mine stockpile at the end of the year. The large stockpile allows blending flexibility for the plant feed and provides a secure ore source if mining is interrupted during the rainy season.

 

Production

 

Las Cruces production in 2011 was significantly higher than 2010, increasing to 42,100 tonnes of copper cathode from 28,500 tonnes. In the fourth quarter of 2011, Las Cruces produced 14,100 tonnes, and finished the year with monthly production above 5,000 tonnes. In the last two weeks of 2011, we sustained recoveries above 88 percent at increased throughput levels and cathode production approached design capacity.

 

Plant reliability and process stability continued to improve throughout the year while copper recoveries increased. In the area of process stability, the largest gains were from improvements to the grinding thickener and oxygen distribution within the leach reactors. Plant reliability has been enhanced by the addition of surge capacity with the leach feed tank and the leach residue tank ahead of the leach filters. Better control of the precipitated solids and redundant pipelines has greatly reduced the downtime experienced previously to clean key components. Rebuilding of the grinding thickener in June was successful in allowing us to reach the designed density for feeding the leach circuit and controlling the leach chemistry. During the year we progressively improved oxygen distributors in the leach reactors and now have a design that allows effective use of the oxygen in the reaction. We completed our program to change all 8 leach reactor agitators to fully stainless steel components and agitator wear has been well controlled.

 

Notwithstanding the significant improvements achieved this year, production fell short of our target.

 

In 2011, we obtained the necessary permits and built an engineered membrane (a form of reverse osmosis) system to purify extracted water prior to re-injecting it back into the ground. The addition of new dewatering wells has further reduced pit inflows over the course of the year and at year end, pit and pond water levels were well controlled. The purification system is working well and the water we are re-injecting is drinking water quality and cleaner than background levels in the area. The purification system is consistently able to meet the emission limit values for the Spanish human health-based drinking water quality constituents. Our licence, however, contains constituents for which the purification system was not designed and which are not included in the Spanish human health-based drinking water quality regulation. Moreover, the licence also has emission limit values for some constituents that are more stringent than the drinking water quality limits. This combination of factors means that we do not currently comply with all aspects of our licence and we have been subject to a number of administrative proceedings relating to exceeding the emissions limit values for boron, chlorine and fluorine. We are working with the regulatory agencies to modify our licence so that it addresses the constituents the purification system was designed to address. The non-compliance is strictly administrative in nature and since we are improving the overall quality of the ground water through the re-injection of drinking quality water, there is no adverse environmental impact. Las Cruces has taken and will continue to take all necessary actions to comply with applicable requirements. It is likely that water management will remain an operational challenge at Las Cruces for the foreseeable future.

 

Capital update

 

	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
Objective
    	
 
    
	
(100 percent and millions of Canadian dollars)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
change
    	
 
    	
2012
    	
 
    
	
Capital
    	
 
    	
$
    	
54
    	
 
    	
$
    	
80
    	
 
    	
-33
    	
%
    	
$
    	
48
    	
 
    
	
Pre-operating costs   capitalized, net of sales, working capital and other
    	
 
    	
—
    	
 
    	
(56
    	
)
    	
-100
    	
%
    	
—
    	
 
    
	
Capital spending
    	
 
    	
$
    	
54
    	
 
    	
$
    	
24
    	
 
    	
+125
    	
%
    	
$
    	
48
    	
 
    

 

24

 

Outlook for 2012

 

For 2012, we expect throughput and recoveries to stabilize at the high levels we achieved towards the end of 2011. We have set our production objective as a range of 61,700 to 68,600 tonnes copper cathode, or approximately 90 percent of design capacity. No major construction projects are planned for the year. Routine maintenance is planned for mill relining, solids management and thickener inspection. Additional strengthening of the grinding thickener will take place during our planned shutdown activities to add security to this critical equipment. In total, we expect a minimum of 90 percent operating time throughout 2012.

 

We expect to spend $48 million on capital projects in 2012. The largest expenditures will come in the areas of mine development, tailings facility expansion and land purchase.

 

Las Cruces’ unit operating costs should continue to decrease as production volumes increase.

 

25

 

Pyhäsalmi

 

	
Location
    	
Finland
    
	
Ownership
    	
100%
    
	
Type   of mine
    	
underground
    
	
Primary   metal
    	
copper
    
	
Secondary   metal
    	
zinc
    
	
End   product
    	
copper   and zinc concentrate
    

 

Pyhäsalmi is an underground mine located in central Finland.

 

Key data

 

	
 
    	
 
    	
 
    	
 
    	
2011
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Change
    	
 
    	
Change
    	
 
    
	
Production
    	
 
    	
 
    	
 
    	
results
    	
 
    	
target
    	
 
    	
results
    	
 
    	
(target to 2011)
    	
 
    	
(2010 to 2011)
    	
 
    
	
Tonnes of ore milled (thousands)
    	
 
    	
 
    	
 
    	
1,386
    	
 
    	
1,370
    	
 
    	
1,401
    	
 
    	
+1
    	
%
    	
-1
    	
%
    
	
Tonnes of ore milled per day
    	
 
    	
 
    	
 
    	
3,800
    	
 
    	
3,750
    	
 
    	
3,800
    	
 
    	
+1
    	
%
    	
-1
    	
%
    
	
Grades (percent)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
copper
    	
 
    	
 
    	
 
    	
1.1
    	
 
    	
1.0
    	
 
    	
1.1
    	
 
    	
+10
    	
%
    	
—
    	
 
    
	
zinc
    	
 
    	
 
    	
 
    	
2.6
    	
 
    	
2.6
    	
 
    	
2.4
    	
 
    	
—
    	
 
    	
+8
    	
%
    
	
sulphur
    	
 
    	
 
    	
 
    	
42
    	
 
    	
43
    	
 
    	
43
    	
 
    	
-2
    	
%
    	
-2
    	
%
    
	
Mill recoveries (percent)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
copper
    	
 
    	
 
    	
 
    	
96
    	
 
    	
95
    	
 
    	
96
    	
 
    	
+1
    	
%
    	
—
    	
 
    
	
zinc
    	
 
    	
 
    	
 
    	
91
    	
 
    	
90
    	
 
    	
90
    	
 
    	
+1
    	
%
    	
+1
    	
%
    
	
Metal production (tonnes)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
copper
    	
 
    	
 
    	
 
    	
14,000
    	
 
    	
13,300
    	
 
    	
14,700
    	
 
    	
+5
    	
%
    	
-5
    	
%
    
	
zinc
    	
 
    	
 
    	
 
    	
32,300
    	
 
    	
31,900
    	
 
    	
30,100
    	
 
    	
+1
    	
%
    	
+7
    	
%
    
	
pyrite
    	
 
    	
 
    	
 
    	
804,900
    	
 
    	
600,000
    	
 
    	
584,100
    	
 
    	
+34
    	
%
    	
+38
    	
%
    
	
Cost per tonne of ore milled (C$)
    	
 
    	
 
    	
 
    	
$
    	
42
    	
 
    	
$
    	
40
    	
 
    	
$
    	
39
    	
 
    	
+5
    	
%
    	
+8
    	
%
    
	
Capital expenditures (C$)
    	
 
    	
 
    	
 
    	
$
    	
7
    	
 
    	
$
    	
8
    	
 
    	
$
    	
4
    	
 
    	
-13
    	
%
    	
+75
    	
%
    

 

26

 

Pyhäsalmi

 

	
Operating earnings and cash flow
    	
 
    	
2011
    	
 
    	
2010
    	
 
    	
Objective 2012
    	
 
    
	
(Millions of Canadian dollars unless otherwise stated)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
SALES ANALYSIS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper sales (tonnes)
    	
 
    	
13,700
    	
 
    	
14,800
    	
 
    	
11,900
    	
 
    
	
Zinc sales (tonnes)
    	
 
    	
34,400
    	
 
    	
29,500
    	
 
    	
24,000
    	
 
    
	
Pyrite sales (tonnes)
    	
 
    	
809,200
    	
 
    	
573,300
    	
 
    	
800,000
    	
 
    
	
Gross copper sales
    	
 
    	
$
    	
118
    	
 
    	
$
    	
121
    	
 
    	
$
    	
100
    	
 
    
	
Gross zinc sales
    	
 
    	
72
    	
 
    	
67
    	
 
    	
50
    	
 
    
	
Other metal sales
    	
 
    	
78
    	
 
    	
54
    	
 
    	
60
    	
 
    
	
Gross sales
    	
 
    	
268
    	
 
    	
242
    	
 
    	
210
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
(58
    	
)
    	
(58
    	
)
    	
(41
    	
)
    
	
Net sales
    	
 
    	
$
    	
210
    	
 
    	
$
    	
184
    	
 
    	
$
    	
169
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
COST ANALYSIS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Tonnes of ore milled (thousands)
    	
 
    	
1,386
    	
 
    	
1,401
    	
 
    	
1,370
    	
 
    
	
Direct production costs (per tonne)
    	
 
    	
$
    	
42
    	
 
    	
$
    	
39
    	
 
    	
$
    	
43
    	
 
    
	
Direct costs of production
    	
 
    	
$
    	
59
    	
 
    	
$
    	
55
    	
 
    	
$
    	
58
    	
 
    
	
Change in inventory
    	
 
    	
(1
    	
)
    	
—
    	
 
    	
—
    	
 
    
	
Depreciation and other non-cash costs
    	
 
    	
9
    	
 
    	
9
    	
 
    	
10
    	
 
    
	
Operating costs
    	
 
    	
$
    	
67
    	
 
    	
$
    	
64
    	
 
    	
$
    	
68
    	
 
    
	
Operating earnings
    	
 
    	
$
    	
143
    	
 
    	
$
    	
120
    	
 
    	
$
    	
101
    	
 
    
	
Operating cash flows
    	
 
    	
$
    	
118
    	
 
    	
$
    	
80
    	
 
    	
$
    	
85
    	
 
    

 

Operating earnings and cash flow

 

The table below shows what contributed to the change in operating earnings and operating cash flow between 2011 and 2010.

 

	
(Millions)
    	
 
    	
Change
    	
 
    
	
Higher copper prices, denominated in Canadian   dollars
    	
 
    	
$
    	
6
    	
 
    
	
Lower zinc prices, denominated in Canadian dollars
    	
 
    	
(6
    	
)
    
	
Higher other metal prices, denominated in Canadian   dollars
    	
 
    	
8
    	
 
    
	
Higher sales volumes
    	
 
    	
15
    	
 
    
	
Lower smelter processing prices
    	
 
    	
4
    	
 
    
	
Higher operating costs
    	
 
    	
(4
    	
)
    
	
Higher operating earnings,   compared to 2010
    	
 
    	
23
    	
 
    
	
Higher tax expense because of higher taxable   earnings
    	
 
    	
(6
    	
)
    
	
Change in working capital
    	
 
    	
18
    	
 
    
	
Other
    	
 
    	
3
    	
 
    
	
Higher operating cash flow,   compared to 2010
    	
 
    	
$
    	
38
    	
 
    

 

27

 

Pyhäsalmi

 

Financial and operations review

 

FINANCIAL REVIEW

 

The increase in operating earnings between years is mainly due to higher pyrite sales volumes. The increase in operating cash flow is even higher because of a decrease in working capital mainly because metal prices and therefore accounts receivable were lower at the end of 2011 compared to the end of 2010, and the timing of payments from customers. Operating costs were higher this year mostly because of increased ground support and consumables costs, and due to the incremental costs associated with producing more pyrite.

 

OPERATIONS REVIEW

 

Pyhäsalmi maintained its strong performance in 2011, processing 1.4 million tonnes of ore through the mill and achieving copper recoveries of 96 percent and zinc recoveries of 91 percent. Backfill supply was reliable and the underground open void volume was maintained at planned levels.

 

Copper production in 2011 was higher than target and lower than 2010 because of variations in copper grades. Zinc grades were significantly higher than last year, pushing zinc production higher. A record 805,000 tonnes of pyrite concentrate was produced this year to meet higher customer demand.

 

Outlook for 2012

 

Pyhäsalmi expects to mine 1.4 million tonnes of approximately 1 percent copper and 2 percent zinc in 2012, and produce between 11,300 tonnes and 12,600 tonnes of copper and 22,800 tonnes and 25,200 tonnes of zinc. Copper and zinc production should be lower than 2011 as fewer higher grade stopes are available in the short-term mining sequence. Both copper and zinc grades should recover after 2012.

 

Pyhäsalmi expects to produce and sell 800,000 tonnes of pyrite in 2012.

 

Capital spending of $10 million in 2012 will primarily be to replace underground mobile equipment, improve the tailings impoundment area, and upgrade the satellite ore grinding circuit and zinc cleaner cells.

 

Planning for the future

 

Pyhäsalmi will continue its successful ground support rehabilitation program in critical areas of the mine in light of increased seismic activity and subsidence as the mine matures. Pyhäsalmi sees new technology as an excellent way to meet the challenge of being a low grade operation. In 2012 and beyond the mine will continue to refine its automated and tele-remote mining capabilities and evaluate automated longhole drilling equipment. A tailings pond expansion completed in 2011, and the installation of a new pressure filter in the pyrite concentrate circuit in early 2012, should ensure we have the capacity to meet the ongoing demand for pyrite.

 

Pyhäsalmi continues to have an excellent environmental operating record, and our standards have evolved to adhere to increasingly stringent regulatory requirements in Finland, and globally. Much of the environmental focus at the mine revolves around the quality of our water discharge and the quality of fresh water we use in our processing. Pyhäsalmi draws water from Lake Pyhäjärvi and has developed a water recycling and conservation plan to reduce its reliance on fresh water from the lake. Pyhäsalmi has reduced its annual water consumption by approximately 250,000 m3 since 2009. Pyhäsalmi continued to focus on water conservation efforts by completing a water management study to identify ways to further reduce fresh water requirements and to increase water recycling. Several opportunities to conserve water resources were identified and are scheduled to be implemented in 2012.

 

28

 

D.            STATUS OF OUR DEVELOPMENT PROJECT

 

Cobre Panama

 

2011 marked a year of achieving significant milestones for the Cobre Panama development project to consider in our final decision to proceed with full construction.

 

ENGINEERING

 

Basic engineering progressed throughout 2011 and we expect to conclude and report on basic engineering in the second quarter of 2012. We made progress with several early works projects in the year in preparation for a final production decision, including the start of construction on a pioneer road and other road by-passes, preparation for bridge construction, and initiation of several permits required for additional work.

