Inmet Mining Corporation
TSX : IMN

Inmet Mining Corporation

February 09, 2012 20:19 ET

Inmet Announces Fourth Quarter Earnings of $0.69 per Share

TORONTO, CANADA--(Marketwire - Feb. 9, 2012) -

All amounts in Canadian dollars unless indicated otherwise

Inmet (TSX:IMN) announces fourth quarter earnings of $0.69 per share.

Fourth quarter highlights

  • Strong earnings from operations

Earnings from operations were $92 million compared to $93 million in the fourth quarter of 2010. The impact of significantly higher sales volumes this quarter mainly from Las Cruces, was offset by lower average copper and zinc prices. Although sales volumes were higher this quarter, timing of shipments resulted in copper sales lagging production by a combined 3,000 tonnes at Çayeli and Las Cruces. This timing effect reduced earnings from operations by approximately $12 million (or $0.13 per share on an after-tax basis).

  • Las Cruces production increased

In the fourth quarter of 2011, Las Cruces produced 14,100 tonnes of copper cathode, and finished the year with December 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.

  • Continued strong performance at Çayeli and Pyhäsalmi

Çayeli milled a record 316,000 tonnes this quarter and 1,195,000 tonnes for the year. Pyhäsalmi milled 348,000 tonnes this quarter and reached near-record annual throughput of 1,386,000 for the year.

  • Adjustment of applied interest rate for closure liabilities under International Financial Reporting Standards (IFRS)

We recognized a charge of $17 million in earnings from operations, or $0.24 per share, 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 at period end. This compares to a charge of $13 million recognized in the fourth quarter of 2010.

  • Net income decreased

Our net income from continuing operations was $49 million lower than for the same quarter of 2010. We recognized after-tax foreign exchange losses of $9 million this quarter, mainly on cash and long-term bonds we held in US dollars. In the fourth quarter of 2010, we disposed of a non-core investment and recognized a gain of $50.5 million.

  • Cobre Panama received approval of Environmental Social Impact Assessment

On December 28, 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 development of Cobre Panama, including the mining operations and related infrastructure, a port facility, and a coal-fired power plant.

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

In January 2012, we received notice from KPMC that it elected to exercise its option to acquire a 20 percent interest in Minera Panama S.A. (MPSA), the owner and developer of Cobre Panama, which would leave Inmet with an 80 percent interest. The option exercise is expected to close by the end of February 2012. At closing, KPMC will invest approximately US $155 million into MPSA, representing a 20 percent share of development costs to closing, over the US $30 million of such costs KPMC has already funded.

Key financial data

three months ended December 31 Year ended December 31
(thousands, except per share amounts) 2011 2010 Change 2011 2010 change
FINANCIAL HIGHLIGHTS
Sales
Gross sales $ 241,059 $ 230,269 +5 % $ 979,045 $ 778,556 +26 %
Net income
Net income from continuing operations $ 48,072 $ 96,863 -50 % $ 264,732 $ 265,714 -
Net income from continuing operations per share $ 0.69 $ 1.73 -60 % $ 3.99 $ 4.74 -16 %
Net income from discontinued operations - $ 47,993 -100 % $ 83,439 $ 124,755 -33 %
Net income from discontinued operations per share - $ 0.84 -100 % $ 1.26 $ 2.21 -43 %
Net income attributable to Inmet shareholders $ 48,072 $ 146,932 -67 % $ 348,171 $ 391,876 -11 %
Net income per share $ 0.69 $ 2.57 -73 % $ 5.25 $ 6.95 -24 %
Cash flow
Cash flow provided by operating activities $ 73,097 $ 90,515 -19 % $ 404,854 $ 254,918 +59 %
Cash flow provided by operating activities per share (1) $ 1.05 $ 1.59 -34 % $ 6.09 $ 4.52 +35 %
Capital spending (2) $ 58,976 $ 58,862 - $ 208,541 $ 127,619 +63 %
OPERATING HIGHLIGHTS
Production(3)
Copper (tonnes) 26,200 17,500 +50 % 84,800 65,500 +29 %
Zinc (tonnes) 17,900 21,300 -16 % 80,400 81,400 -1 %
Gold (ounces) - - - - 37,900 -100 %
Pyrite (tonnes) 210,500 186,800 +13 % 804,900 584,100 +38 %
Copper cash cost (US $ per pound)(4) $ 0.82 $ 0.74 +11 % $ 0.86 $ 0.64 +34 %
as at December 31 as at
December 31
FINANCIAL CONDITION 2011 2010
Current ratio 9.3 to 1 3.4 to 1
Gross debt to total equity 1% 1%
Net working capital balance (millions) $1,304 $626
Liquidity balance including cash and long-term bonds (millions) $1,706 $699
Gross debt (millions) $17 $17
Shareholders' equity (millions) $3,414 $2,555
(1) Cash flow provided by operating activities divided by average shares outstanding for the period.
(2) Year ended December 31, 2011 includes capital spending of $133 million at Cobre Panama and $54 million at Las Cruces. Year ended December 31, 2010 includes capital spending of $85 million at Cobre Panama and $80 million at Las Cruces, reduced by positive cash flow from pre-operating costs net of revenues and working capital changes at Las Cruces of $56 million.
(3) Inmet's share. 2010 production does not include our share of Ok Tedi.
(4) Copper cash cost per pound is a non-GAAP financial measure - see Supplementary financial information on pages 30 to 32.

Fourth quarter press release

Where to find it

Our financial results 5
Key changes in 2011 5
Understanding our performance 6
Earnings from operations 8
Corporate costs 12
Results of our operations 15
Çayeli 16
Las Cruces 18
Pyhäsalmi 20
Status of our development project 22
Cobre Panama 22
Managing our liquidity 24
Financial condition 27
Accounting changes 28
Supplementary financial information 30

In this press release, Inmet means Inmet Mining Corporation and we, us and our mean Inmet and/or its subsidiaries and joint ventures. This quarter refers to the three months ended December 31, 2011.

Adoption of International Financial Reporting Standards

We have prepared our fourth quarter 2011 consolidated financial statements and other financial information according to International Financial Reporting Standards, and restated our 2010 comparative financial statements and other financial information following our IFRS accounting policies. See Adoption of International Financial Reporting Standards on page 28 for more information.

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 interim report 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 interim report.

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 interim report except as required by law. All forward-looking statements and information herein are qualified by this cautionary statement.

