Inmet Mining Corporation
TSX : IMN

Inmet Mining Corporation

July 25, 2011 19:31 ET

Inmet Announces Second Quarter Net Income from Continuing Operations of $56 Million Compared to $51 Million in the Second Quarter of 2010

TORONTO, CANADA--(Marketwire - July 25, 2011) -

All amounts in Canadian dollars unless indicated otherwise

Inmet (TSX:IMN) announces second quarter net income from continuing operations of $56 million compared to $51 million in the second quarter of 2010.

Second quarter highlights

  • Earnings from operations up from last year but impacted by shipping delays
    Earnings from operations were $88 million compared to $67 million in the second quarter of last year because of higher metal prices and the inclusion of earnings from Las Cruces. Earnings were impacted by copper sales volumes lagging production volumes by a combined 3,000 tonnes at Çayeli and Pyhäsalmi due to shipment timing. These shipping delays reduced earnings from operations by approximately $17 million.

Inmet Board approval for development decision on Cobre Panama

On July 25, 2011, the Board of Directors of Inmet approved the development of Cobre Panama as described in the final FEED study of March, 2010 after completing a comprehensive review and risk assessment. This approval is conditional on the achievement of the following project milestones:

  • approval of the project Environmental and Social Impact Assessment (ESIA) by Autoridad Nacional del Ambiente (ANAM), the Panamanian environmental regulator
  • securing of all material permits and approvals required to be issued by relevant Panamanian authorities for construction and development of the mine and process plant
  • completion of basic engineering and related update of capital and operating project cost estimates
  • Board satisfaction regarding the ability to finance development of the project.

As a result of the development decision, KPMC, under an amended option agreement we have agreed to with it, must make its election on whether to exercise its option to acquire a 20 percent interest in Minera Panama by the later of 60 days after the date of this release or the date that is seven days after we have publicly announced ANAM's approval of the ESIA.

  • Cobre Panama partnership process
    This quarter, we commenced 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.

  • Las Cruces completes shutdown and achieves weekly copper production record
    Las Cruces produced 8,500 tonnes of copper cathode this quarter, following production of 8,100 tonnes in the first quarter. The scheduled maintenance shutdown ran 16 days, and the plant started up on schedule, achieving record throughput above 80 percent soon after start-up and record weekly production of 1,340 tonnes of cathode copper. Within two weeks after start-up, a support structure of the new grinding thickener failed due to a faulty weld causing a subsequent shut-down for repair. Production was halted for seven days to empty, repair and re-fill the thickener before it resumed. We are extremely disappointed about the poor performance of our technology provider and are in discussions with it about rectifying the situation. We look forward to the coming months and expect to reach production design capacity this year, as all critical components of the operation have performed on a sustained basis at close to their design capacity or better.

  • Temasek converts subscription receipts
    On May 17, 2011, a subsidiary of Temasek Holdings (Private) Ltd. exchanged its subscription receipts for 7.78 million Inmet common shares and we received cash of approximately $500 million, with a resulting 13 percent increase in our outstanding common shares. Although the dilution resulting from this transaction has reduced, and will reduce, earnings per share in the short-term, it is strategically significant because it provides access to additional financing resources for the construction of Cobre Panama.
Adjustments to production guidance for 2011
  • Las Cruces 2011 production objective reduced to between 42,000 and 45,000 tonnes of cathode copper
    We are reducing our cathode copper production objective from 50,200 tonnes to between 42,000 and 45,000 tonnes for the year to reflect the actual performance for the first half of the year and the impact of the failure of the new grinding thickener in July.

  • Çayeli 2011 zinc production guidance reduced to 45,700 tonnes
    Additionally, we have revised our zinc grade objective to be 5.6 percent, compared to our previous target 5.9 percent because of mine sequence changes and updates to expected stope grades. We have therefore reduced our zinc objective from 48,600 tonnes to 45,700 tonnes to reflect this in addition to lower recoveries.

Key financial data
three months ended June 30 six months ended June 30
(thousands, except per share amounts) 2011 2010 change 2011 2010 change
FINANCIAL HIGHLIGHTS
Sales
Gross sales $221,952 $161,165 +38 % $476,229 $322,327 +48 %
Net income
Net income from continuing operations $56,050 $51,494 +9 % $115,455 $100,865 +14 %
Net income from continuing operations per share $0.86 $1.00 -14 % $1.82 $1.96 -7 %
Net income from discontinued operations - $12,475 -100 % $83,439 $43,193 +93 %
Net income from discontinued operations per share - $0.22 -100 % $1.31 $0.77 +70 %
Net income attributable to Inmet shareholders $56,050 $68,495 -18 % $198,894 $153,266 +30 %
Net income per share $0.86 $1.22 -30 % $3.13 $2.73 +15 %
Cash flow
Cash flow provided by operating activities $92,931 $39,691 +134 % $211,107 $84,818 +149 %
Cash flow provided by operating activities per share(1) $1.42 $0.71 +100 % $3.33 $1.51 +121 %
Capital spending(2) $51,801 $6,889 +652 % $92,531 $24,430 +279 %
OPERATING HIGHLIGHTS
Production(3)
Copper (tonnes) 19,200 16,400 +17 % 36,900 30,900 +19 %
Zinc (tonnes) 18,300 20,600 -11 % 39,500 39,300 +1 %
Gold (ounces) - 18,600 -100 % - 37,900 -100 %
Pyrite (tonnes) 198,200 137,700 +44 % 384,200 335,200 +15 %
Copper cash cost (US $ per pound)(4) $1.04 $0.56 +86 % $0.99 $0.45 +120 %
as at June 30 as at December 31
FINANCIAL CONDITION 2011 2010
Current ratio 8.2 to 1 3.4 to 1
Gross debt to total equity 1% 1%
Net working capital balance (millions) $1,125 $626
Liquidity balance including cash and long-term bonds (millions) $1,625 $699
Gross debt (millions) $18 $17
Shareholders' equity (millions) $3,291 $2,555
(1) Cash flow provided by operating activities divided by average shares outstanding for the period.
(2) The six months ended June 30, 2011 includes capital spending of $48 million at Cobre Panama and $34 million at Las Cruces. The six months ended June 30, 2010 includes capital spending of $41 million at Cobre Panama and $29 million at Las Cruces reduced by positive cash flow from pre-operating costs net of revenues and working capital changes at Las Cruces of $53 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. Copper cash costs this quarter and year to June were higher because Las Cruces is ramping up to full production. We did not include Las Cruces' results in cash costs in the first half of 2010 because it had not yet reached commercial production.
Second 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 13
Results of our operations 15
Cayeli 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 June 30, 2011. Revised objective is as of July 25, 2011.

Adoption of International Financial Reporting Standards

We have prepared our second 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.

Forward looking information

Securities regulators encourage companies to disclose forward-looking information to help investors understand a company's future prospects. This press release contains statements about our future financial condition, results of operations and business.

These are "forward-looking" because we have used what we know and expect today to make a statement about the future. Forward-looking statements usually include words such as may, expect, anticipate, believe or other similar words. We believe the expectations reflected in these forward-looking statements are reasonable. However, actual events and results could be substantially different because of the risks and uncertainties associated with our business or events that happen after the date of this press release. You should not place undue reliance on forward-looking statements. As a general policy, we do not update forward-looking statements except as required by securities laws and regulations.