 

ESIA APPROVAL BY ANAM

 

On December 28, 2011, the Government of Panama, through ANAM, approved the ESIA required for development of Cobre Panama, including the mining operations and related infrastructure, a port facility and a coal-fired power plant. Cobre Panama presents a complex interplay of environmental and social challenges as a result of its socio-environmental context. The ESIA describes the existing socio-environmental conditions in the project area, the likely impacts that will result from development, operation and closure of the project, and our commitments to minimizing our impacts and to achieving a net positive impact to biodiversity through a landscape-scale conservation approach that will maximize the survival of species in the area and lead to significant conservation outcomes.

 

KPMC DECISION TO EXERCISE COBRE PANAMA OPTION

 

Our announcement of the approval of the ESIA on January 3, 2012 triggered a seven-day period by which KPMC was required to provide Inmet and MPSA with notice as to its election to acquire a 20 percent interest in MPSA. On January 10, 2012, Inmet and MPSA received formal written notice from KPMC that KPMC elected under its option agreement to acquire a 20 percent interest in MPSA. The option exercise closing has been extended to April 20, 2012 by mutual consent to allow for additional time to finalize the shareholders’ agreement. Subject to the terms of the acquisition, at closing KPMC will invest an amount into MPSA representing a 20 percent share of development costs to closing, over the US $30 million of such costs KPMC has already funded.

 

DRILLING

 

In early 2011, we announced that MPSA discovered a significant new higher grade mineralized zone, the Balboa deposit, on its Cobre Panama project. During the year, MPSA has continued with definition drilling on the discovery and has completed 34,000 metres of drilling in 64 holes to date on this deposit. The deposit contains a quartz chalcopyrite stock work core with higher copper and gold grades compared to the other Cobre Panama deposits. Drilling and metallurgical test work continues, which we expect will allow us to recognize Balboa reserves later in 2012 and include them in a revised mine plan.

 

PARTNERSHIP PROCESS

 

In 2011 we initiated a process to engage potential new partners in Cobre Panama. Interested parties are engaged at various stages of due diligence on the project under confidentiality agreements. We continue to advance alternative strategies to provide us with the development and financial capacity to proceed with the project if we conclude that the current partnership discussions will not maximize the value for Inmet’s shareholders.

 

2012 outlook for development

 

We plan to:

 

·             continue to build our privilege to operate through intensive dialogue with stakeholders at the community, regional and national levels, to increase their understanding of the project and its benefits to Panama, and our understanding of their potential concerns

 

·             continue to improve site access and infrastructure, including the completion of early works projects that will facilitate contractors’ mobilization for site capture

 

·             complete additional work on resource definition, metallurgical recoveries, pit design and other engineering to allow us to include the Balboa and Brazo mineralization in our mine plan for Cobre Panama

 

·             complete basic engineering and prepare to initiate site capture upon receipt of the main permits

 

·             continue to work with SK Engineering and Construction to complete basic engineering for the coal-fired power plant and begin detail engineering and procurement

 

·             develop a range of financing options including a project level limited recourse facility, capital market alternatives and potential new partners

 

·             update the capital and operating expenditure estimates for the development project at the conclusion of basic engineering

 

·             develop and implement, with the assistance of our EP+CM contractors, project specific Health & Safety and Environmental and Social mitigation plans that are consistent with the ESIA and Inmet’s corporate responsibility standards

 

·             continue to grow the strength of our management team and human resources dedicated to the project.

 

29

 

After basic engineering is completed and we have received the appropriate approvals, site capture, preparation and construction should take approximately 48 months.

 

We expect to spend $105 million on a 100 percent basis in the first quarter of 2012 to carry out work on the Cobre Panama project up to the point of consideration of a final decision to proceed with construction. Further capital expenditure guidance for 2012 will be provided after a decision is made.

 

Our cost projection for Cobre Panama will be based on our best estimate reflecting the extensive engineering, social licence development and in-field experience as well as expected future developments in the project and market affecting large capital projects, and other factors management believes are appropriate in the circumstances. This estimate, and the assumptions upon which it will be based, are subject to a variety of risks and uncertainties and other factors that could cause actual expenditures to differ materially from those estimated.

 

Furthermore, while we have significant cash and held-to-maturity investments, the development of Cobre Panama is dependent on our ability to obtain financing through capital markets, profitable operations, obtaining suitable project partners or by other means. We expect to be able to meet short-term cash requirements for the development Cobre Panama; however these funds are not sufficient to meet all anticipated development expenditure requirements. There is a risk that we will be unable to obtain financing from other sources necessary for the development of Cobre Panama, on favourable terms, or at all, which could have an impact on its development.

 

30

 

QUARTERLY IMPACTS

 

You will find detailed quarterly statements of earnings in Supplementary information — quarterly review on page 52.

 

2011 quarterly highlights

 

	
 
    	
 
    	
First quarter
    	
 
    	
Second quarter
    	
 
    	
Third quarter
    	
 
    	
Fourth quarter
    	
 
    	
Year 2011
    	
 
    
	
FINANCIAL HIGHLIGHTS (MILLIONS   OF CANADIAN DOLLARS)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross sales
    	
 
    	
$
    	
254
    	
 
    	
$
    	
222
    	
 
    	
$
    	
262
    	
 
    	
$
    	
241
    	
 
    	
$
    	
979
    	
 
    
	
Earnings from operations
    	
 
    	
$
    	
117
    	
 
    	
$
    	
88
    	
 
    	
$
    	
116
    	
 
    	
$
    	
92
    	
 
    	
$
    	
413
    	
 
    
	
Net income from continuing operations
    	
 
    	
$
    	
60
    	
 
    	
$
    	
56
    	
 
    	
$
    	
101
    	
 
    	
$
    	
48
    	
 
    	
$
    	
265
    	
 
    
	
Cash flow provided by operating activities
    	
 
    	
$
    	
118
    	
 
    	
$
    	
93
    	
 
    	
$
    	
121
    	
 
    	
$
    	
73
    	
 
    	
$
    	
405
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
METAL PRICE HIGHLIGHTS (AVERAGE   SALES PRICES AS REALIZED BY INMET)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper (US$ per pound)
    	
 
    	
US   $
    	
4.29
    	
 
    	
US   $
    	
4.16
    	
 
    	
US   $
    	
3.54
    	
 
    	
US   $
    	
3.51
    	
 
    	
US   $
    	
3.84
    	
 
    
	
Copper (C$ per pound)
    	
 
    	
C   $
    	
4.23
    	
 
    	
$
    	
4.03
    	
 
    	
$
    	
3.47
    	
 
    	
$
    	
3.59
    	
 
    	
$
    	
3.80
    	
 
    
	
Zinc (US$ per pound)
    	
 
    	
US   $
    	
1.06
    	
 
    	
US   $
    	
1.01
    	
 
    	
US   $
    	
0.92
    	
 
    	
US   $
    	
0.87
    	
 
    	
US   $
    	
0.97
    	
 
    
	
Zinc (C$ per pound)
    	
 
    	
C   $
    	
1.05
    	
 
    	
$
    	
0.98
    	
 
    	
$
    	
0.90
    	
 
    	
$
    	
0.89
    	
 
    	
$
    	
0.96
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
FOREIGN EXCHANGE HIGHLIGHTS   (AVERAGE RATES)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
1 US$ to C$
    	
 
    	
$
    	
0.99
    	
 
    	
$
    	
0.97
    	
 
    	
$
    	
0.98
    	
 
    	
$
    	
1.02
    	
 
    	
$
    	
0.99
    	
 
    
	
1 euro to C$
    	
 
    	
$
    	
1.35
    	
 
    	
$
    	
1.39
    	
 
    	
$
    	
1.38
    	
 
    	
$
    	
1.38
    	
 
    	
$
    	
1.38
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
SALES VOLUME HIGHLIGHTS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper (tonnes)
    	
 
    	
20,600
    	
 
    	
16,300
    	
 
    	
23,100
    	
 
    	
23,200
    	
 
    	
83,200
    	
 
    
	
Zinc (tonnes)
    	
 
    	
19,800
    	
 
    	
23,300
    	
 
    	
23,900
    	
 
    	
17,400
    	
 
    	
84,400
    	
 
    
																						

 

Gross sales — the decrease in gross sales in the second quarter was due to lower copper sales volumes. The decrease in gross sales in the fourth quarter was the result of lower metal prices, which decreased the prices we recorded for sales we made in the quarter, and lower zinc sales volumes.

 

Earnings from operations and cash flow provided by operating activities — the decrease in operating earnings in the fourth quarter is the result of the $17 million increase to our closure liabilities at our closed properties we recognized primarily as a result of a decrease in the discount rates we applied in determining the liabilities. Cash flow provided by operating activities decreased in the fourth quarter mainly due to the timing of payments received from our customers and made to our vendors at Çayeli and Las Cruces.

 

Net income — the decrease in net income is a result of lower earnings from operations and the $9 million foreign exchange loss we recognized when we revalued our US dollar denominated held to maturity bonds.

 

Sales volumes — copper sales volumes were lower in the second quarter due to the timing of shipments at Çayeli and Pyhäsalmi. Zinc sales volumes were lower in the fourth quarter due to lower zinc production at Çayeli and Pyhäsalmi.

 

31

 

2010 quarterly highlights

 

	
 
    	
 
    	
First quarter
    	
 
    	
Second quarter
    	
 
    	
Third quarter
    	
 
    	
Fourth quarter
    	
 
    	
Year 2010
    	
 
    
	
FINANCIAL HIGHLIGHTS (MILLIONS   OF CANADIAN DOLLARS)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross sales
    	
 
    	
$
    	
161
    	
 
    	
$
    	
161
    	
 
    	
$
    	
226
    	
 
    	
$
    	
231
    	
 
    	
$
    	
779
    	
 
    
	
Earnings from operations
    	
 
    	
$
    	
68
    	
 
    	
$
    	
67
    	
 
    	
$
    	
102
    	
 
    	
$
    	
93
    	
 
    	
$
    	
330
    	
 
    
	
Net income from continuing operations
    	
 
    	
$
    	
49
    	
 
    	
$
    	
51
    	
 
    	
$
    	
68
    	
 
    	
$
    	
98
    	
 
    	
$
    	
266
    	
 
    
	
Cash flow provided by operating activities
    	
 
    	
$
    	
45
    	
 
    	
$
    	
40
    	
 
    	
$
    	
80
    	
 
    	
$
    	
90
    	
 
    	
$
    	
255
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
METAL PRICE HIGHLIGHTS (AVERAGE   SALES PRICES AS REALIZED BY INMET)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper (US$ per pound)
    	
 
    	
US   $
    	
3.42
    	
 
    	
US   $
    	
2.91
    	
 
    	
US   $
    	
3.41
    	
 
    	
US   $
    	
3.51
    	
 
    	
US   $
    	
3.84
    	
 
    
	
Copper (C$ per pound)
    	
 
    	
C   $
    	
3.56
    	
 
    	
$
    	
2.99
    	
 
    	
$
    	
3.54
    	
 
    	
$
    	
3.59
    	
 
    	
$
    	
3.80
    	
 
    
	
Zinc (US$ per pound)
    	
 
    	
US   $
    	
1.03
    	
 
    	
US   $
    	
0.81
    	
 
    	
US   $
    	
0.95
    	
 
    	
US   $
    	
0.87
    	
 
    	
US   $
    	
0.97
    	
 
    
	
Zinc (C$ per pound)
    	
 
    	
C   $
    	
1.07
    	
 
    	
$
    	
0.83
    	
 
    	
$
    	
0.99
    	
 
    	
$
    	
0.89
    	
 
    	
$
    	
0.96
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
FOREIGN EXCHANGE HIGHLIGHTS   (AVERAGE RATES)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
1 US$ to C$
    	
 
    	
$
    	
1.04
    	
 
    	
$
    	
1.03
    	
 
    	
$
    	
1.04
    	
 
    	
$
    	
1.02
    	
 
    	
$
    	
0.99
    	
 
    
	
1 euro to C$
    	
 
    	
$
    	
1.44
    	
 
    	
$
    	
1.31
    	
 
    	
$
    	
1.34
    	
 
    	
$
    	
1.38
    	
 
    	
$
    	
1.38
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
SALES VOLUME HIGHLIGHTS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper (tonnes)
    	
 
    	
13,400
    	
 
    	
16,300
    	
 
    	
18,000
    	
 
    	
14,700
    	
 
    	
62,400
    	
 
    
	
Zinc (tonnes)
    	
 
    	
19,700
    	
 
    	
21,600
    	
 
    	
18,400
    	
 
    	
21,000
    	
 
    	
80,700
    	
 
    
																						

 

Gross sales, earnings from operations and cash flow provided by operating activities — the increase in the third and fourth quarters is mainly because we began recognizing operating results at Las Cruces in the income statement effective July 1, 2010 and because of increasing copper sales volumes. Cash flow provided by operating activities increased further in the fourth quarter mainly due to the timing of payments received from our customers at Çayeli.

 

Net income — the increase in net income in the fourth quarter was a result of higher earnings from operations and the $50.5 million gain we recognized when we sold our 9.45 million common shares of Premier Gold Mines Limited, offset by higher income taxes.

 

Sales volumes — Copper sales volumes were progressively higher as a result of the ramping up of Las Cruces.

 

32

 

FINANCIAL STRENGTH

 

Our growth strategy is focused on the development of Cobre Panama. Our key financial objective is to make sure we have the cash and debt capacity to fund its development in a responsible way, while still providing superior returns to shareholders.

 

Our strategy is to make sure we have the liquidity (in cash and committed credit facilities) to finance our operating requirements as well as our growth projects. We manage our debt levels by ensuring that, even at the low point in the metal price cycle, our operations can provide adequate cash flow.

 

Financial condition

 

High metal prices over the past several years together with a significant share issuance have allowed us to strengthen our balance sheet while also still allowing us to make significant capital investments to support our growth strategy — in particular completing the Front End Engineering and Design study and undertaking basic engineering at Cobre Panama and the consolidation of our ownership in Las Cruces to 100 percent.