Our financial results

three months ended December 31 Year ended December 31
(thousands, except per share amounts) 2011 2010 change 2011 2010 change
EARNINGS FROM OPERATIONS (1)
Çayeli $ 35,807 $ 36,810 -3 % $ 159,698 $ 148,504 +8 %
Las Cruces 41,710 23,508 +77 % 126,392 44,889 +182 %
Pyhäsalmi 31,182 45,440 -31 % 143,149 120,257 +19 %
Other (16,722 ) (13,071 ) +28 % (16,722 ) 16,595 -201 %
91,977 92,687 -1 % 412,517 330,245 +25 %
DEVELOPMENT AND EXPLORATION
Corporate development and exploration (6,541 ) (5,434 ) +20 % (29,202 ) (13,495 ) +116 %
CORPORATE COSTS
General and administration (7,734 ) (4,758 ) +63 % (34,401 ) (20,364 ) +69 %
Investment and other income (4,011 ) 50,622 -108 % 30,725 58,344 -47 %
Stand by costs - - - - (6,753 ) -100 %
Finance costs (2,390 ) (4,294 ) -44 % (9,484 ) (13,176 ) -28 %
Income taxes (23,229 ) (31,960 ) -27 % (105,423 ) (69,087 ) +53 %
(37,364 ) 9,610 -487 % (118,583 ) (51,036 ) +132 %
Net income from continuing operations 48,072 96,863 -51 % 264,732 265,714 -
Income from discontinued operation (net of taxes) - 47,993 -100 % 83,439 124,755 -33 %
Non-controlling interest - (2,076 ) -100 % - (1,407 ) -100 %
Net income attributable to Inmet shareholders $ 48,072 $ 146,932 -67 % $ 348,171 $ 391,876 -11 %
Income from continuing operations per common share $ 0.69 $ 1.73 -60 % $ 3.99 $ 4.74 -16 %
Diluted income from continuing operations per common share $ 0.69 $ 1.73 -60 % $ 3.98 $ 4. 73 +16 %
Basic net income per common share $ 0.69 $ 2.57 -73 % $ 5.25 $ 6.95 -24 %
Diluted net income per common share $ 0.69 $ 2.57 -73 % $ 5.23 $ 6.94 -25 %
Weighted average shares outstanding 69,332 57,053 +22 % 66,432 56,345 +18 %
(1) Gross sales less smelter processing charges and freight, cost of sales including depreciation and provisions for mine reclamation at closed properties.

Key changes in 2011

(millions) three months ended
December 31
Year ended
December 31
see
page
EARNINGS FROM OPERATIONS
Market Factors
Higher (lower) copper prices denominated in Canadian dollars $ (27 ) $ 36 8
Lower zinc prices denominated in Canadian dollars (7 ) (7 ) 8
Other changes in prices denominated in Canadian dollars (1 ) 16 8
Lower smelter processing charges 4 7 10
Foreign exchange - decreased operating costs 2 9 11
Operational Factors
Higher sales volume at Las Cruces, net of production costs 37 114 19
2010 earnings from Troilus - (30 )
Higher sales volumes at our other mines 6 18 8
Higher operating costs at our other mines (3 ) (19 ) 11
Higher depreciation due to Las Cruces production (9 ) (57 ) 12
Other (3 ) (4 )
Increase (decrease) in operating earnings, compared to 2010 (1 ) 83
Lower (higher) taxes from lower (higher) income 9 (37 ) 14
Higher corporate development, exploration and administrative costs (4 ) (30 ) 12
Foreign exchange changes (8 ) 12 13
Gain on sale of investment in Premier Gold Mines Ltd. in 2010 (51 ) (51 ) 13
Higher interest income 2 9 13
Las Cruces standby charges in 2010 - 7 14
Other 4 6
Lower net income from continuing operations compared to 2010 (49 ) (1 )
Lower income from discontinued operation - Ok Tedi (48 ) (41 ) 14
Non-controlling interest in 2010 (2 ) -
Lower net income attributable to Inmet shareholders compared to 2010 $ (99 ) $ (42 )

Understanding our performance

Metal prices

The table below shows the average metal prices we realized in US dollars and Canadian dollars, this quarter and year to date compared to 2010. The prices we realize include finalization adjustments - see Gross sales on page 9.

three months ended December 31 Year ended December 31
2011 2010 change 2011 2010 change
US dollar metal prices
Copper (per pound) US $3.51 US $4.10 -14 % US $3.84 US $3.55 +8 %
Zinc (per pound) US $0.87 US $1.06 -18 % US $0.97 US $0.96 +1 %
Canadian dollar metal prices
Copper (per pound) C $3.59 C $4.15 -13 % C $3.80 C $3.66 +4 %
Zinc (per pound) C $0.89 C $1.07 -17 % C $0.96 C $0.99 -3 %

Copper

Copper was one of the strongest performing base metals for most of this year, with London Metals Exchange (LME) prices rising from US $4.42 per pound at the beginning of the year, to a record high price of US $4.60 per pound on February 14. Prices remained strong for much of the year, before they fell sharply by 23 percent in the final quarter of 2011, closing the year at US $3.43 per pound. LME copper prices averaged US $4.00 per pound this year, the highest ever average annual price, compared to US $3.42 per pound in 2010. LME copper prices averaged US $3.40 per pound in the fourth quarter, a decrease of 13 percent from the comparative quarter of 2010.

Zinc

LME zinc prices averaged US $0.86 per pound this quarter, a decrease of 18 percent from the fourth quarter of 2010. LME zinc prices averaged US $0.99 per pound this year, slightly higher than the average 2010 zinc price of US $0.98 per pound.

Exchange rates

Exchange rates affect our revenue and earnings. The table below shows the average exchange rates we realized this quarter and year to date compared to 2010.

three months ended December 31 Year ended December 31
2011 2010 change 2011 2010 change
Exchange rates
1 US$ to C$ $ 1.02 $ 1.01 +1 % $ 0.99 $ 1.03 -4 %
1 euro to C$ $ 1.38 $ 1.38 - $ 1.38 $ 1.37 +1 %
1 euro to US$ $ 1.35 $ 1.37 -1 % $ 1.39 $ 1.39 -
1 US$ to Turkish lira TL 1.83 TL 1.46 +25 % TL 1.65 TL 1.50 +10 %

Compared to the same quarter last year, the value of the Canadian dollar went down 1 percent relative to the US dollar, and maintained its value relative to the euro.

Our earnings are affected by changes in foreign currency exchange rates when we:

  • translate the results of our operations from their functional currency (US dollars or euros) to Canadian dollars
  • translate Çayeli's Turkish lira denominated costs into its functional currency (US dollars)
  • revalue US dollars and euros that we hold in cash and long-term bonds at Corporate.

Lower zinc treatment charges

Treatment charges are one component of smelter processing charges. We also pay smelters for content losses and price participation.

The table below shows the average charges we realized this quarter and for the year.

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, reflecting a tightening zinc concentrate market.

three months ended December 31 Year ended December 31
(US$) 2011 2010(1) change 2011 2010(1) change
Treatment charges
Copper (per dry metric tonne of concentrate) US $55 US $45 +22 % US $57 US $51 +12 %
Zinc (per dry metric tonne of concentrate) US $184 US $239 -23 % US $216 US $244 -11 %
Price participation
Copper (per pound) US $0.02 US $0.03 -33 % US $0.02 US $0.02 -
Zinc (per pound) US ($0.02 ) - -100 % US ($0.01 ) US ($0.01 ) -
Freight charges
Copper (per dry metric tonne of concentrate) US $58 US $58 - US $51 US $50 +2 %
Zinc (per dry metric tonne of concentrate) US $11 US $12 -9 % US $22 US $26 -15 %
(1) 2010 charges exclude Ok Tedi charges.

Statutory tax rates remain consistent

The table below shows the statutory tax rates for each of our taxable operating mines.

