UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-33783
THOMPSON CREEK METALS COMPANY INC.
(Exact name of registrant as specified in its charter)
British Columbia, Canada |
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98-0583591 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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26 West Dry Creek Circle, Suite 810, Littleton, CO |
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80120 |
(Address of principal executive offices) |
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(Zip Code) |
(303) 761-8801
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
As of May 6, 2011 there were 167,480,460 shares of our common stock, no par value, outstanding.
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Page |
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Part I. Financial Information |
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Item 1. Financial Statements: |
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3 | |
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4 | |
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5 | |
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Consolidated Statement of Shareholders Equity and Comprehensive Income(Unaudited) |
6 |
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7 | |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
17 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
31 |
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32 | |
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33 | |
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34 | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
47 |
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47 | |
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47 | |
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47 | |
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48 | |
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Exhibit Index |
48 |
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50 |
THOMPSON CREEK METALS COMPANY INC.
(Unaudited)
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March 31, |
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December 31, |
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(in millions, except share data) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
303.0 |
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$ |
316.0 |
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Accounts receivabletrade |
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96.8 |
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63.3 |
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Accounts receivablerelated parties |
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10.0 |
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10.0 |
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Product inventory |
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68.9 |
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75.5 |
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Material and supplies inventory |
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32.3 |
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31.5 |
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Prepaid expense and other current assets |
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5.3 |
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7.6 |
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Income tax receivable |
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7.2 |
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12.9 |
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523.5 |
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516.8 |
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Property, plant and equipment, net |
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1,831.2 |
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1,696.1 |
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Restricted cash |
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25.5 |
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23.5 |
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Reclamation deposits |
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24.8 |
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24.7 |
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Goodwill |
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47.0 |
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47.0 |
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Other assets |
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11.7 |
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9.6 |
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$ |
2,463.7 |
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$ |
2,317.7 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities |
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Accounts payable and accrued liabilities |
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$ |
99.8 |
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$ |
64.8 |
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Income and mining taxes payable |
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15.1 |
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3.7 |
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Current portion of long-term debt |
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5.7 |
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5.4 |
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Deferred income tax liabilities |
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10.2 |
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7.7 |
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Other current liabilities |
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0.2 |
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130.8 |
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81.8 |
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Gold Stream deferred revenue |
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226.5 |
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226.5 |
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Long-term debt |
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14.8 |
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16.6 |
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Other liabilities |
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23.0 |
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22.4 |
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Asset retirement obligations |
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30.4 |
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29.2 |
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Common stock warrant derivatives |
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108.3 |
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174.7 |
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Deferred income tax liabilities |
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333.0 |
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336.6 |
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866.8 |
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887.8 |
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Commitments and contingencies (Note 8) |
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Shareholders equity |
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Common stock, no-par, 165,813,524 and 165,189,873 shares issued and outstanding, as of March 31, 2011 and December 31, 2010, respectively |
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988.5 |
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980.9 |
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Additional paid-in capital |
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49.2 |
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49.2 |
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Retained earnings |
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475.4 |
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346.5 |
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Accumulated other comprehensive income |
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83.8 |
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53.3 |
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1,596.9 |
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1,429.9 |
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$ |
2,463.7 |
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$ |
2,317.7 |
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See accompanying notes to consolidated financial statements.
THOMPSON CREEK METALS COMPANY INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended March 31, |
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2011 |
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2010 |
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(in millions, except per share |
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REVENUES |
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Molybdenum sales |
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$ |
202.4 |
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$ |
124.0 |
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Tolling, calcining and other |
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4.3 |
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3.8 |
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Total revenues |
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206.7 |
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127.8 |
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COSTS AND EXPENSES |
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Cost of sales |
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Operating expenses |
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98.0 |
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76.3 |
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Depreciation, depletion and amortization |
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18.4 |
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11.0 |
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Total cost of sales |
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116.4 |
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87.3 |
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Selling and marketing |
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2.4 |
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1.5 |
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Accretion expense |
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0.5 |
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0.4 |
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General and administrative |
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7.9 |
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5.8 |
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Exploration |
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3.6 |
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1.7 |
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Total costs and expenses |
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130.8 |
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96.7 |
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OPERATING INCOME |
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75.9 |
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31.1 |
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OTHER (INCOME) EXPENSE |
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Loss on foreign exchange |
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0.3 |
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0.6 |
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Interest and finance fees, net |
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0.9 |
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0.1 |
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Change in fair value of common stock warrants |
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(66.0 |
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24.5 |
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Other |
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(0.2 |
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(0.1 |
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Total other (income) and expense |
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(65.0 |
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25.1 |
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Income before income and mining taxes |
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140.9 |
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6.0 |
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Income and mining tax expense |
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12.0 |
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4.9 |
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NET INCOME |
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$ |
128.9 |
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$ |
1.1 |
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NET INCOME PER SHARE |
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Basic |
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$ |
0.78 |
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$ |
0.01 |
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Diluted |
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$ |
0.73 |
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$ |
0.01 |
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Weighted average number of common shares |
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Basic |
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165.6 |
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139.6 |
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Diluted |
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176.5 |
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149.3 |
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See accompanying notes to consolidated financial statements.
THOMPSON CREEK METALS COMPANY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended |
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2011 |
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2010 |
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(in millions) |
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OPERATING ACTIVITIES |
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Net income |
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$ |
128.9 |
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$ |
1.1 |
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Items not affecting cash: |
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Change in fair value of warrants |
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(66.0 |
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24.5 |
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Depreciation, depletion and amortization |
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18.4 |
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11.0 |
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Accretion expense |
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0.5 |
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0.4 |
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Amortization of finance fees |
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0.5 |
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Stock-based compensation |
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1.8 |
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2.5 |
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Deferred income taxes (benefit) |
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(5.3 |
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(1.8 |
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Unrealized loss on derivative instruments |
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0.6 |
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Change in working capital accounts (Note 13) |
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(2.2 |
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(12.7 |
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Cash generated by operating activities |
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76.6 |
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25.6 |
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INVESTING ACTIVITIES |
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Short-term investments |
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(30.1 |
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Capital expenditures |
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(92.9 |
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(19.4 |
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Restricted cash |
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(1.9 |
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(1.5 |
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Cash used in investing activities |
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(94.8 |
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(51.0 |
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FINANCING ACTIVITIES |
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Debt issuance costs |
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(1.5 |
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Repayment of debt |
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(1.5 |
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(1.5 |
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Proceeds from issuance of common shares, net |
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5.4 |
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2.0 |
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Cash generated by financing activities |
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2.4 |
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0.5 |
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EFFECT OF EXCHANGE RATE CHANGES ON CASH |
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2.8 |
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2.4 |
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DECREASE IN CASH AND CASH EQUIVALENTS |
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(13.0 |
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(22.5 |
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Cash and cash equivalents, beginning of period |
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316.0 |
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158.5 |
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Cash and cash equivalents, end of period |
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$ |
303.0 |
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$ |
136.0 |
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Supplementary cash flow information (Note 13)
See accompanying notes to consolidated financial statements.
THOMPSON CREEK METALS COMPANY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY and COMPREHENSIVE INCOME
Three Months Ended March 31, 2011
(Unaudited)
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Common Stock |
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Paid-in |
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Retained |
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Accumulated |
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Shares |
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Amount |
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Capital |
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Earnings |
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Income |
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Total |
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(in millions, except share data in thousands) |
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Balances at January 1, 2011 |
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165,190 |
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$ |
980.9 |
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$ |
49.2 |
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$ |
346.5 |
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$ |
53.3 |
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$ |
1,429.9 |
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Amortization of stock-based compensation |
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1.8 |
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1.8 |
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Stock option exercises |
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552 |
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6.6 |
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(2.1 |
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4.5 |
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Tax benefit of stock option exercises |
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0.3 |
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0.3 |
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Warrant exercises |
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72 |
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1.0 |
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1.0 |
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Comprehensive income: |
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Net income |
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128.9 |
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128.9 |
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Foreign currency translation |
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30.5 |
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30.5 |
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Total comprehensive income |
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159.4 |
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Balances at March 31, 2011 |
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165,814 |
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$ |
988.5 |
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$ |
49.2 |
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$ |
475.4 |
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$ |
83.8 |
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$ |
1,596.9 |
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See accompanying notes to consolidated financial statements.
THOMPSON CREEK METALS COMPANY INC.
Notes to the Consolidated Financial Statements Unaudited
(US dollars in millions, except per share amounts)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. In compliance with those instructions, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (US GAAP) have been condensed or omitted. This report should be read in conjunction with Thompson Creek Metals Company Inc.s (TCM or the Company) consolidated financial statements and notes contained in its Annual Report on Form 10-K for the year ended December 31, 2010 (the 2010 Form 10-K) filed with the Securities and Exchange Commission (SEC). The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. TCM bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions. Certain comparative information has been reclassified to conform to the current years presentation.
The consolidated financial statements include the accounts of TCM and its subsidiaries, and intercompany accounts and transactions have been eliminated in consolidation. Financial amounts are presented in United States (US) dollars unless otherwise stated. References to C$ are Canadian dollars.
2. Terrane Acquisition
On October 20, 2010, TCM acquired 100% of the issued and outstanding equity of Terrane Metals Corp. (Terrane). At December 31, 2010, the allocation of the purchase price was recorded using preliminary estimates related to the fair value of the mineral properties acquired. As of March 31, 2011, there have been no adjustments to the allocation of the purchase price that was recorded using preliminary estimates at December 31, 2010.