 

Key financial measures

 

We use the following key financial measures to assess our financial condition and liquidity:

 

	
 
    	
 
    	
Inmet
   guidelines
    	
 
    	
2012
   estimate
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Current ratio
    	
 
    	
>2   to 1
    	
 
    	
11.7   to 1
    	
 
    	
9.3   to 1
    	
 
    	
3.4   to 1
    	
 
    
	
Gross debt to total equity
    	
 
    	
<25%
    	
 
    	
<1%
    	
 
    	
1%
    	
 
    	
1%
    	
 
    
	
Long-term debt to EBITDA
    	
 
    	
<4   times
    	
 
    	
0.03
    	
 
    	
0.03
    	
 
    	
0.03
    	
 
    
	
EBITDA to total debt service (total debt service   ratio)
    	
 
    	
>1.5   times
    	
 
    	
541
    	
 
    	
488
    	
 
    	
456
    	
 
    
	
EBITDA to interest paid (interest coverage ratio)
    	
 
    	
>3   times
    	
 
    	
541
    	
 
    	
488
    	
 
    	
456
    	
 
    

 

Gross debt includes long-term debt. EBITDA is earnings before interest, taxes, depreciation and amortization. The total debt service ratio includes interest paid plus scheduled loan repayments. These are non-GAAP measures. The calculations for these are included in note 20 to our consolidated financial statements as part of our discussion on Capital management.

 

We use these measures when we assess new growth opportunities, to determine how much debt we can take on. Our vision is to manage financial risk by maintaining conservative leverage and coverage ratios, as noted in the table above.

 

The measures above indicate where we are today, and what the risk thresholds would be in 2012 if we decided to proceed with construction of Cobre Panama. The difference from 2010 reflects higher cash from operations and from our common shares issuance in May 2011.

 

FREE CASH FLOW

 

Our cash comes mainly from free cash flow from our operations, which is the net cash generated by our operations from the sale of metals, less spending on capital equipment and financing activities.

 

The table below shows how our consolidated cash (cash and short-term investments plus held to maturity investments) changed in 2011 and in 2010.

 

	
(Millions)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Free cash flow from operations
    	
 
    	
$
    	
385
    	
 
    	
$
    	
243
    	
 
    
	
Spending on development and exploration not   incurred by operations
    	
 
    	
(21
    	
)
    	
(9
    	
)
    
	
Corporate costs and other
    	
 
    	
(32
    	
)
    	
(24
    	
)
    
	
Proceeds from issuance of common shares
    	
 
    	
502
    	
 
    	
—
    	
 
    
	
Acquisition of non-controlling interest in Las   Cruces
    	
 
    	
—
    	
 
    	
(151
    	
)
    
	
Development of Cobre Panama
    	
 
    	
(134
    	
)
    	
(85
    	
)
    
	
Sale of investment in Premier Gold
    	
 
    	
—
    	
 
    	
61
    	
 
    
	
Cash from discontinued operations (including   proceeds received on sale of Ok Tedi)
    	
 
    	
307
    	
 
    	
30
    	
 
    
	
Increase in consolidated cash
    	
 
    	
$
    	
1,007
    	
 
    	
$
    	
65
    	
 
    

 

Free cash flow is a non-GAAP measure. For Çayeli, Las Cruces and Pyhäsalmi, we include cash flow from the operations, less cash used in investing (capital expenditures) and financing (debt borrowings, debt repayments), adjusted for foreign exchange changes on cash held in foreign currency. A reconciliation of the 2011 and 2010 non-GAAP measures to our GAAP measures is found on page 52 under the title Supplementary information, Free cash flow.

 

In 2011, we used some of our free cash flow to fund the development work at Cobre Panama and issued $500 million of common shares in preparation to finance its construction. In 2010, we used some of our free cash flow to acquire the non-controlling interest in Las Cruces and to fund the development work at Cobre Panama.  In each year, we transferred a significant amount of cash to long-term investments to realize better yields on funds we have set aside for the construction of Cobre Panama.

 

33

 

2012 outlook on liquidity

 

The table below shows our estimated free cash flow from operations for 2012 using the assumptions and objectives in Financial review by operation, which starts on page 19.

 

	
(Millions)
    	
 
    	
2012
    	
 
    
	
Çayeli
    	
 
    	
$
    	
110
    	
 
    
	
Las Cruces
    	
 
    	
337
    	
 
    
	
Pyhäsalmi
    	
 
    	
75
    	
 
    
	
Expected free cash flow from operations
    	
 
    	
$
    	
522
    	
 
    

 

Mining is an extremely capital intensive business. Mining companies need significant ongoing capital to maintain and improve existing operations, invest in large scale capital projects with long lead times, and manage uncertain development and permitting timelines and the volatility associated with fluctuating metal and input prices. Financial markets — banking, debt and equity — can also be extremely volatile, and can prevent us from gaining access to the capital required to maintain and grow our business.

 

To manage this risk, we closely manage the cost of our operations with the objective that they will be profitable throughout the metal price cycle. We also maintain a conservative capital structure — we are in a strong net cash position — and maintain enough cash, liquid investments and committed debt financing to complete the projects we have underway. The objective is that once a development decision is made, we will be able to finance its completion without relying on future operating cash flows from our current operations, or on the condition of the financial market.

 

For this reason we aim to retain significant cash balances for future development expenditures. At the end of 2011, we have specifically retained US $276 million in anticipation of our US dollar spending in Panama and by the end of January 2012 we added another US $200 million after converting €150 million in one of our euro functional currency companies. Volatility in the financial markets can have an impact on the market value of financial investments, on the returns earned from those investments, and on our ability to access that capital due to disruptions in market liquidity.

 

To manage this risk, we invest in high quality, highly liquid investments — typically government backed investments or AAA rated liquidity funds. To enhance yield, we also invest a portion of our excess liquidity in longer dated maturities to take advantage of the available yield enhancement without sacrificing credit quality. We continually monitor the financial markets, interacting closely with our investment advisors and leading market participants, in order to make any changes necessary due to changing market conditions.

 

34

 

MANAGING OUR LIQUIDITY

 

The table below shows our sources of cash and how we used it in 2011 and in 2010.

 

	
(Millions)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Cash and short-term investments, beginning of year
    	
 
    	
$
    	
326
    	
 
    	
$
    	
534
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
CASH FROM OPERATING ACTIVITIES
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Çayeli
    	
 
    	
157
    	
 
    	
117
    	
 
    
	
Las   Cruces
    	
 
    	
195
    	
 
    	
59
    	
 
    
	
Pyhäsalmi
    	
 
    	
118
    	
 
    	
80
    	
 
    
	
Other   (Troilus)
    	
 
    	
—
    	
 
    	
44
    	
 
    
	
 
    	
 
    	
470
    	
 
    	
300
    	
 
    
	
Corporate development and exploration not incurred   by operations
    	
 
    	
(21
    	
)
    	
(9
    	
)
    
	
General and administration
    	
 
    	
(34
    	
)
    	
(20
    	
)
    
	
Investment income and other
    	
 
    	
1
    	
 
    	
(6
    	
)
    
	
Settlement of asset retirement obligations,   excluding Troilus
    	
 
    	
(11
    	
)
    	
(10
    	
)
    
	
 
    	
 
    	
405
    	
 
    	
255
    	
 
    
	
CASH FROM INVESTING
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Purchase of property, plant and equipment
    	
 
    	
(209
    	
)
    	
(128
    	
)
    
	
Sale of investment in Premier Gold
    	
 
    	
—
    	
 
    	
61
    	
 
    
	
Acquisition of non-controlling interest in Las   Cruces
    	
 
    	
—
    	
 
    	
(151
    	
)
    
	
Purchase of long-term investments, net of   maturities
    	
 
    	
(233
    	
)
    	
(270
    	
)
    
	
Funding received — Cobre Panama option agreement
    	
 
    	
13
    	
 
    	
14
    	
 
    
	
Other
    	
 
    	
(4
    	
)
    	
7
    	
 
    
	
 
    	
 
    	
(433
    	
)
    	
(467
    	
)
    
	
CASH FROM FINANCING
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Proceeds from issuance of common shares
    	
 
    	
502
    	
 
    	
—
    	
 
    
	
Financial assurance receipts (payments)
    	
 
    	
(3
    	
)
    	
11
    	
 
    
	
Dividends on common shares
    	
 
    	
(14
    	
)
    	
(11
    	
)
    
	
Other financing
    	
 
    	
(2
    	
)
    	
1
    	
 
    
	
 
    	
 
    	
483
    	
 
    	
1
    	
 
    
	
Foreign exchange on cash balances and other
    	
 
    	
(5
    	
)
    	
(27
    	
)
    
	
Cash from discontinued operation (Ok Tedi)
    	
 
    	
307
    	
 
    	
30
    	
 
    
	
Cash and short-term   investments, end of year
    	
 
    	
$
    	
1,083
    	
 
    	
$
    	
326
    	
 
    

 

Cash from operating

 

2011 operating cash flows compared to 2010

 

Operating cash flows this year are higher compared to 2010. Our mining operations contributed more to our cash flows in 2011 than in 2010, somewhat offset by higher corporate costs.

 

35

 

The table below shows in more detail what contributed to the increase in operating cash flow in 2011.

 

	
(Millions)
    	
 
    	
Change
    	
 
    
	
Higher earnings from operations
    	
 
    	
$
    	
83
    	
 
    
	
Add back higher non-cash charges included in   earnings from operations
    	
 
    	
53
    	
 
    
	
Higher income tax expense because of higher   taxable earnings
    	
 
    	
(7
    	
)
    
	
Higher corporate development and administrative   costs
    	
 
    	
(30
    	
)
    
	
Realized foreign exchange loss on cash held by   Inmet corporate
    	
 
    	
(8
    	
)
    
	
Standby charges in 2010 at Las Cruces
    	
 
    	
7
    	
 
    
	
Change in working capital
    	
 
    	
38
    	
 
    
	
Other
    	
 
    	
14
    	
 
    
	
Increase in operating cash   flow, compared to 2010
    	
 
    	
$
    	
150
    	
 
    

 

Working capital changes increased our operating cash flows in 2011 mainly because metal prices and therefore accounts receivable balances were lower at the end of the year, and the timing of payments from customers.

 

2012 outlook for operating cash flow

 

The table below shows expected operating cash at our operations, based on our outlook for metal prices and production, and on the assumptions in Financial review by operation, which starts on page 19.

 

	
(Millions)
    	
 
    	
2012
    	
 
    
	
Çayeli
    	
 
    	
$
    	
130
    	
 
    
	
Las Cruces
    	
 
    	
385
    	
 
    
	
Pyhäsalmi
    	
 
    	
85
    	
 
    
	
Estimated operating cash flow   from operations
    	
 
    	
$
    	
600
    	
 
    

 

Cash from investing

 

Cash flows from investing activities include:

 

·  capital spending

 

·  the acquisition of assets

 

·  the sale of assets.

 

2011 investing cash flows compared to 2010

 

CAPITAL SPENDING

 

The table below shows capital spending by operation.

 

	
(Millions)
    	
 
    	
2012
   objective
    	
 
    	
2011
   actual
    	
 
    	
2010
   actual
    	
 
    
	
Çayeli
    	
 
    	
$
    	
20
    	
 
    	
$
    	
13
    	
 
    	
$
    	
15
    	
 
    
	
Las   Cruces (100%)
    	
 
    	
48
    	
 
    	
54
    	
 
    	
24
    	
 
    
	
Pyhäsalmi
    	
 
    	
10
    	
 
    	
7
    	
 
    	
4
    	
 
    
	
Cobre Panama
    	
 
    	
105
    	
(1)
    	
134
    	
 
    	
85
    	
 
    
	
 
    	
 
    	
$
    	
183
    	
 
    	
$
    	
208
    	
 
    	
$
    	
128
    	
 
    

 

(1) represents expected spending in the first quarter of 2012 to carry out work on the Cobre Panama project up to the point of consideration of a final decision to proceed with construction. Further capital expenditure guidance for 2012 will be provided after a decision is made.

 

Capital spending in 2011 was for work to advance Cobre Panama and for plant improvements and mine development at Las Cruces. Details on capital spending by operation are included in financial review by operation starting on page 19.

 

ACQUISITION OF LONG-TERM INVESTMENTS

 

In 2011, we used most of the US dollar proceeds from the sale of Ok Tedi to buy US $274 million in US Treasury bonds with AA credit ratings. The bonds mature between March 2012 and January 2016 and have a weighted average annual yield to maturity of 1.2 percent. In 2010, we bought $296 million in medium-term Canadian government and corporate bonds with credit ratings of A to AAA.

 

36

 

ACQUISITION OF NON-CONTROLLING INTEREST IN LAS CRUCES — 2010

 

We paid $151 million in cash and 5.4 million Inmet common shares to acquire Leucadia’s 30 percent indirect equity interest and subordinated sponsor loans in Las Cruces.

 

SALE OF INVESTMENT IN PREMIER GOLD - 2010

 

We sold our 9.45 million common shares of Premier Gold for $61.4 million in cash.

 

2012 outlook for cash from investing

 

We expect capital spending to be $183 million in 2012. The more significant items include:

 

·      $48 million at Las Cruces, including $22 million for mine development, as well as several smaller expenditures including a tailings facility expansion, land purchase and certain plant improvements

 

·      $105 million at Cobre Panama on a 100 percent basis in the first quarter of 2012.

 

In January 2012, we received notice from KPMC that it has elected, under the option agreement, to acquire a 20 percent interest in MPSA. The option exercise closing has been extended to April 20, 2012 by mutual consent to allow for additional time to finalize the shareholders’ agreement. Subject to the terms of the acquisition, at closing KPMC will invest an amount into MPSA representing a 20 percent share of development costs to closing, over the US $30 million of such costs KPMC has already funded. After closing, KPMC would continue to fund its 20 percent share of the development costs of Cobre Panama, and would enter into an off-take purchase agreement, enabling KPMC to purchase a 20 percent share of MPSA’s concentrates production on arm’s length market terms, subject to KPMC arranging for related financing.

 

Cash from financing

 

Cash flows from financing include borrowing and repaying debt and other financial transactions, such as paying dividends, receiving subsidies and making financial assurance fund payments.

 

PROCEEDS FROM ISSUING COMMON SHARES

 

On May 17, 2011, a subsidiary of Temasek Holdings (Private) Ltd. (Temasek) exchanged its subscriptions receipts for 7.78 million Inmet Mining common shares and we received $500 million in cash, plus accrued interest on funds in escrow during the subscription period. At the request of Temasek and subject to certain conditions, we are obligated to qualify Inmet Mining common shares held by Temasek for distribution to the public. Temasek also has the right to maintain its fully-diluted ownership interest if we issue common shares or securities convertible or exchangeable into common shares.