2011 2010 change
Statutory tax rates
Çayeli 24 % 24 % -
Las Cruces 30 % 30 % -
Pyhäsalmi 26 % 26 % -

Earnings from operations

three months ended December 31 Year ended December 31
(thousands) 2011 2010 change 2011 2010 change
Gross sales $ 241,059 $ 230,269 +5 % $ 979,045 $ 778,556 +26 %
Smelter processing charges and freight (28,228 ) (35,733 ) -21 % (130,726 ) (138,464 ) -6 %
Cost of sales:
Direct production costs (78,456 ) (75,887 ) +3 % (302,513 ) (236,124 ) +28 %
Inventory changes 7,003 12,719 -45 % 666 6,426 -90 %
Other non-cash expenses (21,685 ) (19,799 ) +10 % (25,229 ) (24,161 ) +4 %
Depreciation (27,716 ) (18,882 ) +47 % (108,726 ) (55,988 ) +94 %
Earnings from operations $ 91,977 $ 92,687 -1 % $ 412,517 $ 330,245 +25 %

Significantly higher gross sales this year

three months ended December 31 Year ended December 31
(thousands) 2011 2010 change 2011 2010 change
Gross sales by operation
Çayeli $ 79,656 $ 79,944 - $ 353,706 $ 333,611 +6 %
Las Cruces 100,941 66,794 +51 % 356,918 128,643 +177 %
Pyhäsalmi 60,462 81,775 -26 % 268,421 242,476 +11 %
Other (Troilus) - 1,756 -100 % - 73,826 -100 %
$ 241,059 $ 230,269 +5 % $ 979,045 $ 778,556 +26 %
Gross sales by metal
Copper $ 183,155 $ 153,554 +19 % $ 696,257 $ 470,378 +48 %
Zinc 34,394 49,843 -31 % 177,172 176,065 +1 %
Gold - 1,756 -100 % - 56,672 -100 %
Other 23,510 25,116 -6 % 105,616 75,441 +40 %
$ 241,059 $ 230,269 +5 % $ 979,045 $ 778,556 +26 %

Key components of the increase in sales: increasing gross sales at Las Cruces, no sales at Troilus


(millions)
three months ended
December 31
Year ended
December 31
Higher (lower) copper prices, denominated in Canadian dollars $ (27 ) $ 36
Lower zinc prices, denominated in Canadian dollars (7 ) (7 )
Higher (lower) other metal prices (1 ) 16
2010 gross sales from Troilus (2 ) (74 )
Higher sales volumes at Las Cruces 46 205
Higher sales volumes at our other operations 2 25
Other - (1 )
Higher gross sales, compared to 2010 $ 11 $ 200

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

This quarter, we recorded $4 million in positive finalization adjustments from third quarter sales.

At the end of this quarter, the following sales had not been settled:

  • 21 million pounds of copper provisionally priced at US $3.45 per pound
  • 10 million pounds of zinc provisionally priced at US $0.83 per pound.

The finalization adjustment we record for these sales will depend on the actual price we receive when they settle, which can be up to five months from the time we initially record the sales. We expect these sales to settle in the following months:

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

Significantly higher copper and pyrite sales volumes, no gold sales volumes this year

Our sales volumes are directly affected by the amount of production from our mines and our ability to ship to our customers.

  • Copper production 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. This quarter, timing of shipments resulted in copper sales volumes lagging production volumes by a combined 3,000 tonnes at Çayeli and Las Cruces.
  • Zinc production was lower this quarter than in 2010 due to lower zinc grades at Çayeli and Pyhäsalmi, and in line with 2010 production levels this year.
  • We did not produce any gold this year as Troilus ceased production in 2010.
  • Pyhäsalmi's pyrite sales volumes were higher than in 2010 because of increased customer demand in Europe and China.
three months ended December 31 Year ended December 31
Sales volumes 2011 2010(1) change 2011 2010(1) change
Copper contained in concentrate 10,300 9,200 +12 % 41,200 43,300 -5 %
Copper cathode (tonnes) 12,800 5,500 +133 % 42,000 19,100 +120 %
Total copper (tonnes) 23,100 14,700 +57 % 83,200 62,400 +33 %
Zinc (tonnes) 17,300 21,000 -18 % 84,400 80,700 +5 %
Gold (ounces) - 1,300 -100 % - 47,300 -100 %
Pyrite (tonnes) 175,900 178,200 -1 % 809,200 573,300 +41 %

Production

three months ended December 31 Year ended December 31 objective
Inmet's share(2) 2011 2010(1) Change 2011 2010(1) change 2012
Copper (tonnes)
Çayeli 8,600 6,700 +28 % 28,700 28,200 +2 % 27,000 - 30,000
Las Cruces 14,100 6,900 +104 % 42,100 20,600 +104 % 61,700 - 68,600
Pyhäsalmi 3,500 3,900 -10 % 14,000 14,700 -5 % 11,300 - 12,600
Troilus - - - - 2,000 -100 % -
26,200 17,500 +50 % 84,800 65,500 +29 % 100,000 - 111,200
Zinc (tonnes)
Çayeli 11,300 13,100 -14 % 48,100 51,300 -6 % 36,000 - 39,800
Pyhäsalmi 6,600 8,200 -20 % 32,300 30,100 +7 % 22,800 - 25,200
17,900 21,300 -16 % 80,400 81,400 -1 % 58,800 - 65,000
Gold (ounces)
Troilus - - - - 37,900 -100 % -
Pyrite (tonnes)
Pyhäsalmi 210,500 186,800 +13 % 804,900 584,100 +38 % 800,000
(1) 2010 volumes exclude Ok Tedi.
(2) Inmet's share: 100 percent for Çayeli, Pyhäsalmi and Troilus. Our share of Las Cruces was 70 percent until December 15, 2010 and 100 percent after that.

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 could possibly also be impacted by 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 in both market supply and demand are expected, with a decreasing market surplus compared to 2011, which should continue to support prices in 2012 at levels consistent with those of 2011.

Lower smelter processing charges this year

three months ended December 31 Year ended December 31
(thousands) 2011 2010 change 2011 2010 change
Smelter processing charges and freight by operation
Çayeli $ 14,845 $ 16,899 -12 % $ 71,704 $ 75,268 -5 %
Las Cruces 363 271 +34 % 1,227 298 +312 %
Pyhäsalmi 13,020 18,563 -30 % 57,795 58,372 -1 %
Other (Troilus) - - - - 4,526 -100 %
$ 28,228 $ 35,733 -21 % $ 130,726 $ 138,464 -6 %
Smelter processing charges and freight by metal
Copper $ 11,351 $ 9,799 +16 % $ 43,761 $ 43,806 -
Zinc 11,618 18,560 -37 % 65,587 70,709 -7 %
Other 5,259 7,374 -29 % 21,378 23,949 -11 %
$ 28,228 $ 35,733 -21 % $ 130,726 $ 138,464 -6 %
Smelter processing charges by type, and freight
Copper treatment and refining charges $ 3,803 $ 2,695 +41 % $ 14,884 $ 14,855 -
Zinc treatment charges 6,401 10,047 -36 % 35,498 39,999 -11 %
Copper price participation 430 547 -21 % 1,592 1,800 -12 %
Zinc price participation (670 ) (41 ) +1,534 % (1,934 ) (1,987 ) -3 %
Content losses 9,228 11,992 -23 % 43,823 45,109 -3 %
Freight 8,724 10,234 -15 % 35,612 37,240 -4 %
Other 312 259 +20 % 1,251 1,448 -14 %
$ 28,228 $ 35,733 -21 % $ 130,726 $ 138,464 -6 %

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.

