This document comprises a prospectus relating to First Quantum Minerals Ltd. ("First Quantum" or the "Company") prepared in accordance with the Prospectus Rules of the Financial Conduct Authority made under section 73A of the Financial Services and Markets Act 2000. This prospectus will be made available to the public in accordance with the Prospectus Rules. If you are in any doubt about the contents of this document you should consult your stockbroker, bank manager, solicitor, accountant or other financial adviser. It should be remembered that the price of securities and the income from them can go down as well as up. The Company and its Directors (whose names appear on pages 51 to 53 of this document) accept responsibility for the information contained in this document. To the best of the knowledge of the Company and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and contains no omission likely to affect its import. Application will be made to the Financial Conduct Authority for all of the New Common Shares (as defined herein) to be admitted to listing on the Official List and to the London Stock Exchange for such New Common Shares to be admitted to trading on the London Stock Exchange's main market for listed securities (together "Admission"). It is expected that Admission will become effective at 8.00 a.m. on 1 April 2014. Prospective investors should read this entire document. For a discussion of certain risk and other factors that should be considered in connection with an investment in the New Common Shares, see "Risk Factors" set out on pages 12-29 of this document. FIRST QUANTUM MINERALS LTD. (Continued into the province of British Columbia, Canada under the Business Corporation Act (British Columbia) with incorporation no. C0726351)) Admission of 114,526,277 New Common Shares to listing on the Official List and to trading on the London Stock Exchange _______________ Expected share capital immediately following Admission Issued Common Shares of no par value Authorised Issued and Fully Paid Unlimited 590,836,559 The New Common Shares rank pari passu in all respects with the existing Common Shares and rank in full for all dividends and other distributions declared, made or paid on Common Shares. This document does not constitute an offer to sell, or the solicitation of an offer to subscribe for or buy, any New Common Shares to any person in any jurisdiction to whom or in which such offer or solicitation is unlawful. The distribution of this document in certain jurisdictions may be restricted by law. Neither this document nor any advertisement or any other offering material may be distributed or published in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this document comes should inform themselves about and observe any such restrictions. Any failure to comply with any of those restrictions may constitute a violation of the securities laws of any such jurisdiction. The Common Shares and the New Common Shares are not registered under the US Securities Act of 1933, as amended (the "Securities Act"). Investors should rely only on the information contained in this document and any supplementary prospectus produced to supplement the information contained in this document. No person has been authorized to give any information or to make any representations other than those contained in this document in connection with the New Common Shares and, if given or made, such information or representations must not be relied upon as having been authorized by or on behalf of the Company. Without prejudice to any obligation of the Company to publish a supplementary prospectus pursuant to section 87G(1) of FSMA and Rule 3.4 of the Prospectus Rules, neither the delivery of this document nor any subscription or sale made under this document shall, under any circumstances, create any implication that there has been no change in the business or affairs of the Company or of the Group taken as a whole since the date of this document or that the information contained herein is correct as of any time subsequent to the date of this document. The contents of this document are not to be construed as legal, business or tax advice. Investors should consult their own lawyer, financial adviser or tax adviser for legal, financial or tax advice in relation to the acceptance of New Common Shares.
224
Embed
FIRST QUANTUM MINERALS LTD. - s1.q4cdn.coms1.q4cdn.com/857957299/files/doc_financials/UK PROSPECTUS - First... · This document comprises a prospectus relating to First Quantum Minerals
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
This document comprises a prospectus relating to First Quantum Minerals Ltd. ("First Quantum" or the "Company")
prepared in accordance with the Prospectus Rules of the Financial Conduct Authority made under section 73A of the Financial
Services and Markets Act 2000. This prospectus will be made available to the public in accordance with the Prospectus Rules.
If you are in any doubt about the contents of this document you should consult your stockbroker, bank manager, solicitor,
accountant or other financial adviser. It should be remembered that the price of securities and the income from them can go down as well as up.
The Company and its Directors (whose names appear on pages 51 to 53 of this document) accept responsibility for the
information contained in this document. To the best of the knowledge of the Company and the Directors (who have taken all
reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts
and contains no omission likely to affect its import.
Application will be made to the Financial Conduct Authority for all of the New Common Shares (as defined herein) to be
admitted to listing on the Official List and to the London Stock Exchange for such New Common Shares to be admitted to
trading on the London Stock Exchange's main market for listed securities (together "Admission"). It is expected that
Admission will become effective at 8.00 a.m. on 1 April 2014.
Prospective investors should read this entire document. For a discussion of certain risk and other factors that should be considered in connection with an investment in the New Common Shares, see "Risk Factors" set out on
pages 12-29 of this document.
FIRST QUANTUM MINERALS LTD.
(Continued into the province of British Columbia, Canada under the Business Corporation Act (British Columbia) with incorporation no. C0726351))
Admission of 114,526,277 New Common Shares to listing on the Official List and to trading on the London Stock Exchange
_______________
Expected share capital immediately following Admission
Issued Common Shares of no par value
Authorised Issued and Fully Paid
Unlimited 590,836,559
The New Common Shares rank pari passu in all respects with the existing Common Shares and rank in full for all dividends and
other distributions declared, made or paid on Common Shares.
This document does not constitute an offer to sell, or the solicitation of an offer to subscribe for or buy, any New Common
Shares to any person in any jurisdiction to whom or in which such offer or solicitation is unlawful.
The distribution of this document in certain jurisdictions may be restricted by law. Neither this document nor any
advertisement or any other offering material may be distributed or published in any jurisdiction except under circumstances
that will result in compliance with any applicable laws and regulations. Persons into whose possession this document comes
should inform themselves about and observe any such restrictions. Any failure to comply with any of those restrictions may constitute a violation of the securities laws of any such jurisdiction. The Common Shares and the New Common Shares are not
registered under the US Securities Act of 1933, as amended (the "Securities Act").
Investors should rely only on the information contained in this document and any supplementary prospectus
produced to supplement the information contained in this document. No person has been authorized to give any
information or to make any representations other than those contained in this document in connection with the
New Common Shares and, if given or made, such information or representations must not be relied upon as
having been authorized by or on behalf of the Company. Without prejudice to any obligation of the Company to
publish a supplementary prospectus pursuant to section 87G(1) of FSMA and Rule 3.4 of the Prospectus Rules,
neither the delivery of this document nor any subscription or sale made under this document shall, under any
circumstances, create any implication that there has been no change in the business or affairs of the Company or
of the Group taken as a whole since the date of this document or that the information contained herein is correct
as of any time subsequent to the date of this document.
The contents of this document are not to be construed as legal, business or tax advice. Investors should consult their own
lawyer, financial adviser or tax adviser for legal, financial or tax advice in relation to the acceptance of New Common Shares.
CONTENTS
PAGE
SUMMARY ........................................................................................................................... 1 RISK FACTORS .................................................................................................................. 12 FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION................................................ 30 PART I .............................................................................................................................. 32 BUSINESS OF FIRST QUANTUM ........................................................................................... 32 1. HISTORY OF THE BUSINESS .................................................................................... 32 2. BUSINESS OVERVIEW ............................................................................................ 32 3. SIGNIFICANT SUBSIDIARIES................................................................................... 33 4. EMPLOYEES ........................................................................................................... 35 PART II ............................................................................................................................. 36 PRO FORMA INCOME STATEMENT ........................................................................................ 36 Section B: Accountants' report on pro forma income statement ............................................... 39 PART III ............................................................................................................................ 41 ADDITIONAL INFORMATION ................................................................................................ 41 1. RESPONSIBILITY ................................................................................................... 41 2. WORKING CAPITAL ................................................................................................ 41 3. SHARE CAPITAL ..................................................................................................... 41 4. ARTICLES OF CONTINUANCE OF THE COMPANY ......................................................... 42 5. SIGNIFICANT CHANGE ........................................................................................... 50 6. EXECUTIVE OFFICERS AND DIRECTORS.................................................................... 50 7. MAJOR SHAREHOLDERS.......................................................................................... 54 8. AUDITORS ............................................................................................................ 54 9. MATERIAL CONTRACTS ........................................................................................... 55 10. DIVIDENDS AND WITHHOLDING TAX ....................................................................... 75 11. CAPITALISATION AND INDEBTEDNESS ..................................................................... 75 12. MISCELLANEOUS ................................................................................................... 76 13. DOCUMENTS AVAILABLE FOR INSPECTION ............................................................... 79 PART III ............................................................................................................................ 80 ACQUISITION OF INMET MINING CORPORATION ................................................................... 80 1. ÇAYELI ................................................................................................................. 80 2. LAS CRUCES ......................................................................................................... 82 3. PYHÄSALMI ........................................................................................................... 83 4. COBRE PANAMA ..................................................................................................... 85 5. SUMMARY OF MINERAL RESERVE AND RESOURCES ESTIMATES .................................. 88
8. ZINC MARKET 2013 .............................................................................................. 165 9. DIVIDEND POLICY................................................................................................ 166 10. SHAREHOLDING AND OPTIONS OF DIRECTORS ....................................................... 166 11. REMUNERATION AND BENEFITS OF DIRECTORS ...................................................... 167 12. AUDIT COMMITTEE .............................................................................................. 169 13. COMPENSATION COMMITTEE ................................................................................ 170 SCHEDULE 3 ................................................................................................................... 172 Summary of mineral resources at 31 December 2013 (all grades are in-situ) .......................... 173 Summary of mineral reserves at 31 December 2013 (all grades are diluted in-situ) ................. 174 SCHEDULE 4 ................................................................................................................... 175 SCHEDULE 5 ................................................................................................................... 215 CHECKLIST OF DOCUMENTATION INCORPORATED BY REFERENCE ......................................... 215 DEFINITIONS .................................................................................................................. 219
1
LONDON\33747915.07
SUMMARY
Summaries are made up of disclosure requirements known as "Elements". The Elements
are numbered in Sections A—E (A.1—E.7).
This summary contains all the Elements required to be included in a summary for this
type of securities and Issuer (defined below). Because some Elements are not required
to be addressed, there may be gaps in the numbering sequence of the Elements.
Even though an Element may be required to be inserted in the summary because of the
type of securities and Issuer, it is possible that no relevant information can be given
regarding the Element. In this case a short description of the Element is included in the
summary with the mention of "not applicable".
Section A – Introduction and Warnings
A.1 Introduction This summary should be read as an introduction to this document. Any
decision to invest in the securities should be based on consideration of
the prospectus as a whole by the investors. Where a claim relating to the
information contained in this document is brought before a court, the
plaintiff investor might, under the national legislation of the Member
State, have to bear the costs of translating the prospectus before the
legal proceedings are initiated. Civil liability attaches only to those
persons who have tabled the summary including any translation thereof,
but only if the summary is misleading, inaccurate or inconsistent when
read together with the other parts of the prospectus or it does not
provide, when read together with the other parts of the prospectus, key
information in order to aid investors when considering whether to invest
in such securities.
A.2 Subsequent
resale of
securities or
final placement
of securities
through
financial
intermediaries
Not applicable.
Section B – Issuer
B.1 Legal and
Commercial
Name
The legal and commercial name of the issuer is First Quantum Minerals
Ltd.
B.2 Domicile/
Legal Form/
Legislation/
Country of
Incorporation
The Company is incorporated in the province of British Columbia, Canada
under the Business Corporation Act (British Columbia) with incorporation
number C0726351. It is domiciled and tax resident in Canada.