 

PROVIDING FINANCIAL ASSURANCE

 

For some of our properties, we are required to provide financial assurance to regulators that we can meet our reclamation and restoration liabilities. We are also required to provide financial assurance for a former executive’s pension benefit, and at Las Cruces we are required to provide financial assurance for subsidies received, a labour bond and to various suppliers.

 

At December 31, 2011, we provided $77 million in financial assurance as security for the following:

 

	
(Millions)
    	
 
    	
Total secured
    	
 
    	
Portion
   secured
   by cash
   (restricted cash)
    	
 
    	
Portion
   secured by
   bank facility
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
CORPORATE AND TROILUS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Reclamation and restoration liabilities
    	
 
    	
$
    	
13
    	
 
    	
$
    	
13
    	
 
    	
$
    	
—
    	
 
    
	
Pension
    	
 
    	
3
    	
 
    	
3
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
PYHÄSALMI
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Reclamation and restoration liability
    	
 
    	
2
    	
 
    	
2
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
LAS CRUCES
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Reclamation and restoration liability
    	
 
    	
34
    	
 
    	
34
    	
 
    	
—
    	
 
    
	
Water treatment
    	
 
    	
12
    	
 
    	
12
    	
 
    	
—
    	
 
    
	
Labour bond
    	
 
    	
7
    	
 
    	
7
    	
 
    	
—
    	
 
    
	
Suppliers and others
    	
 
    	
1
    	
 
    	
1
    	
 
    	
—
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
COBRE PANAMA
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Environment
    	
 
    	
5
    	
 
    	
—
    	
 
    	
5
    	
 
    
	
Total financial assurance provided
    	
 
    	
$
    	
77
    	
 
    	
$
    	
72
    	
 
    	
$
    	
5
    	
 
    

 

37

 

Regulatory authorities in jurisdictions where we operate may also, from time to time, ask us to provide financial assurance against future reclamation and restoration obligations. This can happen as regulations or our circumstances evolve, if a regulatory authority chooses to no longer accept other forms of assurance, or when an operation is nearing the end of its life. Although providing financial assurance does not increase our future reclamation and restoration obligations, it can reduce our available credit capacity or restrict cash reserves, which can affect our liquidity.

 

Under the conditions attached to the Las Cruces Mining Concession, we were required to post two bonds before we could begin mining at Las Cruces: a restoration (closure) bond and a labour bond. We posted these bonds in 2005. The labour bond is fixed at €5 million for the life of the mine. The closure bond is based on what it would take to restore the site to its post-mining land-use at any point in the mine’s life. The initial amount of the closure bond was set at €14.8 million and by the end of 2011 increased to €26 million. This takes into consideration the mine’s expected life, the corresponding land disturbance and estimated closure costs. We were required to cash collateralize a bond in relation to Las Cruces’ global plan for water treatment.

 

2012 outlook for cash from financing

 

The table below shows contractual obligations existing at December 31, 2011, including principal payments and interest.

 

	
(Millions)
    	
 
    	
2012
    	
 
    	
2013
   and 2014
    	
 
    	
2015
   and 2016
    	
 
    	
2017
   and beyond
    	
 
    	
Total
    	
 
    
	
FINANCING
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Long-term debt — promissory note
    	
 
    	
$
    	
1
    	
 
    	
$
    	
19
    	
 
    	
$
    	
—
    	
 
    	
$
    	
—
    	
 
    	
$
    	
20
    	
 
    
	
Capital leases
    	
 
    	
2
    	
 
    	
5
    	
 
    	
4
    	
 
    	
16
    	
 
    	
27
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
OPERATING OR INVESTING
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Accounts payable and accrued liabilities
    	
 
    	
122
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
122
    	
 
    
	
Royalties
    	
 
    	
19
    	
 
    	
37
    	
 
    	
23
    	
 
    	
53
    	
 
    	
132
    	
 
    
	
Asset retirement obligations
    	
 
    	
11
    	
 
    	
12
    	
 
    	
7
    	
 
    	
231
    	
 
    	
261
    	
 
    
	
Purchase commitments
    	
 
    	
133
    	
 
    	
29
    	
 
    	
25
    	
 
    	
—
    	
 
    	
187
    	
 
    
	
Total
    	
 
    	
$
    	
288
    	
 
    	
$
    	
102
    	
 
    	
$
    	
59
    	
 
    	
$
    	
300
    	
 
    	
$
    	
749
    	
 
    

 

LONG-TERM DEBT — PROMISSORY NOTE

 

This is a €14 million unsecured 6 percent promissory note that we issued to Outokumpu Oyj in March 2002, as part of the purchase of Pyhäsalmi. The note is payable in October 2013.

 

CAPITAL LEASES

 

Las Cruces has capital leases for the supply of oxygen from a plant owned and operated by a third party and located at the mine site.

 

ROYALTIES

 

We have two royalty commitments. One is based on sales of copper at Las Cruces and the other based on net income at Çayeli. There is no royalty obligation if we do not sell copper at Las Cruces, but a minimum royalty of US $0.7 million must be paid regardless of Çayeli’s net income. The royalty payments in the contractual obligation table above are based on a long-term copper price of US $2.25 per pound and zinc of US $0.85 per pound. Based on 2012 estimated production, an increase of 10 percent in copper and zinc prices would result in an increase in royalty payments of approximately $3 million.

 

ASSET RETIREMENT OBLIGATIONS

 

These are mostly for the closure of closed mines and long-term water treatment. Costs payable after five years include estimated closure costs for our operating mines and ongoing long-term water treatment.

 

PURCHASE COMMITMENTS

 

Cobre Panama committed $187 million for the design and supply of certain mill equipment and for basic engineering.

 

Las Cruces committed $3 million primarily for plant equipment.

 

SHARE CAPITAL

 

Inmet Mining had 69,332,492 common shares outstanding as at December 31, 2011 and 69,365,744 common shares as at March 2, 2012. The increase of 33,252 common shares in 2012 represents the redemption of an equivalent number of deferred share units after a director retired.

 

38

 

FINANCIAL INSTRUMENTS

 

The following is a summary of our financial instruments at December 31, 2011:

 

	
Financial instrument
    	
 
    	
Category
    	
 
    	
How we
   measure it
    	
 
    	
Associated
   risks
    	
 
    	
Fair value at
   December 31,
   2011
    	
 
    	
Amount
   recorded
   in earnings
    	
 
    	
Amount not
   recorded in
   earnings (1)
    	
 
    
	
(Millions)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash, short-term investments and restricted cash
    	
 
    	
Held   for trading
    	
 
    	
Fair   value
    	
 
    	
· Market
    · Credit
    · Liquidity
    	
 
    	
$
    	
1,083
    	
 
    	
Interest   income
   2011 – $5
   2010 – $1
    	
 
    	
Nil   
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Investments in equity securities
    	
 
    	
Available   for sale
    	
 
    	
Fair   value
    	
 
    	
· Market
    	
 
    	
$
    	
3
    	
(2)
    	
Investment   and other income
   2011 – ($3)
   2010 – $51
    	
 
    	
Nil
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Held to maturity investments
    	
 
    	
Held   to maturity
    	
 
    	
Initially   at fair value ando subsequently at amortized cost
    	
 
    	
· Market
    · Credit
    · Liquidity
    	
 
    	
$
    	
638
    	
(2)
    	
2011   – $10
   2010 – $7
    	
 
    	
Carrying   value less than fair value by $15
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Long-term debt
    	
 
    	
Other   liabilities
    	
 
    	
Initially   at fair value and subsequently at amortized cost
    	
 
    	
· Market
    · Liquidity
    	
 
    	
$
    	
(19
    	
)(3)
    	
Interest   costs
   2011 – $2 expensed;
   2010 – $7
   expensed
   ($6 capitalized)
    	
 
    	
Carrying   value less than fair value by $2
    	
 
    

 

(1) AOCI balance before related income taxes at December 31, 2011 for instruments measured at fair value.

(2) Based on price quotations in an active market.

(3) Based on a market interest rate of 3.7 percent.

 

Managing changes in metal prices, exchange rates and interest rates

 

The most significant factor affecting our financial performance is the price we receive for the metals we produce and sell. This has an impact on our sales revenues, smelter processing charges and certain variable costs, such as royalties.

 

Metal prices are affected by many factors beyond our control, including:

 

·  global supply and demand

·  regional supply and demand

·  political and economic conditions

·  exchange rates relative to the US dollar

·  inflation expectations

·  speculative activities

·  production costs in major producing regions.

 

We do not typically hedge the prices of the base metals we produce. Our strategy is to provide our investors with full exposure to base metal prices. This, we believe, makes our operations easier to understand and avoids the incremental risk and complexity inherent with any hedging program. As a result, any decrease in the market price of one or more of these metals could materially adversely affect the value and amount of our reserves, our business, financial condition, liquidity and results of operations.

 

We may use option contracts to hedge against changes in the US dollar. Almost all of the revenue we earn is in US dollars, but because we operate in countries around the world, our costs are in several different currencies. We are most affected by changes in the exchange rates between the Canadian dollar, the US dollar and the euro.

 

Our risk management policy is designed to mitigate the impact of changes in commodity prices and exchange rates in limited circumstances, to give us greater control over a portion of revenues and control our costs. We believe that derivatives are an effective means of managing these risks, and that they allow us to plan with more certainty.

 

Our use of derivatives is based on established practices and controls, which are approved by our board. While our strategy is to provide our investors with full exposure to base metal prices, we may from time to time enter into metal price hedges provided that we comply with our metal price hedging policy that:

 

·  limits the amount of production we can potentially hedge to 50 percent of our mineral reserves

·  restricts the amount of hedging that we can transact with any one counterparty

·  requires that any counterparty we deal with must be highly rated.

 

39

 

We do not use derivatives for speculative or trading purposes. Most of the derivatives we use are designated in a hedge accounting relationship. All of our hedge contracts are with highly rated banks that deal in futures and derivatives markets as part of their business. Under our current facilities, we are not subject to margin calls, regardless of spot metal prices or exchange rates.

 

Foreign operations

 

Çayeli, Las Cruces, Pyhäsalmi and Cobre Panama are foreign operations. Çayeli and Cobre Panama report in US dollars, and Pyhäsalmi and Las Cruces report in euros. We defer translation exchange gains and losses on these investments and record them in Accumulated other comprehensive income included in shareholders’ equity.

 

Our currency exposure is limited to our net investment in these operations. On translation, we will only record a foreign exchange gain or loss in income when our net investment is reduced, for example when a return of capital occurs. The balance also includes the deferral of exchange gains and losses on intergroup debt as we consider this to be part of our net investment. We recognize foreign exchange gains and losses when these loans are repaid. We do not have any significant restrictions over the repatriation of funds from our foreign operations to Inmet Mining.

 

The table below shows the deferred foreign exchange balance at December 31.

 

	
(Millions)
    	
 
    	
2011
    	
 
    	
2010
    	
 
    
	
Çayeli (US dollar functional currency)
    	
 
    	
$
    	
(16
    	
)
    	
$
    	
(21
    	
)
    
	
Las   Cruces (euro functional currency)
    	
 
    	
(106
    	
)
    	
(93
    	
)
    
	
Pyhäsalmi (euro functional currency)
    	
 
    	
(28
    	
)
    	
(24
    	
)
    
	
Cobre   Panama (US dollar functional currency)
    	
 
    	
(14
    	
)
    	
(30
    	
)
    
	
 
    	
 
    	
$
    	
(164
    	
)
    	
$
    	
(168
    	
)
    

 

40

 

ACCOUNTING POLICIES

 

Critical accounting estimates

 

Because of the nature of our business, we are required to make estimates about the future that affect the amount of assets, liabilities, sales and expenses we report.

 

The following areas include estimates that are based on our past experience, our best judgment and assumptions we think are reasonable:

 

·  estimated mineral reserves

 

·  purchase price allocation

 

·  property, plant and equipment and impairment of long-lived assets

 

·  provision for asset retirement obligations

 

·  income taxes.

 

We believe the estimates provide a fair presentation of our financial condition and results of operations.

 

Please see note 4 to the consolidated financial statements for a full discussion of our application of critical accounting judgements and estimates.

 

Estimated mineral reserves 

 

Our mineral reserves are estimates of the amount of ore that can be economically and legally extracted from our mining properties. To calculate reserves, we use estimates and assumptions about a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production and freight costs, commodity prices and exchange rates. Our reserves for all operations are estimated based on information compiled by or under the supervision of a qualified person as defined under National Instrument 43-101.

 

Changes in our reserve estimates can affect:

 

·  asset carrying values due to changes in estimated future cash flows and impairment analysis

 

·  depreciation in the statement of earnings, when depreciation is based on units of production, or when the useful economic life of an asset changes

 

·  asset retirement obligations where changes in estimated reserves affect expectations about the timing or cost of these activities.

 

Purchase price allocation

 

We account for acquisitions by the purchase method of accounting whereby the purchase price is allocated to the assets acquired and the liabilities assumed based on fair value at the time of the acquisition. The excess purchase price over the fair value of identifiable assets and liabilities acquired is goodwill. The determination of fair value often requires us to make assumptions and estimates about future events. The assumptions and estimates with respect to determining the fair value of property, plant and equipment acquired generally require a high degree of judgment, and include estimates of mineral reserves acquired, future metal prices and discount rates. Changes in any of the assumptions or estimates used in determining the fair value of acquired assets and liabilities could impact the amounts assigned to assets, liabilities and goodwill in the purchase price allocation.

 

Property, plant and equipment

 

The table shows our property, plant and equipment at December 31, 2011.

 

	
(Millions of Canadian dollars)
    	
 
    	
2011
    	
 
    
	
Property
    	
 
    	
$
    	
392
    	
 
    
	
Plant and equipment
    	
 
    	
718
    	
 
    
	
Deferred development
    	
 
    	
721
    	
 
    
	
 
    	
 
    	
$
    	
1,831
    	
 
    

 

PROPERTY

 

We depreciate property using the unit-of-production method where the value of the property is reduced as reserves are depleted. We base this on mining rates and our estimates of proven and probable mineral reserves. A change in our proven and probable mineral reserves would change our future depreciation expense.