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.

Higher direct production costs and cost of sales

three months ended December 31 Year ended December 31
(thousands) 2011 2010 change 2011 2010 change
Direct production costs by operation
Çayeli $ 24,779 $ 25,584 -3 % $ 96,299 $ 90,927 +6 %
Las Cruces 39,039 35,769 +9 % 147,636 66,702 +121 %
Pyhäsalmi 14,638 14,534 +1 % 58,578 54,590 +7 %
Other (Troilus) - - - - 23,905 -100 %
Total direct production costs 78,456 75,887 +3 % 302,513 236,124 +28 %
Inventory changes (7,003 ) (12,719 ) -45 % (666 ) (6,426 ) -90 %
Charges for mine rehabilitation and other non-cash charges 21,685 19,799 +10 % 25,229 24,161 +4 %
Total cost of sales (excluding depreciation) $ 93,138 $ 82,967 +12 % $ 327,076 $ 253,859 +29 %

Direct production costs

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.

Inventory changes

Copper inventories at Çayeli and Las Cruces increased this quarter end and at the end of the fourth quarter of 2010 because of timing of shipments.

Charges for mine rehabilitation and other non-cash charges

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 quarter, and for the 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 interim 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 $16 million: $10 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 cost of sales (excluding depreciation)

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.

Higher depreciation

three months ended December 31 Year ended December 31
(thousands) 2011 2010 change 2011 2010 change
Depreciation by operation
Çayeli $ 5,568 $ 4,145 +34 % $ 22,037 $ 20,577 +7 %
Las Cruces 19,757 12,516 +58 % 77,392 23,068 +235 %
Pyhäsalmi 2,391 2,193 +9 % 9,297 8,281 +12 %
Other (Troilus) - 28 -100 % - 4,062 -100 %
$ 27,716 $ 18,882 +47 % $ 108,726 $ 55,988 +94 %

Depreciation was higher this year 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 mid-2010.

2012 outlook for depreciation

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

Corporate costs

Corporate costs include corporate development and exploration, general and administration costs, interest and other income, stand-by costs and taxes.

Spending on corporate development and exploration

Corporate development and exploration 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.

General and administration

General and administration costs are largely for management remuneration, governance and strategy. Costs in 2011 were $14 million higher than 2010 ($3 million in the fourth quarter) 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

three months ended December 31 Year ended December 31
(thousands) 2011 2010 2011 2010
Interest income $ 4,821 $ 2,887 $ 16,627 $ 8,234
Foreign exchange gain (loss) (8,601 ) (1,464 ) 10,789 (968 )
Dividend and royalty income 1,508 634 3,041 3,173
Gain on sale of investment in Premier Gold Mines Ltd. - 50,505 - 50,505
Other (1,739 ) (1,940 ) 268 (2,600 )
$ (4,011 ) $ 50,622 $ 30,725 $ 58,344

Interest income

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 gain (loss)

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

Our foreign exchange gains (losses) were from:

three months ended December 31 Year ended December 31
(thousands) 2011 2010 2011 2010
Translation of US dollar cash and held-to-maturity investments held at corporate $ (9,029 ) $ (72 ) $ 3,338 $ (47 )
Translation of Turkish lira taxes payable at Çayeli (287 ) (1,131 ) 4,027 (672 )
Translation of other monetary assets and liabilities 715 (228 ) 3,424 (249 )
$ (8,601 ) $ (1,431 ) $ 10,789 $ (968 )

We continue to hold the proceeds from the sale of our equity interest in Ok Tedi in US dollars and plan to use this money 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. We recognized a foreign exchange loss of $9 million on these funds in the fourth quarter of 2011 as the US dollar depreciated 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 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, we converted €150 million to US $200 million in one of our euro functional currency companies. This US $200 million will also be subject to translation, but in our euro accounts.

Stand-by costs

In the first quarter of 2010, we could not mine ore at Las Cruces because of 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 tax expense

three months ended December 31 Year ended December 31
(thousands) 2011 2010 change 2011 2010 change
Çayeli $ 9,754 $ 12,863 $ 52,620 $ 35,885
Las Cruces 8,362 (20 ) 23,536 (4,094 )
Pyhäsalmi 6,830 12,213 31,719 28,996
Corporate and other (1,717 ) 6,904 (2,452 ) 8,300
$ 23,229 $ 31,960 $ 105,423 $ 69,087
Consolidated effective tax rate 33 % 25 % +8 % 28 % 21 % +7 %

Our tax expense changes as our earnings change.

The consolidated effective tax rate is higher year to date compared to last year, mainly because in 2010 Las Cruces recognized a tax recovery on a foreign exchange loss from its intercompany US dollar denominated debt. The foreign exchange eliminates on consolidation, but the tax recovery does not since there is no corresponding tax expense on the foreign exchange gain. Additionally, taxes at Çayeli were higher this year as it recognized a tax expense on a foreign exchange gain from its US dollar denominated cash (Çayeli's income taxes are denominated in Turkish lira). Corporate and other taxes were lower this year as there were no mining duties payable after the closure of Troilus in 2010.

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 loss pools by about $3 million.

Results of our operations

2012 estimates

Our financial review by operation includes estimates for our 2012 operating earnings and operating cash flows. We have based these estimates on our 2012 objectives for production (using the midpoints in our production volume ranges) and cost per tonne of ore milled, as well as the following assumptions for the year:

Copper price US $3.80 per pound
Zinc price US $0.95 per pound
US $ to C$ exchange rate $1.00
euro to C$ exchange rate $1.30
Working capital Assume no changes for the year

Çayeli

three months ended December 31 Year ended December 31
2011 2010 change 2011 2010 change
Tonnes of ore milled (000's) 316 288 +10 % 1,195 1,147 +4 %
Tonnes of ore milled per day 3,400 3,100 +10 % 3,300 3,150 +4 %
Grades (percent)
copper 3.5 3.2 +9 % 3.2 3.2 -
zinc 5.3 6.5 -18 % 6.0 6.3 -5 %
Mill recoveries (percent)
copper 79 73 +8 % 75 76 -1 %
zinc 67 70 -4 % 68 71 -4 %
Production (tonnes)
copper 8,600 6,700 28 % 28,700 28,200 +2 %
zinc 11,300 13,100 -14 % 48,100 51,300 -6 %
Cost per tonne of ore milled (C$) $ 79 $ 89 -11 % $ 81 $ 79 +3 %

Record throughput achieved this year

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.

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.

2012 outlook for production

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.