Our financial results
three months ended
June 30
six months ended June 30
(thousands, except per share amounts) 2011 2010 change 2011 2010 change
EARNINGS FROM OPERATIONS (1)
Çayeli $35,271 $32,262 +9% $86,744 $63,298 +37%
Las Cruces 21,475 - +100% 52,051 - +100%
Pyhäsalmi 31,043 24,967 +24% 65,496 47,832 +37%
Other - 10,213 -100% - 24,391 -100%
87,789 67,442 +30% 204,291 135,521 +51%
DEVELOPMENT AND EXPLORATION
Corporate development and exploration (4,562) (2,524) +81% (17,973) (5,303) +239%
CORPORATE COSTS
General and administration (8,258) (6,200) +33% (16,680) (11,621) +44%
Investment and other income 4,731 3,321 +42% (1,042) 4,525 -123%
Stand by costs - - - - (6,753) -100%
Finance costs (2,386) (1,770) +35% (4,717) (3,643) +29%
Income and capital taxes (21,264) (8,775) +142% (48,424) (11,861) +308%
(27,177) (13,424) +102% (70,863) (29,353) +141%
Net income from continuing operations 56,050 51,494 +9% 115,455 100,865 +14%
Income from discontinued operation (net of taxes) - 12,475 -100% 83,439 43,193 +93%
Non-controlling interest - 4,526 -100% - 9,208 -100%
Net income attributable to Inmet shareholders $56,050 $68,495 -18% $198,894 $153,266 +30%
Income from continuing operations per common share $0.86 $1.00 -14% $1.82 $1.96 -7%
Diluted income from continuing operations per common share $0.86 $1.00 -14% $1.81 $1.96 -8%
Basic net income per common share $0.86 $1.22 -30% $3.13 $2.73 +15%
Diluted net income per common share $0.86 $1.22 -30% $3.12 $2.73 +14%
Weighted average shares outstanding 65,393 56,107 +17% 63,483 56,107 +13%
(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
three months ended six months ended see
(millions) June 30 June 30 page
EARNINGS FROM OPERATIONS
Sales
Higher copper prices denominated in Canadian dollars $15 $34 8
Other changes in prices denominated in Canadian dollars 10 12 8
Lower sales volumes (11) - 8
Costs
Higher operating costs, including costs that vary with income and cash flows (5) (5) 11
Operating earnings at Las Cruces 21 52 19
2010 earnings from Troilus (10) (24)
Higher earnings from operations compared to 2010 20 69
CORPORATE COSTS
Costs related to proposed merger with Lundin - (6) 13
Exploration of Balboa deposit at Cobre Panama - (2) 13
Standby charges in 2010 - 7 13
Foreign exchange changes (1) (11) 13
Higher income taxes (12) (37) 14
Other (2) (5)
Higher net income from continuing operations compared to 2010 5 15
Higher (lower) income from discontinued operation – Ok Tedi (12) 40 14
Non-controlling interest in 2010 (5) (9)
Higher (lower) net income attributable to Inmet shareholders compared to 2010 ($12) $46

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 8.

three months ended June 30 six months ended June 30
2011 2010 change 2011 2010 change
US dollar metal prices
Copper (per pound) US $4.16 US $2.91 +43% US $4.24 US $3.14 +35%
Zinc (per pound) US $1.01 US $0.81 +25% US $1.03 US $0.91 +13%
Canadian dollar metal prices
Copper (per pound) C $4.03 C $2.99 +35% C $4.14 C $3.25 +27%
Zinc (per pound) C $0.98 C $0.83 +18% C $1.01 C $0.94 +7%

Copper

Copper prices on the London Metals Exchange (LME) averaged US $4.14 per pound this quarter, a decrease of 8 percent from the first quarter of 2011 and a 29 percent increase over the second quarter of 2010.

Zinc

Zinc prices on the LME averaged US $1.02 per pound this quarter, slightly lower than last quarter's average price of US $1.09 per pound and a 9 percent increase over the second quarter of 2010.

Pyrite

Prices for sulphur stabilized during the second quarter and we expect to realize similar prices for the remainder of the year.

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 June 30 six months ended June 30
2011 2010 change 2011 2010 change
Exchange rates
1 US$ to C$ $0.97 $1.03 -6% $0.98 $1.03 -5%
1 euro to C$ $1.39 $1.31 +6% $1.37 $1.37 -
1 euro to US$ $1.44 $1.28 +13% $1.40 $1.33 +5%

Our sales are affected by the conversion of US dollar revenue to Canadian dollars. Compared to the same quarter last year, the value of the Canadian dollar appreciated 6 percent relative to the US dollar and depreciated 6 percent relative to the euro.

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

  • translate the results of our operations from their functional currency (US dollars or euros) to Canadian dollars
  • revalue US dollars and euros that we hold in cash and long-term bonds at Corporate.

Treatment charges down for zinc

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

The table below shows the average charges we realized this quarter and year to date. We finalized our terms with zinc smelters this quarter, agreeing on treatment charges for zinc concentrates that are lower than last year, reflecting a tightening zinc concentrate market. Results this quarter include adjustments we've made to first quarter charges, which were at 2010 rates.

three months ended
June 30
six months ended
June 30
(US$) 2011 2010(1) change 2011 2010(1) change
Treatment charges
Copper (per dry metric tonne of concentrate) US $57 US $46 +24% US $52 US $52 -
Zinc (per dry metric tonne of concentrate) US $197 US $284 -31% US $225 US $247 -9%
Price participation
Copper (per pound) US $0.02 US $0.02 - US $0.02 US $0.02 -
Zinc (per pound) US ($0.01) US ($0.11) +91% US ($0.01) US ($0.02) +50%
Freight charges
Copper (per dry metric tonne of concentrate) US $52 US $54 -4% US $51 US $49 +4%
Zinc (per dry metric tonne of concentrate) US $23 US $35 -34% US $24 US $32 -25%
(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 June 30 six months ended June 30
(thousands) 2011 2010 change 2011 2010 change
Gross sales $221,952 $161,165 +38% $476,229 $322,327 +48%
Smelter processing charges and freight (33,870) (35,272) -4% (65,455) (68,373) -4%
Cost of sales:
Direct production costs (77,223) (45,940) +68% (148,651) (94,745) +57%
Inventory changes 5,653 (1,343) -521% (1,501) (3,492) -57%
Other non-cash expenses (2,074) (840) +147% (2,642) (2,152) +23%
Depreciation (26,649) (10,328) +158% (53,689) (18,044) +198%
Earnings from operations $87,789 $67,442 +30% $204,291 $135,521 +51%
Gross sales were significantly higher
three months ended June 30 six months ended June 30
(thousands) 2011 2010 change 2011 2010 change
Gross sales by operation
Çayeli $81,829 $82,195 - $180,882 $157,463 +15%
Las Cruces 78,787 - +100% 169,613 - +100%
Pyhäsalmi 61,336 51,247 +20% 125,734 102,687 +22%
Other (Troilus) - 27,723 -100% - 62,177 -100%
$221,952 $161,165 +38% $476,229 $322,327 +48%
Gross sales by metal
Copper $144,766 $77,539 +87% $336,469 $157,524 +114%
Zinc 50,291 39,598 +27% 95,162 86,271 +10%
Gold - 23,035 -100% - 46,292 -100%
Other 26,895 20,993 +28% 44,598 32,240 +38%
$221,952 $161,165 +38% $476,229 $322,327 +48%
Key components of the change in sales:
gross sales at Las Cruces, no sales at Troilus since closure
three months ended six months ended
(millions) June 30 June 30
Higher copper prices, denominated in Canadian dollars $15 $34
Higher zinc prices, denominated in Canadian dollars 7 4
Changes in other metal prices 3 7
Gross sales at Las Cruces 79 170
2010 gross sales from Troilus (28) (62)
Higher (lower) sales volumes at our other mines (15) 1
Higher gross sales, compared to 2010 $61 $154

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 $3 million in negative finalization adjustments from first quarter sales.

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

  • 20 million pounds of copper provisionally priced at US $4.28 per pound
  • 12 million pounds of zinc provisionally priced at US $1.07 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
July 2011 11 12
August 2011 4 -
September 2011 5 -
Unsettled sales at June 30, 2011 20 12

Significantly higher pyrite sales volumes, no gold sales volumes

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

  • Copper production volumes were up this quarter and year to date mainly because of production at Las Cruces. Copper sales volumes were lower than production volumes this quarter mainly because of the timing of shipments to our customers at Çayeli and Pyhäsalmi.
  • Zinc sales volumes were slightly higher than 2010 due to the timing of shipments.
  • There was no gold production or sales volumes because Troilus stopped operating in June 2010 and we sold our interest in Ok Tedi in January 2011.
  • Pyhäsalmi's pyrite sales volumes were higher than in 2010 because of higher customer demand in Europe and China.
three months ended
June 30
six months ended
June 30
Sales volumes 2011 2010(1) change 2011 2010(1) change
Copper (tonnes) 16,300 16,300 - 36,900 29,700 +24%
Zinc (tonnes) 23,300 21,600 +8% 43,100 41,300 +4%
Gold (ounces) - 18,100 -100% - 39,300 -100%
Pyrite (tonnes) 222,800 168,300 +32% 364,100 259,100 +41%
Production
three months ended
June 30
six months ended
June 30
revised
objective
Inmet's share(2) 2011 2010(1) change 2011 2010(1) change 2011(3)
Copper (tonnes)
Çayeli 7,000 7,100 -1% 13,000 14,200 -8% 30,900
Las Cruces 8,500 4,600 +85% 16,600 7,800 +113% 43,500
Pyhäsalmi 3,700 4,000 -8% 7,300 6,900 +6% 13,300
Troilus - 800 -100% - 2,000 -100% -
19,200 16,400 +17% 36,900 30,900 +19% 87,700
Zinc (tonnes)
Çayeli 10,500 15,000 -30% 23,000 26,500 -13% 45,700
Pyhäsalmi 7,800 5,600 +39% 16,500 12,800 +29% 31,900
18,300 20,600 -11% 39,500 39,300 +1% 77,600
Gold (ounces)
Troilus - 18,600 -100% - 37,900 -100% -
Pyrite (tonnes)
Pyhäsalmi 198,200 137,700 +44% 384,200 335,200 +15% 800,000
(1) 2010 volumes have been revised to 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.
(3) 2011 objective was revised to decrease cathode copper production at Las Cruces and zinc production at Çayeli. All other production objectives are unchanged.