 

41

 

Sensitivity analysis:

 

The table below shows how a 25 percent change in mineral reserves at the beginning of 2011 would have affected our depreciation.

 

	
 
    	
 
    	
Change in 2011
    	
 
    	
After
    	
 
    
	
 
    	
 
    	
depreciation
    	
 
    	
tax impact
    	
 
    
	
Çayeli
    	
 
    	
$
    	
+/- 3.4
    	
 
    	
$
    	
+/- 2.6
    	
 
    
	
Las   Cruces
    	
 
    	
$
    	
+/- 12.2
    	
 
    	
$
    	
+/- 8.5
    	
 
    
	
Pyhäsalmi
    	
 
    	
$
    	
+/- 1.8
    	
 
    	
$
    	
+/- 1.4
    	
 
    

 

PLANT CONSTRUCTION

 

In the construction of plant and equipment, we capitalize costs that can be directly attributed to bringing the asset into working condition for its intended use, including costs during a commissioning period, before the asset is able to operate at normal levels.

 

We use several criteria to determine when an asset is able to operate at normal levels. These are complex, and depend on each development property’s plan and its economic, political and environmental condition. Criteria can include:

 

·  producing saleable material

·  completing a reasonable period of testing of the plant and equipment in the mine, mill and/or plant

·  achieving certain level of recoveries from the ore mined and processed

·  sustaining ongoing production and reaching a certain level of production.

 

IMPAIRMENT OF LONG-LIVED ASSETS

 

If we believe an asset may be impaired, we calculate its recoverable amount as either its fair value less costs to sell, or its value in use (whichever is higher), following our Impairment of assets accounting policy described in note 3 to the consolidated financial statements.

 

When following this policy, we make estimates and assumptions about future production and sales volumes, future commodity prices, recoverable mineral reserves, discount rates, foreign exchange rates, future operating and capital costs. We may also make assumptions about our ability to obtain financing for a project or to recover costs by selling an asset. Actual outcomes could be different.

 

This includes our estimates of:

 

·  recoverable mineral reserves

·  future production and sales volumes

·  value beyond proven and probable reserves

·  future metal prices

·  future exchange rates

·  future operating, capital and reclamation costs.

 

Our estimates of the recoverability of our operating and development properties are critical because they are based on an estimate of future cash flows and market conditions over the long-term life of our assets, and the impact of recognizing an impairment could have a significant effect on the balance sheet and statement of earnings. If any of these estimates change, future net cash flows from our properties could be lower, which would result in impairment.

 

Based on our estimate of mineral reserves as at December 31, 2011, and long-term metal prices of US $2.25 per pound of copper and US $0.85 per pound of zinc, there was no impairment in the value of any of our operating properties.

 

Provision for asset retirement obligations

 

Our closed mines, operations and joint ventures are subject to environmental laws and regulations in Canada, the United States and the other countries in which we operate.

 

Our provision for asset retirement obligations is our best estimate of the present value of the future costs of mine closure, and involves a significant number of technical issues, estimates and assumptions, with many uncertainties, including changes to the relevant legal and regulatory framework, the magnitude of possible contamination and the timing and extent of the cost of required restoration activities. We will record any changes that arise prospectively, as follows:

 

·  operating mines: we record changes in the balance sheet by adjusting the reclamation asset and provision, which affects both future depreciation and finance costs

 

·  closed properties: we immediately recognize changes to estimated costs in the statement of earnings as cost of sales.

 

Sensitivity analysis:

 

A 10 percent increase in our estimate of reclamation costs would reduce our earnings by approximately $8 million, all of which relates to closed mines. In determining our obligations for our closed mines, a one percent decrease in the market risk-free interest rate we apply would reduce our earnings by

 

42

 

$32 million.

 

Income taxes

 

We have $66 million in Canadian tax benefits from capital losses, capital cost allowances and mining resources pools. This is a significant asset to Inmet Mining.

 

We use estimates of future taxable income to determine how much of this benefit we will be able to use. If it is more likely than not that we will have future taxable income in Canada to deduct these losses from, we will record them as a deferred income tax asset. If it is more likely than not that we will not have income to deduct the losses from, we will apply a valuation allowance against them. As of December 31, 2011, we have applied a full valuation allowance against our $66 million of Canadian tax pools. This amount is an estimate and can be affected by many factors, including: metal prices, actual costs, interest rates and foreign currency exchange rates. Also, the amount of the deferred income tax asset could be reduced if projected income is not achieved.

 

Accounting changes

 

Adoption of International Financial Reporting Standards

 

The Accounting Standards Board incorporated International Financial Reporting Standards (IFRS) into the Canadian Institute of Chartered Accountants Accounting Handbook effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The year ended December 31, 2011 is the first presentation of our annual results under IFRS, with an effective transition date of January 1, 2010. While the adoption of IFRS did not change our business activities, it has significantly changed our reported financial position. Our key controls over financial reporting did not change as a result of our transition to IFRS. For all changes to policies and procedures that have been identified, the effectiveness of internal controls over financial reporting and disclosure controls and procedures has been assessed and any required changes have been implemented. In addition, controls over the IFRS changeover process have been implemented as necessary.

 

A complete list of our significant accounting policies followed on adoption of IFRS is included in note 3 to our consolidated financial statements for the year ended December 31, 2011. Additionally, see note 6 to the financial statements for a detailed description of our conversion to IFRS, including a line-by-line reconciliation of our financial statements previously prepared under Canadian GAAP to those under IFRS for the year ended December 31, 2010.

 

The table below reconciles total equity under Canadian GAAP to total equity under IFRS, and illustrates the after-tax effect that each of the most significant adjustments had on equity.

 

	
 
    	
 
    	
Notes
    	
 
    	
January 1, 2010
    	
 
    	
December 31, 2010
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Canadian GAAP   equity
    	
 
    	
 
    	
 
    	
$
    	
2,238,145
    	
 
    	
$
    	
2,758,484
    	
 
    
	
IFRS adjustments:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Reclassification of   non-controlling interest to equity
    	
 
    	
 
    	
 
    	
78,005
    	
 
    	
—
    	
 
    
	
Revenue recognition
    	
 
    	
i
    	
 
    	
14,210
    	
 
    	
30,023
    	
 
    
	
Reversal of   impairment of assets — Çayeli
    	
 
    	
ii
    	
 
    	
42,395
    	
 
    	
34,005
    	
 
    
	
Provision for asset   retirement obligations
    	
 
    	
iii
    	
 
    	
(38,349
    	
)
    	
(41,310
    	
)
    
	
Acquisition of the   non-controlling interest in Las Cruces
    	
 
    	
Iv
    	
 
    	
—
    	
 
    	
(254,056
    	
)
    
	
Property, plant and   equipment associated with asset retirement obligations
    	
 
    	
v
    	
 
    	
8,304
    	
 
    	
12,175
    	
 
    
	
Other
    	
 
    	
 
    	
 
    	
18,702
    	
 
    	
15,218
    	
 
    
	
IFRS equity
    	
 
    	
 
    	
 
    	
$
    	
2,361,412
    	
 
    	
$
    	
2,554,539
    	
 
    

 

i)   Revenue

 

Under Canadian GAAP, we recognized revenue when title was legally transferred to the purchaser. For certain shipments at Çayeli, Pyhäsalmi and Ok Tedi, we transfer title when we receive the first provisional payment, which is later than the transfer point for risks and rewards of ownership.

 

Under IFRS, we recognize revenue when all significant risks and rewards of ownership of our products are transferred to the purchaser.

 

ii)           Impairment of assets

 

Under Canadian GAAP, we used a two-step approach to impairment testing:

 

·                  first comparing asset carrying values with undiscounted future cash flows to determine whether impairment exists

 

·                  then measuring any impairment by comparing asset carrying values with fair values (generally assessed using a discounted cash flow valuation process).

 

Under IFRS we use a one-step approach to test for and measure impairment, and compare asset carrying values directly with the higher of fair value less costs to sell and value in use (which uses discounted future cash flows). IFRS also requires a full or partial reversal of previous impairment losses when circumstances have changed and the impairments have been reduced. Impairment losses were not reversed under Canadian GAAP.

 

We increased January 1, 2010 property plant and equipment at Çayeli by approximately $50 million to reverse an impairment charge we recognized for this operation in 1996. The increase results in the IFRS carrying amount we would have calculated, net of depreciation, if we had not recognized the original impairment. This will also result in a higher ongoing depreciation expense for Çayeli, including an increase of $8 million for the year ended December 31, 2010.

 

43

 

iii)  Asset retirement obligations

 

Under Canadian GAAP, we used a credit adjusted risk free interest rate to measure asset retirement obligations and were not required to update the rate when market rates change.

 

Under IFRS, we measure asset retirement obligations using a risk free interest rate and revalue when market risk free interest rates change.

 

iv)    Business combinations

 

Under Canadian GAAP, companies that acquired an additional interest in an entity they already controlled accounted for it as a step acquisition. Under IFRS, acquiring a non-controlling interest is not considered a business combination, and is instead accounted for as an equity transaction.

 

Under IFRS, we have accounted for our acquisition of the remaining 30 percent interest in Las Cruces in December 2010 as an equity transaction, because we already controlled it. We recognized the difference between the non-controlling interest (as determined under IFRS) and the fair value of the consideration paid in retained earnings.

 

v)        First time adoption of IFRS: property, plant and equipment associated with asset retirement obligations

 

First time adoption of International Financial Reporting Standards (IFRS 1) provides specific exemptions that we used when we adopted IFRS.

 

IFRS and Canadian GAAP both require us to recognize a corresponding change in asset retirement obligations in the carrying value of the related property, plant and equipment (where we identify an asset) and depreciate this amount prospectively. The amount under IFRS was different from the amount determined under Canadian GAAP because of the different way asset retirement obligations are measured under IFRS.

 

We used an optional transitional calculation to determine the property, plant and equipment associated with our provision for asset retirement obligations. Under the transitional calculation, we measured the provision at the transition date and discounted it to the date the liability first arose. The result became the initial asset value. Depreciation was applied to this value. We applied this exemption to certain mines instead of determining property, plant and equipment associated with asset retirement obligations retrospectively.

 

Future changes in accounting standards

 

The IASB has issued the following new standards and amendments to existing standards. These changes in accounting are not yet effective at December 31, 2011 and could have an impact in future periods:

 

	
IFRS 9
    	
 
    	
Financial instruments
    	
 
    	
IFRS 9 simplifies the current measurement   model for financial instruments under IFRS and establishes two measurement   categories for financial assets: amortized cost and fair value. Existing IAS   39 categories of loans and receivables, held-to-maturity investments, and   available-for-sale financial assets will be eliminated. A financial asset can   be measured at amortized cost when:

 

·  the objective   of the business model is to hold assets in order to collect contractual cash   flows, and

 

·  the   contractual terms give rise, on contractual dates, to cash flows that are   solely payments of principal and interest on principal outstanding.

 

All other financial assets are measured at   fair value.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
IFRS 7 and IAS 32
    	
 
    	
Offsetting financial assets and liabilities
    	
 
    	
The IASB published amendments to IFRS 7 and   IAS 32, the standards that address disclosure and presentation requirements   for financial instruments, respectively, related to offsetting financial   assets and liabilities. The amendments provide new disclosure requirements   relating to offsetting of financial asset and financial liabilities and do   not change the criteria required for offsetting. We expect this standard will not result in a significant impact to our   consolidated financial statements.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 IFRS   10
    	
 
    	
Consolidated financial statements
    	
 
    	
IFRS 10 provides a definition of control   determined by the following three elements: power over an investee, exposure   to variable returns from an investee, and the ability to use power to affect   the reporting entity’s returns. Power is not defined as the legal or   contractual right to direct activities, but is based on the ability to direct   activities, which requires the entity to exercise significant judgment.   Accounting requirements and consolidation procedures remain unchanged from   IAS 27.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
IFRS 11
    	
 
    	
Joint arrangements
    	
 
    	
IFRS 11 introduces a principle-based approach   where a party to a joint arrangement recognizes its own rights and   obligations arising from the arrangement. Joint arrangements not structured   through a separate vehicle are classified as a “joint operation” and the   accounting for transactions is in accordance with the contractual   arrangement. Joint arrangements structured through a separate vehicle must be   evaluated based on their legal form and the terms of the contractual   arrangement; these arrangements are classified as either a joint operation or   a joint venture based on this evaluation.    Joint ventures are accounted for using the equity method. The most   significant impact of this standard is therefore the elimination of   proportionate consolidation as a method to account for joint arrangements.
    

 

44

 

	
IFRS 12
    	
 
    	
Disclosure of interests in other entities
    	
 
    	
IFRS 12 enhances, and replaces the disclosure   requirements for subsidiaries, joint arrangements, associates and   unconsolidated structured entities. The standard requires a reporting entity   to disclose information that helps users assess the nature and financial   effects of the reporting entity’s relationship with other entities.   Disclosure requirements include information that helps users in understanding   the judgments and assumptions made by a reporting entity when deciding how to   classify its involvement with another entity, understand the interest that   non-controlling interests have in consolidated entities, and assess the   nature of the risks associated with interests in other entities.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
IFRS 13
    	
 
    	
Fair value measurement
    	
 
    	
IFRS 13 defines fair value, sets a framework   for measuring fair value, and requires disclosures about fair value   measurements.  Generally, the standard   does not introduce new requirements to measure assets or liabilities at fair   value, change what is measured at fair value in IFRS, or address how to present   changes in fair value, but rather consolidates guidance on fair value into a   single standard and better clarifies measurement and disclosure objectives.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
IAS 19
    	
 
    	
Employee benefits
    	
 
    	
The IASB published amendments to IAS 19, the   standard dealing with accounting for pensions and other post-retirement and   post-employment benefits, most significantly:

 

· Immediate   recognition of all changes in a plan’s funded status (i.e. removal of the   corridor approach option for recognizing actuarial gains and losses)

 

· streamlining   the presentation of changes in assets and liabilities arising from defined   benefit plans, including requiring re-measurements to be presented in other   comprehensive income (OCI), thereby separating those changes from changes   that many perceive to be the result of an entity’s day-to-day operations

 

· expanded   disclosures about defined benefit plans, with an additional focus on   describing the risks to which the plan sponsor is exposed because of the plan   and the effect of the plan on the plan sponsor’s future cash flows

 

We expect this standard will not result in a   significant impact to our consolidated financial statements.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
IFRIC 20
    	
 
    	
Stripping costs in the production phase of a   surface mine
    	
 
    	
IFRIC   20 is a new interpretation issued to provide guidance on stripping costs   incurred in the production phase of a surface mine. The interpretation   requires that production stripping costs incurred as part of a stripping   campaign are capitalized as a component of the larger asset to which they   relate. Subsequent to initial recognition, the component is recognized at   cost less amortization, based on the expected useful life of the specific   section of ore body that becomes directly accessible as a result of the   stripping campaign, and less any impairment losses. As this guidance is   consistent with our current accounting policy for stripping costs, we do not expect   this interpretation to have a significant effect on our consolidated   financial statements.
    