Financial review

Higher copper sales volumes offset by lower realized metal prices this quarter

three months ended December 31 Year ended December 31 objective
(millions of Canadian dollars unless otherwise stated) 2011 2010 2011 2010 2012
Sales analysis
Copper sales (tonnes) 6,900 4,800 27,500 26,300 28,500
Zinc sales (tonnes) 9,900 12,700 50,000 51,200 37,900
Gross copper sales $ 54 $ 45 $ 221 $ 205 $ 239
Gross zinc sales 20 29 105 109 79
Other metal sales 6 6 28 20 17
Gross sales 80 80 354 334 335
Smelter processing charges and freight (15 ) (17 ) (72 ) (75 ) (65 )
Net sales $ 65 $ 63 $ 282 $ 259 $ 270
Cost analysis
Tonnes of ore milled (thousands) 316 288 1,195 1,147 1,200
Direct production costs ($ per tonne) $ 79 $ 89 $ 81 $ 79 $ 80
Direct production costs $ 25 $ 26 $ 96 $ 91 $ 96
Change in inventory (3 ) (4 ) (1 ) (4 ) -
Depreciation and other non-cash costs 7 4 27 23 32
Operating costs $ 29 $ 26 $ 122 $ 110 $ 128
Operating earnings $ 36 $ 37 $ 160 $ 149 $ 142
Operating cash flow $ 8 $ 42 $ 157 $ 116 $ 130

The objective for 2012 uses the assumptions listed on page 15.

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

(millions) three months ended
December 31
Year ended
December 31
Higher (lower) copper prices, denominated in Canadian dollars $ (10 ) $ 7
Lower zinc prices, denominated in Canadian dollars (3 ) (1 )
Higher (lower) other metal prices, denominated in Canadian dollars (1 ) 7
Higher copper sales volumes 18 6
Lower zinc sales volumes (4 ) (3 )
Lower smelter processing charges and freight - 4
Foreign exchange - decreased production costs 2 9
Higher production costs denominated in local currencies (1 ) (14 )
Other (2 ) (4 )
Higher (lower) operating earnings, compared to 2010 (1 ) 11
Change in tax expense because of change in taxable income 7 (10 )
Changes in working capital (see note 20 on page 74) (42 ) 36
Other 2 4
Higher (lower) operating cash flow, compared to 2010 $ (34 ) $ 41

Capital spending

three months ended December 31 Year ended December 31 objective
(thousands) 2011 2010 change 2011 2010 change 2012
Capital spending $ 3,500 $ 6,700 -48 % $ 13,100 $ 14,900 -12 % $ 20,000

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, and install a new double deck screen for the crusher and mine development.

2012 outlook for capital spending

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

Las Cruces

three months ended December 31 Year ended December 31
(100 percent) 2011 2010 change 2011 2010 change
Tonnes of ore processed (000's) 231 164 +41 % 776 495 +57 %
Copper grades (percent) 6.9 6.4 +8 % 6.5 7.0 -7 %
Plant recoveries (percent) 86 86 - 84 83 +1 %
Cathode copper production (tonnes) 14,100 9,000 +57 % 42,100 28,500 +48 %
Cost per pound of cathode produced (C$)(1) $ 1.25 $ 1.80 -31 % $ 1.59 $ 1.74 -9 %
(1) Subsequent to July 1, 2010

Improved plant performance

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.

Our water purification and drainage and reinjection well systems performed well this year. We have completed and commissioned all phases of the water purification plant, which has increased our treatment capacity. 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.

Notwithstanding the significant improvements achieved this year, production fell short of our target of 50,200 tonnes of copper cathode.

Cost per pound of cathode produced this quarter was significantly lower than earlier in the year and in the same quarter of 2010, as higher production translated into a lower unit cost.

2012 outlook for production

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.

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

Financial review

Higher operating earnings and operating cash flow this year as Las Cruces ramps up

three months ended December 31 Year ended December 31 objective
(millions of Canadian dollars unless otherwise stated) 2011 2010 2011 2010(1) 2012
Sales analysis
Copper sales (tonnes) 12,800 7,600 42,000 15,600 65,200
Gross copper sales $ 101 $ 67 $ 357 $ 129 $ 551
Smelter processing charges and freight - - (1 ) - (3 )
Net sales $ 101 $ 67 $ 356 $ 129 $ 548
Cost analysis
Pounds of copper produced (millions) 31 20 93 38 144
Direct production costs ($ per pound) $ 1.25 $ 1.80 $ 1.59 1.74 $ 1.14
Direct production costs $ 39 36 $ 148 $ 67 $ 164
Change in inventory (3 ) (10 ) 1 (11 ) -
Depreciation and other non-cash costs 23 17 81 28 92
Operating costs $ 59 $ 43 $ 230 $ 84 $ 256
Operating earnings $ 42 $ 24 $ 126 $ 45 $ 292
Operating cash flow $ 46 $ 34 $ 195 $ 59 $ 385
(1) Subsequent to July 1, 2010 and at 100 percent

The objective for 2012 uses the assumptions listed on page 15.

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

(millions) three months ended
December 31
Year ended
December 31
Higher (lower) copper prices, denominated in Canadian dollars $ (12 ) $ 23
Higher copper sales volumes due to higher production 39 193
Higher smelter processing charges and freights - (1 )
Higher operating costs due to higher production (3 ) (80 )
Higher depreciation (6 ) (54 )
Higher operating earnings, compared to 2010 18 81
Changes in working capital (see note 20 on page 74) (15 ) (9 )
Change in depreciation 6 54
Standby charges in 2010 - 7
Other 3 3
Higher operating cash flow, compared to 2010 $ 12 $ 136

Capital spending

three months ended December 31 Year ended December 31 objective
(100 percent and millions of Canadian dollars) 2011 2010 change 2011 2010 change 2012
Capital $ 10 $ 28 -64 % $ 54 $ 80 -33 % $ 48
Pre-operating costs capitalized, net of sales, working capital and other - 4 -100 % - (56 ) -100 % -
$ 10 $ 32 -69 % $ 54 $ 24 +125 % $ 48

Capital spending in 2011 and 2010 was mainly for plant improvements, the permanent water purification plant and mine development.

2012 outlook for capital spending

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.

Pyhäsalmi

three months ended December 31 Year ended December 31
2011 2010 change 2011 2010 change
Tonnes of ore milled (000's) 348 350 -1 % 1,386 1,401 -1 %
Tonnes of ore milled per day 3,800 3,800 - 3,800 3,800 -1 %
Grades (percent)
copper 1.1 1.2 -8 % 1.1 1.1 -
zinc 2.1 2.6 -19 % 2.6 2.4 +8 %
sulphur 43 43 - 42 43 -2 %
Mill recoveries (percent)
copper 95 96 -1 % 96 96 -
zinc 90 89 +1 % 91 90 +1 %
Production (tonnes)
copper 3,500 3,900 -10 % 14,000 14,700 -5 %
zinc 6,600 8,200 -20 % 32,300 30,100 +7 %
pyrite 210,500 186,800 +13 % 804,900 584,100 +38 %
Cost per tonne of ore milled (C$) $ 42 $ 42 - $ 42 $ 39 +8 %

Record pyrite production and sales

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.

Operating costs have been higher this year mostly because of increased ground support and consumables costs, and due to the incremental costs associated with producing more pyrite.

2012 outlook for production

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.