2011 outlook for sales

We use our production objectives to estimate our sales target.

  • We expect copper production in 2011 to be 87,700 tonnes. Copper production at Las Cruces should be more than 50 percent higher than it was in 2010 as the operation ramps up to its nameplate capacity of 72,000 tonnes of copper cathode, and because we increased our ownership from 70 percent to 100 percent in December 2010. We have revised our cathode copper production objective from 50,200 tonnes to between 42,000 and 45,000 tonnes for the year to reflect the actual performance for the first half of the year and the impact of the failure of the new grinding thickener in July.
  • We expect 2011 zinc sales and production volumes to be slightly lower than 2010 volumes because of lower grades and recoveries at Çayeli. We have revised our zinc grade objective to be 5.6 percent, compared to our previous target 5.9 percent because of mine sequence changes and updates to expected stope grades. We have therefore reduced our zinc objective from 48,600 tonnes to 45,700 tonnes to reflect this in addition to lower recoveries.
  • We do not expect any gold sales in 2011.
  • Pyhäsalmi expects to produce and sell 800,000 tonnes of pyrite in 2011. It signed a five year sales contract in March 2011 with a customer in the Far East for up to 400,000 tonnes of pyrite per year, and now has long term agreements covering sales of up to 760,000 tonnes annually.

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.

Lower smelter processing charges
three months ended June 30 Six months ended June 30
(thousands) 2011 2010 change 2011 2010 change
Smelter processing charges and freight by operation
Çayeli $18,350 $20,859 -12% $36,244 $39,697 -9%
Las Cruces 208 - +100% 476 - +100%
Pyhäsalmi 15,312 12,850 +19% 28,735 24,355 +18%
Other (Troilus) - 1,563 -100% - 4,321 -100%
$33,870 $35,272 -4% $65,455 68,373 -4%
Smelter processing charges and freight by metal
Copper $8,427 $11,363 -26% $19,628 $21,484 -9%
Zinc 17,697 15,503 +14% 35,374 35,978 -2%
Other 7,746 8,406 -8% 10,453 10,911 -4%
$33,870 $35,272 -4% $65,455 $68,373 -4%
Smelter processing charges by type and freight
Copper treatment and refining charges $2,818 $3,580 -21% $6,199 $7,569 -18%
Zinc treatment charges 8,897 12,794 -30% 18,659 20,863 -11%
Copper price participation 328 412 -20% 714 837 -15%
Zinc price participation (359) (5,372) -93% (559) (1,438) -61%
Content losses 11,165 10,758 +4% 22,786 22,396 +2%
Freight 10,761 12,434 -13% 17,068 17,392 -2%
Other 260 666 -61% 588 754 -22%
$33,870 $35,272 -4% $65,455 $68,373 -4%

Our copper treatment and refining charges were lower than they were in 2010 because Troilus stopped operating in June 2010. Zinc treatment charges were lower than last year because our terms with smelters were lower.

2011 outlook for smelter processing charges and freight

We expect costs for copper treatment and refining to be higher in 2011 based on agreements we signed recently with customers. We sell approximately 90 percent of our copper concentrate under long-term contracts.

Spot smelter processing charges continue to be significantly higher than they were in 2010, because the earthquake in Japan in March caused stoppages in copper smelter production, lowering short-term demand for copper concentrates. This should settle in the third quarter and we expect spot processing charges to normalize.

We expect copper price participation to be minimal.

We expect total zinc smelter processing charges, including price participation, to be lower than in 2010 because of a tightening zinc concentrate market and our long-term contracts reflect this.

We expect our ocean freight costs to be similar to 2010.

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

Direct production costs and cost of sales higher
three months ended June 30 six months ended June 30
(thousands) 2011 2010 change 2011 2010 change
Direct production costs by operation
Çayeli $22,889 $21,273 +8% $46,267 $43,009 +8%
Las Cruces 39,240 - +100% 72,728 - +100%
Pyhäsalmi 15,094 12,853 +17% 29,656 27,831 +7%
Other (Troilus) - 11,814 -100% - 23,905 -100%
Total direct production costs 77,223 45,940 +68% 148,651 94,745 +57%
Inventory changes (5,653) 1,343 -521% 1,501 3,492 -57%
Other non-cash expenses 2,074 840 +147% 2,642 2,152 +23%
Total cost of sales (excluding depreciation) $73,644 $48,123 +53% $152,794 $100,389 +52%

Direct production costs

Direct production costs are higher this year, mainly because we began recognizing operating results at Las Cruces in our consolidated income statement effective July 1, 2010, partly offset by the closure of Troilus mid-year in 2010. At Çayeli, consumables, ground control and royalty costs were higher as anticipated in our guidance. Pyhäsalmi realized higher consumable, electricity and ground support costs this quarter than the second quarter of 2010.

Inventory changes

Copper inventories at Çayeli and Pyhäsalmi increased this quarter end by a combined 3,000 tonnes because of the timing of shipments.

2011 outlook for cost of sales (excluding depreciation)

We expect consolidated direct production costs to be higher in 2011 because we will recognize a full year of production costs in the income statement for Las Cruces. This will be somewhat offset by the closure of Troilus.

Our budget for 2011 assumes our costs at Pyhäsalmi will be similar to 2010 and higher at Çayeli. Costs at Las Cruces will rise to reflect increased production, but should decrease significantly per pound of copper produced as this operation continues to ramp up to full production.

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.
Higher depreciation
three months ended June 30 six months ended June 30
(thousands) 2011 2010 change 2011 2010 Change
Depreciation by operation
Çayeli $5,028 $6,104 -18% $10,254 $10,814 -5%
Las Cruces 19,283 - +100% 38,839 - +100%
Pyhäsalmi 2,338 1,995 +17% 4,596 4,016 +14%
Other (Troilus) - 2,229 -100% - 3,214 -100%
$26,649 $10,328 +158% $53,689 $18,044 +198%

Depreciation was higher this quarter and year to date mainly because Las Cruces began to depreciate its operating assets in the income statement on July 1, 2010. There was no depreciation at Troilus in 2011 because it stopped operating in June 2010.

2011 outlook for depreciation

We expect depreciation to be higher in 2011 mainly because we will recognize Las Cruces' operating results in earnings for the entire year. This will be offset somewhat by the closure of Troilus.

Corporate costs

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

Corporate development and exploration

Costs year to date are approximately $13 million higher than 2010. In the first quarter, we incurred approximately $6 million of expenses from work related to the arrangement agreement to merge with Lundin Mining Corporation. We and Lundin Mining Corporation agreed to mutually 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. In addition, we incurred $2 million in expenditures in the first quarter to drill the Balboa deposit at Cobre Panama. Work on Balboa continued in the second quarter and we began capitalizing drilling and evaluation costs for this deposit based on the positive results to date. See Status of development project – Cobre Panama on page 22 for more information. Increased costs compared to 2010 also reflect our higher budget for 2011 to explore for world class deposits.

Investment and other income
three months ended June 30 six months ended June 30
(thousands) 2011 2010 2011 2010
Interest income $4,205 $1,760 $6,977 $3,357
Foreign exchange losses (267) 863 (11,093) (198)
Dividend and royalty income 467 1,175 1,067 1,889
Other 326 (477) 2,007 (523)
$4,731 $3,321 $(1,042) $4,525

Interest income

Interest income was higher this quarter and year to date compared to last year because our long-term bond portfolio provided higher yields and because our cash and long-term bond balances were higher.

Foreign exchange losses

We have foreign exchange gains or losses when we revalue certain foreign denominated assets and liabilities.