 

We are currently assessing the impact that IFRS’s 9, 10, 11 and 12 will have on our consolidated financial statements.

 

45

 

RISK FACTORS

 

There are risks in every business and the mining industry has its own inherent risks. The reality is that only a few properties that are explored are ultimately developed into producing mines, and this is often for reasons that cannot be anticipated in advance.

 

Even after mining operations begin, there can be environmental hazards, industrial accidents, unusual or unexpected geological formations, ground control problems and flooding. Any of these can damage or destroy mineral properties or impact the environment. They can also result in personal injuries, production delays or interruptions, higher production costs, financial losses, legal liability and adverse government action.

 

We have developed a comprehensive system to manage these development and operational risks and maintain insurance to cover some risks where appropriate in view of the probability and the likely impact of an occurrence and the costs of transferring this risk to a third party. Like any other mining company, however, we may not be able to and do not obtain insurance to cover all risks, particularly those relating to the environment.

 

A description of the most material risks that could affect our business is provided below and in our Annual Information Form.

 

Production estimates

 

We base our estimates for future production on, among other things:

 

·  reserve estimates

 

·  assumptions about ground conditions and physical characteristics of ores, such as hardness and presence or absence of particular metallurgical characteristics

 

·  estimated rates and costs for mining and processing.

 

Our actual production could be different for a variety of reasons, including:

 

·  actual ore mined varies from estimates of grade

 

·  tonnage

 

·  dilution

 

·  metallurgical and other characteristics

 

·  short-term operating factors relating to the mineral reserves, such as the need for sequential development of ore bodies 
 and the processing of new or different ore grades

 

·  risks and hazards associated with mining, including geotechnical issues such as pit slope stability at open pit operations and structural issues at underground mines

 

·  natural phenomena, such as inclement weather conditions, floods and earthquakes

 

·  unexpected labour shortages or strikes.

 

There is no assurance that we will achieve our production estimates. Failing to achieve production estimates could have a material adverse effect on our future cash flows, earnings, financial condition, results of operations and share price.

 

Human resources

 

From time to time, the mining industry experiences a shortage of skilled or experienced personnel, especially trades people, on a global, regional or local basis. While we have a comprehensive strategy in place to attract and retain people of the highest caliber, there is no assurance that we will be able to retain current personnel or attract and retain new personnel. Certain of our employees are employed under collective bargaining agreements. Labour unrest or disruptions at any of our operations could have a material adverse effect on our business as a whole, results of operations or share price.

 

Safety, environmental and community risk

 

Our activities by their very nature impact the environment so our operations and investments are subject to extensive laws and regulations concerning the environment, employee health and safety, waste disposal, mine development, mine operation and mine closure and reclamation. We require permits and approvals from a variety of regulatory authorities for many aspects of mine development, operation, closure and reclamation.

 

Our ability to obtain permits and approvals and to successfully develop and operate mines may be adversely affected by real or perceived impacts associated with our activities that affect the environment and human health and safety at our development projects and operations and in the surrounding communities. The real or perceived impacts of the activities of other mining companies may also adversely affect our ability to obtain permits and approvals.

 

Compliance with applicable environmental and health and safety laws and regulations may require significant expenditures. Failure to comply may lead to fines and penalties, temporary or permanent suspension of development and operational activities, clean-up costs, damages and the loss of key permits or approvals. We are exposed to these potential liabilities through our current development projects and operations as well as operations that have been closed or sold. Although we take great care to ensure that we maintain full compliance with our legal obligations, there can be no assurance that we have been or will be in full compliance with all of these laws and regulations, or with all permits and approvals that we are required to have.

 

Environmental and health and safety laws and regulations continue to evolve and this can create significant uncertainty around the environmental and reclamation costs we incur. If new legislation and regulations are introduced in the future, they could lead to additional costs, capital expenditures, restrictions and delays at existing operations or development properties, and the extent of any of these possible changes cannot be predicted in any meaningful way, and therefore there cannot be any assurance that such future changes will not adversely affect our operations.

 

46

 

Environmental and regulatory review has also become a long, complex and uncertain process that can delay the opening of a new mine, expansion at an operating mine, or extend decommissioning activities at a closed mine.

 

In some jurisdictions, forms of financial assurance are required as security for reclamation activities. The cost of our reclamation activities may materially exceed our provisions for them, or regulatory developments or changes in the assessment of conditions at closed operations may cause these costs to vary substantially, positively or negatively, from prior estimates of reclamation liabilities.

 

Our ability to foster and maintain the support of local communities and governments for our development projects and operations by engaging in dialogue and consulting with them about our activities and generating social and economic benefits from them is critical to the conduct and growth of our business. Even with extensive dialogue and consultation with local communities and governments, as well as the generation of social and economic benefits from a project or operation to them, there can be no assurance that this support can be fostered or maintained. Failing to foster or maintain this support would adversely affect our ability to develop a new mine or operate any of our current mines.

 

Exploration and development risk

 

Because the life of a mine is limited by its mineral reserves, we continually look for opportunities to replace and expand our reserves by exploring existing properties and by looking for potential acquisitions of new properties or companies that own new properties.

 

Exploration and development of mineral properties involves significant financial and operational risk. There is no assurance that we will be successful in our efforts. Very few properties that are explored are later developed into an operating mine. Developing a property involves many risks and unknowns, such as establishing mineral reserves by drilling, completion of feasibility studies, obtaining and maintaining various permits and approvals from governmental authorities, constructing mining and processing facilities, securing required surface or other land rights, finding or generating suitable sources of power and water, confirming the availability and suitability of appropriate local area infrastructure and developing it if needed, and obtaining adequate financing. Substantial spending may be made on properties that are later abandoned due to a failure to satisfy any of such factors.

 

The capital expenditures and timeline needed to develop a new mine are considerable and the economics of a project can be affected by changes to them. Actual costs may increase significantly and economic returns may differ materially from our estimates. We may be unable to satisfactorily resolve fiscal and tax issues, or fail to obtain permits and approvals necessary to operate a project so that the project may not proceed, either on the original timeline, or at all. New mining operations may experience unexpected problems during start-up, which can cause delays and require more capital than anticipated.

 

Availability and cost of key inputs, including key supplies, concentrate treatment charges, transportation costs and energy costs

 

Our competitive position depends on our ability to control operating costs. The cost structure of each operation is based on the location, grade and nature of the ore body, and the management skills at each site as well as the costs of key inputs such as fuel, tires for mining equipment, and other supplies. If such supplies become unavailable or their cost increases significantly, the profitability of Inmet’s mines would be impacted and operations at Inmet’s mines could be interrupted or halted resulting in a significant adverse impact on Inmet’s financial condition. Management of Inmet prepares its cost and production guidance and other forecasts based on its review of current and estimated future costs, and management assumes that the materials and supplies required for operations will be available for purchase. Lack of supply or increased costs for any of these inputs would decrease productivity, reduce the profitability of Inmet’s mines, and potentially result in Inmet suspending operations at its mines.

 

Many of our costs are driven by supply and market demand. For example, the cost of local materials, like cement, explosives and electricity will vary based on demand. Wages can be affected by inflation and currency exchange rates and by the shortage of experienced human resources. The costs of fuel and steel are driven by global market supply and demand. We do not enter into long-term contracts for any consumable products. Our main cost drivers include the cost of labour plus consumables such as electricity, fuel and steel.  In recent years, the mining industry has been impacted by increased worldwide demand for critical resources such as input commodities, drilling equipment, tires and skilled labour, and these shortages may cause unanticipated cost increases and delays in delivery times, thereby impacting operating costs, capital expenditures and production schedules.

 

Concentrate treatment charges, transportation costs, and energy costs are also a significant component of operating costs. Concentrate treatment and refining charges have been volatile in recent years.  We are dependent on third parties for rail, truck and maritime services to transport our products, and contract disputes, demurrage charges, rail and port capacity issues, availability of vessels, weather and climate and other factors can have a material adverse impact on our ability to transport our products according to schedules and contractual commitments.  Our operations, by their nature, use large amounts of power and energy. Even a temporary interruption of power could adversely affect an operation. An increase in power and energy prices could negatively affect our business, financial condition, liquidity and results of operations.  Increases in these costs would have an adverse impact on Inmet’s results of operations and could have a material adverse effect on Inmet’s financial condition, results of operations and share price.

 

47

 

Financial instruments

 

From time to time, Inmet may enter into price risk management contracts to protect against fluctuations in the price of its products, exchange rate movements, and changes in the price of fuel and other input costs. These contracts could include forward sales or purchase contracts, futures contracts, purchased put and call options, and other contracts. Any such use of forward or futures contracts can expose Inmet to risk of an opportunity loss. The use of derivative contracts may also result in significant mark to market accounting adjustments, which may have a material adverse impact on Inmet’s reported financial results. Inmet is exposed to credit risk with contract counter-parties, including, but not limited to, sales contracts and derivative contracts. In the event of non-performance by a customer in connection with a contract, Inmet could be exposed to a loss of value for that contract.

 

Metal prices

 

The value and price of Inmet’s common shares, Inmet’s financial results, and Inmet’s exploration, development and mining activities are significantly affected by the price of copper, zinc and other metals in the world market. Our earnings are derived from the sale of metals and fluctuate with changes to the market prices for refined metals. We typically do not hedge the prices of the base metals we produce. Copper, zinc and other metal prices fluctuate widely and are affected by numerous factors beyond Inmet’s control, such as:

 

·            global supply and demand;

 

·            regional supply and demand;

 

·            the political and economic conditions of copper-producing and copper-consuming countries throughout the world;

 

·            exchange rates relative to the US dollar;

 

·            interest rates and interest rate expectations;

 

·            inflation or deflation and expectations with respect to inflation or deflation; and

 

·            speculative activities.

 

Future metal price declines could materially adversely affect the value and amount of our reserves, our business, financial condition, liquidity and results of operations, and could cause continued development of and commercial production from Inmet’s properties to be uneconomic. Depending on the price of copper and other metals, cash flow from mining operations may not be sufficient and Inmet could be forced to discontinue production and may lose its interest in, or may be forced to sell, some or all of its properties. Reserve calculations and mine plans using significantly lower copper and other metal prices could result in significant reductions in mineral reserve estimates, which in turn could result in material write-downs of Inmet’s investment in mining properties and increased amortization, reclamation and closure charges. In addition to adversely affecting Inmet’s reserve estimates and its financial condition, declining metal prices can impact operations by requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management decision or may be required under financing arrangements related to a particular project. Even if a project is ultimately determined to be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until the reassessment can be completed.

 

Foreign exchange rates

 

While our financial results are reported in Canadian dollars, almost all of the revenue we earn is in US dollars and our costs are in several different currencies.  Therefore our revenues, operating costs and capital costs are affected by fluctuations in the exchange rates between the Canadian dollar and the US dollar, the euro, the Turkish lira and the Panamanian dollar.

 

While we may use option contracts to hedge against changes in the US dollar, not all of our exposure to the US dollar will be hedged, any such hedges may not be effective, and therefore there is still the potential for changes in currency exchange rates to have an adverse effect on us.

 

Interest rates

 

Interest rate risk is the risk that the value of our assets and liabilities will change when the related interest rates change. We consider interest rate risk related to our cash, short-term investments and restricted cash to be low, because of the short-term nature of these securities. Changes in interest rates could significantly impact the fair value of our held to maturity investments; however, provided that we hold such investments to maturity, this will not affect our net income and other comprehensive income because we measure these assets at amortized cost since we intend to hold them until they mature.

 

48

 

Sensitivity analysis

 

The table below shows the effect that some of the key variables could have on our net income, based on our objectives for 2012.

 

	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
Would change
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Would change
    	
 
    	
our 2012
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
our 2012 net
    	
 
    	
earnings per
    	
 
    
	
 
    	
 
    	
A change of:
    	
 
    	
income by:
    	
 
    	
share by(1):
    	
 
    
	
Metal prices
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper (per pound)
    	
 
    	
US   $
    	
0.30
    	
 
    	
$
    	
48 million
    	
 
    	
$
    	
0.69
    	
 
    
	
Zinc (per pound)
    	
 
    	
US   $
    	
0.10
    	
 
    	
$
    	
7 million
    	
 
    	
$
    	
0.10
    	
 
    
	
Exchange rates
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Canadian dollar per US dollar
    	
 
    	
C   $
    	
0.10
    	
 
    	
$
    	
40 million
    	
 
    	
$
    	
0.58
    	
 
    
	
Canadian dollar per euro
    	
 
    	
C   $
    	
0.10
    	
 
    	
$
    	
15 million
    	
 
    	
$
    	
0.22
    	
 
    
	
Treatment and refining charges
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper treatment charge per tonne and
    	
 
    	
US   $
    	
10
    	
 
    	
$
    	
2 million
    	
 
    	
$
    	
0.03
    	
 
    
	
Copper refining charge per pound
    	
 
    	
US   $
    	
0.01
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Zinc treatment charge per tonne
    	
 
    	
US   $
    	
10
    	
 
    	
$
    	
1 million
    	
 
    	
$
    	
0.01
    	
 
    
	
Freight and fuel costs
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Concentrate freight per tonne
    	
 
    	
 
    	
10
    	
%
    	
$
    	
1 million
    	
 
    	
$
    	
0.01
    	
 
    
	
Electricity per kilowatt hour
    	
 
    	
C   $
    	
0.01
    	
 
    	
$
    	
8 million
    	
 
    	
$
    	
0.12
    	
 
    

 

(1) Based on total outstanding common shares at December 31, 2011 of 69,332,492

 

49

 

SUPPLEMENTARY INFORMATION

 

Non-GAAP measures

 

Cash costs

 

We use unit cash cost information as a key performance indicator, both on a segment basis and consolidated basis. We have included cash costs as supplementary information because we believe our key stakeholders use this measure as a financial indicator of our profitability and cash flows before the effects of capital investment and financing costs (like interest).