Financial review

Higher earnings this year because of significantly higher pyrite sales volumes

three months ended December 31 Year ended December 31 objective
(millions of Canadian dollars unless otherwise stated) 2011 2010 2011 2010 2012
Sales analysis
Copper sales (tonnes) 3,400 4,500 13,700 14,800 11,900
Zinc sales (tonnes) 7,400 8,300 34,400 29,500 24,000
Pyrite sales (tonnes) 175,900 178,200 809,200 573,300 800,000
Gross copper sales $ 28 $ 42 $ 118 $ 121 $ 100
Gross zinc sales 15 21 72 67 50
Other metal sales 17 19 78 54 60
Gross sales 60 82 268 242 210
Smelter processing charges and freight (13 ) (19 ) (58 ) (58 ) (41 )
Net sales 47 $ 63 $ 210 $ 184 $ 169
Cost analysis
Tonnes of ore milled (thousands) 348 350 1,386 1,401 1,370
Direct production costs ($ per tonne) $ 42 $ 42 $ 42 $ 39 $ 43
Direct production costs $ 15 $ 15 $ 59 $ 55 $ 58
Change in inventory (1 ) 1 (1 ) - -
Depreciation and other non-cash costs 2 2 9 9 10
Operating costs $ 16 $ 18 $ 67 $ 64 $ 68
Operating earnings $ 31 $ 45 $ 143 $ 120 $ 101
Operating cash flow $ 24 $ 27 $ 118 $ 80 $ 85

The objective for 2012 uses the assumptions listed on page 15.

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


(millions)
three months ended
December 31
Year ended
December 31
Higher (lower) copper prices, denominated in Canadian dollars $ (5 ) $ 6
Lower zinc prices, denominated in Canadian dollars (4 ) (6 )
Higher other metal prices - 8
Higher (lower) sales volumes (9 ) 15
Lower smelter processing prices and freight 4 4
Higher operating costs - (4 )
Higher (lower) operating earnings, compared to 2010 (14 ) 23
Change in tax expense because of change in earnings 3 (6 )
Changes in working capital (see note 20 on page 74) 9 18
Other (1 ) 3
Higher (lower) operating cash flow, compared to 2010 $ (3 ) $ 38

Capital spending

three months ended December 31 Year ended December 31 objective
(thousands) 2011 2010 change 2011 2010 change 2012
Capital spending $ 2,000 $ 700 +186 % $ 7,300 $ 4,000 +83 % $ 10,000

2012 outlook for capital spending

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.

Status of our development project

Cobre Panama

Engineering and infrastructure

Basic engineering progressed this quarter 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 quarter in preparation for a final notice to proceed with construction, 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. The ESIA describes the existing socio-environmental conditions in the project area, the likely impacts and benefits that will result from the project and the commitments that MPSA will undertake to minimize the impacts and enhance the benefits.

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 agreement, announced October 28, 2009, requires KPMC to invest approximately US $155 million in exchange for its 20 percent interest in the project. The US $155 million investment represents KPMC's share of historical development costs incurred to the date of the option agreement and its proportionate share of development costs incurred above a cap of US $150 million. We expect the transaction with KPMC to close by the end of February 2012.

Partnership process

We continue to engage with potential new partners in Cobre Panama. Interested parties are engaged at various stages of due diligence under confidentiality agreements.

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.

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.

Managing our liquidity

We develop our financing strategy by considering our long-term capital requirements and deciding on the optimal mix of cash, future operating cash flow, credit facilities and project financing.

Our capital structure includes a liquidity cushion that gives us the flexibility to deal with operational disruptions or general market downturns.

three months ended December 31 Year ended December 31
(millions) 2011 2010 2011 2010
CASH FROM OPERATING ACTIVITIES
Çayeli $ 8 $ 42 $ 157 $ 117
Las Cruces 46 34 195 59
Pyhäsalmi 24 27 118 80
Other (Troilus) - - - 44
Corporate development and exploration not incurred by operations (5 ) (4 ) (21 ) (9 )
General and administration (8 ) (5 ) (34 ) (20 )
Settlement of asset retirement obligations at closed sites (4 ) (4 ) (11 ) (10 )
Investment income and other 12 1 1 (6 )
73 91 405 255
CASH FROM INVESTING AND FINANCING
Purchase of property, plant and equipment (59 ) (59 ) (209 ) (128 )
Purchase and maturing of long-term investments, net 14 26 (233 ) (270 )
Foreign exchange on cash held in foreign operations (24 ) (11 ) (5 ) (27 )
Issuance of common shares - - 502 -
Acquisition of non-controlling interest in Las Cruces - (151 ) - (151 )
Sale of Premier Gold Mines Ltd. - 61 - 61
Other (11 ) 10 (10 ) 22
(80 ) (124 ) 45 (493 )
CASH FROM DISCONTINUED OPERATION (OK TEDI) - (65 ) 307 30
Increase (decrease) in cash (7 ) (98 ) 757 (208 )
Cash and short-term investments
Beginning of period 1,090 424 326 534
End of period $ 1,083 $ 326 $ 1,083 $ 326

Our available liquidity also includes $623 million of held to maturity investments ($373 million at December 31, 2010), providing a total of $1,706 million in cash available to finance our growth strategy as at December 31, 2011 ($699 million at December 31, 2010).

OPERATING ACTIVITIES

Key components of the change in operating cash flows


(millions)
three months ended
December 31
Year ended
December 31
Higher (lower) earnings from operations (see page 5) $ (1 ) $ 83
Add back higher depreciation included in earnings from operations 9 53
Lower (higher) income tax expense because of change in taxable earnings 12 (7 )
Higher corporate development and administrative costs (4 ) (30 )
Realized foreign exchange loss on cash held by Inmet corporate - (8 )
Standby charges in 2010 at Las Cruces - 7
Changes in working capital (see note 20 on page 74) (46 ) 38
Other 12 14
Higher (lower) operating cash flow, compared to 2010 $ (18 ) $ 150

Operating cash flows for the fourth quarter were lower than 2010 because working capital was higher mainly due to the timing of tax installment payments.

Operating cash flows this year were higher than 2010 because:

  • our operating earnings before depreciation were higher
  • working capital was lower at year end because metal prices and, therefore, accounts receivable balances were lower, and from the timing of payments from customers.

2012 outlook for cash from operating activities

The table below shows expected operating cash flow from our operations, based on our outlook for metal prices and production (see page 15), and on the assumptions in Results of our operations (starting on page 15).

2012 estimated operating cash flow by operation


(millions)
Çayeli $ 130
Las Cruces 385
Pyhäsalmi 85
$ 600

INVESTING AND FINANCING

Capital spending

three months ended December 31 Year ended December 31 objective
(millions) 2011 2010 2011 2010 2012
Çayeli $ 4 $ 7 $ 13 $ 15 $ 20
Las Cruces 10 32 54 24 48
Pyhäsalmi 2 1 7 4 10
Cobre Panama 43 19 133 85 105(1)
$ 59 $ 59 $ 207 $ 128 $ 183
(1) represents expected spending in the first quarter of 2012 to carry out work up to the point of a final decision to proceed with construction. Further capital spending guidance will be provided after a decision is made.

Please see Results of our operations and Status of our development project on page 22 for a discussion of actual results and our 2012 objective. Capital spending this year was mainly for Cobre Panama.

Purchase 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.

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.

Proceeds from issuing common shares

On May 17, 2011, a subsidiary of Temasek Holdings (Private) Ltd. exchanged its subscriptions receipts for 7.78 million Inmet common shares and we received $500 million in cash, plus accrued interest on funds in escrow during the subscription period.