Our foreign exchange losses were from:

three months ended
June 30
six months ended
June 30
(thousands) 2011 2010 2011 2010
Translation of US dollar held-to-maturity investments $(1,399) $- $(2,851) $-
Translation of US dollar cash held at corporate 49 393 (8,188) (10)
Translation of other monetary assets and liabilities 1,083 470 (54) (188)
$(267) $863 $(11,093) $(198)

We continue to hold the proceeds we received 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. In the first quarter, we recognized total foreign exchange losses of $9.5 million on these funds because the US dollar depreciated in value relative to the Canadian dollar.

2011 outlook for investment and other income

Investment and other income is affected by cash and held to maturity investments, and by interest rates and exchange rates.

Stand-by costs

In the first quarter of 2010, we could not mine ore at Las Cruces because of the water levels in the pit. We expensed $6.8 million in operating and maintenance costs for the water purification plant because they did not relate to production activities. We recognized these expenses as stand-by costs because we were not yet at commercial production.

Income tax expense (recovery)
three months ended June 30 six months ended June 30
(thousands) 2011 2010 change 2011 2010 change
Çayeli $11,936 $8,738 $23,592 $15,604
Las Cruces 2,437 (7,222) 9,934 (14,856)
Pyhäsalmi 6,595 5,551 14,398 10,510
Corporate and other 296 1,708 500 603
$21,264 $8,775 $48,424 11,861
Consolidated effective tax rate 28% 15% +13% 30% 11% +19%

Our tax expense changes as our earnings change.

The consolidated effective tax rate increased this quarter and 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.

2011 outlook for income tax expense

We expect statutory tax rates at our operations to remain the same as they were in 2010 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 expect to reduce our tax-effected Canadian tax loss pools by about $2 million.

Results of our operations

2011 estimates

Our financial review by operation includes estimates for our 2011 operating earnings and operating cash flows. We used our 2011 objectives for production and cost per tonne of ore milled to build these estimates, as well as the following assumptions for the remaining six months of the year:

Copper price US $4.30 per pound
Zinc price US $1.00 per pound
Copper treatment cost US $54 per tonne for contracts
Zinc treatment cost US $224 per tonne (basis US $2,500 per tonne) for contracts
US $ to C$ exchange rate $1.00
euro to C$ exchange rate $1.35
Working capital Assume no changes for the year
Çayeli
three months ended
June 30
six months ended
June 30
revised
objective
2011 2010 change 2011 2010 change 2011
Tonnes of ore milled (000's) 275 295 -7% 568 584 -3% 1,200
Tonnes of ore milled per day 3,000 3,200 -6% 3,100 3,200 -3% 3,300
Grades copper 3.3 3.2 +3% 3.1 3.2 -3% 3.2
(percent) zinc 5.7 7.0 -19% 6.0 6.3 -5% 5.6
Mill recoveries copper 77 76 +1% 75 77 -3% 80
(percent) zinc 67 73 -8% 68 72 -6% 68
Production copper 7,000 7,100 -1% 13,000 14,200 -8% 30,900
(tonnes) zinc 10,500 15,000 -30% 23,000 26,500 -13% 45,700
Cost per tonne of ore milled (C$) $83 $72 +15% $82 $74 +11% $81

Copper production improved from last quarter

Copper grades increased this quarter as we began to produce higher copper grade ore that had been deferred earlier in the year. We will continue to process this high copper grade ore in the third quarter. Low stockpiles early in the quarter limited blending opportunities, which led to lower overall copper recoveries than planned. Stockpiles have since grown giving us the ability to optimize blending going forward. Mill throughput was lower this quarter compared to the second quarter of 2010 due to a routine shutdown. Although copper production was lower than expected, we anticipate making up this production in the second half of the year.

Zinc grades this quarter were significantly lower than the second quarter of 2010 because of variation in ore types. Ore containing bornite minerals continued to pose challenges to the process plant, lowering metallurgical recoveries this year especially for zinc. Zinc production was therefore lower than last year.

The additional resources for ground control are improving production reliability. The mine achieved a 30 day monthly production record in June, producing 103,000 tonnes of ore and also achieving weekly records for rockbolts installed, shotcrete applied and sheets of wire mesh installed.

Cost per tonne of ore milled this quarter and year to date were higher than 2010 mainly because of higher royalty costs (pushed up by higher realized metals prices), additional ground support costs and increased costs for labour and consumables. This change was, however, consistent with our expectations and the objective for the year.

2011 outlook

Production levels in 2011 should remain at approximately 1.2 million tonnes. We expect copper grades to be 3.2 percent consistent with our original plan. We have reduced our zinc grade objective to 5.6 percent, compared to our previous target of 5.9 percent because of mine sequence changes and updates to forecast stope grades. We expect there will continue to be bornite containing ore in the mill feed, and we have reduced our objective for zinc recoveries from 73 percent to 68 percent. The result is that we adjusted our zinc production objective from 48,600 tonnes to 45,700 tonnes.

Financial review
Impact of higher metal prices realized this quarter offset by lower sales volumes due to timing of shipments
three months ended
June 30
six months ended
June 30
revised
objective
(millions of Canadian dollars unless otherwise stated) 2011 2010 2011 2010 2011
Sales analysis
Copper sales (tonnes) 5,000 7,500 12,500 13,100 30,900
Zinc sales (tonnes) 15,500 16,600 25,500 28,900 45,700
Gross copper sales $42 $48 $112 $91 $289
Gross zinc sales 34 30 57 59 103
Other metal sales 6 4 12 7 22
Gross sales 82 82 181 157 414
Smelter processing charges and freight (19) (21) (36) (40) (79)
Net sales $63 $61 $145 $117 $335
Cost analysis
Tonnes of ore milled (thousands) 275 295 568 584 1,200
Direct production costs ($ per tonne) $83 $72 $82 $74 $81
Direct production costs $23 $21 $46 $43 $97
Change in inventory (1) 1 - (1) -
Depreciation and other non-cash costs 6 7 12 12 25
Operating costs $28 $29 $58 $54 $122
Operating earnings $35 $32 $87 $63 $213
Operating cash flow $37 $23 $91 $53 $186

The objective for 2011 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
June 30
six months ended
June 30
Higher copper prices, denominated in Canadian dollars $10 $25
Higher other metal prices, denominated in Canadian dollars 8 10
Lower copper sales volumes (12) (5)
Lower zinc sales volumes (2) (4)
Higher production costs, including royalty (2) (3)
Other 1 1
Higher operating earnings, compared to 2010 3 24
Change in tax expense because of change in taxable income (6) (7)
Changes in working capital (see note 19 on page 76) 19 22
Other (2) -
Higher operating cash flow, compared to 2010 $14 $38
Capital spending
three months ended
June 30
six months ended
June 30
objective
(thousands) 2011 2010 change 2011 2010 change 2011
Capital spending $5,200 $3,100 +68% $7,700 $4,900 +57% $19,000

2011 outlook for capital spending

We expect to spend $19 million on capital in 2011, for underground development, ore pass rehabilitation, mobile equipment, a shotcrete delivery line extension, a new concrete batch plant and additional mill improvements.

Las Cruces
three months ended
June 30
six months ended
June 30
revised
objective
(100 percent) 2011 2010 change 2011 2010 change 2011
Tonnes of ore processed (000's) 164 111 +48% 336 188 +79% 800
Copper grades (percent) 6.3 7.2 -13% 6.2 7.0 -11% 6.3
Plant recoveries (percent) 83 84 -1% 80 84 -5% 86
Cathode copper production (tonnes) 8,500 6,600 +29% 16,600 11,100 +50% 43,500
Cost per pound of cathode produced (C$) $2.07 n/a n/a $1.99 n/a n/a $1.51

Progress update

In June 2011, we completed a planned maintenance shutdown at Las Cruces for 16 days to install new components and modify equipment, working to increase the underflow (or solids) density of the grinding thickener to its design capacity of 80 percent. After the shutdown, we operated consistently at solid densities at 80 percent or higher, compared to 75 percent before the shutdown. The plant started up on schedule, achieving record throughput above 80 percent soon after start-up and record weekly production of 1,340 tonnes of cathode copper.

Within two weeks after start-up, a support structure of the new grinding thickener failed due to a faulty weld, causing a subsequent shut-down for repair. Production was halted for seven days to empty, repair and re-fill the thickener before it resumed. We are extremely disappointed by the poor performance of our technology provider and are in discussions with it about rectifying the situation.

Copper cathode production in the second quarter was slightly better than the first quarter (8,500 tonnes compared to 8,100 tonnes). This reflects the downtime for the June shutdown and the continuing improvements to the reactors, including installing and commissioning new oxygen distributors.

Recoveries increased in the second quarter to 83 percent, approaching our objective of 85 percent as the efficiency of oxygen dispersion continues to improve. Higher iron levels in the reactors have also increased copper recoveries and ferric iron levels, allowing us to leach copper more effectively.