2
LONDON\33747915.07
B.3 Key factors of
issuer's
current
operations and
principal
activities
First Quantum is an international mining company which has grown
through a combination of exploration, development, operation, and
acquisition of mining projects or companies with interests in mining
projects and the production of London Metal Exchange grade "A"
equivalent copper cathode, copper in concentrate, nickel, gold, and zinc.
First Quantum currently operates seven mines and is developing five
projects worldwide. The Company’s current operations are the Kansanshi
copper-gold mine, the Guelb Moghrein copper-gold mine, the Las Cruces
copper mine, the Kevitsa nickel-copper-PGE mine, the Pyhäsalmi copper-
zinc mine, the Ravensthorpe nickel-cobalt mine, and the Çayeli copper-
zinc mine. In addition, it is developing projects in Zambia, Panama and
Peru.
B.4 Significant
recent trends
affecting the
Company and
the industries
in which it
operates
On 22 March 2013, the Company had acquired 85.5% of the common
shares of Inmet. The remaining common shares were acquired in two
transactions, on 1 April 2013 and 9 April 2013 after which the Company
had completed its overall plan to acquire 100% of the common shares of
Inmet.
Under the terms of the acquisition, former Inmet shareholders received
per Inmet share either (i) C$72.00 in cash; (ii) 3.2967 common shares of
First Quantum; or (iii) C$36.00 and 1.6484 common shares of First
Quantum, subject to pro-ration based on take-up. The Company issued
114,526,277 common shares pursuant to the Acquisition.
The Company acquired Inmet in order to create a globally diversified
base metals company. Inmet owned the Çayeli copper-zinc mine in
Turkey, the Las Cruces copper mine in Spain, the Pyhäsalmi copper-zinc
mine in Finland, and an 80% interest in the Cobre Panama copper project
in Panama, which is currently under development.
Inmet’s principal subsidiaries were Çayeli Bakır Isletmeleri A.S. (Turkey),
Cobre Las Cruces S.A. (Spain), Pyhäsalmi Mine Oy (Finland), and Minera
Panama, S.A. (Panama) (each of which is now a member of the Group).
Cash consideration for the acquisition was financed through a US$2.5
billion acquisition facility provided by Standard Chartered Bank.
3
LONDON\33747915.07
B.5
Group structure
The Company is the holding company of the Group with headquarters in
British Columbia, Canada. The Company also has representative offices
located in Perth, Australia; London, England; Johannesburg, South
Africa; and Toronto, Canada. The significant subsidiaries of the Company
are:
Name of Subsidiaries:
Adastra Minerals Inc.
Congolese Zinc Investments Ltd.
Zincongo Limited
Afro American Finance
Sumtech (Private) Limited
First Quantum Minerals (Australia) Pty
Limited
First Quantum Minerals (UK) Ltd.
Metal Corp Trading (UK) Ltd.
FQM (Akubra) Inc.
Inmet Sweden Holdings AB
Inmet Cobre Espana SA
Çayeli Bakir Isletmeleri A.S.
Inmet Finland Oy
CLC Holdings Oy
CLC Copper I BV
CLC Copper II BV
Cobre Las Cruces SA
Pyhäsalmi Mine Oy
Inmet Panama I S.A.R.L.
Inmet Panama II S.A.R.L.
Minera Panama S.A.
Inmet Finance Company S.A.R.L.
FQM Australia Holdings (BVI) Ltd
FQM Aus Nickel (BVI) Ltd
FQM Australia Holdings Pty Ltd
FQM Australia Nickel Pty Ltd
Ravensthorpe Nickel Operation Pty Ltd.
FQM Finance Ltd.
Black Bark Investments Ltd.
Kabitaka Hills Development Corporation
Limited
Kansanshi Holdings Limited
Metal Corp Trading Logistics SA
(Proprietary) Limited
First Quantum Minerals SA (Pty) Ltd.
Kansanshi Projects Ltd
Kansanshi Mining Plc ("KMP")
FQM Holdings Ltd.
FQM (Peru) Ltd.
Minera Antares Peru S.A.C.
FQM LA Services Inc.
FQM Scandinavia Ltd.
FQM Projects Finance Ltd.
Kevitsa Mining Oy
FQM Kevitsa Sweden Holdings AB
FQM Kevitsa Holding No 1 Oy
FQM Kevitsa Holding No 2 Oy
Kevitsa Mining AB
FQM Kevitsa Mining Oy
FQM Finnex Oy
International Quantum Resources Limited
Metal Corp (Sweden) AB
Metal Corp Trading AG
Oryx Limited
Faloxia Pty Ltd.
Cover Investments Limited
First Quantum Mining and Operations
Limited
FQM Frontier Limited
Kiwara Resources Ltd.
Kiwara Resources Zambia Limited
Kalumbila Minerals Limited
Kalumbila Town Development Corp
Trident Projects Ltd.
Prop Holdings Ltd.
Kafue Transport Services Limited
Skyfall Holdings Ltd.
Mauritan Holdings Ltd.
Mauritanian Copper Mines S.A. ("MCM")
Mauritania Exploration SARL
First Quantum Burkina Faso SARL
Skyblue Enterprises Inc.
FQM Exploration Holdings Ltd.
4
LONDON\33747915.07
B.6 Notifiable
interests
As at 26 March 2014 (being the last practicable date prior to the
publication of this document), (i) BlackRock Investment Management
(UK) Limited holds, directly and indirectly, 12.03% of the voting rights in
the Company, and (ii) The Capital Group Companies, Inc. holds, directly
and indirectly, 15.02% of the voting rights in the Company. No other
beneficial holder of the Company's common shares has a shareholding
which is notifiable.
B.7 Historical
Financial
Information
The historical financial information set forth below in respect of the
Company for the years ended 31 December 2011, 2012 and 2013 has
been extracted without material adjustment from the audited financial
statements incorporated by reference into this document.
Consolidated Statement of Earnings (expressed in millions of U.S. dollars,
except where indicated and share per share amounts)
Consolidated Balance Sheet
As at 31
December
2013
As at 31
December
2012
As at 31
December
2011
Assets
Current Assets
2013
financial
year
2012
financial
year
2011
financial
year
Sales revenues 3,552.9 2,950.4 2,583.5
Cost of sales (2,419.1) (1,849.4) (1,275.5)
Gross profit 1,133.8 1,101.0 1,308.0
Exploration (51.6) (49.7) (73.0)
General and administrative (122.7) (76.0) (73.8)
Acquisition transaction
costs
(29.5) - -
Bond inducement costs - - (48.4)
Settlement of RDC claims
and sale of assets
- 1,217.9 -
Other expenses (35.2) (4.3) 7.3
Operating profit 894.8 2,188.9 1,120.1
Finance income 27.8 23.6 5.3
Finance costs (23.3) (15.3) (9.9)
Earnings before income
taxes
899.3 2,197.2 1,115.5
Income taxes (369.6) (327.8) (460.7)
Net earnings for the year 529.7 1,869.4 654.8
Net earnings for the year
attributable to:
Non-controlling interests 71.1 96.5 125.9
Shareholders of the
Company
458.6 1,772.9 528.9
Earnings per common
share (expressed in $ per
share)
Basic 0.82 3.74 1.18
Diluted 0.81 3.72 1.18
Weighted average shares
outstanding (000’s)
Basic 560,009 473,893 447,224
Diluted 563,389 476,310 449,457
Total shares issued and
outstanding (000’s)
590,836 476,310 476,310
5
LONDON\33747915.07
Cash and cash equivalents 694.5 309.0 452.1
Trade and other
receivables
548.1 390.2 238.1
Inventories 1,123.6 903.7 649.9
Promissory note receivable
– current portion
25.0 - -
Current portion of other
assets
151.8 230.1 34.0
Current assets 2,543.0 1,833.0 1,374.1
Restricted cash 84.0 - -
Investments 58.4 55.6 18.0
Promissory note receivable 465.1 481.8 -
Property, plant and
equipment
11,986.2 4,953.6 3824.4
Goodwill 236.7 - -
Other assets 97.8 212.4 81.5
Total assets 15,471.2 7,536.4 5298.0
Liabilities
Current Liabilities
Trade and other payables 667.8 355.5 273.4
Current taxes payable 55.3 32.5 289.4
Current debt 1,046.1 49.1 48.1
Current provisions and
other liabilities
35.7 6.5 11.0
1,804.9 443.6 621.9
Debt 3,027.3 347.7 14.8
Provisions and other
liabilities
619.5 299.2 286.4
Deferred income tax
liabilities
930.9 564.5 206.4
Total liabilities 6,382.6 1,655.0 1,129.5
Equity
Share capital 4,204.0 1,929.6 1,950.6
Retained earnings 3,765.2 3,405.7 1,723.8
Accumulated other
comprehensive loss
(0.9) (4.3) 1.2
Total equity attributable to
shareholders of the
Company
7,968.3 5,331.0 3,675.6
Non-controlling interests 1,120.3 550.4 492.9
Total equity 9,088.6 5,881.4 4,168.5
Total liabilities and equity 15,471.2 7,536.4 5,298.0
Consolidated Cash Flow Statement
2013
financial
year
2012
financial
year
2011
financial
year
Cash flows from operating
activities
868.8 342.5 412.3
Cash flows from (used by)
investing activities
(1,750.2) (677.8) (1,094.7)
Cash flows from (used by)
financing activities
1,266.9 192.2 (210.4)
Increase (decrease) in
cash and cash equivalents
385.5 (143.1) (892.8)
Cash and cash equivalents
– beginning of year
309.0 452.1 1,344.9
Cash and cash equivalents
– end of year
694.5 309.0 452.1
Certain significant changes to the Group’s financial condition and results
of operations occurred during the 2011, 2012 and 2013 financial years.
These changes are as set out below.
The Group has expanded from 2 to 7 operations through the
completion of the Ravensthorpe and Kevitsa projects and the
addition of 3 operations as part of the Inmet acquisition in 2013.
6
LONDON\33747915.07
The Group’s balance sheet has grown significantly as a result of
continued development of development projects and the
acquisition of Inmet. The total assets have increased from $5.3
billion to $15.5 billion from 31 December 2011 to 31 December
2013. The asset growth has been partly funded by debt, which
has grown from $62 million to $4.0 billion.
Gross profit has decreased from $1.1 billion in 2011 to $0.9 billion
in 2013 as a decrease in metal prices has outweighed the
increase in the number of operating entities over the period.
Net earnings attributable to shareholders of the Company have
decreased from $528 million in 2011 to $426 million in 2013 as a
result of lower metal prices in 2013. This outweighed the
incremental contribution of the new operations over the period.
Subsequent to 31 December 2013, the group has continued to develop
its capital projects, which are funded primarily by long-term debt. On 24
January 2014, the Company entered into a mandate letter for a $2,500.0
million five-year term loan and revolving facility. On 27 March 2014,
Kansanshi Mining Plc, as borrower, and the Company, as guarantor,
entered into a $350 million five year unsecured term facility agreement
with Standard Chartered Bank as initial mandated lead arranger,
bookrunner, and underwriter. There have been no other significant
changes to the financial condition or the operating results of the Group
since 31 December 2013, the end of the period covered by the selected
historical key financial information set out in the tables above.
B.8
Pro forma Financial
Information
The unaudited pro forma statement of earnings of First Quantum
Minerals Limited set out below has been prepared to illustrate the effect
of the acquisition of Inmet on the consolidated statement of earnings of
First Quantum Minerals Limited for the financial year ended 31 December
2013 as if the acquisition of Inmet had taken place on 1 January 2013.