Cash from discontinued operation

In January 2011, we sold our 18 percent equity interest in Ok Tedi for net proceeds of $307 million (after Papua New Guinea withholding taxes).

2012 outlook for investing and financing

Capital spending

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 on a 100 percent basis at Cobre Panama in the first quarter of 2012

In January 2012, we received notice from KPMC that it had elected, under its option agreement, to acquire a 20 percent interest in MPSA. This transaction is expected to close by the end of February 2012. At closing, KPMC would be required to invest approximately US $155 million into MPSA, representing KPMC's share of historical development costs incurred to the date of the option agreement and their proportionate share of development costs incurred above a funding cap of US $150 million. 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 agreement, enabling KPMC to purchase a 20 percent share of MPSA's concentrates production on arm's length market terms, subject to KPMC's arranging for related financing.

Financial condition

Our strategy is to ensure we have sufficient liquidity (including cash and committed credit facilities) to finance our operating requirements as well as our growth projects. At December 31, 2011, we had $1,706 million in total funds, including $1,083 million in cash and short-term investments and $623 million invested in long-term bonds.

Cash

At December 31, 2011, cash and short-term investments of $1,083 million included cash and money market instruments that mature in 90 days or less, and short-term investments that mature in 91 days to a year.

Our policy is to invest excess cash in highly liquid investments of the highest credit quality, and to limit our exposure to individual counterparties to minimize the risk associated with these investments. We base our decisions about the length of maturities on our cash flow requirements, rates of return and other factors.

At December 31, 2011, we held cash and short-term investments in the following:

  • A to AAA rated treasury funds and money market funds managed by leading international fund managers, who are investing in money market and short-term debt securities and fixed income securities issued by leading international financial institutions and their sponsored securitization vehicles.
  • Cash, term and overnight deposits with leading Canadian and international financial institutions.

See note 7 on page 67 in the consolidated financial statements for more details about where our cash is invested.

Medium-term bonds

We have created a bond portfolio to provide better yields with no change to our investment risk. As at December 31, 2011, the portfolio was $623 million (Held to maturity investments - note 9):

  • 58 percent US Treasury bonds
  • 4 percent Government of Canada bonds
  • 33 percent Canadian Provincial Government bonds
  • 5 percent corporate bonds.

The bonds mature between January 2012 and August 2016. Although our intention is to hold these investments to maturity, there is a liquid market for them and they are available to us at any time.

Restricted cash

Our restricted cash balance of $73 million as at December 31, 2011 included:

  • $17 million in cash collateralized letters of credit for Inmet
  • $54 million at Las Cruces related to a reclamation bond, issuing letters of credit to suppliers and the local water authority and for its labour bond to the government
  • $2 million for future reclamation at Pyhäsalmi.

COMMON SHARES

Common shares outstanding as of December 31, 2011 and February 9, 2012 69,332,492
Deferred share units outstanding as of December 31, 2011 (redeemable on a one-for-one basis for common shares) 121,069

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 first quarter of 2011 was the first presentation of our 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.

See note 3 to our interim consolidated financial statements for a complete list of our significant accounting policies followed on adoption of IFRS. 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 three months and 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.

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 changed.

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.

Supplementary financial information

Pages 31 and 32 include supplementary financial information about cash costs. These measures do not fall into the category of International Financial Reporting Standards.

We use unit cash cost information as a key performance indicator, both on a segmented and consolidated basis. We have included cash costs as supplementary information because we believe our key stakeholders use these measures as a financial indicator of our profitability and cash flows before the effects of capital investment and financing costs, such as interest.

Since cash costs are not recognized financial measures under International Financial Reporting Standards, they should not be considered in isolation of earnings or cash flows. There is also no standard way to calculate cash costs, so they are not a reliable way to compare us to other companies.

About Inmet

Inmet is a Canadian-based global mining company that produces copper, zinc and pyrite. We have three wholly-owned mining operations: Çayeli (Turkey), Las Cruces (Spain) and Pyhäsalmi (Finland). We also have a 100 percent interest in Cobre Panama, a development property in Panama.

This press release is also available at www.inmetmining.com.

Fourth quarter conference call

Will be held on

You can also dial in by calling

  • Local or international: +1.416.695.6616
  • Toll-free within North America: +1.800.952.6845

Starting at approximately 10:30 a.m. (ET) Friday, February 10, 2012, a conference call replay will be available

  • Local or international: +1.905.694.9451 passcode 7433427
  • Toll-free within North America: +1.800.408.3053 passcode 7433427
INMET MINING CORPORATION
Supplementary financial information
Cash costs
2011 For the year ended December 31
per pound of copper
ÇAYELI LAS CRUCES PYHÄSALMI TOTAL
(US dollars)
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 For the year ended December 31
per pound of copper
ÇAYELI LAS CRUCES (1) PYHÄSALMI TOTAL
(US dollars)
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
Reconciliation of cash costs to statements of earnings
2011 For the year ended December 31
per pound of copper
(millions of Canadian dollars, except where otherwise noted) ÇAYELI LAS CRUCES PYHÄSALMI TOTAL
GAAP reference page 17 page 19 page 21
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 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 (000's) 63,300 92,900 30,800 187,000
Cash cost (US dollars) $ 0.60 $ 1.63 $ (0.93 ) $ 0.86
2010 For the year ended December 31
per pound of copper
(millions of Canadian dollars, except where otherwise noted) ÇAYELI LAS CRUCES (1) PYHÄSALMI TOTAL
GAAP reference page 17 page 19 page 21
Direct production costs $ 91 $ 67 $ 55 $ 213
Smelter processing charges and freight 75 - 58 133
By product sales (129 ) - (121 ) (250 )
Adjust smelter processing 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 (000's) 62,100 28,200 32,400 122,700
Cash cost (US dollars) $ 0.64 $ 1.71 $ (0.28 ) $ 0.64