3. Inventory
The carrying value of product inventory is as follows:
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March 31, |
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December 31, |
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Finished product |
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$ |
40.8 |
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$ |
54.4 |
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Work-in-process |
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23.7 |
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16.6 |
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Stockpiled ore |
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4.4 |
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4.5 |
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$ |
68.9 |
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$ |
75.5 |
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As of March 31, 2011 and December 31, 2010, the market value of TCMs product inventory exceeded the carrying value.
4. Property, Plant and Equipment
Property, plant and equipment is comprised of the following:
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March 31, |
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December 31, |
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Mining properties |
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$ |
1,224.0 |
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$ |
1,214.3 |
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Mine development |
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74.8 |
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15.4 |
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Mining equipment |
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320.9 |
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310.6 |
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Processing facilities |
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132.9 |
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124.7 |
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Construction in progress |
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288.0 |
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217.8 |
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Other |
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5.1 |
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6.9 |
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2,045.7 |
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1,889.7 |
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Less: Accumulated depreciation, depletion and amortization |
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(214.5 |
) |
(193.6 |
) | ||
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$ |
1,831.2 |
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$ |
1,696.1 |
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The construction in progress balance included $265.7 million and $213.8 million related to the mill expansion project at the Endako Mine as of March 31, 2011 and December 31, 2010, respectively. The mine development balance relates to the development of Mt. Milligan since the acquisition of Terrane by TCM. No depreciation is currently being recognized on construction in progress or mine development as neither the new mill nor the Mt. Milligan project have yet been completed or placed into service.
5. Derivative Financial Instruments
TCM enters into various derivative financial instruments in its normal course of operations. None of TCMs derivative instruments are treated as hedges for accounting purposes, and all are recorded on the consolidated balance sheet at fair value with changes in fair value recorded to the consolidated statements of income, except those contracts for which TCM has elected to apply the normal purchases and normal sales scope exception. TCM is exposed to credit loss when counterparties with which it has entered into derivative transactions are unable to pay. To reduce counterparty credit exposure, TCM deals only with large credit-worthy financial institutions and companies and limits credit exposure to each. TCM believes the counterparties to the contracts to be credit-worthy entities, and therefore, TCM believes credit risk of counterparty non-performance is relatively low. For information regarding the nature and types of TCMs derivatives, see the references noted in the following tables.
The following table summarizes the location and fair value amounts of all derivative financial instruments in the consolidated balance sheets:
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Fair Value |
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Derivative Type |
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Balance Sheet Classification |
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March 31, |
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December 31, |
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Derivative assets |
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Provisionally-priced sales (a) |
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Accounts receivabletrade |
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$ |
(0.2 |
) |
$ |
0.1 |
|
Fixed-priced contractscurrent (b) |
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Prepaid expense and other current assets |
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1.3 |
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1.7 |
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Forward currency contracts (c) |
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Prepaid expense and other current assets |
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0.6 |
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Total derivative assets |
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$ |
1.7 |
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$ |
1.8 |
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Derivative liabilities |
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Common stock warrant derivatives (d) |
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Common stock warrant derivatives |
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108.3 |
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174.7 |
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Total derivative liabilities |
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|
|
$ |
108.3 |
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$ |
174.7 |
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The following table sets forth the gains (losses) on derivative instruments for the three months ended March 31, 2011 and 2010:
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Gain/(loss) |
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Derivative |
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Statement of Operations |
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March 31, |
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March 31, |
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Provisionally-priced sales (a) |
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Molybdenum sales |
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$ |
(0.1 |
) |
$ |
0.7 |
|
Provisionally-priced purchases (a) |
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Operating expenses |
|
(0.4 |
) |
|
| ||
Fixed-priced contracts (b) |
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Molybdenum sales |
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0.4 |
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(0.1 |
) | ||
Forward currency contracts (c) |
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(Loss) gain on foreign exchange |
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(0.6 |
) |
0.1 |
| ||
Common stock warrant derivatives (d) |
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Change in fair value of common stock warrants |
|
66.0 |
|
(24.5 |
) | ||
|
|
|
|
$ |
65.3 |
|
$ |
(23.8 |
) |
(a) Provisionally-Priced Contracts
Certain molybdenum sales contracts provide for provisional pricing as specified in such contracts. These sales contain an embedded derivative related to the provisional pricing mechanism, which is bifurcated and accounted for as a derivative.
TCM also enters into provisionally-priced molybdenum purchase contracts that also contain an embedded derivative, which is bifurcated and accounted for as a derivative. Changes to the fair values of the embedded derivatives related to provisionally-priced molybdenum purchases are included in operating expenses in the consolidated statements of income as the product is sold.
TCM determines the fair value of its provisionally-priced contracts using a market approach based upon observable inputs from published market prices and contract terms.
The following table sets forth TCMs outstanding provisionally-priced contracts as of March 31, 2011, which all mature in 2011:
|
|
Pounds to be |
|
Provisionally-priced sales |
|
313 |
|
Provisionally-priced purchases |
|
623 |
|
(b) Fixed-Priced Contracts
TCMs results of operations and operating cash flows are affected by changes in market prices for mineral products. To mitigate a portion of this risk, TCM enters into certain mineral product sales contracts where it sells future production at fixed prices. These fixed prices may be different than the quoted market prices at the date of sale. Forward sales contracts in place at March 31, 2011 for molybdenum cover the period through December 31, 2011.
The following table sets forth TCMs outstanding fixed-priced molybdenum sales contracts as of March 31, 2011:
|
|
March 31, |
| |
|
|
2011 |
| |
Molybdenum committed (000s lb) |
|
807 |
| |
Average price ($/lb) |
|
$ |
19.23 |
|
(c) Forward Currency Contracts
TCM transacts business in various currencies in the normal course of its operations and for capital expenditures. Moreover, with all of its revenues denominated in U.S. dollars, TCM has an on-going foreign exchange risk with respect to its Canadian operations. To help mitigate this risk, TCM, from time to time, enters into various hedging instruments such as foreign currency forward contracts and collars. The terms of these instruments are typically less than one year. As of March 31, 2011, TCM had open forward currency contracts for the purchase of C$40 million at exchange rates ranging from $0.98 to $1.00 with another $100 million covered by foreign currency collars, of which $50 million expired on April 13, 2011. At December 31, 2010, TCM had no open forward currency contracts.
(d) Common Stock Warrant Derivatives
As described in Note 8 of the consolidated financial statements in TCMs 2010 Form 10-K under Common stock warrant derivatives, TCM is required to account for its common stock warrants as derivative liabilities with the changes in fair value recorded to the consolidated statements of income.
The following table summarizes common share warrant transactions during the current period:
|
|
Number of Warrants |
|
Balance, December 31, 2010 |
|
80,384 |
|
Warrants exercised |
|
(1,363 |
) |
Balance, March 31, 2011 |
|
79,021 |
|
6. Fair Value Measurement
US GAAP accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standards establish a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entitys own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 |
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
Level 2 |
|
Quoted prices in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. |
Level 3 |
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
The following table sets forth TCMs financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
Fair Value at March 31, 2011 |
| ||||||||||
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Provisionally-priced sales |
|
$ |
(0.2 |
) |
$ |
|
|
$ |
(0.2 |
) |
$ |
|
|
Fixed-priced contractscurrent |
|
1.3 |
|
|
|
|
|
1.3 |
| ||||
Foreign currency contracts |
|
0.6 |
|
|
|
0.6 |
|
|
| ||||
|
|
$ |
1.7 |
|
$ |
|
|
$ |
0.4 |
|
$ |
1.3 |
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Common stock warrant derivatives |
|
$ |
108.3 |
|
$ |
108.3 |
|
$ |
|
|
$ |
|
|
|
|
$ |
108.3 |
|
$ |
108.3 |
|
$ |
|
|
$ |
|
|
|
|
Fair Value at December 31, 2010 |
| ||||||||||
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Provisionally-priced sales |
|
$ |
0.1 |
|
$ |
|
|
$ |
0.1 |
|
$ |
|
|
Fixed-priced contractscurrent |
|
1.7 |
|
|
|
|
|
1.7 |
| ||||
|
|
$ |
1.8 |
|
$ |
|
|
$ |
0.1 |
|
$ |
1.7 |
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Common stock warrant derivatives |
|
$ |
174.7 |
|
$ |
174.7 |
|
$ |
|
|
$ |
|
|
|
|
$ |
174.7 |
|
$ |
174.7 |
|
$ |
|
|
$ |
|
|
The following table sets forth a summary of the fair value of TCMs Level 3 financial assets and liabilities for the three months ended March 31, 2011:
|
|
Fixed- |
| |
Balance at January 1, 2011 |
|
$ |
1.7 |
|
Unrealized and realized (gain) |
|
(0.4 |
) | |
Balance at March 31, 2011 |
|
$ |
1.3 |
|
As of March 31, 2011 and December 31, 2010, the carrying values of TCMs financial assets and liabilities are not significantly different from their fair values.
7. Long-term Debt
Credit facility
As of March 31, 2011, TCM has in place a senior secured revolving credit agreement (the Credit Agreement). On February 24, 2011, TCM entered into the First Amendment to Credit Agreement (the First Amendment) to amend the total amount available for borrowing under the Credit Agreement. Pursuant to the First Amendment, the total amount available for borrowing by TCM under the Credit Agreement increased from $290 million to $300 million. The obligations of TCM in respect of the Credit
Facility are secured by a senior lien on substantially all of the tangible and intangible assets of TCM. The Credit Agreement includes both standard financial and non-financial covenants, including ratio tests for leverage and interest coverage and a liquidity test. As of March 31, 2011, TCM was in compliance with the Credit Agreement financial covenants.