Despite these measurable improvements, we still need to closely monitor the leach reaction process. The leach solution in the reactors is extremely corrosive and abrasive, damaging even high nickel alloy stainless steel. We are monitoring and attempting to mitigate the wear on components inside the leach reactors, such as the cooling baffles, oxygen distributors and agitators.

Ore mining continues to progress well, and we have built up stockpiles and expect to mine up to one million tonnes this year.

Our water management continues to be successful, and we are progressively increasing our capacity for drainage and reinjection, as we commission new wells while aiming to reduce contact water inflows. Favourable summer climatic conditions have allowed us to reduce our discharge to the river.

Operating costs this quarter include $5 million for shutdown costs.

2011 outlook

We look forward to the coming months and we expect to reach production design capacity this year, as all critical components of the operation have performed on a sustained basis at close to their design capacity or better. Our task now is to achieve reliable, sustained operations for the balance of the year, and to optimize the required maintenance and component replacements.

We are reducing our cathode copper production objective from 50,200 tonnes to between 42,000 and 45,000 tonnes for the year to reflect actual performance during the ramp-up year to date and the impact of the failure of the new grinding thickener in July.

Financial review
New operating earnings and operating cash flow at Las Cruces this year
three months ended
June 30
six months ended
June 30
revised
objective
(millions of Canadian dollars unless otherwise stated) 2011 2011 2011
Sales analysis
Copper sales (tonnes) 8,700 18,400 43,500
Gross copper sales $78 $169 $410
Smelter processing charges and freight - - (1)
Net sales $78 $169 $409
Cost analysis
Pounds of copper produced (millions) 19 37 96
Direct production costs ($ per pound) $2.07 $1.99 $1.51
Direct production costs $39 $73 $145
Change in inventory (1) 5 -
Depreciation and other non-cash costs 19 39 81
Operating costs $57 $117 $226
Operating earnings $21 $52 $183
Operating cash flow $41 $99 $272

The objective for 2011 uses the assumptions listed on page 15.

Capital spending
three months ended
June 30
six months ended
June 30
revised
objective
(100 percent and millions of Canadian dollars) 2011 2010 change 2011 2010 change 2011
Capital $19 $19 - $34 $29 +17% $68
Pre-operating costs capitalized, net of sales, working capital and other - (40) -100% - (53) -100% -
$19 ($21) +190% $34 ($24) +242% $68

Capital spending this year was mainly on plant improvements, the permanent water purification plant and mine development. In 2010 it was mainly for the permanent water purification plant.

2011 outlook for capital spending

We expect to spend $68 million on capital projects in 2011, including $16 million for mine development and $37 million for plant improvements.

Pyhäsalmi
three months ended
June 30
six months ended
June 30
revised
objective
2011 2010 change 2011 2010 change 2011
Tonnes of ore milled (000's) 352 355 -1% 687 700 -2% 1,370
Tonnes of ore milled per day 3,900 3,900 - 3,800 3,900 -3% 3,750
Grades copper 1.1 1.2 -8% 1.1 1.0 +10% 1.0
(percent) zinc 2.4 1.8 +33% 2.6 2.0 +30% 2.6
sulphur 41 45 -9% 41 44 -7% 43
Mill recoveries copper 96 96 - 96 96 - 95
(percent) zinc 91 88 +3% 91 90 +1% 90
Production copper 3,700 4,000 -8% 7,300 6,900 +6% 13,300
(tonnes) zinc 7,800 5,600 +39% 16,500 12,800 +29% 31,900
pyrite 198,200 137,700 +44% 384,200 335,200 +15% 800,000
Cost per tonne of ore milled (C$) $43 $36 +19% $43 $40 +8% $40

Higher zinc grades increase zinc production

Pyhäsalmi processed at an annualized rate that was in line with its annual objective.

The operation maintained its strong production record and achieved copper recoveries of 96 percent and zinc recoveries of 91 percent. Zinc grades were significantly higher this quarter and year to date compared to last year, and are consistent with our plan, pushing zinc production significantly higher. Copper production this quarter was slightly below the same quarter in 2010 and higher year to date because of variations in copper grades. Pyrite production was higher this quarter to meet higher customer demand.

2011 outlook

Pyhäsalmi remains on target to mine 1.4 million tonnes of 1 percent copper and 2.6 percent zinc in 2011, and to produce 13,300 tonnes of copper and 31,900 tonnes of zinc.

It expects to produce and sell 800,000 tonnes pyrite in 2011. In March 2011, Pyhäsalmi signed a five year sales contract with a customer in the Far East for up to 400,000 tonnes of pyrite per year, and now has long term agreements covering sales of up to 760,000 tonnes per year.

Financial review
Higher earnings because of higher copper prices and higher zinc and pyrite sales volumes
(millions of Canadian dollars unless three months ended
June 30
six months ended
June 30
revised
objective
otherwise stated) 2011 2010 2011 2010 2011
Sales analysis
Copper sales (tonnes) 2,600 3,600 6,100 6,800 13,300
Zinc sales (tonnes) 7,900 5,000 17,500 12,400 31,900
Pyrite sales (tonnes) 222,800 168,300 364,100 259,100 800,000
Gross copper sales $24 $26 $55 $52 $125
Gross zinc sales 17 9 38 27 71
Other metal sales 20 16 33 24 67
Gross sales 61 51 126 103 263
Smelter processing charges and freight (15) (13) (29) (24) (51)
Net sales $46 $38 $97 $79 $212
Cost analysis
Tonnes of ore milled (thousands) 352 355 687 700 1,370
Direct production costs ($ per tonne) $43 $36 $43 $40 $40
Direct production costs $15 $13 $30 $28 $55
Change in inventory (3) (1) (3) (1) -
Depreciation and other non-cash costs 3 1 5 4 11
Operating costs $15 $13 $32 $31 $66
Operating earnings $31 $25 $65 $48 $146
Operating cash flow $30 $13 $70 $28 $122

The objective for 2011 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.

three months ended six months ended
(millions) June 30 June 30
Higher copper prices, denominated in Canadian dollars $5 $9
Higher zinc prices, denominated in Canadian dollars 2 -
Lower copper sales volumes (4) (3)
Higher zinc and other sales volumes 7 12
Higher production costs (2) (2)
Other (2) 1
Higher operating earnings, compared to 2010 6 17
Change in tax expense because of change in earnings (1) (4)
Changes in working capital (see note 19 on page 76) 12 28
Other - 1
Higher operating cash flow, compared to 2010 $17 $42
Capital spending
three months ended
June 30
six months ended
June 30
objective
(thousands) 2011 2010 change 2011 2010 change 2011
Capital spending $2,500 $2,000 +25% $2,800 $2,500 +12% $8,000

2011 outlook for capital spending

Capital spending in 2011 is mainly to replace underground mobile equipment.

Status of our development project

Cobre Panama

Engineering, infrastructure and power

Basic engineering progressed as scheduled this quarter and we have compiled equipment lists, and finalized the process flow diagrams in all plant, port and power areas. We received permits and started several early work projects during the quarter. Preparatory road construction commenced in July in anticipation of major civil work scheduled to begin in early 2012. All early work projects have been approved under separate ESIAs by the regulatory authorities.

As part of our project related efforts, we had been working with GDF Suez Energy Central America S.A. (GDF Suez) to jointly develop an "over the fence" 300 megawatt coal-fired power plant to be owned and operated by GDF Suez. We believe the project would benefit more by directly incorporating the power plant into the project and as a result we reached an agreement with GDF Suez to terminate our joint development agreement. GDF Suez closely collaborated with us to transition Minera Panama as the developer and owner of the power plant. This change will be reflected in the ongoing basic engineering for the project's capital and operating (including power) cost estimates that we expect to have by the end of this year. As part of the transition, Minera Panama has engaged SK Engineering and Construction, Co. Ltd. of Korea under a limited notice to proceed with basic engineering for the power plant.

ESIA approval and corporate responsibility progress

This quarter, we initiated work on our responses to the second set of questions from ANAM, pertaining to the ESIA, which we believe will receive approval in September. The second set of questions is focused mainly on our biodiversity strategy as well as follow up questions on social and economic impacts. We expect to complete our responses and submit them to ANAM within the next month.