(1) Las Cruces' results are included from July 1, 2010

INMET MINING CORPORATION
Supplementary financial information
Cash costs
2011 For the three months ended December 31
per pound of copper
ÇAYELI LAS CRUCES PYHÄSALMI TOTAL
(US dollars)
Direct production costs $ 1.15 $ 1.19 $ 1.86 $ 1.27
Royalties and variable compensation 0.09 0.05 - 0.06
Smelter processing charges and freight 1.13 0.01 0.92 0.50
Metal credits (1.71 ) - (3.36 ) (1.01 )
Cash cost $ 0.66 $ 1.25 $ (0.58 ) $ 0.82
2010 For the three months ended December 31
per pound of copper
ÇAYELI LAS CRUCES PYHÄSALMI TOTAL
(US dollars)
Direct production costs $ 1.50 $ 1.75 $ 1.69 $ 1.64
Royalties and variable compensation 0.22 0.06 - 0.11
Smelter processing charges and freight 1.61 0.01 1.24 0.89
Metal credits (2.76 ) - (3.85 ) (1.90 )
Cash cost $ 0.57 $ 1.82 $ (0.92 ) $ 0.74
Reconciliation of cash costs to statements of earnings
2011 For the three months ended December 31
per pound of copper
(millions of Canadian dollars, except where otherwise noted) ÇAYELI LAS CRUCES PYHÄSALMI TOTAL
GAAP reference page 17 page 19 page 21
Direct production costs $ 25 $ 39 $ 15 $ 79
Smelter processing charges and freight 15 - 13 28
By product sales (26 ) - (32 ) (58 )
Adjust smelter processing and freight, and sales to production basis (2 ) - - (2 )
Operating costs net of metal credits $ 12 $ 39 $ (4 ) $ 47
US$ to C$ exchange rate $ 1.02 $ 1.02 $ 1.02 $ 1.02
Inmet's share of production (000's) 19,000 31,100 7,700 57,800
Cash cost (US dollars) $ 0.66 $ 1.25 $ (0.58 ) $ 0.82
2010 For the three months ended December 31
per pound of copper
(millions of Canadian dollars, except where otherwise note) ÇAYELI LAS CRUCES PYHÄSALMI TOTAL
GAAP reference page 17 page 19 page 21
Direct production costs $ 26 $ 36 $ 15 $ 77
Smelter processing charges and freight 17 - 19 36
By product sales (35 ) - (40 ) (75 )
Adjust smelter processing and freight, and sales to production basis 1 - (2 ) (1 )
Operating costs net of metal credits $ 9 $ 36 $ (8 ) $ 37
US$ to C$ exchange rate $ 1.01 $ 1.01 $ 1.01 $ 1.01
Inmet's share of production (000's) 14,600 15,200 8,500 38,300
Cash cost (US dollars) $ 0.57 $ 1.82 $ (0.92 ) $ 0.74
INMET MINING CORPORATION
Quarterly review
(unaudited)
Latest Four Quarters
(thousands of Canadian dollars, except per share amounts) 2011
Fourth quarter
2011
Third quarter
2011
Second quarter
2011
First quarter
STATEMENTS OF EARNINGS
Gross sales $ 241,059 $ 261,757 $ 221,952 $ 254,277
Smelter processing charges and freight (28,228 ) (37,043 ) (33,870 ) (31,585 )
Cost of sales (excluding depreciation) (93,138 ) (81,144 ) (73,644 ) (79,150 )
Depreciation (27,716 ) (27,321 ) (26,649 ) (27,040 )
91,977 116,249 87,789 116,502
Corporate development and exploration (6,541 ) (4,688 ) (4,562 ) (13,411 )
General and administration (7,734 ) (9,987 ) (8,258 ) (8,422 )
Investment and other income (4,011 ) 35,778 4,731 (5,773 )
Finance costs (2,390 ) (2,377 ) (2,386 ) (2,331 )
Income tax expense (23,229 ) (33,770 ) (21,264 ) (27,160 )
Income from continuing operations 48,072 101,205 56,050 59,405
Income from discontinued operation (net of taxes) - - - 83,439
Net income attributable to Inmet equity holders $ 48,072 $ 101,205 $ 56,050 $ 142,844
Income from continuing operations per share
Basic $ 0.69 $ 1.46 $ 0.86 $ 0.97
Diluted $ 0.69 $ 1.46 $ 0.86 $ 0.96
Income from discontinuing operations per share
Basic $ - $ - $ - $ 1.36
Diluted $ - $ - $ - $ 1.35
Net Income per share
Basic $ 0.69 $ 1.46 $ 0.86 $ 2.33
Diluted $ 0.69 $ 1.46 $ 0.86 $ 2.31
INMET MINING CORPORATION
Quarterly review (continued)
(unaudited)
Previous Four Quarters
(thousands of Canadian dollars, except per share amounts) 2010(1)
Fourth quarter
2010(1)
Third quarter
2010(1)
Second quarter
2010(1)
First quarter
STATEMENTS OF EARNINGS
Gross sales $ 230,269 $ 225,960 $ 161,165 $ 161,162
Smelter processing charges and freight (35,733 ) (34,358 ) (35,272 ) (33,101 )
Cost of sales (excluding depreciation) (82,967 ) (70,503 ) (48,123 ) (52,266 )
Depreciation (18,882 ) (19,062 ) (10,328 ) (7,716 )
92,687 102,037 67,442 68,079
Corporate development and exploration (5,434 ) (2,758 ) (2,524 ) (2,779 )
General and administration (4,758 ) (3,985 ) (6,200 ) (5,421 )
Investment and other income 50,622 3,197 3,321 1,204
Stand-by costs - - - (6,753 )
Finance costs (4,294 ) (5,239 ) (1,770 ) (1,873 )
Income tax expense (31,960 ) (25,266 ) (8,775 ) (3,086 )
Income from continuing operations 96,863 67,986 51,494 49,371
Income from discontinued operation (net of taxes) 47,993 33,569 12,475 30,718
Net income $ 144,856 $ 101,555 $ 63,969 $ 80,089
Net income attributable to:
Inmet equity holders $ 146,932 $ 91,678 $ 68,495 $ 84,771
Non-controlling interest (2,076 ) 9,877 (4,526 ) (4,682 )
$ 144,856 $ 101,555 $ 63,969 $ 80,089
Income from continuing operations per share
Basic $ 1.73 $ 1.04 $ 1.00 $ 0.96
Diluted $ 1.73 $ 1.04 $ 1.00 $ 0.96
Income from discontinuing operations per share
Basic $ 0.84 $ 0.60 $ 0.22 $ 0.55
Diluted $ 0.84 $ 0.60 $ 0.22 $ 0.55
Net Income per share
Basic $ 2.57 $ 1.64 $ 1.22 $ 1.51
Diluted $ 2.57 $ 1.64 $ 1.22 $ 1.51

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

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

Consolidated financial statements
INMET MINING CORPORATION
Consolidated statements of financial position
(unaudited)
(thousands of Canadian dollars) Note reference December 31,
2011
December 31,
2010(1)
January 1,
2010(1)
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 105,213 119,426 155,761
Inventories 90,533 72,154 98,324
Current portion of held to maturity investments 9 181,699 53,915 9,993
Assets held for sale 10 - 319,082 -
1,461,148 891,619 813,121
Restricted cash 8 71,822 70,059 101,589
Property, plant and equipment 1,830,992 1,736,065 1,945,669
Investments in equity securities 3,161 2,694 42,411
Held to maturity investments 9 441,775 318,615 89,891
Deferred income tax assets 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 11 $ 143,149 $ 136,345 $ 170,524
Provisions 12 13,517 17,668 17,417
Derivatives - - 1,543
Liabilities associated with assets held for sale 10 - 111,896 -
156,666 265,909 189,484
Long-term debt 17,126 16,619 200,026
Provisions 12 175,609 162,399 196,430
Other liabilities 17,719 18,117 20,695
Derivatives - - 3,165
Deferred income tax liabilities 29,282 12,525 25,732
Total liabilities 396,402 475,569 635,532
Commitments and contingencies 21
Equity
Share capital 13 1,591,948 1,089,576 669,952
Contributed surplus 66,752 66,131 64,809
Share based compensation 14 8,527 6,542 5,170
Retained earnings 1,911,805 1,577,507 1,527,109
Accumulated other comprehensive income (loss) 15 (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 - - 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

(1) Refer to note 6 for effects of adoption of IFRS

(See accompanying notes)

INMET MINING CORPORATION
Segmented statements of financial position
(unaudited)
2011 As at December 31 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

2010 As at December 31 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