As of March 31, 2011, TCM had no outstanding borrowings under the Credit Agreement and had issued and outstanding $1.0 million in letters of credit. Interest and finance fees expense for the three months ended March 31, 2011 related to the Credit Agreement was $1.0 million.
Equipment financing facility
On March 30, 2011, TCM entered into an equipment financing facility (Equipment Facility) pursuant to which Caterpillar Financial Services Limited (Caterpillar) has agreed to underwrite up to $132 million in mobile fleet equipment financing for the Mt. Milligan project. Each borrowing under the Equipment Facility will be for a term of 60 months. TCM will pay interest on the amounts borrowed under the Equipment Facility at either floating or fixed rates, at TCMs option. TCMs ability to borrow under the Equipment Facility will terminate 33 months following its effective date (or such later date as may be agreed upon by Caterpillar), and any unused commitments under the Equipment Facility will then terminate and no longer be available to TCM. At the end of each 60-month lease period, TCM will have the option to purchase the underlying equipment for a nominal sum. The Equipment Facility includes both standard financial and non-financial covenants, including ratio tests for leverage and interest coverage. As of March 31, 2011, TCM had no outstanding borrowing under the Equipment Facility and was in compliance with its covenants.
8. Commitments and Contingencies
Legal matters
Below are descriptions of certain legal actions which involve certain properties of TCM. Although the results of legal actions cannot be predicted with certainty, it is the opinion of management that the resolution of these actions will not have a material adverse effect on TCMs future consolidated financial position, results of operations or cash flows.
In May 2010, the Stellaten First Nation filed a petition in the Supreme Court of British Columbia against the British Columbia Minister of Energy, Mines and Petroleum Resources and TCM alleging that the Endako Mine and the mill expansion project at the Endako Mine represent infringements of the aboriginal title of the petitioners and impacts to their aboriginal rights, and that the government breached its duty to consult with the Stellaten First Nation in relation to the impacts of the Endako Mine and the mill expansion. The petitioners seek a declaration that the Provincial Crown has not fulfilled its duty to consult with them in relation to the mill expansion project at the Endako Mine, a declaration that the mining permits and/or tenures held by TCM are invalid, an order quashing or setting aside the decision to issue a permit amendment to TCM, and an injunction prohibiting further construction or alterations to the Endako Mine relating to the mill expansion project at the Endako Mine. The government and TCM filed materials in response to the petition, and the matter was heard by the Supreme Court of British Columbia in a hearing that took place in late February and early March of 2011. The timing of the release of the judges decision in this matter is unknown.
In January, August and December of 2010, the Nakazdli First Nation commenced three separate legal proceedings against Federal or Provincial governments in Canada asserting that it was not adequately consulted by such governments before Terrane was granted various approvals relating to the Mt. Milligan Project. No claim of wrongdoing on the part of TCM or Terrane is alleged, and no claim for damages against TCM or Terrane is sought, in any of such three proceedings. TCM is not a party in any of the proceedings. Terrane has either been named or has had itself added as a participant in two of these proceedings because the relief that is sought in the proceedings would, if granted, have the potential to affect the work being done on the Mt. Milligan project.
Molybdenum purchases
In the normal course of operations, TCM enters into agreements for the purchase of molybdenum. As of March 31, 2011, TCM had commitments to purchase approximately 6.2 million pounds of molybdenum sulfide concentrate throughout the remainder of 2011, to be priced at a discount to the market price for molybdenum oxide at the time of purchase.
Capital purchase commitments
As of March 31, 2011, TCM had contractual obligations related to the mill expansion project at the Endako Mine of $0.3 million (75% share), and $283.5 million for engineering and equipment related to the development of Mt. Milligan.
Guarantees
As discussed in the 2010 Form 10-K, on December 9, 2009, TCM entered into a credit support agreement with British Columbia Hydro and Power Authority (BC Hydro) related to the mill expansion project at the Endako Mine. Under this agreement, TCM is required to post financial assurance in an amount equal to BC Hydros estimated out-of-pocket costs for work on the Endako mill expansion project, estimated at C$16.5 million. Subsequent to the commissioning of the new mill and subject to annual measurements of BC Hydros incremental revenues following the mills commissioning, some or all of this financial assurance may, thereafter, be released in amounts equal to the incremental revenues generated until such time as the full amount of financial assurance has been released or until such time as the expiration period has been reached. The new mill facility is currently scheduled for completion in late 2011. The amount of the guarantee as of March 31, 2011 was C$16.5 million. As part of the financial guarantee, TCM provided a surety bond for C$11.2 million for additional financial assurance to BC Hydro. The surety bond can be drawn down in the event of a shortfall in incremental revenues after the commissioning of the new mill facility. At this time, TCM does not anticipate having to post any additional financial assurance with respect to the BC Hydro credit support agreement.
As of March 31, 2011, a shortfall in Endakos future electric power usage that would result in incremental payments to BC Hydro cannot be determined and is not deemed to be probable. As such, no accrual has been recorded. An accrual for any expected shortfall will be recorded if and when it is determined that a shortfall is probable and a reasonable estimate can be made.
9. Income and Mining Taxes
Income and mining taxes for the three months ended March 31, 2011 and 2010 were $12.0 million and $4.9 million, respectively. The effective tax rates of 8.5% and 81.7% for the three months ended March 31, 2011 and 2010, respectively, differ from the amounts that would result from applying the Canadian federal and provincial income tax rates primarily due to the US percentage depletion benefit and the non-taxable change in the fair value of common stock warrants.
The 2011 effective tax rate differs from the 2010 effective tax rate primarily due to the non-taxable change in the fair value of TCMs common stock warrants.
10. Stock-Based Compensation
On May 6, 2010, TCMs shareholders approved the 2010 Long-Term Incentive Plan (LTIP) and the 2010 Employee Stock Purchase Plan (ESPP). Under the LTIP, TCM can grant stock options, share appreciation rights, restricted shares, restricted share units, performance share units, or shares granted as bonus compensation. As of March 31, 2011, TCM has granted stock options, performance share units and restricted share units under the LTIP, as discussed below.
a) Stock Options
The expiration date and vesting provisions of options granted are established at the time an award is made. Options may be exercised by the holder upon vesting of the option award. When an option is exercised, TCM issues the requisite shares from authorized but unissued common stock. The exercise price of option grants awarded is equal to the weighted-average trading price of the underlying shares over the five consecutive trading days immediately before the award date.
The following table summarizes stock option activity during the three months ended March 31, 2011:
|
|
Shares (000s) |
|
Weighted Average |
| |
Stock options outstanding at January 1, 2011 |
|
5,200 |
|
$ |
10.98 |
|
Granted |
|
91 |
|
12.85 |
| |
Exercised |
|
(507 |
) |
8.10 |
| |
Canceled/expired |
|
(54 |
) |
11.66 |
| |
Stock options outstanding at March 31, 2011 |
|
4,730 |
|
$ |
11.32 |
|
For the three months ended March 31, 2011 and 2010, TCM recorded compensation expense related to stock options of $1.3 million and $2.5 million, respectively.
b) Performance Share Units
As of March 31, 2011, a total of 230,000 performance share units (PSUs) have been granted to eligible executives. The vesting of the PSUs is contingent upon employee service and the performance of TCMs share price relative to the established award price. At each anniversary date during the vesting period, if the per share closing price of TCMs common stock on such date is at or higher than the award price, then the awards will vest one-third, and the requisite shares will be issued from authorized but unissued common stock. If the closing price is less than the award price, and, therefore, the share price condition is not achieved, then those
PSUs do not vest and are carried forward to the following anniversary date. Any PSUs not vested at the end of the three-year vesting period will expire.
PSUs granted are accounted for at fair value using a Monte Carlo simulation valuation model on the date of grant. The Monte Carlo model is based on random projections of stock price paths. The estimated fair value of the PSUs granted is $6.68 per unit, and TCM established an award price of $11.88 per unit. For the three months ended March 31, 2011, TCM recorded $0.3 million of compensation expense related to the PSUs in its consolidated statements of income.
c) Restricted Stock Units
As of March 31, 2011, a total of 209,050 restricted stock units (RSUs) have been granted to certain eligible employees and directors. TCM accounts for RSUs at fair value, which is based on the market value of TCMs common shares on the day of grant and recognized over the vesting period of three years. Upon vesting, TCM will issue the requisite shares from authorized but unissued common stock. The market value of RSUs granted was $9.13 per share, which resulted in TCM recording $0.2 million of compensation expense for the three months ended March 31, 2011 related to the RSUs granted.
11. Net Income per Share
The following is a reconciliation of net income and weighted-average common shares outstanding for purposes of calculating diluted net income per share for the three months ended March 31, 2011 and 2010:
|
|
For the Three Months Ended |
| ||||
|
|
2011 |
|
2010 |
| ||
Net income |
|
$ |
128.9 |
|
$ |
1.1 |
|
Basic weighted-average number of shares outstanding |
|
165.6 |
|
139.6 |
| ||
Effect of dilutive securities |
|
|
|
|
| ||
Common stock warrants |
|
8.9 |
|
8.6 |
| ||
Share-based awards |
|
2.0 |
|
1.1 |
| ||
Diluted weighted-average number of shares outstanding |
|
176.5 |
|
149.3 |
| ||
Net income per share |
|
|
|
|
| ||
Basic |
|
$ |
0.78 |
|
$ |
0.01 |
|
Diluted |
|
$ |
0.73 |
|
$ |
0.01 |
|
For the three months ended March 31, 2011 and 2010, approximately 1.0 million stock options were excluded from the computation of diluted weighted-average shares as the exercise prices exceeded the average price of TCMs common stock for the period.