The unaudited pro forma statement of earnings has been prepared for
illustrative purposes only and, because of its nature, addresses a
hypothetical situation and therefore does not represent the actual results
of First Quantum Minerals Limited.
The unaudited pro forma statement of earnings is based on the
consolidated statement of earnings of First Quantum Minerals Limited for
the financial year ended 31 December 2013 and has been prepared in
accordance with Annex II to the Prospectus Directive Regulation, using
the accounting policies adopted by First Quantum Minerals Limited in
preparing its consolidated financial statements for the period ended 31
December 2013 and on the basis of the notes set out below.
Unaudited Pro Forma Statement of Earnings (expressed in millions of U.S.
dollars, except per share amounts)
First
Quantum
Financial
year
ended 31
December
2013
(Note 1)
Inmet
Three
months
ended
31
March
2013
(Note
2)
Consolidated Pro Forma
Adjustments
(Notes 3, 4)
Pro forma
consolidated
7
LONDON\33747915.07
Sales
revenues
3,552.9 251.3 3,804.2 3,804.2
Cost of sales (2,419.1) (110.9) (2,530.0) (28.7) (2,558.7)
Gross profit 1,133.8 140.4 1,274.2 (28.7) 1,245.5
Exploration (51.6) (9.2) (60.8) (60.8)
General and
administrative
(122.70) (13.1) (135.8) (135.8)
Acquisition
transaction
costs
(29.5) (65.1) (94.6) (94.6)
Other income
(expense)
(35.2) 17.2 (18.0) (18.0)
Operating
profit
894.8 70.2 965.0 (28.7) 936.3
Finance
income
27.8 3.5 31.3 31.3
Financing
costs
(23.3) (2.9) (26.2) (26.2)
Earnings
before income
taxes
899.3 70.8 970.1 (28.7) 941.4
Income taxes (369.6) (44.8) (414.4) 9.5 (404.9)
Net earnings 529.7 26.0 555.7 (19.3) 536.4
Net earnings
for the year
attributable
to:
Non-
controlling
interests
74.5 (0.8) 73.7 - 73.7
Shareholders
of the
Company
455.2 26.8 482.0 (19.3) 462.7
8
LONDON\33747915.07
Notes:
(1) The consolidated statement of earnings for the financial year ended
31 December 2013 has been extracted without material
adjustment from the consolidated financial statements of First
Quantum Minerals Limited for the year ended 31 December 2013,
as incorporated by reference in Schedule 4 of the Prospectus.
(2) The pre-acquisition consolidated financial information of Inmet for
the three-month period ended 31 March 2013 has been obtained
from the Inmet Mining Quarterly Report for the three months
ended 31 March 2013.
(3) Other adjustments comprise:
a. the estimated incremental depreciation of $28.7m on the
fair value adjustments recorded to depreciable assets on
the Inmet acquisition for the pre-acquisition period; and
b. the tax effect of this adjustment at the estimated
effective rate of Inmet Mining Corporation for the quarter
ended 31 March 2013 of 33%.
The incremental depreciation charge and associated tax impact
will continue to impact the Group in subsequent periods until the
fair value adjustments recorded to depreciable assets have been
fully depreciated.
(4) On 22 March 2013, First Quantum had acquired 85.5% of the
common shares of Inmet thus obtaining control. The results of
Inmet are consolidated within the results of First Quantum from
22 March 2013. No adjustment had been made to the financial
information to eliminate the financial results for the period from
the date of acquisition of Inmet by the Group which is
incorporated within both the consolidated Group financial
information and in the financial results for Inmet Mining
Corporation for the quarter ended 31 March 2013.
(5) No account has been taken of the trading activities of the Group or
Inmet since 31 December 2013. In addition, no adjustments
have been made to reflect any of the matters not directly
attributable to the Acquisition.
(6) The pro forma financial information does not constitute financial
statements within the meaning of section 434 of the Companies
Act.
B.9 Profit
forecast/
Estimates
Not applicable. There are no profit forecasts or estimates contained in
this document.
B.10 Qualifications
in the audit
report
Not applicable. There are no qualifications to the audit reports
incorporated by reference into this document.
B.11 Insufficient
Working
Capital
Not applicable; the Company is of the opinion that the working capital is
sufficient for the Group's present requirements, that is for at least 12
months following the date of this document.
9
LONDON\33747915.07
Section C – Securities
C.1 Type and class
of securities
being offered
The securities to be admitted comprise Common Shares which, on
Admission, will be allocated ISIN Number CA3359341052.
C.2 Currency No par value.
C.3 Issued Share
Capital
590,836,559 issued Common Shares.
C.4 Rights
attaching to the
Common Shares
The Common Shares rank pari passu in all respects with each other,
including for voting purposes and in full for all dividends and
distributions on Common Shares declared, made or paid after their issue
and for any distributions made on a winding up of the Company.
Except in relation to dividends which have been declared and rights on a
liquidation of the Company, the Shareholders have no rights to share in
the profits of the Company.
C.5 Restrictions on
transfer
The Common Shares are freely transferable and there are no restrictions
on transfer in the UK.
C.6 Admission to
trading
Application will be made.to the FCA for the New Common Shares to be
admitted to the standard listing segment of the Official List and to the
London Stock Exchange for such New Common Shares to be admitted to
trading on the London Stock Exchange's main market for listed
securities.
C.7 Dividend policy The Company implemented its dividend policy in 2005. Under this policy,
the Company expects to pay two dividends per year, the first an
"interim" dividend declared after the release of second quarter results;
the second, a "final" dividend based on year end results. Interim
dividends are set at one-third of the total dividends (interim and final)
declared on a per common share basis applicable in respect of the
previous financial year. Final dividends are determined based on the
financial performance of the Company during the previous applicable
financial year.
Section D – Risks
D.1 Key
information
on the key
risks that are
specific to the
Issuer or its
industry
For the twelve months ended 31 December 2013, the Company derived 52
per cent of its pro forma revenue from Kansanshi. Kansanshi is located in
Zambia, which has a history of political instability, significant and
unpredictable changes in government policies and laws, illegal mining
activities, lack of law enforcement and labor unrest.
The Company holds an 80 per cent interest in the Kansanshi mine; the
remaining 20 per cent is held by ZCCM, controlled by the GRZ. The
Company’s relationship with ZCCM is governed by a shareholders’
agreement pursuant to which the GRZ is entitled to certain privileges, such
as the right to appoint a "government director".
The Company currently has operations in Zambia and Mauritania, with 52
per cent of its pro forma revenue being generated from Zambia and 9 per
cent from Mauritania in the twelve months ended 31 December 2013.
These countries have a history of political instability, significant and
10
LONDON\33747915.07
unpredictable changes in government policies and laws, illegal mining
activities, lack of law enforcement and labor unrest.
The Company’s ability to maintain or increase its annual production of
copper, nickel and gold will be dependent, in significant part, on its ability
to bring new mines into production and to expand existing mines.
The Company’s mining operations and exploration activities are subject to
extensive laws and regulations, which include laws and regulations
governing, among other things: exploration; development; production;
exports; taxes; labour standards; mining royalties; price controls; waste
disposal; protection and remediation of the environment; reclamation;
historic and cultural resource preservation; mine safety and occupational
health; handling; storage and transportation of hazardous substances; and
other matters.
The Company’s business operations are subject to risks and hazards
inherent in the mining industry that may result in damage to its property,
delays in its business and possible legal liability.
The Company’s reported mineral reserves and resources are only
estimates. No assurance can be given that the estimated mineral reserves
and resources will be recovered or that they will be recovered at the rates
estimated.
Title to the Company’s properties may be challenged or impugned, and title
insurance is generally not available.
In the countries in which the Company operates, there are a limited
number of smelters within range of its operations, which means that it may
be unable to manage the increased costs of freight and export duties
associated with transporting or exporting ore to smelters.
The profitability of the Company’s current operations is directly related and
sensitive to the market price of copper and, to a lesser extent, that of
nickel, gold and zinc. Copper, nickel, gold and zinc prices fluctuate widely
and are affected by numerous factors beyond the Company’s control,
including global supply and demand, expectations with respect to the rate
of inflation, the exchange rates of the U.S. dollar to other currencies and
interest rates.
D.3 Key
information
on the key
risks that are
specific to the
Common
Shares
The market price of the Common Shares may fluctuate significantly in
response to a number of factors, many of which are beyond the Group's
control, including but not limited to variations in operating results in the
Group's reporting period, changes in market conditions, changes in
financial estimates by securities analysts and speculation about the Group
in the press or investment community.
The ability of the Company to pay any dividends in respect of Common
Shares will depend on the level of the earnings, reserves and any ongoing
regulatory capital requirements of the Company as well as its cash position
and the judgement of the directors.
The Common Shares will be quoted in Canadian dollars. An investment in
the Common Shares by an investor in a jurisdiction whose principal
currency is not Canadian dollars exposes the investor to foreign currency
rate risk.
11
LONDON\33747915.07
Securities of mining companies, including the Company’s common shares,
have experienced substantial volatility, often based on factors unrelated to
the financial performance or prospects of the companies involved. These
factors include macroeconomic developments in the countries where the
Company carries on business and globally, and market perceptions of the
attractiveness of particular industries.
Section E – Offer
E.1 Total net
proceeds of
the issue and
estimated
expenses
Not applicable. The New Common Shares were issued as consideration to
shareholders of Inmet upon acquisition of Inmet's share capital. The total
consideration was determined using an issue price of each Common Share
of C$20.60. No expenses will be charged to Shareholders in connection
with Admission.
E.2a Reasons for
the offer and
use of
proceeds
Not applicable. The New Common Shares were issued as consideration to
shareholders of Inmet upon acquisition of Inmet's share capital. The total
consideration was determined using an issue price of each Common Share
of C$20.60. No expenses will be charged to Shareholders in connection
with Admission.
E.3 Terms and
conditions of
the offer
Not applicable.
E.4 Material
interests
Not applicable.
E.5 Selling
Shareholders/
Lock-up
Arrangements
Not applicable.
E.6 Dilution The amount and percentage of immediate dilution as a result of the issue
of the New Common Shares was (immediately following the issue of all
such New Common Shares) 24 per cent.
E.7 Estimated
expenses
charged to
investors
Not applicable. No expenses will be charged to Shareholders in connection
with Admission.
12
LONDON\33747915.07
RISK FACTORS
Any investment in the Company is subject to a number of risks. Accordingly, prospective investors should
carefully consider the risks and uncertainties associated with any investment in the Common Shares, the
Group's business and the industry in which it operates, described below, together with all other information
contained in this document, prior to making an investment decision.
Prospective investors should note that the risks relating to the Group, its industry and the Common Shares
summarised in the section of this document headed "Summary" are the risks that the Directors believe to be the
most essential to an assessment by a prospective investor of whether to consider an investment in the Common
Shares. However, as the risks which the Group faces relate to events and depend on circumstances that may or
may not occur in the future, prospective investors should consider not only the information on the key risks
summarised in the section of this document headed "Summary" but also, among other things, the risks and
uncertainties described below.
The risks and uncertainties described below represent those the Directors consider to be material as at the date
of this document. However, these risks and uncertainties are not the only ones facing the Group. Additional
risks and uncertainties not presently known to the Directors, or that the Directors currently consider to be
immaterial, may individually or cumulatively also materially and adversely affect the business, results of
operations, financial condition and/or prospects of the Group. If any or a combination of these risks actually
occurs, the business, results of operations, financial condition and/or prospects of the Group could be
materially and adversely affected. In such case, the market price of the Common Shares could decline and
investors may lose all or part of their investment. Investors should consider carefully whether an investment in
the Common Shares is suitable for them in the light of the information in this document and their personal
circumstances.