 

Cash cost measures are supplementary information. It is not a recognized measure under International Financial Reporting Standards, and should not be considered without also considering our earnings and cash flows. There is no standard way to calculate cash costs, so they are not a reliable way to compare us to other companies.

 

The tables below show our copper cash costs for 2011 and 2010.

 

2011

 

	
 
    	
 
    	
per pound of copper
    	
 
    	
 
    	
 
    
	
(US dollars)
    	
 
    	
Çayeli
    	
 
    	
Las Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Direct production costs
    	
 
    	
$
    	
1.35
    	
 
    	
$
    	
1.55
    	
 
    	
$
    	
1.93
    	
 
    	
$
    	
1.54
    	
 
    
	
Royalties and variable compensation
    	
 
    	
0.18
    	
 
    	
0.07
    	
 
    	
—
    	
 
    	
0.10
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
1.48
    	
 
    	
0.01
    	
 
    	
1.16
    	
 
    	
0.70
    	
 
    
	
Metal credits
    	
 
    	
(2.41
    	
)
    	
—
    	
 
    	
(4.02
    	
)
    	
(1.48
    	
)
    
	
Cash cost
    	
 
    	
$
    	
0.60
    	
 
    	
$
    	
1.63
    	
 
    	
$
    	
(0.93
    	
)
    	
$
    	
0.86
    	
 
    

 

2010

 

	
 
    	
 
    	
per pound of copper
    	
 
    	
 
    	
 
    
	
(US dollars)
    	
 
    	
Çayeli
    	
 
    	
Las Cruces(1)
    	
 
    	
Pyhäsalmi
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Direct production costs
    	
 
    	
$
    	
1.28
    	
 
    	
$
    	
1.64
    	
 
    	
$
    	
1.63
    	
 
    	
$
    	
1.46
    	
 
    
	
Royalties and variable compensation
    	
 
    	
0.14
    	
 
    	
0.06
    	
 
    	
—
    	
 
    	
0.08
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
1.41
    	
 
    	
0.01
    	
 
    	
1.11
    	
 
    	
1.01
    	
 
    
	
Metal credits
    	
 
    	
(2.19
    	
)
    	
—
    	
 
    	
(3.02
    	
)
    	
(1.91
    	
)
    
	
Cash cost
    	
 
    	
$
    	
0.64
    	
 
    	
$
    	
1.71
    	
 
    	
$
    	
(0.28
    	
)
    	
$
    	
0.64
    	
 
    

 

(1) Subsequent to July 1, 2010.

 

50

 

Because cash costs are a non-GAAP measure, the tables below reconcile cash costs to our GAAP financial statements.

 

2011

 

	
 
    	
 
    	
per pound of copper
    	
 
    
	
For the year ended December 31 (millions, except where otherwise noted)
    	
 
    	
Çayeli
    	
 
    	
Las Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
GAAP reference
    	
 
    	
page 20
    	
 
    	
page 23
    	
 
    	
page 26
    	
 
    	
 
    	
 
    
	
Direct production costs
    	
 
    	
$
    	
96
    	
 
    	
$
    	
148
    	
 
    	
$
    	
59
    	
 
    	
$
    	
303
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
72
    	
 
    	
1
    	
 
    	
58
    	
 
    	
131
    	
 
    
	
By product sales
    	
 
    	
(133
    	
)
    	
—
    	
 
    	
(150
    	
)
    	
(283
    	
)
    
	
Adjust smelter processing charges and freight, and   sales to production basis
    	
 
    	
3
    	
 
    	
—
    	
 
    	
5
    	
 
    	
8
    	
 
    
	
Operating costs net of metal   credits
    	
 
    	
$
    	
38
    	
 
    	
$
    	
149
    	
 
    	
$
    	
(28
    	
)
    	
$
    	
159
    	
 
    
	
US$ to C$ exchange rate
    	
 
    	
$
    	
0.99
    	
 
    	
$
    	
0.99
    	
 
    	
$
    	
0.99
    	
 
    	
$
    	
0.99
    	
 
    
	
Inmet’s share of production (thousands)
    	
 
    	
63,300
    	
 
    	
92,900
    	
 
    	
30,800
    	
 
    	
187,000
    	
 
    
	
Cash cost (US$)
    	
 
    	
$
    	
0.60
    	
 
    	
$
    	
1.63
    	
 
    	
$
    	
(0.93
    	
)
    	
$
    	
0.86
    	
 
    

 

2010

 

	
 
    	
 
    	
per pound of copper
    	
 
    
	
For the year ended December 31 (millions, except where otherwise noted)
    	
 
    	
Çayeli
    	
 
    	
Las Cruces(1)
    	
 
    	
Pyhäsalmi
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
GAAP reference
    	
 
    	
page 20
    	
 
    	
page 23
    	
 
    	
page 26
    	
 
    	
 
    	
 
    
	
Direct production costs
    	
 
    	
$
    	
91
    	
 
    	
$
    	
67
    	
 
    	
$
    	
55
    	
 
    	
$
    	
213
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
75
    	
 
    	
—
    	
 
    	
58
    	
 
    	
133
    	
 
    
	
By product sales
    	
 
    	
(129
    	
)
    	
—
    	
 
    	
(121
    	
)
    	
(250
    	
)
    
	
Adjust smelter processing charges and freight, and   sales to production basis
    	
 
    	
4
    	
 
    	
—
    	
 
    	
(1
    	
)
    	
3
    	
 
    
	
Operating costs net of metal   credits
    	
 
    	
$
    	
41
    	
 
    	
$
    	
67
    	
 
    	
$
    	
(9
    	
)
    	
$
    	
99
    	
 
    
	
US$ to C$ exchange rate
    	
 
    	
$
    	
1.03
    	
 
    	
$
    	
1.03
    	
 
    	
$
    	
1.03
    	
 
    	
$
    	
1.03
    	
 
    
	
Inmet’s share of production (thousands)
    	
 
    	
62,100
    	
 
    	
28,200
    	
 
    	
32,400
    	
 
    	
122,700
    	
 
    
	
Cash cost (US$)
    	
 
    	
$
    	
0.64
    	
 
    	
$
    	
1.71
    	
 
    	
$
    	
(0.28
    	
)
    	
$
    	
0.64
    	
 
    

 

(1) subsequent to July 1, 2010.

 

The table below shows our copper cash cost objective by operation for 2012.

 

2012

 

	
(US dollars)
    	
 
    	
per pound of copper
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Çayeli
    	
 
    	
$
    	
0.93 – 1.08
    	
 
    
	
Las Cruces
    	
 
    	
$
    	
1.08 – 1.26
    	
 
    
	
Pyhäsalmi
    	
 
    	
$
    	
(0.51) – (0.33
    	
)
    
	
Consolidated
    	
 
    	
$
    	
0.86 – 1.03
    	
 
    

 

51

 

FREE CASH FLOW

 

We use free cash flow from operations to demonstrate the positive cash flows our operations generate even after spending on capital additions and other investments. The tables below show how we calculate free cash flow from operations for 2011 and 2010 using our GAAP financial statements as a reference. Free cash flow is supplementary information. It is not a recognized measure under IFRS.

 

2011

 

	
For the year ended December 31 (millions)
    	
 
    	
Çayeli
    	
 
    	
Las Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
GAAP reference - cash provided by operating   activities
    	
 
    	
$
    	
157
    	
 
    	
$
    	
195
    	
 
    	
$
    	
118
    	
 
    	
$
    	
470
    	
 
    
	
Capital spending
    	
 
    	
(13
    	
)
    	
(54
    	
)
    	
(7
    	
)
    	
(74
    	
)
    
	
Cash used in financing activities
    	
 
    	
—
    	
 
    	
(5
    	
)
    	
—
    	
 
    	
(5
    	
)
    
	
Foreign exchange on cash held in foreign currency
    	
 
    	
1
    	
 
    	
(4
    	
)
    	
(3
    	
)
    	
(6
    	
)
    
	
Free cash flow
    	
 
    	
$
    	
145
    	
 
    	
$
    	
132
    	
 
    	
$
    	
108
    	
 
    	
$
    	
385
    	
 
    

 

2010

 

	
For the year ended December 31 (millions)
    	
 
    	
Çayeli
    	
 
    	
Las Cruces
    	
 
    	
Pyhäsalmi
    	
 
    	
Troilus
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
GAAP reference - cash provided by operating   activities
    	
 
    	
$
    	
117
    	
 
    	
$
    	
59
    	
 
    	
$
    	
80
    	
 
    	
$
    	
44
    	
 
    	
$
    	
300
    	
 
    
	
Capital spending
    	
 
    	
(15
    	
)
    	
(24
    	
)
    	
(4
    	
)
    	
—
    	
 
    	
(43
    	
)
    
	
Cash provided by (used in) financing activities
    	
 
    	
—
    	
 
    	
13
    	
 
    	
—
    	
 
    	
—
    	
 
    	
13
    	
 
    
	
Foreign exchange on cash held in foreign currency
    	
 
    	
(10
    	
)
    	
(3
    	
)
    	
(14
    	
)
    	
—
    	
 
    	
(27
    	
)
    
	
Free cash flow
    	
 
    	
$
    	
92
    	
 
    	
$
    	
45
    	
 
    	
$
    	
62
    	
 
    	
$
    	
44
    	
 
    	
$
    	
243
    	
 
    

 

Quarterly review

 

2011 statements of earnings

 

	
 
    	
 
    	
First
    	
 
    	
Second
    	
 
    	
Third
    	
 
    	
Fourth
    	
 
    	
Year
    	
 
    
	
(Thousands of Canadian dollars, except per share amounts)
    	
 
    	
quarter
    	
 
    	
quarter
    	
 
    	
quarter
    	
 
    	
quarter
    	
 
    	
2011
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
STATEMENTS OF EARNINGS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross sales
    	
 
    	
$
    	
254,277
    	
 
    	
$
    	
221,952
    	
 
    	
$
    	
261,757
    	
 
    	
$
    	
241,059
    	
 
    	
$
    	
979,045
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
(31,585
    	
)
    	
(33,870
    	
)
    	
(37,043
    	
)
    	
(28,228
    	
)
    	
(130,726
    	
)
    
	
Cost of sales excluding depreciation
    	
 
    	
(79,150
    	
)
    	
(73,644
    	
)
    	
(81,144
    	
)
    	
(93,138
    	
)
    	
(327,076
    	
)
    
	
Depreciation
    	
 
    	
(27,040
    	
)
    	
(26,649
    	
)
    	
(27,321
    	
)
    	
(27,716
    	
)
    	
(108,726
    	
)
    
	
Earnings from operations
    	
 
    	
116,502
    	
 
    	
87,789
    	
 
    	
116,249
    	
 
    	
91,977
    	
 
    	
412,517
    	
 
    
	
Corporate development and exploration
    	
 
    	
(13,411
    	
)
    	
(4,562
    	
)
    	
(4,688
    	
)
    	
(6,541
    	
)
    	
(29,202
    	
)
    
	
General and administration
    	
 
    	
(8,422
    	
)
    	
(8,258
    	
)
    	
(9,987
    	
)
    	
(7,734
    	
)
    	
(34,401
    	
)
    
	
Investment and other income
    	
 
    	
(5,773
    	
)
    	
4,731
    	
 
    	
35,778
    	
 
    	
(4,011
    	
)
    	
30,725
    	
 
    
	
Finance costs
    	
 
    	
(2,331
    	
)
    	
(2,386
    	
)
    	
(2,377
    	
)
    	
(2,390
    	
)
    	
(9,484
    	
)
    
	
Income tax expense
    	
 
    	
(27,160
    	
)
    	
(21,264
    	
)
    	
(33,770
    	
)
    	
(23,229
    	
)
    	
(105,423
    	
)
    
	
Income from continuing operations attributable to   Inmet equity holders
    	
 
    	
59,405
    	
 
    	
56,050
    	
 
    	
101,205
    	
 
    	
48,072
    	
 
    	
264,732
    	
 
    
	
Income from discontinued operation (net of taxes)
    	
 
    	
83,439
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
83,439
    	
 
    
	
Net income attributable to Inmet equity holders
    	
 
    	
$
    	
142,844
    	
 
    	
$
    	
56,050
    	
 
    	
$
    	
101,205
    	
 
    	
$
    	
48,072
    	
 
    	
$
    	
348,171
    	
 
    
	
Income from continuing operations per share
    	
 
    	
$
    	
0.97
    	
 
    	
$
    	
0.86
    	
 
    	
$
    	
1.46
    	
 
    	
$
    	
0.69
    	
 
    	
$
    	
3.99
    	
 
    
	
Diluted income from continuing operations per   share
    	
 
    	
$
    	
0.96
    	
 
    	
$
    	
0.86
    	
 
    	
$
    	
1.46
    	
 
    	
$
    	
0.69
    	
 
    	
$
    	
3.98
    	
 
    
	
Net income per common share
    	
 
    	
$
    	
2.33
    	
 
    	
$
    	
0.86
    	
 
    	
$
    	
1.46
    	
 
    	
$
    	
0.69
    	
 
    	
$
    	
5.25
    	
 
    
	
Diluted net income per common share
    	
 
    	
$
    	
2.31
    	
 
    	
$
    	
0.86
    	
 
    	
$
    	
1.46
    	
 
    	
$
    	
0.69
    	
 
    	
$
    	
5.23
    	
 
    

 

52

 

2010 statements of earnings

 

	
 
    	
 
    	
First
    	
 
    	
Second
    	
 
    	
Third
    	
 
    	
Fourth
    	
 
    	
Year
    	
 
    
	
(Thousands of Canadian dollars, except per share amounts)
    	
 
    	
quarter(1)
    	
 
    	
quarter(1)
    	
 
    	
quarter(1)
    	
 
    	
quarter(1)
    	
 
    	
2010(1)
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
STATEMENTS OF EARNINGS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross sales
    	
 
    	
$
    	
161,162
    	
 
    	
$
    	
161,165
    	
 
    	
$
    	
225,960
    	
 
    	
$
    	
230,269
    	
 
    	
$
    	
778,556
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
(33,101
    	
)
    	
(35,272
    	
)
    	