Board Approval for Development Decision on Cobre Panama

On July 25, 2011, the Board of Directors of Inmet approved development of Cobre Panama as described in the final FEED study of March, 2010 after completion of a comprehensive review and risk assessment. This approval is conditional on the achievement of the following project milestones:

  • approval of the project ESIA by ANAM
  • securing of all material permits and approvals required to be issued by relevant Panamanian authorities for construction and development of the mine and process plant
  • completion of basic engineering and related update of capital and operating project cost estimates
  • Board satisfaction regarding the ability to finance development of the project.

As a result of the development decision, KPMC, under an amended option agreement we have agreed to with it, must make its election on whether to exercise its option to acquire a 20 percent interest in Minera Panama by the later of 60 days after the development decision or the date that is seven days after we have publicly announced ANAM's approval of the ESIA. In the event that KPMC exercises its option, it will be required to invest approximately US$135 million in Minera Panama within 30 days of the expiry of the initial 60 day period. Any such funds invested by KPMC will be used to fund project related expenditures.

Partnership process recommencement

This quarter, we recommenced 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.

Drilling

We continued with resource drilling this quarter on the recently discovered Balboa deposit. On May 31, 2011, we provided a progress update from 12 further holes drilled on Balboa which is available at www.inmetmining.com. This drilling has defined a quartz-bornite-chalcopyrite mineralized porphyry returning higher copper and gold grades than those encountered at any time previously on the Cobre Panama property in over 40 years of exploration drilling. The Balboa mineralization starts near surface and this implies that it could be mined with a relatively low strip ratio but at generally higher copper and gold grades than the current mineral resources. Drills continue to delineate the extents of zone on 200 metre centres and we have also begun infill drilling on 100 metre centres with a view to establishing National Instrument 43-101 compliant mineral reserves and resources by year-end.

2011 outlook for development

In the latter half of 2011, we plan to:

  • continue our 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 stakeholder concerns
  • continue to work with ANAM on responding to the second round of questions on the ESIA
  • work with all the government agencies to obtain permits that will be required after the ESIA is approved
  • continue with a 720 hectare reforestation plan outside of the concession area
  • work with environmental non-governmental organizations and the environmental authorities in plans to protect two national parks in the region of the project
  • continue to improve site access and infrastructure
  • complete additional drilling for geotechnical and hydrological purposes and to improve our understanding of mineralization not currently included in the project base case
  • complete basic engineering and prepare to begin site capture when we receive the main permits
  • Work with SK Engineering and Construction, Co. Ltd. on the development of the 300 megawatt thermal power plant to supply power for the project
  • develop a range of financing options including a project level limited recourse facility, capital market alternatives and potential new partners
  • spend the balance of our budgeted $224 million to carry out the work described.

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

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 six months ended
June 30 June 30
(millions) 2011 2010 2011 2010
CASH FROM OPERATING ACTIVITIES
Çayeli $37 $23 $91 $53
Las Cruces 41 - 99 (7)
Pyhäsalmi 30 13 70 28
Other (Troilus) (2) 18 (2) 37
Corporate development and exploration not incurred by operations (3) (1) (13) (3)
General and administration (8) (6) (17) (12)
Foreign exchange losses on US dollar funds (1) - (11) -
Other (1) (7) (6) (11)
93 40 211 85
CASH FROM INVESTING AND FINANCING
Purchase of property, plant and equipment (52) (7) (93) (24)
Purchase and maturing of long-term investments, net 14 (117) (254) (219)
Foreign exchange on cash held in foreign operations 1 (6) 4 (20)
Issuance of common shares 502 - 502 -
Other (1) (2) (2) 2
464 (132) 157 (261)
CASH FROM DISCONTINUED OPERATION (OK
TEDI) - 39 307 78
Increase (decrease) in cash 557 (53) 675 (98)
Cash and short-term investments
Beginning of period 444 489 326 534
End of period $1,001 $436 $1,001 $436

Our available liquidity also includes $624 million of held to maturity investments ($373 million at December 31, 2010), providing a total of $1,625 million in capital available to finance our growth strategy as at June 30, 2011.

OPERATING ACTIVITIES
Key components of the change in operating cash flows
three months ended six months ended
(millions) June 30 June 30
Higher earnings from operations (see page 5) $20 $69
Add back higher depreciation included in earnings from operations 16 36
Higher tax expense (7) (10)
Changes in working capital (see note 19 on page 76) 29 50
Realized foreign exchange loss on cash - (8)
Higher corporate development and exploration (2) (13)
Stand-by costs in 2010 - 7
Other (3) (5)
Higher operating cash flow, compared to 2010 $53 $126

Operating cash flows this year were higher than 2010 because our operating earnings before depreciation were higher. The large inflow of cash related to working capital this quarter and year to date mainly reflects lower accounts receivable at Çayeli and Pyhäsalmi due to the timing of collections from customers.

2011 outlook for cash from operating activities

The table below shows expected operating cash flow from our key operations, based on our outlook for metal prices and production listed on page 15, and the assumptions in Results of our operations, which starts on page 15.

2011 estimated operating cash flow by operation
(millions)
Çayeli $186
Las Cruces 272
Pyhäsalmi 122
$580
INVESTING AND FINANCING
Capital spending
three months ended June 30 six months ended June 30 revised objective
(millions) 2011 2010 2011 2010 2011
Çayeli $5 $3 $8 $5 $19
Las Cruces 19 (21) 34 (24) 68
Pyhäsalmi 3 2 3 3 8
Cobre Panama 25 23 48 40 224
$52 $7 $93 $24 $319

Please see Results of our operations and Status of our development project for a discussion of actual results and our 2011 objective. Capital spending this year was mainly for Cobre Panama and for plant improvements at Las Cruces.

Purchase of long-term investments

We used the US dollar proceeds from the sale of Ok Tedi to buy US $273.9 million in US Treasury bonds with AAA 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 $219 million in medium-term Canadian government and corporate bonds with credit ratings of A to AAA.

Issuance of 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 cash of $500 million, 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.

2011 outlook for investing and financing

Capital spending

We expect capital spending to be $319 million in 2011. The more significant items include:

  • $224 million for work on the development at Cobre Panama, including basic engineering, advance payments for mill equipment and other costs to advance development
  • $68 million at Las Cruces, including $16 million for mine development and $37 million for plant improvements.

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 June 30, 2011, we had $1,625 million in total funds, including $1,001 million in cash and short-term investments and $624 million invested in long-term bonds.

Cash

At June 30, 2011 our cash and short-term investments of $1,001 million included cash and money market instruments that mature in 90 days or less.

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 June 30, 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 that are benefiting directly and indirectly from support programs by various governments and central banks.

See note 7 on page 70 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 June 30, 2011, the portfolio was $624 million (Held to maturity investments):

  • 55 percent US Treasury bonds
  • 5 percent Government of Canada bonds
  • 35 percent Provincial Government bonds
  • 5 percent corporate bonds.

The bonds mature between August 2011 and May 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 $76 million as at June 30, 2011 included:

  • $17 million in cash collateralized letters of credit for Inmet
  • $57 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 June 30, 2011 69,328,864
Deferred share units outstanding as of June 30, 2011
(redeemable on a one-for-one basis for common shares) 116,691

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 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 and six months ended June 30, 2010 and 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 of each of the most significant adjustments had on equity.

January 1, June 30, December 31,
Notes 2010 2010 2010
Canadian GAAP equity $2,238,145 $2,268,704 $2,758,484
IFRS adjustments:
Reclassification of non-controlling interest to equity 78,005 58,926 -
Revenue recognition i 14,210 15,219 30,023
Reversal of impairment of assets – Çayeli ii 42,395 40,893 34,005
Provision for asset retirement obligations iii (38,349) (35,553) (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 11,992 12,175
Other 18,702 14,527 15,218
IFRS equity $2,361,412 $2,374,708 $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 is 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 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 IFRS determines asset retirement obligations.

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.