RISKS RELATING TO THE GROUP'S BUSINESS AND INDUSTRY
The Company derives a significant portion of its revenue from one asset
For the twelve months ended 31 December 2013, the Company derived 52 per cent of its pro
forma revenue from Kansanshi. Kansanshi is located in Zambia, which has a history of political
instability, significant and unpredictable changes in government policies and laws, illegal mining
activities, lack of law enforcement and labor unrest. The Company’s operations at Kansanshi are
vulnerable to disruption due to government intervention, political, social and labor unrest, and
other hazards more generally associated with the mining industry and open pit mining. In addition,
its ownership interest at Kansanshi is subject to third party risk arising from the Zambian
authorities and the Company’s partner on the project, ZCCM. It therefore faces risks related to its
ability to extract profits from Kansanshi. The Company’s results of operations have depended, and
are expected to continue to depend significantly, on production at Kansanshi. Any suspension of
operations or production for any reason, or third party intervention in the Company’s corporate
actions at Kansanshi, could have a material adverse effect on its business, prospects, financial
condition and results of operations.
The Company holds its principal asset in Zambia jointly with the GRZ, whose interests
may conflict with those of the Company
The Company holds an 80 per cent interest in the Kansanshi mine; the remaining 20 per cent is
held by ZCCM, controlled by the GRZ. The Company’s relationship with ZCCM is governed by a
shareholders’ agreement pursuant to which the GRZ is entitled to certain privileges, such as the
right to appoint a "government director" to the board of the operating company, which carries out
its operations at the site, as well as weighted voting rights in respect of certain corporate actions.
In particular, ZCCM has a veto right in respect of changes to the Company’s dividend policy, which
could affect the ability to pay dividends from the operating company to the Company. The
shareholders’ agreement also imposes certain restrictions on the Company’s ability to transfer its
shares in the operating company or a controlling interest in its assets at Kansanshi unless the
13
LONDON\33747915.07
party to whom the Company’s assets are transferred assumes certain undertakings pursuant to
the shareholders’ agreement. In the event that the Company becomes unable to pay its debts or
commence liquidation or administration proceedings, ZCCM is entitled to a right of first refusal in
relation to the Company’s 80 per cent interest in the Kansanshi mine. The shareholders’
agreement also contains "free-carried" interest provisions which entitle ZCCM to maintain a 5 per
cent equity interest and "repayable carried" interest provisions for the benefit of ZCCM set at the
15 per cent level. These provisions would entitle ZCCM to maintain the same percentage of equity
interest in the event of capital increases. Restrictions such as those in the shareholders’ agreement
may interfere with the ability of the Company’s subsidiaries to make distributions to it, which could
adversely affect the company's ability to use its cash to fund further development and exploration
projects and/or make payments in respect of its indebtedness.
The majority of the Company’s operations are in African nations, which have
underdeveloped physical, financial, political and institutional infrastructure
The Company currently has operations in Zambia and Mauritania, with 52 per cent of its pro forma
revenue being generated from Zambia and 9 per cent from Mauritania in the twelve months ended
31 December 2013. These countries have a history of political instability, significant and
unpredictable changes in government policies and laws, illegal mining activities, lack of law
enforcement and labor unrest. Due to the fact that these countries are developing nations, with
poor physical and institutional infrastructure, the Company’s Zambian and Mauritanian operations
are subject to various increased economic, political and other risks, including war, civil unrest,
nationalization, expropriation, changing fiscal regimes and uncertain regulatory environments,
changing tax and royalty regimes, and challenges to or reviews of the Company’s legal and
contractual rights, including under the Kansanshi Development Agreement and MCM Mining
Convention. These risks were reflected in the Company’s experiences in the Democratic Republic of
Congo ("DRC"), when the Government of the DRC arbitrarily terminated the Kolwezi tailings
exploitation license and withdrew the Frontier and Lonshi mining licenses. These events resulted in
the cessation of the Company’s activities in the DRC. While the Company has recourse to
international arbitration under the Kansanshi Development Agreement and MCM Mining
Convention, there are risks associated with litigation and the enforceability of these contracts, the
Company’s mining titles, and any damages awards obtained through international arbitration.
The Company faces risks associated with its development projects
The Company’s ability to maintain or increase its annual production of copper, nickel and gold will
be dependent, in significant part, on its ability to bring new mines into production and to expand
existing mines. Although the Company utilizes the operating history of its existing mines to derive
estimates of future operating costs and capital requirements, such estimates may differ materially
from actual operating results at new mines or at expansions of existing mines. The economic
feasibility analysis with respect to any individual project is based upon, among other things: the
interpretation of geological data obtained from drill holes and other sampling techniques;
feasibility studies (which derive estimates of cash operating costs based upon anticipated tonnage
and grades of ore to be mined and processed); precious and base metals price assumptions; the
configuration of the ore body; expected recovery rates of metals from the ore; comparable facility
and equipment costs; anticipated climatic conditions; and estimates of labour, productivity,
royalty, tax rates, or other ownership burdens and other factors.
The Company’s development projects including Cobre Panama are also subject to the successful
completion of final feasibility studies, the issuance of necessary permits and the receipt of
adequate financing and the actual operating results of the Company’s development projects may
differ materially from those anticipated.
Uncertainties relating to operations are even greater in the case of development projects. Any of
the following events, among others, could affect the profitability or economic feasibility of a
project:
14
LONDON\33747915.07
• the availability of funds to finance construction and development activities;
• the ability of key contractors to perform services in the manner contracted for;
• unanticipated changes in grade and tonnage of ore to be mined and processed;
• unanticipated adverse geotechnical conditions;
• incorrect data on which engineering assumptions are made;
• costs of constructing and operating a mine in a specific environment;
• availability and costs of processing and refining facilities;
• availability of economic sources of power on an uninterrupted basis;
• adequacy of water supply on an uninterrupted basis;
• adequate access to the site, including competing land uses (such as agriculture and
illegal mining);
• unanticipated transportation costs or disruption;
• government regulations (including regulations to prices, royalties, duties, taxes,
permitting, restrictions on production, quotas on exportation of minerals, as well as the
costs of protection of the environment and agricultural lands);
• fluctuations in commodity prices and exchange rates; and
• accidents, labour actions and force majeure events.
It is not unusual in new mining operations to experience unexpected problems during the start-up
phase, and delays can often occur at the start of production. In the past, the Company has
adjusted estimates based on changes to assumptions and actual results. These and other factors
may have the effect of increasing the expected capital expenditures for the Company’s
development projects.
The actual cost to develop Cobre Panama may differ materially in the longer-term from
the Company’s current estimates and involve unexpected problems or delays
The current estimate of the amount of capital expenditures that will be required to be incurred to
complete Cobre Panama, is based on certain assumptions and analyses made by the Company’s
management in light of their experience and perception of historical trends, current conditions and
expected future developments, as well as other factors management believes are appropriate in
the circumstances. These estimates, however, and the assumptions upon which they are based,
are subject to a variety of risks and uncertainties and other factors that could cause actual
expenditures to differ materially in the longer-term from those estimated. If these estimates prove
incorrect, the total capital expenditures required in the longer-term to complete Cobre Panama
may increase. The Company's ability in the longer-term to access sufficient financing or to
generate sufficient cash flows to fund any increase in required capital spending for the construction
and development of Cobre Panama as currently planned will depend on the Company's future
results of operations, which will be affected by a range of economic, financial, regulatory,
competitive and business factors, many of which are outside of the Company's control.
Cobre Panama is subject to the many risks associated with projects that have other
minority shareholders
15
LONDON\33747915.07
KPMC holds an indirect 20 percent equity interest in Cobre Panama. There are a variety of risks
associated with KPMC’s ownership interest in Cobre Panama, including:
disagreement with KPMC about how to develop, operate or finance the project;
that KPMC may at any time have economic or business interests or goals that are, or
become, inconsistent with the Company's business interests or goals;
that KPMC may not comply with the agreements governing the Company's relationship
with them;
disagreement with KPMC over the exercise of KPMC’s rights under the agreements
governing its relationship;
the possibility that KPMC may become insolvent and unable or unwilling to fund its share
of development costs; and
possible litigation with KPMC over matters related to Cobre Panama.
These risks could result in legal liability or affect the Company's ability to develop or operate Cobre
Panama, either of which could have a material adverse effect on its business, results of operations,
financial condition and cash flows.
Mining operations are subject to extensive regulations, including environmental, health
and safety and other regulations, as well as the need to manage relationships with local
communities
The Company’s mining operations and exploration activities are subject to extensive laws and
regulations, which include laws and regulations governing, among other things: exploration;
development; production; exports; taxes; labour standards; mining royalties; price controls;
waste disposal; protection and remediation of the environment; reclamation; historic and cultural
resource preservation; mine safety and occupational health; handling; storage and transportation
of hazardous substances; and other matters. The costs of discovering, evaluating, planning,
designing, developing, constructing, operating and closing the Company’s mines and other
facilities in compliance with such laws and regulations are significant. It is possible that the costs
and delays associated with compliance with such laws and regulations could become such that the
Company would not proceed with the development of, or continue to operate, a mine.
As part of its normal course of operating and development activities, the Company has expended
significant resources, both financial and managerial, to comply with governmental and
environmental regulations and permitting requirements, and will continue to do so in the future.
Moreover, it is possible that future regulatory developments, such as increasingly strict
environmental protection laws, regulations and enforcement policies thereunder, and claims for
damages to property and persons resulting from the Company’s operations, could result in
additional substantial costs and liabilities, restrictions on or suspension of the Company’s activities
and delays in the exploration of and development of its properties.The Company is required to
obtain governmental permits to develop its reserves and for expansion or advanced exploration
activities at its operating and exploration properties, except in Zambia where this will generally be
contemplated within the mining right originally granted. Obtaining the necessary governmental
permits is a complex and time-consuming process involving numerous agencies and other
interested parties. There can be no certainty that these approvals will be granted to us in a timely
manner, or at all. The duration and success of each permitting effort are contingent upon many
variables not within the Company’s control. Governmental approvals, licenses and permits are
subject to the discretion of the applicable governments or governmental officials and potentially
consideration of other parties’ interests or rights. In the context of environmental protection
permitting, including the approval of reclamation plans, the Company must comply with known
standards, existing laws and regulations that may entail greater or lesser costs and delays
depending on the nature of the activity to be permitted and the interpretation of the laws and
regulations implemented by the permitting authority. No assurance can be given that the Company
will be successful in obtaining or maintaining any or all of the various approvals, licenses and
permits required to operate its businesses in full force and effect or without modification or
16
LONDON\33747915.07
revocation. The failure to obtain or renew certain permits, or the imposition of extensive conditions
upon certain permits, could have a material adverse effect on the Company’s business, operations
and financial condition.
Failure to comply with applicable environmental, health and safety laws can result in injunctions, damages, suspension or revocation of permits and the imposition of penalties. There can be no assurance that the Company has been or will be at all times in complete compliance with such laws or permits, that compliance will not be challenged or that the costs of complying with current and future environmental, health and safety laws and permits will not materially or adversely affect the Company’s future cash flow, results of operations and financial condition.