12. Related Party Transactions
Total sales to TCMs Endako Mine joint venture partner were $52.5 million and $33.6 million for the three months ended March 31, 2011 and 2010, respectively. This represented 25.4% and 26.3% of TCMs total revenues for the three months ended March 31, 2011 and 2010, respectively.
For each of the three months ended March 31, 2011 and 2010, TCM recorded management fee income of $0.1 million, and selling and marketing expenses of $0.2 million, from this joint venture partner.
As of March 31, 2011 and December 31, 2010, TCMs related accounts receivable, owing from this joint venture partner remained consistent at $10.0 million.
13. Supplementary Cash Flow Information
|
|
For the Three Months Ended |
| ||||
|
|
2011 |
|
2010 |
| ||
Change in working capital accounts: |
|
|
|
|
| ||
Accounts receivable |
|
$ |
(33.2 |
) |
$ |
(11.2 |
) |
Product inventory |
|
7.6 |
|
(11.2 |
) | ||
Material and supplies inventory |
|
(0.6 |
) |
1.3 |
| ||
Prepaid expense and other current assets |
|
2.4 |
|
0.4 |
| ||
Income tax receivable |
|
5.8 |
|
(2.0 |
) | ||
Accounts payable and accrued liabilities |
|
4.4 |
|
6.6 |
| ||
Income and mining taxes payable |
|
11.4 |
|
3.4 |
| ||
|
|
$ |
(2.2 |
) |
$ |
(12.7 |
) |
Cash interest paid |
|
$ |
0.2 |
|
$ |
0.1 |
|
Cash income taxes paid |
|
$ |
|
|
$ |
5.2 |
|
Non-cash change in capital accrual |
|
$ |
28.5 |
|
$ |
9.6 |
|
14. Concentration of Credit Risk
TCM is exposed to counterparty risk from its cash and cash equivalent balances, its short-term cash investments, and its reclamation deposits held by financial institutions and governmental entities. TCM monitors its positions with, and the credit quality of, the financial institutions and companies in which it invests its cash, cash equivalents and short-term investments, and that hold its reclamation deposits. Counterparties to cash balances, money market instruments, government treasury securities and its reclamation deposits are US and Canadian institutions and the US and Canadian governments. TCMs investment policy limits investments to government-backed financial instruments, other than balances maintained in various bank operating accounts.
TCM manages its credit risk from its accounts receivable through its collection activities. As of March 31, 2011, TCM had seven customers which owed TCM more than $3.0 million and accounted for approximately 41% of all receivables outstanding. Another 15 customers had balances greater than $1.0 million but less than $3.0 million that accounted for approximately 25% of total receivables. All of these balances were compliant with credit terms and scheduled payment dates.
TCMs maximum counterparty and credit risk exposure is the carrying value of its cash and accounts receivable. The carrying amounts of accounts receivable, accounts payable, accrued liabilities, and fixed rate debt approximate fair value as of March 31, 2011.
15. Segment Information
TCM has three reportable segments: US Operations Molybdenum, Canadian Operations Molybdenum, and Copper-Gold (Development). The US Operations segment includes all mining, milling, mine site administration, roasting and sale of molybdenum products from the Thompson Creek Mine and the Langeloth Facility, as well as all roasting and sales of third-party purchased material. The Canadian Operations Molybdenum segment includes all mining, milling, mine site administration, roasting and sale of molybdenum products from the 75% owned Endako Mine. The Copper-Gold (Development) segment includes all development expenditures and development site administration from Mt. Milligan. The Inter-segment represents the elimination of management fee income, and revenue and cost of sales of product transported from the Canadian Operations to the US Operations for processing. TCMs chief operating decision makers (Chief Executive Officer and Chief Operating Officer) evaluate segment performance based on segment revenue less costs and expenses. TCM attributes other income and expenses to the reporting segments if the income or expense is directly related to segment operations, as described above. TCM does not allocate corporate expenditures such as general and administrative, exploration, and interest income and expense items to its reporting segments. Segment information for the three months ended as of March 31, 2011 and 2010 is as follows:
For the three months ended March 31, 2011:
|
|
US |
|
Canadian |
|
Copper-Gold |
|
Inter- |
|
Total |
| |||||
Revenues |
|
|
|
|
|
|
|
|
|
|
| |||||
Molybdenum sales |
|
$ |
167.3 |
|
$ |
35.1 |
|
$ |
|
|
$ |
|
|
$ |
202.4 |
|
Tolling, calcining and other |
|
4.3 |
|
|
|
|
|
|
|
4.3 |
| |||||
|
|
171.6 |
|
35.1 |
|
|
|
|
|
206.7 |
| |||||
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
| |||||
Operating expenses |
|
72.1 |
|
25.9 |
|
|
|
|
|
98.0 |
| |||||
Selling and marketing |
|
1.8 |
|
1.0 |
|
|
|
(0.4 |
) |
2.4 |
| |||||
Depreciation, depletion and amortization |
|
10.0 |
|
8.1 |
|
|
|
|
|
18.1 |
| |||||
Accretion expense |
|
0.4 |
|
0.1 |
|
|
|
|
|
0.5 |
| |||||
|
|
84.3 |
|
35.1 |
|
|
|
(0.4 |
) |
119.0 |
| |||||
Segment revenue less costs and expenses |
|
87.3 |
|
0.0 |
|
|
|
0.4 |
|
87.7 |
| |||||
Other segment expenses |
|
|
|
|
|
|
|
|
|
|
| |||||
Loss on foreign exchange |
|
|
|
0.7 |
|
|
|
|
|
0.7 |
| |||||
Segment income (loss) before income and mining taxes |
|
$ |
87.3 |
|
$ |
(0.7 |
) |
$ |
|
|
$ |
0.4 |
|
$ |
87.0 |
|
For the three months ended March 31, 2010:
|
|
US |
|
Canadian |
|
Copper-Gold |
|
Inter- |
|
Total |
| |||||
Revenues |
|
|
|
|
|
|
|
|
|
|
| |||||
Molybdenum sales |
|
$ |
100.3 |
|
$ |
27.0 |
|
$ |
|
|
$ |
(3.3 |
) |
$ |
124.0 |
|
Tolling, calcining and other |
|
3.8 |
|
|
|
|
|
|
|
3.8 |
| |||||
|
|
104.1 |
|
27.0 |
|
|
|
(3.3 |
) |
127.8 |
| |||||
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
| |||||
Operating expenses |
|
62.4 |
|
15.7 |
|
|
|
(1.8 |
) |
76.3 |
| |||||
Selling and marketing |
|
1.1 |
|
0.8 |
|
|
|
(0.4 |
) |
1.5 |
| |||||
Depreciation, depletion and amortization |
|
6.5 |
|
4.5 |
|
|
|
|
|
11.0 |
| |||||
Accretion expense |
|
0.3 |
|
0.1 |
|
|
|
|
|
0.4 |
| |||||
|
|
70.3 |
|
21.1 |
|
|
|
(2.2 |
) |
89.2 |
| |||||
Segment revenue less costs and expenses |
|
33.8 |
|
5.9 |
|
|
|
(1.1 |
) |
38.6 |
| |||||
Other segment expenses |
|
|
|
|
|
|
|
|
|
|
| |||||
Loss on foreign exchange |
|
|
|
2.1 |
|
|
|
|
|
2.1 |
| |||||
Segment income (loss) before income and mining taxes |
|
$ |
33.8 |
|
$ |
3.8 |
|
$ |
|
|
$ |
(1.1 |
) |
$ |
36.5 |
|
Reconciliation of segment income to net income
|
|
For the Three Months Ended |
| ||||
|
|
2011 |
|
2010 |
| ||
Segment income |
|
$ |
87.0 |
|
$ |
36.5 |
|
Other (income) expense |
|
|
|
|
| ||
Change in fair value of common stock warrants |
|
(66.0 |
) |
24.5 |
| ||
General and administrative |
|
7.9 |
|
5.8 |
| ||
Exploration |
|
3.6 |
|
1.7 |
| ||
Interest and finance fees, net |
|
0.9 |
|
0.1 |
| ||
Loss (gain) on foreign exchange |
|
(0.4 |
) |
(1.5 |
) | ||
Corporate depreciation |
|
0.3 |
|
|
| ||
Other |
|
(0.2 |
) |
(0.1 |
) | ||
Income before income and mining taxes |
|
140.9 |
|
6.0 |
| ||
Income and mining taxes |
|
12.0 |
|
4.9 |
| ||
Net income |
|
$ |
128.9 |
|
$ |
1.1 |
|
Other segment information regarding capital expenditures, assets and liabilities, including the assets and liabilities attributed to corporate operations, is as follows:
As of March 31, 2011 |
|
US |
|
Canadian |
|
Copper-Gold |
|
Corporate |
|
Total |
| |||||
Capital expenditures |
|
$ |
5.1 |
|
$ |
48.4 |
|
$ |
38.1 |
|
$ |
1.3 |
|
$ |
92.9 |
|
Capital assets |
|
$ |
283.3 |
|
$ |
564.8 |
|
$ |
977.1 |
|
$ |
6.0 |
|
$ |
1,831.2 |
|
Goodwill |
|
$ |
47.0 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
47.0 |
|
Assets |
|
$ |
695.8 |
|
$ |
711.0 |
|
$ |
997.6 |
|
$ |
59.3 |
|
$ |
2,463.7 |
|
Liabilities |
|
$ |
127.6 |
|
$ |
153.2 |
|
$ |
447.2 |
|
$ |
138.8 |
|
$ |
866.8 |
|
As of March 31, 2010 |
|
US |
|
Canadian |
|
Copper-Gold |
|
Corporate |
|
Total |
| |||||
Capital expenditures |
|
$ |
2.8 |
|
$ |
16.3 |
|
$ |
|
|
$ |
0.3 |
|
$ |
19.4 |
|
Capital assets |
|
$ |
257.3 |
|
$ |
374.1 |
|
$ |
|
|
$ |
0.4 |
|
$ |
631.8 |
|
Goodwill |
|
$ |
47.0 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
47.0 |
|
Assets |
|
$ |
681.0 |
|
$ |
637.5 |
|
$ |
|
|
$ |
88.4 |
|
$ |
1,406.9 |
|
Liabilities |
|
$ |
138.6 |
|
$ |
121.5 |
|
$ |
|
|
$ |
141.4 |
|
$ |
401.5 |
|
16. Subsequent Events
On April 21, 2011, TCM terminated its Option Agreement with U.S. Energy Corp. to acquire an interest in the Mount Emmons molybdenum project located in Gunnison County, Colorado. Upon termination, TCM released approximately $0.4 million held in escrow to U.S. Energy Corp. related to minimum amounts in prior years that were required to be spent under the Option Agreement. In addition, TCM will incur additional costs related to the termination of this agreement which are not expected to be material.