Second quarter conference call

Will be held on

- Tuesday, July 26, 2011

- 8:30 a.m. Eastern Time

- webcast available at http://events.digitalmedia.telus.com/inmet/072611/index.php or www.inmetmining.com

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) Tuesday, July 26, 2011, a conference call replay will be available

- Local or international: +1.905.694.9451 passcode 5516403

- Toll-free within North America: +1.800.408.3053 passcode 5516403

INMET MINING CORPORATION
Supplementary financial information
Cash costs
2011 For the six months ended June 30
per pound of copper
ÇAYELI LAS CRUCES PYHÄSALMI TOTAL
(US dollars)
Direct production costs $ 1.49 $ 1.95 $ 1.90 $ 1.78
Royalties and variable compensation 0.17 0.08 - 0.10
Smelter processing charges and freight 1.60 0.01 1.19 0.80
Metal credits (2.65 ) - (3.81 ) (1.69 )
Cash cost $ 0.61 $ 2.04 ($0.72 ) $ 0.99
2010 For the six months ended June 30
per pound of copper
ÇAYELI LAS CRUCES (1 ) PYHÄSALMI TOTAL
(US dollars)
Direct production costs $ 1.22 $ - $ 1.72 $ 1.39
Royalties and variable compensation 0.11 - - 0.07
Smelter processing charges and freight 1.37 - 1.02 1.26
Metal credits (2.06 ) - (2.71 ) (2.27 )
Cash cost $ 0.64 $ - $ 0.03 $ 0.45
Reconciliation of cash costs to statements of earnings
2011 For the six months ended June 30
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 $ 46 $ 73 $ 30 $ 149
Smelter processing charges and freight 36 - 29 65
By product sales (69 ) - (71 ) (140 )
Adjust smelter processing and freight, and sales to production basis 4 - 1 5
Operating costs net of metal credits $ 17 $ 73 ($11 ) $ 79
US $ to C$ exchange rate $ 0.98 $ 0.98 $ 0.98 $ 0.98
Inmet's share of production (000's) 28,600 36,600 16,100 81,300
Cash cost $ 0.61 $ 2.04 ($0.72 ) $ 0.99
2010 For the six months ended June 30
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 $ 43 $ - $ 28 $ 71
Smelter processing charges and freight 40 - 24 64
By product sales (66 ) - (51 ) (117 )
Adjust smelter processing and freight, and sales to production basis 4 - (1 ) 3
Operating costs net of metal credits $ 21 $ - $ - $ 21
US $ to C$ exchange rate $ 1.03 $ - $ 1.03 $ 1.03
Inmet's share of production (000's) 31,300 - 15,200 46,500
Cash cost $ 0.64 $ - $ 0.03 $ 0.45
INMET MINING CORPORATION
Supplementary financial information
Cash costs
2011 For the three months ended June 30
per pound of copper
ÇAYELI LAS CRUCES PYHÄSALMI TOTAL
(US dollars)
Direct production costs $ 1.38 $ 2.07 $ 1.94 $ 1.79
Royalties and variable compensation 0.15 0.08 - 0.09
Smelter processing charges and freight 1.44 0.01 1.08 0.74
Metal credits (2.38 ) - (3.75 ) (1.58 )
Cash cost $ 0.59 $ 2.16 ($0.73 ) $ 1.04
2010 For the three months ended June 30
per pound of copper
ÇAYELI LAS CRUCES (1 ) PYHÄSALMI TOTAL
(US dollars)
Direct production costs $ 1.25 $ - $ 1.37 $ 1.30
Royalties and variable compensation 0.08 - - 0.05
Smelter processing charges and freight 1.40 - 0.73 1.16
Metal credits (2.10 ) - (1.95 ) (1.95 )
Cash cost $ 0.63 $ - $ 0.15 $ 0.56
Reconciliation of cash costs to statements of earnings
2011 For the three months ended June 30
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 $ 23 $ 39 $ 15 $ 77
Smelter processing charges and freight 19 - 15 34
By product sales (40 ) - (37 ) (77 )
Adjust smelter processing and freight, and sales to production basis 7 - 1 8
Operating costs net of metal credits $ 9 $ 39 ($6 ) $ 42
US $ to C$ exchange rate $ 0.97 $ 0.97 $ 0.97 $ 0.97
Inmet's share of production (000's) 15,400 18,800 8,100 42,300
Cash cost $ 0.59 $ 2.16 ($0.73 ) $ 1.04
2010 For the three months ended June 30
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 $ 21 $ - $ 13 $ 34
Smelter processing charges and freight 21 - 13 34
By product sales (33 ) - (25 ) (58 )
Adjust smelter processing and freight, and sales to production basis 2 - - 2
Operating costs net of metal credits $ 11 $ - $ 1 $ 12
US $ to C$ exchange rate $ 1.03 $ - $ 1.03 $ 1.03
Inmet's share of production (000's) 15,600 - 8,800 24,400
Cash cost $ 0.63 $ - $ 0.15 $ 0.56
(1) Las Cruces' results are included from July 1, 2010
INMET MINING CORPORATION
Quarterly review
(unaudited)
Latest Four Quarters
(thousands of Canadian dollars, except per share amounts) 2011 Second quarter 2011 First quarter 2010(1) Fourth quarter 2010(1) Third quarter
STATEMENTS OF EARNINGS
Gross sales $ 221,952 $ 254,277 $ 230,269 $ 225,960
Smelter processing charges and freight (33,870 ) (31,585 ) (35,733 ) (34,358 )
Cost of sales (excluding depreciation) (73,644 ) (79,150 ) (82,967 ) (70,503 )
Depreciation (26,649 ) (27,040 ) (18,882 ) (19,062 )
87,789 116,502 92,687 102,037
Corporate development and exploration (4,562 ) (13,411 ) (5,434 ) (2,758 )
General and administration (8,258 ) (8,422 ) (4,758 ) (3,985 )
Investment and other income 4,731 (5,773 ) 50,622 3,197
Finance costs (2,386 ) (2,331 ) (4,294 ) (5,239 )
Income tax expense (21,264 ) (27,160 ) (31,960 ) (25,266 )
Income from continuing operations 56,050 59,405 96,863 67,986
Income from discontinued operation (net of taxes) - 83,439 47,993 33,569
Net income $ 56,050 $ 142,844 $ 144,856 $ 101,555
Net income attributable to:
Inmet equity holders $ 56,050 $ 142,844 $ 146,932 $ 91,678
Non-controlling interest - - (2,076 ) 9,877
$ 56,050 $ 142,844 $ 144,856 $ 101,555
Income from continuing operations per share
Basic $ 0.86 $ 0.97 $ 1.73 $ 1.04
Diluted $ 0.86 $ 0.96 $ 1.73 $ 1.03
Income from discontinuing operations per share
Basic $ - $ 1.36 $ 0.84 $ 0.60
Diluted $ - $ 1.35 $ 0.84 $ 0.60
Net Income per share
Basic $ 0.86 $ 2.33 $ 2.57 $ 1.64
Diluted $ 0.86 $ 2.31 $ 2.57 $ 1.63
(1) Information from 2010 restated in accordance with IFRS, including presentation of our share of Ok Tedi as discontinued operations.
Previous Four Quarters
(thousands of Canadian dollars, except per share amounts) 2010(1) Second quarter 2010(1) First quarter 2009(2) Fourth quarter 2009(2) Third quarter
STATEMENTS OF EARNINGS
Gross sales $ 161,165 $ 161,162 $ 290,570 $ 241,121
Smelter processing charges and freight (35,272 ) (33,101 ) (53,696 ) (41,607 )
Cost of sales (excluding depreciation) (48,123 ) (52,266 ) (74,995 ) (72,706 )
Depreciation (10,328 ) (7,716 ) (17,911 ) (14,558 )
67,442 68,079 143,968 112,250
Corporate development and exploration (2,524 ) (2,779 ) (2,915 ) (1,963 )
General and administration (6,200 ) (5,421 ) (9,836 ) (5,147 )
Investment and other income 3,321 1,204 280 3,588
Asset impairment - - (3,496 ) -
Stand-by costs - (6,753 ) - -
Finance costs (1,770 ) (1,873 ) (496 ) (496 )
Income tax expense (8,775 ) (3,086 ) (38,599 ) (39,988 )
Income from continuing operations 51,494 49,371 88,906 68,244
Income from discontinued operation (net of taxes) 12,475 30,718 - -
Net income $ 63,969 $ 80,089 $ 88,906 $ 68,244
Net income attributable to:
Inmet equity holders $ 68,495 $ 84,771 $ 89,763 $ 61,551
Non-controlling interest (4,526 ) (4,682 ) (857 ) 6,693
$ 63,969 $ 80,089 $ 88,906 $ 68,244
Income from continuing operations per share
Basic $ 1.00 $ 0.96 $ 1.60 $ 1.10
Diluted $ 1.00 $ 0.96 $ 1.60 $ 1.09
Income from discontinuing operations per share
Basic $ 0.22 $ 0.55 $ - $ -
Diluted $ 0.22 $ 0.55 $ - $ -
Net Income per share
Basic $ 1.22 $ 1.51 $ 1.60 $ 1.10
Diluted $ 1.22 $ 1.51 $ 1.60 $ 1.09
(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 June 30, 2011 December 31, 2010(1) January 1, 2010(1)
Assets
Current assets:
Cash and short term investments 7 $ 1,001,020 $ 326,425 $ 533,913
Restricted cash 8 758 617 15,130
Accounts receivable 86,256 119,426 155,761
Inventories 72,176 72,154 98,324
Current portion of held to maturity investments 9 120,777 53,915 9,993
Assets held for sale 10 92 319,082 -
1,281,079 891,619 813,121
Restricted cash 8 74,957 70,059 101,589
Property, plant and equipment 1,803,533 1,736,065 1,945,669
Investments in equity securities 4,194 2,694 42,411
Held to maturity investments 9 502,930 318,615 89,891
Deferred income tax assets 2,805 8,721 2,360
Other assets 2,363 2,335 1,903
Total assets $ 3,671,861 $ 3,030,108 $ 2,996,944
Liabilities
Current liabilities:
Accounts payable and accrued liabilities $ 138,210 $ 136,345 $ 170,524
Provisions 11 17,564 17,668 17,417
Derivatives - - 1,543
Liabilities associated with assets held for sale 10 - 111,896 -
155,774 265,909 189,484
Long-term debt 17,792 16,619 200,026
Provisions 11 170,535 162,399 196,430
Other liabilities 18,852 18,117 20,695
Derivatives - - 3,165
Deferred income tax liabilities 17,895 12,525 25,732
Total liabilities 380,848 475,569 635,532
Commitments and contingencies 20
Equity
Share capital 12 1,591,744 1,089,576 669,952
Contributed surplus 66,433 66,131 64,809
Share based compensation 13 5,419 6,542 5,170
Retained earnings 1,769,468 1,577,507 1,527,109
Accumulated other comprehensive income (loss) 14 (142,051 ) (185,217 ) 19,093
Total equity attributable to Inmet equity holders 3,291,013 2,554,539 2,286,133
Non-controlling interest - - 75,279
Total equity 3,291,013 2,554,539 2,361,412
Total liabilities and equity $ 3,671,861 $ 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 June 30 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 $ 720,586 $ 74,521 $ 95,727 $ 94,909 $ 15,277 $ - $ 1,001,020
Other current assets 128,821 37,397 61,129 50,708 2,004 - 280,059
Restricted cash 16,750 - 56,494 1,713 - - 74,957
Property, plant and equipment 918 145,273 990,156 68,092 599,094 - 1,803,533
Investments in equity securities 4,194 - - - - - 4,194
Held to maturity investments 425,387 77,543 - - - - 502,930
Other non-current assets 1,103 4,065 - - - - 5,168
$ 1,297,759 $ 338,799 $ 1,203,506 $ 215,422 $ 616,375 $ - $ 3,671,861
Liabilities
Current liabilities $ 25,295 $ 32,421 $ 58,600 $ 26,908 $ 12,550 $ - $ 155,774
Long-term debt 17,792 - - - - - 17,792
Provisions 54,735 22,525 64,660 28,615 - - 170,535
Other liabilities 676 - 18,176 - - - 18,852
Deferred income tax liabilities 98 - 5,087 12,710 - - 17,895
$ 98,596 $ 54,946 $ 146,523 $ 68,233 $ 12,550 $ - $ 380,848