As a consequence of public concern about the perceived ill effects of mining and land development,
particularly in developing countries, mining companies such as the Company face increasing public
scrutiny of their activities. The international standards on social responsibility, community relations
and sustainability against which the Company benchmarks its operations are becoming
increasingly stringent and extensive over time, and adherence to them is increasingly scrutinised
by regulatory authorities, citizens groups and environmental groups, as well as by investors and
financial institutions. In addition, the Company operates in several countries where ownership of
rights in respect of land and resources is uncertain and where disputes in relation to ownership or
other community matters may arise. These disputes are not always predictable and may cause
disruption to its operations or development plans. The Company’s operations can also have an
impact on local communities, including the need, from time to time, to relocate or resettle
communities or infrastructure networks such as railways and utility services. Failure to manage
relationships with local communities, governments and non-government organizations may harm
the Company’s reputation as well as its ability to bring development projects into production. For
example, in Peru the Company may be required to finance the relocation of a local community,
and to the extent the Company is unable to negotiate an amicable solution to such relocation, it
may face delays or other liabilities in relation to its development of Haquira in Peru. At Cobre
Panama, while negotiations and resettlement planning are substantially completed with the
indigenous people and campesinos who will be physically or economically displaced by its
development. While the Company is in the process of clearing land and finalising housing designs
with them has been completed, there remains the possibility that the development progress could
be adversely impacted during the completion of the resettlement process. In addition, the costs
and management time required to comply with standards of social responsibility, community
relations and sustainability, including costs related to resettlement of communities or
infrastructure, have increased substantially recently and are expected to further increase over
time.
The Company’s operations sometimes result in the release of hazardous materials into the
environment and these releases, whether or not planned, could cause contamination. In addition,
many of its mining sites have an extended history of industrial activity. The Company may be
required to investigate and remediate contamination, including at properties it formerly operated,
regardless of whether it caused the contamination or whether the activity causing the
contamination was legal at the time it occurred. The Company also could be subject to claims by
government authorities, individuals, employees or third parties seeking damages for alleged
illness, personal injury or property damage resulting from hazardous material contamination or
exposure caused by its operations or sites. The Company could be required to establish or
substantially increase financial provisions for such obligations or liabilities and, if it fails to
accurately predict the amount or timing of such costs, the related impact on its business, financial
condition or results of operations could be material.
Certain non-governmental organizations (NGOs), some of which oppose globalization and resource
development, are often vocal critics of the mining industry and its practices, including the use of
hazardous substances in processing activities. Adverse publicity generated by such NGOs or others
related to extractive industries generally, or the Company's operations specifically, could have an
adverse effect on the Company's reputation and financial condition and may impact the
relationship with the communities in which the Company operates. They may install road
17
LONDON\33747915.07
blockades, apply for injunctions for work stoppage and file lawsuits for damages. These actions
can relate not only to current activities but also historic mining activities by prior owners and could
have a material, adverse effect on the Company's operations. They may also file complaints with
regulators in respect of the Company's, and the directors’ and insiders’, regulatory filings, either in
respect of the Company or other companies. Such complaints, regardless of whether they have
any substance or basis in fact or law, may have the effect of undermining the confidence of the
public or a regulator in the Company or such directors or insiders and may adversely affect the
price of the Company’s securities or the Company's prospects of obtaining the regulatory
approvals necessary for advancement of some or all of the exploration and development plans or
operations.
Mining is inherently dangerous and subject to conditions or events beyond the
Company’s control, which could have a material adverse effect on its business
The Company’s business operations are subject to risks and hazards inherent in the mining
industry that may result in damage to its property, delays in its business and possible legal
liability. These risks and hazards include but are not limited to:
• environmental hazard and weather conditions;
• discharge of pollutants or hazardous chemicals;
• industrial accidents;
• failure of processing and mechanical equipment and other performance problems;
• labor force disruptions;
• the unavailability of materials and equipment;
• unanticipated transportation costs or disruption;
• changes in the regulatory environment;
• unanticipated variations in grade and other geological problems, water conditions,
surface or underground conditions;
• unanticipated changes in metallurgical and other processing problems;
• encountering unanticipated ground or water conditions and unexpected or unusual
rock formations;
• cave-ins, pit wall failures, flooding, rock bursts and fire;
• periodic interruptions due to inclement or hazardous weather conditions; and
• force majeure factors, other acts of God or unfavorable operating conditions and
bullion losses.
Any of these can materially and adversely affect, among other things, the development of
properties, production quantities and rates, costs and expenditures, and production
commencement dates. Such risks could also result in damage to, or destruction of, mineral
properties or processing facilities, personal injury or death, loss of key employees, environmental
damage, delays in mining, monetary losses and possible legal liability. Satisfying such liabilities
may be very costly and could have a material adverse effect on future cash flows, results of
operations and financial condition.
18
LONDON\33747915.07
The Company’s processing facilities are dependent on continuous mine feed to remain in
operation. Insofar as its mines may not maintain material stockpiles of ore or material in process,
any significant disruption in either mine feed or processing throughput, whether due to equipment
failures, adverse weather conditions, supply interruptions, export or import restrictions, labor force
disruptions or other causes, may have an immediate adverse effect on the results from its
operations. A significant reduction in mine feed or processing throughput at a particular mine could
cause the unit cost of production to increase to a point where the Company could determine that
some or all of its reserves are or could be uneconomic to exploit. For example, Kansanshi
experienced two illegal labor disruptions in 2012, which resulted in the cessation of production at
the mine for a total of six days. The Company also experienced illegal labour disruptions in
December 2011 and July 2012 at Guelb, which resulted in the cessation of production at the mine
for a total of 10 days and 12 days respectively.
The Company periodically reviews mining schedules, production levels and asset lives in its
life-of-mine planning for all of its operating and development properties. Significant changes in the
life-of-mine plans can occur as a result of mining experience, new ore discoveries, changes in
mining methods and rates, process changes, investment in new equipment and technology,
precious metals price assumptions, and other factors. Based on this analysis, the Company
reviews its accounting estimates and, in the event of impairment, may be required to write-down
the carrying value of one or more mines. This complex process continues for the life of every mine.
As a result of the foregoing risks and, in particular, where a project is in a development stage,
expenditures on any and all projects, actual production quantities and rates, and cash costs may
be materially and adversely affected and may differ materially from anticipated expenditures,
production quantities and rates, and costs. In addition, estimated production dates may be
delayed materially, in each case especially to the extent development projects are involved. Any
such events can materially and adversely affect the Company’s business, financial condition,
results of operations and cash flows.
The Company’s ability to expand or replace depleted reserves and the possible
recalculation or reduction of its reserves and resources could materially affect its results
of operations and long-term viability
The Company’s reported mineral reserves and resources are only estimates. No assurance can be
given that the estimated mineral reserves and resources will be recovered or that they will be
recovered at the rates estimated. Mineral Reserve and resource estimates are based on limited
sampling and, consequently, are uncertain because the samples may not be representative.
mineral reserve and resource estimates may require revision (either up or down) based on actual
production experience. Market fluctuations in the price of metals, as well as increased production
costs or reduced recovery rates, changes in the mine plan or pit design, or increasing capital costs
may render certain mineral reserves and resources uneconomic and may ultimately result in a
restatement of reserves and/or resources. Moreover, short-term operating factors relating to the
Mineral Reserves and resources, such as the need for sequential development of ore bodies and
the processing of new or different ore grades, may adversely affect the Company’s profitability in
any particular accounting period.
As a Canadian company the Company uses CIM Standards (the Canadian Institute of Mining,
Metallurgy and Petroleum on Mineral Resources and Reserve Definitions and Guidelines).
There are uncertainties inherent in estimating proven and probable mineral reserves and
measured, indicated and inferred mineral resources, including many factors beyond the Company's
control. Estimating mineral reserves and resources is a subjective process. Accuracy depends on
the quantity and quality of available data and assumptions and judgments used in engineering and
geological interpretation, which may be unreliable. It is inherently impossible to have full
knowledge of particular geological structures, faults, voids, intrusions, natural variations in and
within rock types and other occurrences. Failure to identify and account for such occurrences in
the Company's assessment of mineral reserves and resources may make mining more expensive
19
LONDON\33747915.07
and cost ineffective, which will have a material and adverse effect on the Company's future cash
flow, results of operations and financial condition.
There is no assurance that the estimates are accurate, that mineral reserve and resource figures
are accurate, or that the mineral reserves or resources can be mined or processed profitably.
Mineral resources that are not classified as mineral reserves do not have demonstrated economic
viability. You should not assume that all or any part of the measured mineral resources, indicated
mineral resources, or an inferred mineral resource will ever be upgraded to a higher category or
that any or all of an inferred mineral resource exists or is economically or legally feasible to mine.
Any material reductions in estimates of mineral reserves and/or resources, or the Company’s
ability to extract those resources, could have a material adverse effect on the Company’s results
or financial condition.
Title claims may affect the Company’s existing operations as well as its development
projects and future acquisitions
Title to the Company’s properties may be challenged or impugned, and title insurance is generally
not available. The Company’s mineral properties may be subject to prior unregistered agreements,
transfers or claims, and title may be affected by, among other things, undetected defects. In
addition, the Company may be unable to operate its properties as permitted or to enforce its rights
with respect to its properties. This may affect the Company’s ability to acquire within a reasonable
time frame effective mineral titles in the jurisdictions in which it operates and may affect the
timetable and costs of development of mineral properties in these jurisdictions. The risk of
unforeseen title claims could also affect existing operations as well as development projects and
future acquisitions. These legal requirements may affect the Company’s ability to expand or
transfer existing operations or to develop new projects.
The Company relies on a limited number of smelters and off-takers to produce and
distribute the product of its operations
In the countries in which the Company operates, there are a limited number of smelters within
range of its operations, which means that it may be unable to manage the increased costs of
freight and export duties associated with transporting or exporting ore to smelters. In addition to
the high cost to export copper concentrate, it has become obvious that the availability of
in-country, third-party smelting capacity is declining to the extent that even with the completion of
the Company’s current smelter project in Zambia, there will be insufficient capacity to process all
of the concentrate production from Sentinel and Kansanshi. As a result, it has been decided to
design and build an expansion to the 1.2 million tonnes-per-annum copper smelter. If the
Company is unable to complete the commissioning of this project successfully, the amount of
concentrate production from Sentinel and Kansanshi that it is able to process may be reduced. Due
to a lack of capacity at Zambian smelters, the Company also sells copper cathode to other third
parties from time to time.
In addition, there are a limited number of off-takers. The inability of one or more of the smelters
or off-takers with whom the Company has relationships to meet their obligations to it, or their
insolvency or liquidation, may adversely affect its financial results. Traditionally, all of the
Company’s accounts receivable result from sales to third parties in the mining industry. This
concentration of customers may impact its overall credit risk in that these entities may be similarly
affected by various economic and other conditions, including the recent global economic and
financial downturn.
The estimation of asset carrying values for individual mines may affect the Company’s
results of operations
The Company annually undertakes a detailed review of the life-of-mine plans for its operating
properties and an evaluation of the Company’s portfolio of development projects, exploration
20
LONDON\33747915.07
projects and other assets. The recoverability of the Company’s carrying values of its operating and
development properties are assessed by comparing carrying values to estimated future net cash
flows from each property.