In April 2011, TCM received approximately $17 million of proceeds from the exercise of approximately 27.8 million Terrane warrants and issued 1.4 million TCM shares as a result of this exercise. The remaining 15.5 million unexercised 2011 Terrane Warrants assumed in the acquisition of Terrane expired on April 16, 2011. As of March 31, 2011, there were approximately 10.9 million 2012 Terrane Warrants outstanding that expire in June 2012.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
This Managements Discussion and Analysis (MD&A) of consolidated financial condition and results of operations was prepared as of May 6, 2011. In the MD&A, TCM refers to Thompson Creek Metals Company Inc. and its consolidated subsidiaries. You should read this discussion in conjunction with TCMs interim financial statements and the notes thereto included in Item 1 herein. Additionally, the following discussion should be read in conjunction with the consolidated financial statements, the related Managements Discussion and Analysis of Financial Condition and Results of Operations, the discussion of Risk Factors and the discussion of TCMs Business and Properties in the 2010 Form 10-K.
The results of operations reported and summarized below are not necessarily indicative of future operating results. References to Notes are Notes included in the Notes to Consolidated Financial Statements in Item 1 herein. Throughout the MD&A, all references to earnings or losses per share are on a diluted basis, unless otherwise noted. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (US GAAP). All dollar amounts are expressed in United States dollars (US$) unless otherwise indicated. References to C$ refers to Canadian dollars. Additional information on TCM is available on EDGAR at www.sec.gov and on SEDAR at www.sedar.com.
Forward-looking Statements
Certain statements in this report (including information incorporated by reference) are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, Section 21E of the Exchange Act and applicable Canadian securities legislation. These forward-looking statements generally are identified by the words believe, project, expect, anticipate, estimate, intend, strategy, future, opportunity, plan, may, should, will, would, will be, will continue, will likely result, and similar expressions.
Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from future results expressed, projected or implied by those forward-looking statements. Important factors that could cause actual results and events to differ from those described in such forward-looking statements can be found in the section entitled Risk Factors in the 2010 Form 10-K and in Section 1A of this Quarterly Report, and subsequent documents filed on EDGAR at www.sec.gov and on SEDAR at www.sedar.com. Although we have attempted to identify those factors that could cause actual results or events to differ from those described in such forward-looking statements, there may be other factors that cause results or events to differ from those anticipated, estimated or intended. Many of these factors are beyond TCMs ability to control or predict. Given these uncertainties, the reader is cautioned not to place undue reliance on our forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
Business Overview
TCM is a North American mining company, governed by the laws of British Columbia, with vertically integrated molybdenum mining, milling, processing and marketing operations in Canada and the US and a copper-gold construction project in Canada. TCMs current mining operations include the TC Mine (mine and mill) in Idaho, the Langeloth Facility (roaster) in Pennsylvania and a 75% joint venture interest in the Endako Mine (mine, mill and roaster) in British Columbia. TCM is currently in the process of constructing and developing the Mt. Milligan project (Mt. Milligan) in British Columbia, which is designed to be a conventional truck-shovel open pit mine with a 66,000 ton per day copper flotation processing plant, with estimated average annual production of 81 million pounds of copper and 194,000 ounces of gold over the life of the mine.
In addition, TCM has a copper-molybdenum-silver exploration project located in British Columbia (the Berg property), an underground molybdenum development project located in British Columbia (the Davidson property), and two joint venture exploration projects, one of which is a lead and zinc project located along the Yukon Territory-Northwest Territories border in Canada (the Howards Pass property), and the other a gold project located in the Kivalliq District of Nunavut in Canada (the Maze Lake property).
On April 21, 2011, TCM terminated its Option Agreement with U.S. Energy Corp. to acquire an interest in the Mount Emmons molybdenum project located in Gunnison County, Colorado.
Highlights First Quarter 2011
· Net income for the first quarter of 2011 was $128.9 million, or $0.73 per share, which included a non-cash unrealized gain on common share purchase warrants of $66.0 million, or $0.37 per share. Net income for the first quarter of 2010 was $1.1 million, or $0.01 per share, which included a non-cash unrealized loss on common stock purchase warrants of $24.5 million, or $0.16 per share.
· Non-GAAP adjusted net income for the first quarter of 2011 (excluding the non-cash unrealized gain or loss on the warrants) was $62.9 million, or $0.36 per share, compared to $25.6 million, or $0.17 per share for the first quarter of 2010. See Non-GAAP Financial Measures below for the definition and calculation of adjusted net income. Non-cash unrealized gains and losses on common stock purchase warrants result from a requirement under US GAAP to account for Thompson Creeks outstanding common stock purchase warrants as derivatives, with changes in the fair market value recorded in net income.
· Consolidated revenues for the first quarter of 2011 were $206.7 million, or an increase of approximately 62% from $127.8 million in the first quarter of 2010 as a result of an increase in molybdenum pounds sold and higher average sales prices. Record sales volumes in the first quarter of 2011 increased 36% over the first quarter of 2010. The average realized molybdenum sales price for the first quarter of 2011 was $17.39 per pound, up 20% from $14.50 per pound for the first quarter of 2010.
· Mined molybdenum production in the first quarter of 2011 was a new quarterly record of 10.3 million pounds, up 25% from 8.3 million pounds in the first quarter of 2010 primarily due to higher production from TC Mine as a result of higher ore grade, mill throughput and recovery.
· Average cash cost per pound produced for the first quarter of 2011 was $5.37 per pound, compared to $5.36 per pound for the first quarter of 2010. See Non-GAAP Financial Measures below for the definition and calculation of cash cost per pound produced.
· Operating cash flow for the first quarter of 2011 was $76.6 million, compared to $25.6 million in the first quarter of 2010.
· Capital costs incurred for the first quarter of 2011 were $121.4 million, comprised of $10.1 million of capital costs for the Endako and TC mines, the Langeloth Facility and corporate together, and $51.9 million of capital costs for the mill expansion project at the Endako Mine (75% share) and $59.4 million for the development of Mt. Milligan. The capital costs for the first quarter of 2011 included amounts accrued of $28.5 million at March 31, 2011; therefore, cash expenditures for the first quarter were $92.9 million.
· Total cash and cash equivalents at March 31, 2011 were $303.0 million, compared to $316.0 million as of December 31, 2010.
· Total debt as of March 31, 2011 was $20.5 million compared to $22.0 million as of December 31, 2010.
Outlook
During the first quarter of 2011, the average Platts Metals Week published price for molybdenum oxide was $17.24 per pound, compared to $15.73 per pound in the first quarter of 2010 and $15.74 per pound for the fourth quarter of 2010. Since March 31, 2011, the monthly average price for molybdenum oxide, as published in Platts Metals Week, has declined slightly, with the monthly average Platts Metals Week published price in April 2011 equaling $17.02 per pound. TCM anticipates that, over the remainder of 2011, the price for molybdenum oxide will continue to be volatile but will gradually increase with the expected improvement in worldwide molybdenum bearing steel production. There can be no assurance, however, that molybdenum demand will strengthen, or that molybdenum prices will further improve. Any significant weakness in demand or reduction in molybdenum prices may have a material adverse effect on TCMs operating results and financial condition.
TCM expects that in the first half of 2011 TC Mine will have higher production and lower cash costs than in the last half of 2011. This is primarily the result of the TC Mine pit sequencing and the tapering off of the higher grade production in the first half of 2011, with more stripping activities and significantly lower-grade related production in the second half of 2011. This is expected to increase operating expenses and significantly reduce net income in the second half of 2011.
Capital expenditures in 2011 will be impacted by the increased capital estimate for the Mt. Milligan project together with the remaining capital expenditures required to complete the mill expansion project at the Endako Mine and ongoing capital expenditures for the Endako and TC mines, the Langeloth Facility and corporate.