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 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
INMET MINING CORPORATION
Segmented statements of financial position (continued)
(unaudited)
2010 As at January 1 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
INMET MINING CORPORATION
Consolidated statements of changes in equity
(unaudited)
Attributable to Inmet equity holders Non-controlling interest Total equity
(thousands of Canadian dollars) Share Capital Retained earnings Contributed surplus Share based compensation Accumulated other comprehensive income (loss)(note 13) Total
Balance as at January 1, 2010(1) $ 669,952 $ 1,527,109 $ 64,809 $ 5,170 $ 19,093 $ 2,286,133 $ 75,279 $ 2,361,412
Comprehensive income - 153,266 - - (118,980 ) 34,286 (16,865 ) 17,421
Equity settled share-based compensation plans - - 657 888 - 1,545 - 1,545
Dividends on common shares - (5,610 ) - - - (5,610 ) - (5,610 )
Other - - - - - - (60 ) (60 )
Balance as at June 30, 2010(1) $ 669,952 $ 1,674,765 $ 65,466 $ 6,058 ($99,887 ) $ 2,316,354 $ 58,354 $ 2,374,708
Comprehensive income - 238,610 - - (78,425 ) 160,185 8,553 168,738
Equity settled share-based compensation plans - - 665 484 - 1,149 - 1,149
Dividends on common shares - (5,600 ) - - - (5,600 ) - (5,600 )
Acquisition of non-controlling interest in Las Cruces 419,624 (330,268 ) - - (6,905 ) 82,451 (66,847 ) 15,604
Other - - - - - - (60 ) (60 )
Balance as at December 31, 2010(1) $ 1,089,576 $ 1,577,507 $ 66,131 $ 6,542 ($185,217 ) $ 2,554,539 $ - $ 2,554,539
Comprehensive income - $ 198,894 - - 43,166 242,060 - 242,060
Equity settled share-based compensation plans - - 302 (1,123 ) - (821 ) - (821 )
Dividends on common shares - (6,933 ) - - - (6,933 ) - (6,933 )
Issuance of common shares 502,168 - - - - 502,168 - 502,168
Balance as at June 30, 2011 $ 1,591,744 $ 1,769,468 $ 66,433 $ 5,419 ($142,051 ) $ 3,291,013 $ - $ 3,291,013
(1) Refer to note 6 for effects of adoption of IFRS
(See accompanying notes)
INMET MINING CORPORATION
Consolidated statements of earnings
(unaudited)
(thousands of Canadian dollars except per share amounts) Three Months Ended June 30 Six Months Ended June 30
Note reference 2011 2010(1) 2011 2010(1)
Gross sales $ 221,952 $ 161,165 $ 476,229 $ 322,327
Smelter processing charges and freight (33,870 ) (35,272 ) (65,455 ) (68,373 )
Cost of sales (excluding depreciation) (73,644 ) (48,123 ) (152,794 ) (100,389 )
Depreciation (26,649 ) (10,328 ) (53,689 ) (18,044 )
Earnings from operations 87,789 67,442 204,291 135,521
Corporate development and exploration (4,562 ) (2,524 ) (17,973 ) (5,303 )
General and administration (8,258 ) (6,200 ) (16,680 ) (11,621 )
Investment and other income 15 4,731 3,321 (1,042 ) 4,525
Stand-by charges - - - (6,753 )
Finance costs 16 (2,386 ) (1,770 ) (4,717 ) (3,643 )
Income before taxation 77,314 60,269 163,879 112,726
Income tax expense 17 (21,264 ) (8,775 ) (48,424 ) (11,861 )
Income from continuing operations $ 56,050 $ 51,494 $ 115,455 $ 100,865
Income from discontinued operation (net of taxes) 10 - 12,475 83,439 43,193
Net income $ 56,050 $ 63,969 $ 198,894 $ 144,058
Net income attributable to:
Inmet equity holders $ 56,050 68,495 $ 198,894 $ 153,266
Non-controlling interest - (4,526 ) - (9,208 )
$ 56,050 $ 63,969 $ 198,894 $ 144,058
Earnings per common share 18
Income from continuing operations
Basic $ 0.86 $ 1.00 $ 1.82 $ 1.96
Diluted $ 0.86 $ 1.00 $ 1.81 $ 1.96
Income from discontinued operation
Basic $ - $ 0.22 $ 1.31 $ 0.77
Diluted $ - $ 0.22 $ 1.31 $ 0.77
Net income
Basic $ 0.86 $ 1.22 $ 3.13 $ 2.73
Diluted $ 0.86 $ 1.22 $ 3.12 $ 2.73
(1) Refer to note 6 for effects of adoption of IFRS
(See accompanying notes)
INMET MINING CORPORATION
Segmented statements of earnings
(Unaudited)
2011 For the six months ended June 30 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 $ - $ 180,882 $ 169,613 $ 125,734 $ - $ - $ 476,229
Smelter processing charges and freight - (36,244 ) (476 ) (28,735 ) - - (65,455 )
Cost of sales (excluding depreciation) - (47,640 ) (78,247 ) (26,907 ) - - (152,794 )
Depreciation - (10,254 ) (38,839 ) (4,596 ) - - (53,689 )
Earnings from operations - 86,744 52,051 65,496 - - 204,291
Corporate development and exploration (13,143 ) (931 ) (5 ) (1,665 ) (2,229) - (17,973 )
General and administration (16,680 ) - - - - - (16,680 )
Investment and other income (3,555 ) 2,337 90 200 (114) - (1,042 )
Finance costs