Factors which may affect carrying values include, but are not limited to: copper, gold, and nickel
and sulphuric acid prices; capital cost estimates; mining, processing and other operating costs;
grade and metallurgical characteristics of ore; and mine design and timing of production. In the
event of a prolonged period of depressed copper, gold and nickel prices, the Company may be
required to take additional material write-downs of its operating and development properties.
The Company’s costs of reclamation are uncertain and higher than expected costs would
negatively affect the Company’s business, results of operations, financial condition and
cash flows
The costs of reclamation of closed mine sites are uncertain and planned expenditures may differ
from the actual expenditures required. As a result of the Acquisition, the Company acquired a
number of additional closed properties. It is not possible to determine the exact amount that will
be required to complete reclamation activities, and the amount that the Company is required to
spend could be materially different than current estimates. Reclamation bonds or other forms of
financial assurance represent only a portion of the total amount of money that will be spent on
reclamation over the life of a mine’s operation. Although the Company includes estimated
reclamation costs in its mining plans, it may be necessary to revise the planned expenditures and
the operating plans for its operations in order to fund required reclamation activities. Any
additional amounts required to be spent on reclamation would adversely affect the Company’s
business, results of operations, financial condition and cash flows.
Mineral exploration is speculative and uncertain and the development from mines may
be unsuccessful
Since mines have limited lives based on proven and probable mineral reserves, the Company
continually seeks to replace and expand its reserves. Mineral exploration, at both newly acquired
properties and existing mining operations, is highly speculative in nature, involves many risks and
frequently does not result in the discovery of mineable reserves. There can be no assurance that
the Company’s exploration efforts will result in the discovery of significant mineralization or that
any mineralization discovered will result in an increase of the Company’s proven or probable
reserves. If proven or probable reserves are developed, it may take a number of years and
substantial expenditures from the initial phases of drilling until production is possible, during which
time the economic feasibility of production may change. No assurance can be given that the
Company’s exploration programs will result in the replacement of current production with new
reserves or that the Company’s development program will be able to extend the life of the
Company’s existing mines. In the event that new reserves are not developed, the Company will
not be able to sustain any mine’s current level of reserves beyond the life of its existing reserve
estimates. The combination of these factors may cause the Company to expend significant
resources (financial and otherwise) on a property without receiving a return on investment.
The Company’s insurance does not cover all potential losses, liabilities and damage
related to its business and certain risks are uninsured or uninsurable
As noted above, the business of mining and mineral exploration is generally subject to a number of
risks and hazards including: adverse environmental conditions; industrial accidents;
contaminations; labour disputes; unusual or unexpected geological conditions; ground or slope
failures; cave-ins; changes in the regulatory environment; and natural phenomena such as
inclement weather conditions, floods and earthquakes. Such occurrences could result in damage
to, or destruction of, mineral properties or production facilities, personal injury or death,
environmental damage to the Company’s properties or the properties of others, delays in mining,
monetary losses and possible legal liability. The Company maintains insurance against certain risks
that are typical in the mining industry and in amounts that the Company believes to be
21
LONDON\33747915.07
reasonable, but which may not provide adequate coverage in certain circumstances. However,
insurance against certain risks (including certain liabilities for environmental pollution or other
hazards as a result of exploration and production) is not generally available to the Company or to
other companies in the industry on acceptable terms. The Company does not currently have
political risk insurance. Losses resulting from such failure to obtain insurance may result in cost
increases and decreased profitability.
HIV, malaria and other illnesses in Zambia may affect the Company’s workforce and lead
to a loss of workers and production in the Company’s operations
HIV, malaria and other diseases are perceived as a serious threat to maintaining a skilled
workforce in the Zambian Copperbelt. The per capita incidence of the HIV virus in Zambia is
amongst the highest in the world. As such, HIV remains a major healthcare challenge faced by the
Group’s Zambian operations. There can be no assurance that the Group will not lose members of
its workforce or lose workforce man-hours, which may have a material adverse effect on the
Company’s operations.
The Company depends on key management personnel and may not be able to attract and
retain qualified personnel in the future
The Company’s ability to manage its operations, exploration and development activities, and
hence, its success, depends in large part on its ability to retain current key management personnel
and to attract and retain new personnel, including management, technical and unskilled workforce.
The loss of the services of one or more key employees could have a material adverse effect on its
ability to manage and expand its business. The Company currently does not have key person
insurance on these individuals.
Cobre Panama will be the first large scale mining project in Panama and the ability to construct,
develop, and operate Cobre Panama will depend to a significant degree upon the Company’s ability
to attract highly skilled personnel to Panama, train local Panamanians and retain each of them.
From time to time the mining industry experiences a shortage of skilled or experienced personnel,
especially trades people, on a global, regional or local basis. Competition for such personnel in the
mining industry is intense, and the Company may not be able to retain current personnel and
attract and retain new personnel. An inability to do so would have a material adverse effect on the
Company’s business, results of operations, financial condition and cash flows.
Some of the Company’s employees are unionised and work stoppages by unionized
employees could materially and adversely affect its business, prospects, financial
condition and results of operations
Current union agreements at the Company’s operations in Zambia are typically one year in
duration and are subject to expiration at various times in the future. If the Company is unable to
renew union agreements as they become subject to renegotiations from time to time, this could
result in work stoppages and other labor disturbances that could have a material adverse effect on
the Company’s business, financial condition, liquidity and results of operations.
Certain of the Company’s employees are employed under collective bargaining agreements. If
unionised employees were to engage in a concerted strike or other work stoppage, or if other
employees were to become unionised, the Company could experience a disruption of operations,
higher labour costs or both. A lengthy strike or other labor disruption could have a material
adverse effect on its business, financial condition, liquidity and results of operations.
At Kansanshi, the Company has experienced two illegal labor disruptions in 2012, which resulted in
the cessation of production at the mine for a total of six days. It also experienced an illegal labor
disruption in late 2011 at Guelb, which resulted in the cessation of production at the mine for a
total of 10 days. Operations at Guelb were temporarily suspended and 12 production days were
lost following an illegal strike action by some unionised employees in July 2012. The majority of
22
LONDON\33747915.07
the workforce returned to work following the strike when operations resumed. This has now all
been settled and agreement is in place for no further salary or monetary benefits discussions until
the end of 2015.
The Company is subject to litigation, the outcome of which may affect the Company’s
business, results of operations, financial condition and cash flows
The Company is subject from time to time to litigation and may be involved in disputes with other
parties in the future, which may result in litigation. The Company cannot predict the outcome of
any litigation. Defense and settlement costs may be substantial, even with respect to claims that
have no merit. If the Company cannot resolve these disputes favorably, its business, financial
condition, results of operations and future prospects may be materially adversely affected.
The Company may not consummate or integrate acquisitions successfully, which could
adversely affect its financial condition and future performance
The Company is always actively pursuing the acquisition of advanced exploration, development
and production assets consistent with its acquisition and growth strategy. From time to time, it
may also acquire securities of, or other interests in, companies with respect to which it may enter
into acquisitions or other transactions. Acquisition transactions involve inherent risks, including:
• accurately assessing the value, strengths, weaknesses, contingent and other liabilities
and potential profitability of acquisition candidates;
• ability to achieve identified and anticipated operating and financial synergies;
• unanticipated costs;
• diversion of management attention from existing business;
• potential loss of its key employees or the key employees of any business that the
Company acquires;
• unanticipated changes in business, industry or general economic conditions that affect
the assumptions underlying the acquisition; and
• decline in the value of acquired properties, companies or securities.
Any one or more of these factors or other risks could cause the Company not to realise the
benefits anticipated to result from the acquisition of properties or companies, and could have a
material adverse effect on its ability to grow and on its financial condition.
Acquisitions by the Company, such as the acquisitions of Inmet, SML, Kiwara, Ravensthorpe and
Antares, involve the integration of companies that previously operated independently. An
important factor in the success of an acquisition is the ability of the acquirer’s management in
managing the company’s business and that of the acquired company and, if appropriate,
integrating all or part of that company’s business with that of the acquirer. The integration of two
businesses can result in unanticipated operational problems and interruptions, expenses and
liabilities, the diversion of management attention and the loss of key employees and their
knowledge.
There can be no assurance that a business integration, including that of Inmet, will be entirely
successful or that it will not adversely affect the business, results of operations, financial condition
or operating results of the acquirer and, as a result, the price of the Company’s publicly traded
securities. In addition, the acquirer may incur charges related to the acquisition of the acquired
company and related to integrating the two companies. There can be no assurance that the
Company, in the case of its recent acquisitions, will not incur additional material charges in the
23
LONDON\33747915.07
future to reflect additional costs associated with the acquisition or that all of the benefits expected
from the acquisitions will be realised.
While the Company continues to seek acquisition opportunities consistent with its acquisition and
growth strategy, it cannot be certain that it will be able to identify additional suitable acquisition
candidates available for sale at reasonable prices, to consummate any acquisition or to integrate
any acquired business into its operations successfully. Acquisitions may involve a number of
special risks, circumstances or legal liabilities. These and other risks related to acquiring and to
operating acquired properties and companies could have a material adverse effect on results of
operations and financial condition. In addition, to acquire properties and companies, the Company
may need to use available cash, incur debt, and issue common shares or other securities, or a
combination of any one or more of these. This could limit its flexibility to raise capital, to operate,
explore and develop its properties and to make additional acquisitions, and could further dilute and
decrease the trading price of the common shares. When evaluating an acquisition opportunity, the
Company cannot be certain that it will have correctly identified and managed the risks and costs
inherent in the business that it is acquiring.
While at the present time the Company has no binding agreements, it is always actively pursuing
potential acquisitions. The Company can provide no assurance that any potential transaction will
be successfully completed, and, if completed, that the business acquired will be successfully
integrated into its operations. The Company also cannot provide any assurance that if it issues
shares in connection with an acquisition, such share issuance will not be dilutive. If the Company
fails to manage its acquisition and growth strategy successfully, it could have a material adverse
effect on its business, results of operations and financial condition.
The Company may be unable to compete successfully with other mining companies
The mining industry is competitive in all of its phases. The Company faces strong competition from
other mining companies in connection with the acquisition of properties producing, or capable of
producing, metals. Many of these companies have greater financial resources and a longer
operating history than the Company. It may also encounter increasing competition from other
mining companies in its efforts to hire experienced mining professionals. In addition, competition
for exploration resources at all levels is very intense. Increased competition could adversely affect
the Company’s ability to attract necessary capital funding, to acquire it on acceptable terms, or to
acquire suitable producing properties or prospects for mineral exploration in the future. Increases
in copper, nickel and gold prices have in the past, and could in the future, encourage increases in
mining exploration, development and construction activities, which results in increased demand for
and cost of contract exploration, development and construction services and equipment. Increased
demand for and cost of services and equipment could cause project costs to increase materially,
resulting in delays if services or equipment cannot be obtained in a timely manner due to
inadequate availability, and increased potential for scheduling difficulties and cost increases due to
the need to coordinate the availability of services or equipment. Any of these outcomes could
materially increase project exploration, development or construction costs, result in project delays,
or both. As a result of this competition, the Company may be unable to maintain or acquire
attractive mining properties or attract better or more qualified employees.
The Company’s operations across several different countries subject it to various
political, economic, legal, regulatory and other risks and uncertainties that could
negatively impact its operations and financial condition
The Company conducts exploration, development and production activity in several countries,
including Zambia, Mauritania, Australia, Panama, Spain, Finland, Peru and Turkey. These
operations are subject to a number of political, economic, legal, regulatory and other risks. In
particular, many of the Company’s mineral rights and interests are subject to government
approvals, licenses and permits. Such approvals, licenses and permits are subject to the discretion
of applicable governments or governmental officials. No assurance can be given that the Company
will be successful in obtaining or maintaining any or all of the various approvals, licenses and
24
LONDON\33747915.07
permits required to operate its businesses in full force and effect or without modification or
revocation.