As noted previously, TCM terminated its Option Agreement with U.S. Energy Corp. to acquire an interest in the Mount Emmons molybdenum project located in Gunnison County, Colorado in April 2011. TCM made the strategic decision to step back from the Mount Emmons project and focus its efforts and resources on the Berg copper-molybdenum-silver property located in British Columbia. TCM has redirected the pre-feasibility funding previously budgeted for Mount Emmons to Berg for an advanced scoping study being initiated in 2011.
At March 31, 2011, TCM had working capital of $392.7 million, including $303.0 million of cash, cash equivalents and short-term investments, $106.8 million of receivables, and $20.5 million of debt related to equipment financings. TCM intends to fund the remaining mill expansion costs at the Endako Mine and the Mt. Milligan development costs from a combination of cash on hand, cash flow from operations, funds from various financing facilities, the remaining proceeds from the gold stream transaction with Royal Gold and expected funds from the exercise of warrants that expire in October 2011. TCM may consider additional debt financings. The timing of any financing transaction will depend on market conditions. TCM does not currently intend to fund Mt. Milligan development costs through the issuance of equity or equity-linked securities.
Selected Consolidated Financial and Operational Information
(US$ in millions except per share and per pound amounts)
|
|
Three Months Ended |
| ||||
|
|
2011 |
|
2010 |
| ||
|
|
(unaudited) |
| ||||
Financial |
|
|
|
|
| ||
Revenues |
|
|
|
|
| ||
Molybdenum sales |
|
$ |
202.4 |
|
$ |
124.0 |
|
Tolling, calcining and other |
|
4.3 |
|
3.8 |
| ||
|
|
206.7 |
|
127.8 |
| ||
Costs and expenses |
|
|
|
|
| ||
Cost of sales |
|
|
|
|
| ||
Operating expenses |
|
98.0 |
|
76.3 |
| ||
Depreciation, depletion and amortization |
|
18.4 |
|
11.0 |
| ||
Total cost of sales |
|
116.4 |
|
87.3 |
| ||
Selling and marketing |
|
2.4 |
|
1.5 |
| ||
Accretion expense |
|
0.5 |
|
0.4 |
| ||
General and administrative |
|
7.9 |
|
5.8 |
| ||
Exploration |
|
3.6 |
|
1.7 |
| ||
Total costs and expenses |
|
130.8 |
|
96.7 |
| ||
Operating income |
|
75.9 |
|
31.1 |
| ||
Other (income) and expense |
|
(65.0 |
) |
25.1 |
| ||
Income before income and mining taxes |
|
140.9 |
|
6.0 |
| ||
Income and mining taxes |
|
12.0 |
|
4.9 |
| ||
Net income |
|
$ |
128.9 |
|
$ |
1.1 |
|
Net income per share |
|
|
|
|
| ||
Basic |
|
$ |
0.78 |
|
$ |
0.01 |
|
Diluted |
|
$ |
0.73 |
|
$ |
0.01 |
|
Cash generated by operating activities |
|
$ |
76.6 |
|
$ |
25.6 |
|
Adjusted non-GAAP Measures (1) |
|
|
|
|
| ||
Adjusted net income (1) |
|
$ |
62.9 |
|
$ |
25.6 |
|
Adjusted net income per share - basic (1) |
|
$ |
0.38 |
|
$ |
0.18 |
|
Adjusted net income per share - diluted (1) |
|
$ |
0.36 |
|
$ |
0.17 |
|
Operational Statistics |
|
|
|
|
| ||
Mined molybdenum production (000s lb) (2) |
|
10,329 |
|
8,269 |
| ||
Cash cost ($/lb produced) (3) |
|
$ |
5.37 |
|
$ |
5.36 |
|
Molybdenum sold (000s lb): |
|
|
|
|
| ||
Thompson Creek and Endako Mine product |
|
10,060 |
|
6,735 |
| ||
Purchased and processed product |
|
1,580 |
|
1,820 |
| ||
|
|
11,640 |
|
8,555 |
| ||
Average realized sales price ($/lb) (1) |
|
$ |
17.39 |
|
$ |
14.50 |
|
|
|
As of |
|
As of |
| ||
Cash and cash equivalents |
|
$ |
303.0 |
|
$ |
316.0 |
|
Total assets |
|
$ |
2,463.7 |
|
$ |
2,317.7 |
|
Total debt |
|
$ |
20.5 |
|
$ |
22.0 |
|
Total liabilities |
|
$ |
866.8 |
|
$ |
887.8 |
|
Shareholders equity |
|
$ |
1,596.9 |
|
$ |
1,429.9 |
|
Shares outstanding (000s) |
|
165,814 |
|
165,190 |
|
(1) See Non-GAAP Financial Measures for the definition and calculation of these non-GAAP measures.
(2) Mined production pounds reflected are molybdenum oxide and high performance molybdenum disulfide (HPM) from our share of production from the mines; excludes molybdenum processed from purchased product.
(3) Weighted-average of TC Mine and Endako Mine (75% share) cash costs (mining, milling, mine site administration, roasting and packaging) for molybdenum oxide and HPM produced in the period, including all stripping costs. Cash cost excludes: the effect of purchase price adjustments, the effects of changes in inventory, stock-based compensation, other non-cash employee benefits and depreciation, depletion, amortization and accretion. The cash cost for TC Mine, which only produces molybdenum sulfide on site, includes an estimated molybdenum loss, an allocation of roasting and packaging costs from the Langeloth Facility, and transportation costs. See Non-GAAP Financial Measures for additional information.
Summary of Quarterly Results
(US$ in millions except per share and per pound amounts unaudited)
|
|
Mar 31 |
|
Dec 31 |
|
Sep 30 |
|
Jun 30 |
|
Mar 31 |
|
Dec 31 |
|
Sep 30 |
|
Jun 30 |
| ||||||||
|
|
2011 |
|
2010 |
|
2010 |
|
2010 |
|
2010 |
|
2009 |
|
2009 |
|
2009 |
| ||||||||
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Revenues |
|
$ |
206.7 |
|
$ |
156.8 |
|
$ |
161.8 |
|
$ |
148.4 |
|
$ |
127.8 |
|
$ |
106.2 |
|
$ |
114.4 |
|
$ |
74.0 |
|
Operating income (loss) |
|
$ |
75.9 |
|
$ |
47.4 |
|
$ |
45.6 |
|
$ |
50.3 |
|
$ |
31.1 |
|
$ |
15.8 |
|
$ |
32.4 |
|
$ |
(0.2 |
) |
Net income (loss) |
|
$ |
128.9 |
|
$ |
(45.0 |
) |
$ |
31.1 |
|
$ |
126.5 |
|
$ |
1.1 |
|
$ |
26.0 |
|
$ |
(1.4 |
) |
$ |
(89.3 |
) |
Income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
- basic |
|
$ |
0.78 |
|
$ |
(0.28 |
) |
$ |
0.22 |
|
$ |
0.90 |
|
$ |
0.01 |
|
$ |
0.19 |
|
$ |
(0.01 |
) |
$ |
(0.73 |
) |
- diluted |
|
$ |
0.73 |
|
$ |
(0.28 |
) |
$ |
0.22 |
|
$ |
0.87 |
|
$ |
0.01 |
|
$ |
0.18 |
|
$ |
(0.01 |
) |
$ |
(0.73 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash generated by operating activities |
|
$ |
76.6 |
|
$ |
31.6 |
|
$ |
59.0 |
|
$ |
41.2 |
|
$ |
25.6 |
|
$ |
38.2 |
|
$ |
24.2 |
|
$ |
6.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Adjusted non-GAAP Measures (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Adjusted net income (loss) (1) |
|
$ |
62.9 |
|
$ |
34.4 |
|
$ |
51.6 |
|
$ |
51.7 |
|
$ |
25.6 |
|
$ |
20.4 |
|
$ |
14.3 |
|
$ |
(6.3 |
) |
Adjusted net income (loss) per share (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
- basic (1) |
|
$ |
0.38 |
|
$ |
0.22 |
|
$ |
0.37 |
|
$ |
0.37 |
|
$ |
0.18 |
|
$ |
0.15 |
|
$ |
0.11 |
|
$ |
(0.05 |
) |
- diluted (1) |
|
$ |
0.36 |
|
$ |
0.20 |
|
$ |
0.36 |
|
$ |
0.36 |
|
$ |
0.17 |
|
$ |
0.14 |
|
$ |
0.11 |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operational Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Mined molybdenum production (000s lb) |
|
10,329 |
|
9,316 |
|
7,958 |
|
7,034 |
|
8,269 |
|
6,268 |
|
6,221 |
|
6,714 |
| ||||||||
Cash cost ($/lb produced) (1) |
|
$ |
5.37 |
|
$ |
5.81 |
|
$ |
6.24 |
|
$ |
7.06 |
|
$ |
5.36 |
|
$ |
6.61 |
|
$ |
5.67 |
|
$ |
5.21 |
|
Molybdenum sold (000s lb): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Thompson Creek and Endako Mine product |
|
10,060 |
|
7,574 |
|
7,750 |
|
7,013 |
|
6,735 |
|
6,889 |
|
7,445 |
|
6,505 |
| ||||||||
Purchased and processed product |
|
1,580 |
|
1,896 |
|
2,513 |
|
1,626 |
|
1,820 |
|
1,464 |
|
1,324 |
|
997 |
| ||||||||
|
|
11,640 |
|
9,470 |
|
10,263 |
|
8,639 |
|
8,555 |
|
8,353 |
|
8,769 |
|
7,502 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Average realized sales price ($/lb) (1) |
|
$ |
17.39 |
|
$ |
16.05 |
|
$ |
15.30 |
|
$ |
16.84 |
|
$ |
14.50 |
|
$ |
12.37 |
|
$ |
12.75 |
|
$ |
9.41 |
|
(1) See Non-GAAP Financial Measures for the definition and calculation of these non-GAAP measures.