(34,358
    	
)
    	
(35,733
    	
)
    	
(138,464
    	
)
    
	
Cost of sales excluding depreciation
    	
 
    	
(52,266
    	
)
    	
(48,123
    	
)
    	
(70,503
    	
)
    	
(82,967
    	
)
    	
(253,859
    	
)
    
	
Depreciation
    	
 
    	
(7,716
    	
)
    	
(10,328
    	
)
    	
(19,062
    	
)
    	
(18,882
    	
)
    	
(55,988
    	
)
    
	
Earnings from operations
    	
 
    	
68,079
    	
 
    	
67,442
    	
 
    	
102,037
    	
 
    	
92,687
    	
 
    	
330,245
    	
 
    
	
Corporate development and exploration
    	
 
    	
(2,779
    	
)
    	
(2,524
    	
)
    	
(2,758
    	
)
    	
(5,434
    	
)
    	
(13,495
    	
)
    
	
General and administration
    	
 
    	
(5,421
    	
)
    	
(6,200
    	
)
    	
(3,985
    	
)
    	
(4,758
    	
)
    	
(20,364
    	
)
    
	
Investment and other income
    	
 
    	
1,204
    	
 
    	
3,321
    	
 
    	
3,197
    	
 
    	
50,622
    	
 
    	
58,344
    	
 
    
	
Stand-by charges
    	
 
    	
(6,753
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(6,753
    	
)
    
	
Finance costs
    	
 
    	
(1,873
    	
)
    	
(1,770
    	
)
    	
(5,239
    	
)
    	
(4,294
    	
)
    	
(13,176
    	
)
    
	
Income tax expense
    	
 
    	
(3,086
    	
)
    	
(8,775
    	
)
    	
(25,266
    	
)
    	
(31,960
    	
)
    	
(69,087
    	
)
    
	
Income from continuing operations
    	
 
    	
49,371
    	
 
    	
51,494
    	
 
    	
67,986
    	
 
    	
96,863
    	
 
    	
265,714
    	
 
    
	
Income from discontinued operation (net of taxes)
    	
 
    	
30,718
    	
 
    	
12,475
    	
 
    	
33,569
    	
 
    	
47,993
    	
 
    	
124,755
    	
 
    
	
Net income
    	
 
    	
$
    	
80,089
    	
 
    	
$
    	
63,969
    	
 
    	
$
    	
101,555
    	
 
    	
$
    	
144,856
    	
 
    	
$
    	
390,469
    	
 
    
	
Income from continuing operations attributable to:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Inmet equity holders
    	
 
    	
$
    	
54,053
    	
 
    	
$
    	
56,020
    	
 
    	
$
    	
58,109
    	
 
    	
$
    	
98,939
    	
 
    	
$
    	
267,121
    	
 
    
	
Non-controlling interest
    	
 
    	
(4,682
    	
)
    	
(4,526
    	
)
    	
9,877
    	
 
    	
(2,076
    	
)
    	
(1,407
    	
)
    
	
 
    	
 
    	
$
    	
49,371
    	
 
    	
$
    	
51,494
    	
 
    	
$
    	
67,986
    	
 
    	
$
    	
96,863
    	
 
    	
$
    	
265,714
    	
 
    
	
Net income attributable to:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Inmet equity holders
    	
 
    	
$
    	
84,771
    	
 
    	
$
    	
68,495
    	
 
    	
$
    	
91,678
    	
 
    	
$
    	
146,932
    	
 
    	
$
    	
391,876
    	
 
    
	
Non-controlling interest
    	
 
    	
(4,682
    	
)
    	
(4,526
    	
)
    	
9,877
    	
 
    	
(2,076
    	
)
    	
(1,407
    	
)
    
	
 
    	
 
    	
$
    	
80,089
    	
 
    	
$
    	
63,969
    	
 
    	
$
    	
101,555
    	
 
    	
$
    	
144,856
    	
 
    	
$
    	
390,469
    	
 
    
	
Income from continuing operations per share
    	
 
    	
$
    	
0.96
    	
 
    	
$
    	
1.00
    	
 
    	
$
    	
1.04
    	
 
    	
$
    	
1.73
    	
 
    	
$
    	
4.74
    	
 
    
	
Diluted income from continuing operations per   share
    	
 
    	
$
    	
0.96
    	
 
    	
$
    	
1.00
    	
 
    	
$
    	
1.04
    	
 
    	
$
    	
1.73
    	
 
    	
$
    	
4.73
    	
 
    
	
Net income per common share
    	
 
    	
$
    	
1.51
    	
 
    	
$
    	
1.22
    	
 
    	
$
    	
1.64
    	
 
    	
$
    	
2.57
    	
 
    	
$
    	
6.95
    	
 
    
	
Diluted net income per common share
    	
 
    	
$
    	
1.51
    	
 
    	
$
    	
1.22
    	
 
    	
$
    	
1.64
    	
 
    	
$
    	
2.57
    	
 
    	
$
    	
6.94
    	
 
    

 

(1) Information from 2010 restated in accordance with IFRS, including presentation of our share of Ok Tedi as discontinued operation.

 

53

 

Five year information

 

	
Year ended December 31
    	
 
    	
2011
    	
 
    	
2010(1)
    	
 
    	
2009(2)
    	
 
    	
2008(2)
    	
 
    	
2007(2)
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
STATEMENTS OF EARNINGS   (THOUSANDS)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gross sales
    	
 
    	
$
    	
979,045
    	
 
    	
$
    	
778,556
    	
 
    	
$
    	
983,885
    	
 
    	
$
    	
944,865
    	
 
    	
$
    	
1,103,698
    	
 
    
	
Smelter processing charges and freight
    	
 
    	
(130,726
    	
)
    	
(138,464
    	
)
    	
(176,432
    	
)
    	
(179,738
    	
)
    	
(206,478
    	
)
    
	
Cost of sales and depreciation
    	
 
    	
(435,802
    	
)
    	
(309,847
    	
)
    	
(373,184
    	
)
    	
(390,406
    	
)
    	
(344,097
    	
)
    
	
Corporate development and exploration
    	
 
    	
(29,202
    	
)
    	
(13,495
    	
)
    	
(10,837
    	
)
    	
(10,620
    	
)
    	
(9,083
    	
)
    
	
General and administration
    	
 
    	
(34,401
    	
)
    	
(20,364
    	
)
    	
(23,892
    	
)
    	
(13,138
    	
)
    	
(20,298
    	
)
    
	
Investment and other income
    	
 
    	
30,725
    	
 
    	
58,344
    	
 
    	
9,131
    	
 
    	
5,986
    	
 
    	
36,454
    	
 
    
	
Asset impairment
    	
 
    	
—
    	
 
    	
—
    	
 
    	
(9,915
    	
)
    	
(36,275
    	
)
    	
—
    	
 
    
	
Stand-by charges
    	
 
    	
—
    	
 
    	
(6,753
    	
)
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Finance costs
    	
 
    	
(9,484
    	
)
    	
(13,176
    	
)
    	
(1,977
    	
)
    	
(1,884
    	
)
    	
(1,693
    	
)
    
	
Income tax expense
    	
 
    	
(105,423
    	
)
    	
(69,087
    	
)
    	
(121,779
    	
)
    	
(107,368
    	
)
    	
(140,694
    	
)
    
	
Income from continuing operations
    	
 
    	
$
    	
264,732
    	
 
    	
$
    	
265,714
    	
 
    	
$
    	
275,000
    	
 
    	
$
    	
211,422
    	
 
    	
$
    	
417,809
    	
 
    
	
Income from discontinued operation (net of taxes)
    	
 
    	
83,439
    	
 
    	
124,755
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Non-controlling interest
    	
 
    	
—
    	
 
    	
1,407
    	
 
    	
(5,831
    	
)
    	
5,500
    	
 
    	
(200
    	
)
    
	
Net income attributable to Inmet equity holders
    	
 
    	
$
    	
348,171
    	
 
    	
$
    	
390,469
    	
 
    	
$
    	
269,169
    	
 
    	
$
    	
216,922
    	
 
    	
$
    	
417,609
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
CASH FLOW (THOUSANDS)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash and short-term investments, beginning of year
    	
 
    	
$
    	
326,425
    	
 
    	
$
    	
533,913
    	
 
    	
$
    	
572,733
    	
 
    	
$
    	
840,823
    	
 
    	
$
    	
640,186
    	
 
    
	
Cash provided by (used in):
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating activities
    	
 
    	
404,854
    	
 
    	
254,918
    	
 
    	
322,751
    	
 
    	
324,505
    	
 
    	
427,351
    	
 
    
	
Investing activities
    	
 
    	
(432,609
    	
)
    	
(466,706
    	
)
    	
(364,839
    	
)
    	
(864,446
    	
)
    	
(295,765
    	
)
    
	
Financing activities
    	
 
    	
482,861
    	
 
    	
1,282
    	
 
    	
49,974
    	
 
    	
206,940
    	
 
    	
122,246
    	
 
    
	
Other
    	
 
    	
(5,620
    	
)
    	
(27,469
    	
)
    	
(46,706
    	
)
    	
64,911
    	
 
    	
(53,195
    	
)
    
	
Discontinued operations
    	
 
    	
306,982
    	
 
    	
30,487
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Cash and short-term investments, end of year
    	
 
    	
$
    	
1,082,893
    	
 
    	
$
    	
326,425
    	
 
    	
$
    	
533,913
    	
 
    	
$
    	
572,733
    	
 
    	
$
    	
840,823
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
COMMON SHARE STATISTICS
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Income from continuing operations per share
    	
 
    	
$
    	
3.99
    	
 
    	
$
    	
4.74
    	
 
    	
$
    	
5.14
    	
 
    	
$
    	
4.49
    	
 
    	
$
    	
8.65
    	
 
    
	
Net income per share
    	
 
    	
$
    	
5.25
    	
 
    	
$
    	
6.95
    	
 
    	
$
    	
5.14
    	
 
    	
$
    	
4.49
    	
 
    	
$
    	
8.65
    	
 
    
	
Diluted net income per share
    	
 
    	
$
    	
5.23
    	
 
    	
$
    	
6.94
    	
 
    	
$
    	
5.13
    	
 
    	
$
    	
4.48
    	
 
    	
$
    	
8.64
    	
 
    
	
Net book value per share at December 31
    	
 
    	
$
    	
49.24
    	
 
    	
$
    	
41.50
    	
 
    	
$
    	
39.89
    	
 
    	
$
    	
38.68
    	
 
    	
$
    	
28.84
    	
 
    
	
Operating cash flow per share
    	
 
    	
$
    	
6.09
    	
 
    	
$
    	
4.52
    	
 
    	
$
    	
6.17
    	
 
    	
$
    	
6.72
    	
 
    	
$
    	
8.85
    	
 
    
	
Number of shares outstanding (thousands)(3)
    	
 
    	
69,332
    	
 
    	
61,549
    	
 
    	
56,107
    	
 
    	
48,282
    	
 
    	
48,282
    	
 
    
	
Dividends per share declared and paid
    	
 
    	
$
    	
0.20
    	
 
    	
$
    	
0.20
    	
 
    	
$
    	
0.20
    	
 
    	
$
    	
0.20
    	
 
    	
$
    	
0.20
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
BALANCE SHEETS (THOUSANDS)(3)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Current assets
    	
 
    	
$
    	
1,461,148
    	
 
    	
$
    	
891,619
    	
 
    	
$
    	
800,597
    	
 
    	
$
    	
805,459
    	
 
    	
$
    	
1,040,829
    	
 
    
	
Property, plant and equipment
    	
 
    	
1,830,992
    	
 
    	
1,736,065
    	
 
    	
1,860,616
    	
 
    	
1,950,535
    	
 
    	
870,965
    	
 
    
	
Investments
    	
 
    	
444,936
    	
 
    	
321,309
    	
 
    	
132,302
    	
 
    	
17,514
    	
 
    	
32,266
    	
 
    
	
Other assets
    	
 
    	
73,574
    	
 
    	
81,115
    	
 
    	
110,634
    	
 
    	
67,750
    	
 
    	
104,405
    	
 
    
	
 
    	
 
    	
$
    	
3,810,650
    	
 
    	
$
    	
3,030,108
    	
 
    	
$
    	
2,904,149
    	
 
    	
$
    	
2,841,258
    	
 
    	
$
    	
2,048,465
    	
 
    
	
Current liabilities
    	
 
    	
$
    	
156,666
    	
 
    	
$
    	
265,909
    	
 
    	
$
    	
191,300
    	
 
    	
$
    	
330,886
    	
 
    	
$
    	
185,771
    	
 
    
	
Long-term debt
    	
 
    	
17,126
    	
 
    	
16,619
    	
 
    	
200,026
    	
 
    	
384,848
    	
 
    	
234,317
    	
 
    
	
Other long-term liabilities
    	
 
    	
222,610
    	
 
    	
193,041
    	
 
    	
274,678
    	
 
    	
257,741
    	
 
    	
235,884
    	
 
    
	
Shareholders’ equity
    	
 
    	
3,414,248
    	
 
    	
2,554,539
    	
 
    	
2,238,145
    	
 
    	
1,867,783
    	
 
    	
1,392,493
    	
 
    
	
 
    	
 
    	
$
    	
3,810,650
    	
 
    	
$
    	
3,030,108
    	
 
    	
$
    	
2,904,149
    	
 
    	
$
    	
2,841,258
    	
 
    	
$
    	
2,048,465
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
CURRENT EXCHANGE RATES(3)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
US dollar relative to Canadian dollar
    	
 
    	
$
    	
1.02
    	
 
    	
$
    	
0.99
    	
 
    	
$
    	
1.05
    	
 
    	
$
    	
1.22
    	
 
    	
$
    	
0.99
    	
 
    
	
Euro relative to Canadian dollar
    	
 
    	
$
    	
1.32
    	
 
    	
$
    	
1.33
    	
 
    	
$
    	
1.50
    	
 
    	
$
    	
1.70
    	
 
    	
$
    	
1.45
    	
 
    

 

54

 

(1) Information from 2010 restated in accordance with IFRS, including presentation of our share of Ok Tedi as discontinued operation.

(2) Information from 2007, 2008 and 2009 is presented in accordance with Canadian GAAP and was not required to be restated to IFRS.

(3) As at December 31.

 

55

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00208-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00208-of-00352.parquet"}]]