The Company’s business is subject to the risks normally associated with conducting business in
foreign countries. Some of these risks are more prevalent in countries that are less developed or
have emerging economies. In certain countries in which it has assets and operations, such assets
and operations are subject to various political, economic and other uncertainties and changes
arising therefrom, including, among other things: the risks of war and civil unrest or other risks
that may limit or disrupt a project, restrict the movement of funds or product, or result in the
deprivation of contract rights or the taking of property by nationalisation or appropriation without
fair compensation; expropriation; nationalization; renegotiation, nullification, termination or
rescission of existing concessions or of licenses, permits, approvals and contracts; taxation
policies; foreign exchange and repatriation restrictions; changing political conditions; changing
fiscal regimes and uncertain regulatory environments; international monetary and market
securities fluctuations; and currency controls and foreign governmental regulations that favor or
require the awarding of contracts to local contractors or require foreign contractors to employ
citizens of, or purchase supplies from, a particular jurisdiction. For example, in 2008 the GRZ
introduced changes to its tax regime relating to mining companies. The tax regime was revised
again in 2009 and 2012. These changes remain the subject of a dispute with the GRZ. The
Zambian government has recently also put in place certain Statutory Instruments and
administrative rules regulating the use of local currency, reporting of cash inflows and outflows
from Zambia, and additional export reporting for the purposes of zero-rating VAT on exports,
which may add to the costs of doing business in Zambia. The Australian Federal Government
introduced the Minerals Resource Rent Tax on 1 July 2012 which levies a 30 per cent tax on profits
from the mining of iron ore and coal in Australia and has also recently amended certain
greenhouse gas regulations. As Cobre Panama is developed, an increasing portion of the
Company’s assets are expected to be located in Panama. The Company’s ability to develop Cobre
Panama into a producing open pit mine is highly dependent on prevailing political conditions in
Panama. Adverse changes in the Panamanian political environment could increase the Company’s
developmental costs, increase its exposure to legal and business risks and adversely affect its
business, results of operations and future growth. In Peru, the development of mineral properties
requires significant community consultation. A failure to obtain community support could have a
significant impact on the Company’s development and operations there.
The Company expects to generate cash flow and profits at its foreign subsidiaries, and may need
to repatriate funds from those subsidiaries to service the Company's indebtedness or fulfil the
Company's business plans, in particular in relation to ongoing expenditures at the Company's
development assets. The Company may not be able to repatriate funds, or the Company may incur
tax payments or other costs when doing so, as a result of a change in applicable law or tax
requirements at local subsidiary levels or at the First Quantum Minerals Ltd. level, which costs
could be material.
The Company may also face import and export regulations, including restrictions on the export of
metals, disadvantages of competing against companies from countries that are not subject to
Canadian, U.S. or European laws, including the Canadian Corruption of Foreign Public Officials Act
(1990), the UK Bribery Act 2010 and the U.S. Foreign Corrupt Practices Act (1977), restrictions on
the ability to pay dividends offshore, and risk of loss due to disease and other potential endemic
health issues.
In addition, in the event of a dispute arising from foreign operations, the Company may be subject
to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign
persons to the jurisdiction of courts in the United States, Europe or Canada. It also may be
hindered or prevented from enforcing its rights with respect to a governmental instrumentality
because of the doctrine of sovereign immunity. It is not possible for the Company to accurately
predict such developments or changes in law or policy or to what extent any such developments or
changes may have a material adverse effect on its operations.
25
LONDON\33747915.07
The above risks are beyond the Company’s control and the occurrence of any of the foregoing
could have a material and adverse impact on the Company and its business, prospects, financial
position, financial condition and/or results of operations.
Changes in the price of copper, gold, zinc, nickel and other metals in the world market,
which are volatile and fluctuate widely, significantly affect the profitability of the
Company’s operations and its financial condition
The profitability of the Company’s current operations is directly related and sensitive to the market
price of copper and, to a lesser extent, that of gold, zinc and nickel. Copper, gold, zinc and nickel
prices fluctuate widely and are affected by numerous factors beyond the Company’s control,
including global supply and demand, expectations with respect to the rate of inflation, the
exchange rates of the U.S. dollar to other currencies, interest rates, forward selling by producers,
central bank sales and purchases, production and cost levels in major producing regions, global or
regional political, economic or financial situations and a number of other factors. For example, the
nickel products produced at Ravensthorpe (MHP) and Kevitsa (sulphide nickel concentrate) have
separate product markets with different characteristics.
A portion of the Company’s metal sales is sold on a provisional pricing basis whereby sales are
recognised at prevailing metal prices when title transfers to the customer and final pricing is not
determined until a subsequent date, typically two months later. The difference between final price
and provisional invoice price is recognised in net earnings. In order to mitigate the Company’s
exposure to these adjustments on net earnings, the Company enters into derivative contracts to
directly offset the pricing exposure on the provisionally priced contracts. The provisional pricing
gains or losses and offsetting derivative gains or losses are both recognised as a component of
cost of sales.
In addition to adversely affecting the reserve estimates and the financial condition of the
Company, declining metal prices can impact operations by requiring a reassessment of the
feasibility of a particular project. Such a reassessment may be the result of a management
decision or may be required under financing arrangements related to a particular project. Even if a
project is ultimately determined to be economically viable, the need to conduct such a
reassessment may cause substantial delays or may interrupt operations until the reassessment
can be completed.
The Company’s financial results and exploration, development and mining activities may, in the
future, be significantly and adversely affected by declines in the price of copper, gold, zinc, nickel
or other minerals. Future production from the Company’s mining properties is dependent upon the
prices of copper, gold, zinc, nickel and other minerals being adequate to make these properties
economic.
The Company may be adversely affected by the availability and cost of key inputs
The Company’s competitive position depends on its ability to control operating costs. The cost
structure of each operation is based on the location, grade and nature of the ore body, and the
management skills at each site as well as the costs of key inputs such as fuel, tires for mining
equipment, and other supplies. If such supplies become unavailable or their cost increases
significantly, the profitability of the Company’s mines would be impacted and operations at its
mines could be interrupted or halted resulting in a significant adverse impact on its financial
condition. The Company’s management prepares its cost and production guidance and other
forecasts based on its review of current and estimated future costs, and management assumes
that the materials and supplies required for operations will be available for purchase. Lack of
supply or increased costs for any of these inputs would decrease productivity, reduce the
profitability of the Company’s mines, and potentially result in suspending operations at its mines.
Many of the Company’s costs are driven by supply and market demand. For example, the cost of
local materials, like cement, explosives and electricity, will vary based on demand. Wages can be
26
LONDON\33747915.07
affected by inflation and currency exchange rates and by the shortage of experienced human
resources. The costs of fuel and steel are driven by global market supply and demand. The
Company does not enter into long-term contracts for any consumable products. The Company’s
main cost drivers include the cost of labour plus consumables such as electricity, fuel and steel. In
recent years, the mining industry has been impacted by increased worldwide demand for critical
resources such as input commodities, drilling equipment, tires and skilled labour, and these
shortages may cause unanticipated cost increases and delays in delivery times, thereby impacting
operating costs, capital expenditures and production schedules.
Concentrate treatment charges and transportation costs are also a significant component of
operating costs. Concentrate treatment and refining charges have been volatile in recent years.
The Company is dependent on third parties for rail, truck and maritime services to transport its
products, and contract disputes, demurrage charges, rail and port capacity issues, availability of
vessels, weather and climate and other factors can have a material adverse impact on its ability to
transport its products according to schedules and contractual commitments.
The Company’s operations, by their nature, use large amounts of electricity and energy. Energy
prices can be affected by numerous factors beyond the Company’s control, including global and
regional supply and demand, political and economic conditions, and applicable regulatory regimes.
The prices of various sources of energy may increase significantly from current levels. An increase
in electricity and energy prices could negatively affect the Company’s business, financial condition,
liquidity and results of operations. Increases in these costs would have an adverse impact on the
Company’s results of operations and would adversely affect the its business, results of operations,
financial condition and cash flows.
Fluctuations in foreign currency exchange rates could significantly affect the Company’s
operating results and liquidity
The Company’s revenue from operations is received in U.S. dollars while a significant portion of its
operating expenses are incurred in Zambian kwacha, Mauritanian Ouguiya, Australian dollars,
Euro, Lira and Peruvian Nuevo Sol. In certain circumstances, the Company engages in foreign
currency hedging activities for operational purposes. There can be no assurance that these
hedging activities will be successful in mitigating the impact of exchange rate fluctuations.
Accordingly, foreign currency fluctuations may adversely affect the Company’s operating results
and financial position.
The Company is subject to inflation risks, which might adversely affect its financial
condition and results of operations
A significant portion of the Company’s production is currently located in Zambia which has
historically experienced relatively high rates of inflation. Since it is unable to control the market
price at which it sells the minerals it produces (except to the extent that the Company enters into
forward sales contracts), it is possible that significantly higher inflation in the future in Zambia,
without a concurrent devaluation of the local currency against the U.S. dollar or an increase in the
price of such minerals, could have a material adverse effect upon its results of operations and
financial condition.
The Company is also subject to inflation in relation to production inputs. In particular the Company
requires sulphur for the production of acid to process oxide ore, which it currently acquires from
third parties, and the price of which is prone to volatility. Sulphur is a significant expense of the
Company and has a direct impact on the Company’s cost of production.
The Company is subject to taxation risk
The Company has operations and conducts business in a number of jurisdictions and is subject to
the taxation laws of these jurisdictions. These taxation laws are complex and subject to changes
and revisions in the ordinary course. The Government of the Republic of Zambia ("GRZ") has
27
LONDON\33747915.07
enacted a number of changes to the tax regime relating to mining companies which do not comply
with the tax stability guarantees set out in the Kansanshi Development Agreement with the GRZ,
which was unilaterally terminated in 2008 by the GRZ. The Company has complied with the tax
regime without prejudice to its rights under the Kansanshi Development Agreement and is paying
taxes at an effective tax rate of 43 per cent. Changes in taxation law or reviews and assessments
could result in higher taxes being payable by the Company which could adversely affect
profitability and cash flows.
An inability to obtain suitable financing might adversely affect the Company’s results of
operations
Mining companies need significant amounts of on-going capital to maintain and improve existing
operations, invest in large scale capital projects with long lead times, and manage uncertain
development and permitting timelines and the volatility associated with fluctuating metals and
input prices. The Company has been successful at financing its projects and operations over the
years. However, its ability to continue its exploration, assessment, development and operational
activities will depend on the resource industry generally, which is cyclical in nature, and which
may, in turn, affect its ability to attract financing, including joint venture financing, debt or bank
financing, equity financing or production financing arrangements. Failure to obtain, or difficulty or
delay in obtaining, requisite financing could result in delay of certain projects or postponement of
further exploration, assessment or development of certain properties or projects. Financing
through the issuance of equity will result in dilution of existing shareholders. Failure to obtain
affordable financing could have a material adverse effect on the Company’s business, result of
operations and financial condition.