Financial Review
Net Income
Net income for the first quarter of 2011 was $128.9 million, or $0.73 per share, compared to $1.1 million, or $0.01 per share for the first quarter of 2010. Net income for the first quarter of 2011 included a non-cash unrealized gain on common stock purchase warrants of $66.0 million ($0.37 per share). Net income for the first quarter of 2010 included a non-cash unrealized loss on common stock purchase warrants of $24.5 million ($0.16 per share). The non-cash unrealized gain and loss on common stock purchase warrants for the first quarter of 2011 and 2010, respectively, were the result of a requirement under US GAAP to account for TCMs outstanding common stock purchase warrants as a derivative, with changes in the fair market value recorded in net income. Non-GAAP adjusted net income for the first quarter of 2011 (excluding the non-cash unrealized gain on the warrants) was $62.9 million ($0.36 per share). Non-GAAP adjusted net income for the first quarter of 2010 (excluding the non-cash unrealized loss on the warrants) was $25.6 million ($0.17 per share). The increase in non-GAAP adjusted net income for the first quarter of 2011 compared to the first quarter of 2010 was primarily the result of higher molybdenum sales prices and volumes. See Non-GAAP Financial Measures below for the definition and calculation of adjusted net income.
Revenues
The 62% increase in revenues was primarily a result of higher sales volumes and higher average realized sales prices. TCM sold 11.6 million pounds of molybdenum which was 3.1 million pounds more than the corresponding period in the prior year. The average realized molybdenum sales price was $2.89 per pound higher in the current quarter compared to the same quarter in 2010.
The increased sales volume reflected higher mined production as well as the absence of an inventory build that occurred in the first quarter of 2010 prior to the scheduled Langeloth roaster maintenance in the second quarter of 2010. The increased average realization primarily reflected the strengthening molybdenum demand.
Operating Expenses
Operating expenses for the first quarter of 2011 were up 28% from the same quarter in 2010. The increase in operating expenses was primarily the result of higher sales volume.
The non-GAAP financial measure of cash cost per pound produced from TCMs mines remained relatively consistent at $5.37 per pound produced in the first quarter of 2011 compared to $5.36 per pound for the same quarter in 2010. Cash cost per pound produced at the TC Mine was lower in the current quarter compared to the same quarter in 2010 mainly due to higher production. The lower cash cost per pound produced at TC Mine was offset by an increase in the cash cost per pound produced at the Endako Mine that was the result of lower production combined with both higher mining and milling costs. The higher mining and milling costs resulted primarily from repairs and maintenance activities related to winter weather conditions and higher ore haulage costs due to the in-pit crushing and conveyor system being down for the majority of the quarter. Operating expenses at the Endako Mine also suffered from unfavorable foreign exchange rates converting C$ costs to US$ costs. The exchange rate averaged US$1.00 = C$0.99 for the first quarter of 2011 compared to an average rate of US$1.00 = C$1.04 for the same period in 2010. See Non-GAAP Financial Measures below for the calculation of cash cost per pound produced.
For the TC Mine, TCM expects that the first half of 2011 will have higher production and lower cash costs than the second half of 2011. This is primarily the result of the TC Mine pit sequencing and the tapering off of the higher grade production in the first half of 2011, with more stripping activities and significantly lower-grade production in the second half of 2011. This is expected to increase operating expenses and significantly reduce net income in the second half of 2011.
Depreciation, Depletion and Amortization Expense
Depreciation, depletion and amortization expense for the current quarter increased from $11.0 million in the first quarter of 2010 to $18.4 million in the first quarter of 2011. This increase was primarily due to the higher volume of molybdenum sold from TCMs mines in the first quarter of 2011 compared to the first quarter of 2010 and the depreciation of new mining equipment placed into service since March 31, 2010. Product inventory costs include depreciation, depletion, and amortization.
General and Administrative Expense
General and administrative expense for the first quarter of 2011 increased $2.1 million compared to the first quarter of 2010. General and administrative expense for the first quarter of 2011 and 2010 included $1.3 million and $1.0 million, respectively, of stock-based compensation expense as required under US GAAP. The increase in general and administrative expenses was primarily the result of higher compensation costs associated with additional employees hired during the last year and higher third party costs related to business development activities during the first quarter of 2011.
Exploration Expense
Exploration expense for the first quarter of 2011 was $3.6 million compared to $1.7 million for the first quarter of 2010. The 2011 expenses included $2.0 million of expenditures under the option agreement on the Mount Emmons project, $1.1 million at Mt. Milligan, and $0.5 million at the Endako Mine (75% share). The 2010 exploration expenses primarily relate to expenditures under the now terminated Option Agreement on the Mount Emmons Project.
On April 21, 2011, TCM terminated its Option Agreement with U.S. Energy Corp. to acquire an interest in the Mount Emmons molybdenum project located in Gunnison County, Colorado. Upon termination, TCM released approximately $0.4 million held in escrow to U.S. Energy Corp. related to minimum amounts in prior years that were required to be spent under the Option Agreement. In addition, TCM will incur additional costs related to the termination of this agreement which are not expected to be significant.
TCM expects to focus its future exploration efforts and resources on exploration drilling at both of its operating mines and the Berg exploration copper, molybdenum and silver property that was acquired in the Terrane Metals Corp. acquisition.
Income and Mining Tax Expense
For the first quarter of 2011, TCMs net tax expense was $12.0 million compared to a net tax expense of $4.9 million for the first quarter of 2010. The effective tax rates for the first quarter of 2011 and 2010 were primarily impacted by the non-cash unrealized gain and loss on common stock warrants, which did not generate any income tax expense or benefit, respectively. The effective tax rate for the first quarter of 2011 and 2010, excluding the first quarter impact of the common stock warrants, remained unchanged at approximately 16%.
Operations Review
TC Mine
The TC Mine and mill are located near Challis, in central Idaho. Mining is conducted by conventional open-pit methods utilizing electric-powered shovels and 200-ton haul trucks. The TC Mine currently controls a block of contiguous mineral claims that includes patented and unpatented mineral claims and mill site claims. The mill operates with a crusher, SAG mill, ball mill and flotation circuit.
The table that follows presents a summary of the TC Mines operating and financial results for the three months ended March 31, 2011 and 2010:
(US$ in millions except per pound amountsUnaudited)
|
|
Three Months Ended |
| ||||
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
| ||
Financial (1) |
|
|
|
|
| ||
Molybdenum sales |
|
$ |
139.5 |
|
$ |
73.4 |
|
Costs and expenses: |
|
|
|
|
| ||
Cost of sales |
|
|
|
|
| ||
Operating expenses |
|
44.0 |
|
32.0 |
| ||
Depreciation, depletion and amortization |
|
8.9 |
|
5.5 |
| ||
Total cost of sales |
|
52.9 |
|
37.5 |
| ||
Selling and marketing |
|
1.0 |
|
0.9 |
| ||
Accretion |
|
0.4 |
|
0.3 |
| ||
|
|
54.3 |
|
38.7 |
| ||
Revenue less costs and expenses |
|
$ |
85.2 |
|
$ |
34.7 |
|
|
|
|
|
|
| ||
Operational Statistics |
|
|
|
|
| ||
Mined (000s ore tons) |
|
2,712 |
|
2,476 |
| ||
Milled (000s tons) |
|
2,779 |
|
2,461 |
| ||
Grade (% molybdenum) |
|
0.169 |
|
0.144 |
| ||
Recovery (%) |
|
92.8 |
|
90.5 |
| ||
Molybdenum production (000s lb) (2) |
|
8,684 |
|
6,298 |
| ||
Cash cost ($/lb produced) (3) |
|
$ |
4.13 |
|
$ |
4.74 |
|
Molybdenum sold (000s lb) |
|
8,015 |
|
5,048 |
| ||
Average realized sales price ($/lb) |
|
$ |
17.40 |
|
$ |
14.54 |
|
(1) Since the TC Mine only produces molybdenum sulfide and HPM on site, the financial information presented includes actual sales of molybdenum oxide, HPM and upgraded products, together with allocations of cost of sales from the Langeloth Facility and Thompson Creek Metals Company USA (Thompson Creek USA), including operating expenses, finished goods inventory adjustments, selling and marketing expenses and depreciation, depletion and amortization from the Langeloth Facility.
(2) Mined production pounds reflected are molybdenum oxide and HPM.
(3) The TC Mine cash cost represents the mining (including all stripping costs), milling, mine site administration, roasting and packaging for molybdenum oxide and HPM produced in the period. Cash cost excludes: the effect of purchase price adjustments, the effects of changes in inventory, stock-based compensation and other non-cash employee benefits and depreciation, depletion, amortization and accretion. The cash cost for the TC Mine includes an estimated molybdenum loss (sulfide to oxide) and an allocation of roasting and packaging costs from the Langeloth Facility, and transportation costs. See Non-GAAP Financial Measures for additional information.
Molybdenum Production and Cash Costs
The TC Mine production was up 38% in the first quarter of 2011, compared to the first quarter of 2010. Higher production was primarily the result of higher tons mined and milled, combined with a higher ore grade and mill recovery rate. As noted previously, TC Mine is expected to have higher production and lower cash costs in the first half of 2011 than the second half of 2011. This is
primarily the result of the TC Mine pit sequencing, and the tapering off of the higher grade production in the first half of 2011, with more stripping activities and significantly lower-grade production in the second half of 2011.
The non-GAAP financial measure of cash cost per pound produced of $4.13 per pound for the first quarter of 2011 was lower compared to $4.74 per pound for the first quarter of 2010. See Non-GAAP Financial Measures below for the calculation of cash cost per pound produced. The cash cost for the first quarter of 2011 included stripping costs of $10.0 million, or $1.15 per pound produced, compared to stripping costs of $6.0 million, or $0.95 per pound produced, for the first quarter of 2010.
Molybdenum sold
Molybdenum pounds sold from the TC Mine for the first quarter of 2011 was up 59% over the first quarter of 2010 and was sold at an average realized sales price that was 20% higher than the first quarter of 2010. During the first quarter of 2011, sales included delivery against certain forward sales contracts related to Phase 6 production of approximately 0.5 million pounds at an average realized sales price of $10.97 per pound compared to approximately 0.4 million pounds at an average realized sales price of $9.82 per pound for the first quarter of 2010.
Cost of sales
Operating expenses in the first quarter of 2011 increased by $12.0 million from the first quarter of 2010. The increase in operating expenses for the first quarter of 2011 primarily resulted from higher molybdenum sold during the current quarter compared to the first quarter of 2010.
Depreciation, depletion, and amortization expense for the first quarter of 2011 was $8.9 million compared to $5.5 million for the first quarter of 2010 primarily due to higher sales volume in the first quarter of 2011.
Endako Mine
TCM has a 75% interest in the Endako open-pit mine, mill and roaster which is located near Fraser Lake, British Columbia. Mining is conducted by conventional open-pit methods utilizing electric-powered shovels and 190-ton to 240-ton haul trucks.
The table that follows presents a summary of TCMs 75% share of the Endako Mines operating and financial results for the three months ended March 31, 2011 and 2010:
(US$ in millions except per pound amountsUnaudited)
|
|
Three Months Ended |
| ||||
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
| ||
Financial (1) |
|
|
|
|
| ||
Molybdenum sales |
|
$ |
35.1 |
|
$ |
23.7 |
|
Cost and expenses: |
|
|
|
|
| ||
Costs of sales |
|
|
|
|
| ||
Operating expenses |
|
25.9 |
|
13.9 |
| ||
Depreciation, depletion and amortization |
|
8.1 |
|
4.5 |
| ||
Total cost of sales |
|
34.0 |
|
18.4 |
| ||
Selling and marketing |
|
0.6 |
|
0.4 |
| ||
Accretion |
|
0.1 |
|
0.1 |
| ||
|
|
34.7 |
|
18.9 |
| ||
Revenue less costs and expenses |
|
$ |
0.4 |
|
$ |
4.8 |
|
|
|
|
|
|
| ||
Operational Statistics |
|
|
|
|
| ||
Mined (000s ore tons) |
|
2,872 |
|
2,325 |
| ||
Milled (000s tons) |
|
2,019 |
|
2,113 |
| ||
Grade (% molybdenum) |
|
0.054 |
|
0.061 |
| ||
Recovery (%) |
|
75.5 |
|
76.9 |
| ||
Molybdenum production (000s lb) (2) |
|
1,645 |
|
1,971 |
| ||
Cash cost ($/lb produced) (3) |
|
$ |
11.73 |
|
$ |
7.26 |
|
Molybdenum sold (000s lb) |
|
2,045 |
|
1,687 |
| ||
Average realized sales price ($/lb) |
|
$ |
17.16 |
|
$ |
14.07 |
|
(1) Excludes inter-segment sales and costs and expenses.
(2) Mined production pounds reflected are molybdenum oxide.
(3) The Endako Mine cash cost represents the mining (including all stripping costs), milling, mine site administration, roasting and packaging for molybdenum oxide produced in the period. Cash cost excludes: the effect of purchase price adjustments, effects of changes in inventory, stock-based compensation and depreciation, depletion, amortization and accretion. See Non-GAAP Financial Measures for additional information.
Molybdenum Production and Cash Costs
TCMs 75% share of molybdenum production at the Endako Mine decreased for the first quarter of 2011 by 16.5% from the first quarter of 2010. This decrease was primarily due to slightly lower mill throughput, lower ore grade, and a lower recovery rate in the first quarter of 2011, which resulted primarily from winter weather conditions and mining in an area of the pit that contains more complex metallurgy. Winter weather caused higher than expected downtime in order to repair and maintain crushing and conveying systems that experienced frozen material hanging in chutes as well as plugging up screening systems.
The non-GAAP financial measure of cash cost per pound produced increased significantly to $11.73 per pound for the first quarter of 2011 from $7.26 per pound for the first quarter of 2010. See Non-GAAP Financial Measures below for the calculation of cash cost per pound produced. This increase was primarily the result of both higher mining and milling costs. The in-pit conveyor system was inoperable for most of the first quarter of 2011, which caused higher ore haulage costs at the mine, including higher fuel prices and expenses due to operating more trucks. The in-pit crushing and conveying systems have been upgraded and tested in preparation for handling higher volumes associated with the new mill, which is expected to start-up in the fourth quarter of 2011. The in-pit conveying system was operating according to expectations as of the end of the first quarter of 2011. Milling costs were higher in the first quarter of 2011 due to unexpected repair and maintenance costs related to the winter weather conditions, as well as continued higher costs for training operators in preparation for the new mill. Compared to the first quarter of 2010, costs were also impacted by unfavorable foreign exchange rates converting C$ costs to US$ costs. The exchange rate averaged US$1.00 = C$0.99 for the first quarter of 2011 compared to an average rate of US$1.00 = C$1.04 for the same period in 2010. A $0.01 change in the Canadian foreign exchange rate results in a change in the cash cost per pound produced of approximately $0.10 per pound.
Molybdenum sold
TCMs share of molybdenum sold from the Endako Mine in the first quarter of 2011 was up 21% over the same quarter of 2010 and was sold at an average realized sales price that was 22% higher than the corresponding quarter of 2010. The increase in the molybdenum pounds sold in the first quarter of 2011 was primarily the result of timing of deliveries that were in-transit at the end of 2010.
Cost of sales
TCMs share of operating expenses for the first quarter of 2011 was $25.9 million compared to $13.9 million for the same period in 2010. The first quarter of 2011 was impacted by both higher mining and milling costs as discussed above, and unfavorable foreign exchange rates converting C$ costs to US$ costs.
Depreciation, depletion, and amortization expense for the first quarter of 2011was $8.1 million compared to $4.5 million for the first quarter of 2010. The increase for the first quarter of 2011 as compared to the same quarter in 2010 was primarily due to higher depreciation on new mining equipment placed in service since March 31, 2010 and unfavorable foreign exchange rate movements.
Selling and marketing costs were higher in the first quarter of 2011 compared to the same period in 2010 primarily as a result of higher molybdenum sales revenue and unfavorable foreign exchange rates converting C$ costs to US$ costs.
Mill expansion project
The mill expansion project at the Endako Mine includes the construction of a new mill, which will replace the existing 45-year-old mill and is expected to raise ore-processing capacity from the existing 31,000 tons per day to 55,000 tons per day.
From inception of this project through March 31, 2011, TCMs 75% share of capital expenditures for the mill expansion project totaled approximately $265.7 million. Assuming an exchange rate of US$1.00 = C$1.00, approximately $172.8 million (of which $129.6 million is TCMs share) is expected to be incurred in the remainder of 2011. Commercial production of molybdenum concentrate from the new mill is expected in the fourth quarter of 2011.
Union Activities
In July 2010, a union certification vote was confirmed for the Endako Mine to be represented by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (the Union). In July 2010, the British Columbia Labor Relations Board certified the Union to represent the employees in the mine, milling and maintenance departments. The negotiation of a 2-year labor agreement with the Union was completed in March 2011 covering the period April 1, 2011 to March 31, 2013.
Langeloth Facility
TCM operates the Langeloth Facility located near Pittsburgh, Pennsylvania. Operations at the Langeloth Facility include roasting of molybdenum sulfide concentrate into molybdenum oxide, upgrading molybdenum oxide to pure sublimed oxide, oxide briquettes, ferromolybdenum, as well as the roasting of other metal products.
Concentrate produced by the TC Mine provides a substantial portion of the feed source for the operations at the Langeloth Facility. From time to time, molybdenum produced by the Endako Mine also provides a feed source for the operations at the Langeloth Facility. In addition, Langeloth also processes molybdenum purchases and certain other metals for third parties on a tolling, or cost-per-unit-processed, basis. The tolling and purchases are made to improve operating efficiency at the Langeloth Facility.
Operating results for the Langeloth Facility represent activities related to the roasting and processing of third-party concentrate and other metals at the Langeloth Facility and excludes product volumes and costs related to the roasting and processing of TC Mine and Endako Mine product. Langeloth Facility costs associated with roasting and processing of TC Mine and Endako Mine product are included in their respective operating results.
The following is a summary of the Langeloth Facilitys operating results for the three months ended March 31, 2011 and 2010:
|
|
Three Months Ended |
| ||||
|
|
2011 |
|
2010 |
| ||
Operational Statistics |
|
(Unaudited) |
| ||||
Molybdenum sold from purchased product (000s lb) |
|
1,580 |
|
1,820 |
| ||
Realized price on molybdenum sold from purchased product ($/lb) |
|
$ |
17.63 |
|
$ |