The Company could be adversely affected by violations of applicable anti-corruption
laws
The Company and certain of its subsidiaries and affiliated entities conduct business in countries
where there is government corruption. The Company is committed to doing business in accordance
with all applicable laws and its codes of ethics, but there is a risk that it, its subsidiaries or
affiliated entities or their respective officers, directors, employees or agents may act in violation of
its codes and applicable laws, including the Canadian Corruption of Foreign Public Officials Act of
1999, the UK Bribery Act 2010, the U.S. Foreign Corrupt Practices Act (1977) and the OECD
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
Any such violations could result in substantial civil and criminal penalties and might materially
adversely affect the Company’s business and results of operations or financial condition.
The Group’s level of indebtedness could, in certain circumstances, have a material
adverse effect on the Group's operations.
Certain of the Company’s existing credit facilities require, and its future credit facilities may
require, certain of its operating subsidiaries to satisfy specified financial tests and maintain
specified financial ratios and covenants regarding a minimum level of consolidated tangible net
worth, consolidated total debt to consolidated tangible net worth ratio, EBITDA to interest payout
ratio, leverage and cash available for debt service to debt service ratio, all as defined in such credit
facilities. The Group’s debt levels, debt service obligations and compliance with the related
covenants under its existing credit facilities, could have important consequences for the Group,
including the following:
the Group’s financial and operational flexibility in planning for, or responding to, changes in
its business and industry could be limited;
a substantial portion of the cash flow from the Group’s operations may be dedicated to the
payment of interest on existing indebtedness, thereby reducing the funds available for other
purposes (including the ability of the Group to make distributions to Shareholders);
28
LONDON\33747915.07
the Group’s ability to obtain additional financing in the longer term, including its ability to
refinance its bank borrowings on comparable terms, or at all, could be limited;
in the event of a downturn in revenue, the Group’s leverage could have a disproportionately
negative effect on its profitability; and
a proportion of the Group’s indebtedness bears interest at variable rates and an increase in
interest rates will therefore have a negative effect on the Group’s profitability and cash flow,
each of which, alone or in combination, could have a material adverse effect on the Group’s
business, financial condition and results of operations.
The ability of such operating subsidiaries to comply with these ratios and to meet these tests may
be affected by events beyond their control.
In addition, as the Company is a holding company, and as such conducts all of its operations
through its subsidiaries, repayment of its indebtedness is dependent on the generation of cash
flows by the Company’s subsidiaries and their ability to make such cash available to the Company,
by dividend, debt repayment or otherwise. The Company’s subsidiaries may not be able to, or may
not be permitted to, make distributions to enable it to make payments in respect of its
indebtedness. Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and
contractual restrictions may limit the Company’s ability to obtain cash from its subsidiaries.
The terms of the Company’s credit facilities and the New Notes Indentures restrict its
current and future operations, particularly its ability to respond to changes or to take
certain actions
The Company’s credit facilities contain, and the New Notes Indentures contain, a number of
restrictive covenants that will impose significant operating and financial restrictions on the
Company and may limit its ability to make investments and place the Company at a competitive
disadvantage to its competitors who may be less restricted, including restrictions on its ability to:
• incur additional indebtedness;
• pay dividends or make other distributions or repurchase or redeem capital stock;
• prepay, redeem or repurchase certain debt;
• make loans and investments;
• sell assets;
• incur liens;
• enter into transactions with affiliates;
• alter its businesses;
• enter into agreements restricting its subsidiaries’ ability to pay dividends; and
• consolidate, amalgamate, merge or sell all or substantially all of its assets.
Any future indebtedness may include similar or other restrictive terms. These restrictions could
materially and adversely affect the Company’s ability to finance its future operations and capital
needs or its ability to pursue acquisitions or other business activities that may be in its interest.
RISKS RELATING TO THE COMMON SHARES
29
LONDON\33747915.07
The market price of the Common Shares may fluctuate significantly in response to a
number of factors, many of which will be out of the Group's control.
Publicly traded securities from time to time experience significant price and volume fluctuations that may be unrelated to the operating performance of the company that has issued them. The market price of the Common Shares may fluctuate significantly in response to a number of factors, many of which are beyond the Group's control, including but not limited to variations in operating results in the Group's reporting period, changes in market conditions, changes in financial estimates by securities analysts, speculation about the Group in the press or investment community, changes in market valuation of similar companies, announcements by the Group of corporate events such as significant acquisitions or capital commitments, loss of any customers, additions or departures of key personnel, any shortfall in turnover or net profit or any increase in losses from levels expected by securities analysts, future issues or sales of Common Shares, strategic acquisitions by competitors and regulatory changes. Any or all of these events could result in a material decline in the price of the Common Shares.
The level of any dividends payable to holders of Common Shares may fluctuate
The ability of the Company to pay any dividends in respect of Common Shares will depend on the level of the earnings, reserves and any ongoing regulatory capital requirements of the Company as well as its cash position and the judgement of the directors. Accordingly, the amount of any dividends paid to holders of the Common Shares may fluctuate. Any change in tax or accounting treatment of any dividends may also affect the level of dividends received by holders of the Common Shares.
Exchange rate fluctuations may impact the price of the Common Shares
The Common Shares will be quoted in Canadian dollars. An investment in the Common Shares by an investor in a jurisdiction whose principal currency is not Canadian dollars exposes the investor to foreign currency rate risk. Any depreciation of the Canadian dollar in relation to such foreign currency will reduce the value of the investment in the Common Shares in foreign currency terms.
Current global financial conditions
Current global financial conditions have been characterised by increased volatility and some
financial institutions have either gone into bankruptcy or have had to be rescued by governmental
authorities. Although there has been some recovery, there is no certainty that the disruptions and
their effects have ended and will not continue to affect the markets. These factors may impact the
ability of the Company to obtain equity or debt financing in the future on terms favourable to the
Company or at all. In addition, general economic indicators, including employment levels,
announced corporate earnings, economic growth and consumer confidence, deteriorated in the later
part of 2008 and into 2009. Although here has been some recovery, recent economic events in
Europe starting in mid-2011 have created further uncertainty in global financial and equity markets.
Any or all of these economic factors, as well as other related factors, may cause decreases in asset
values that are deemed to be other than temporary, which may result in impairment losses. If such
increased levels of volatility and market turmoil continue, the Company’s operations could be
adversely impacted and the trading price of the common shares may be adversely affected.
Securities of mining companies, including the Company’s common shares, have experienced
substantial volatility, often based on factors unrelated to the financial performance or prospects of
the companies involved. These factors include macroeconomic developments in the countries
where the Company carries on business and globally, and market perceptions of the attractiveness
of particular industries. The price of the securities of the Company is also likely to be significantly
affected by short-term movements in commodity prices, precious metal prices or other mineral
prices, currency exchange fluctuation and the political environment in the countries in which the
Company does business and globally.
30
LONDON\33747915.07
FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
Information regarding forward-looking statements
This document includes forward-looking statements. The words "believe", "anticipate", "expect",
"shall", "risk" and other similar expressions that are predictions of or indicate future events and
future trends identify forward-looking statements. These forward-looking statements include all
matters that are not historical facts. You should not place undue reliance on forward-looking
statements because they involve known and unknown risks, uncertainties and other factors that
are in many cases beyond the Company's control. By their nature, forward-looking statements
involve risks and uncertainties because they relate to events and depend on circumstances that
may or may not occur in the future. Forward-looking statements are not guarantees of future
performance and the Group's actual results of operations and financial condition, and the
development of the industry in which the Group operates may differ materially from those made in
or suggested by the forward-looking statements contained in this document. The cautionary
statements set out above should be considered in connection with any subsequent written or oral
forward-looking statements that the Company, or persons acting on its behalf, may issue. Factors
that may cause the Group's actual results to differ materially from those expressed or implied by
the forward-looking statements in this document include but are not limited to the risks described
under "Risk Factors."
These forward-looking statements reflect the Company's judgment at the date of this document
and are not intended to give any assurances as to future results. Save for those forward-looking
statements required by the Listing Rules, Disclosure Rules and Transparency Rules and or/the
Prospectus Rules, the Company undertakes no obligation to update these forward-looking
statements, and will not publicly release any revisions it may make to these forward-looking
statements that may result from events or circumstances arising after the date of this document.
The Company will comply with its obligations to publish updated information as required by law or
by any regulatory authority but assumes no further obligation to publish additional information.
Nothing in this paragraph constitutes a qualification of the working capital statement contained on
page 41 of this document.
Notice in connection with Member States of the European Economic Area
In relation to each member state of the European Economic Area which has implemented the
Prospectus Directive (each, a "relevant member state") (except for the United Kingdom), with
effect from and including the date on which the Prospectus Directive was implemented in that
relevant member state (the "relevant implementation date") no New Common Shares will be
offered to the public in that relevant member state prior to the publication of a prospectus in
relation to the New Common Shares which has been approved by the competent authority in that
relevant member state or, where appropriate, approved in another relevant member state and
notified to the competent authority in the relevant member state, all in accordance with the
Prospectus Directive, except that with effect from and including the relevant implementation date,
offers of New Common Shares may be made to the public in that relevant member state at any
time:
(a) to legal entities which are authorized or regulated to operate in the financial
markets or, if not so authorized or regulated, whose corporate purpose is solely to
invest in securities;
(b) to any legal entity which has two or more of (i) an average of at least 250
employees during the last financial year; (ii) a total balance sheet of more than
€43 million; and (iii) an annual turnover of more than €50 million, as shown in its
last annual or consolidated accounts; or
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of New Common Shares shall result in a requirement
31
LONDON\33747915.07
for the publication by the Company of a prospectus pursuant to Article 3 of the
Prospectus Directive.
For the purpose of the expression an "offer of any New Share to the public" in relation to any New
Common Shares in any relevant member state means the communication in any form and by any
means of sufficient information on the New Common Shares so as to enable an investor to decide
to purchase any New Common Shares as the same may be varied in that relevant member state
by any measure implementing the Prospectus Directive in that relevant member state.
In the case of any New Common Shares being offered to a financial intermediary as that term is
used in Article 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to
have represented, acknowledged and agreed that the New Common Shares acquired by it have
not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a
view to their offer or resale to persons in circumstances which may give rise to an offer of any New
Common Shares to the public other than their offer or resale in a relevant member state to
qualified investors as so defined or in circumstances in which the prior consent of the Company to
each such proposed offer or resale. The Company and its affiliates, and others, will rely upon the
truth and accuracy of the foregoing representation, acknowledgement and agreement.
The contents of this document should not be construed as legal, business or tax advice. Each
prospective investor should consult his, her or its own legal adviser, financial adviser or tax adviser
for advice. None of the Company or its representatives is making any representation to any
investor in New Common Shares regarding the legality of an investment in the New Common
Shares by such investor under the laws applicable to such investor.
Any reproduction or distribution of this document in whole or in part, and any disclosure of its
contents or use of any information herein for any purpose other than in considering an investment
in the New Common Shares offered or otherwise made available hereby, is prohibited. Each
investor in the New Common Shares by accepting delivery of this document agrees to the
foregoing.
Information not contained in this document
No person has been authorized to give any information or make any representation other than
those contained in or incorporated by reference into this document and, if given or made, such
information or representation must not be relied upon as having been so authorized. The delivery
of this document shall not, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date of this document or that the information in or
incorporated by reference into this document is correct as of any time subsequent to the date
hereof.
No incorporation of website information
The contents of the Company's website or any website directly or indirectly linked to the
Company's website do not form part of this document and investors should not rely on it.
32
LONDON\33747915.07
PART I
Business of First Quantum
1. HISTORY OF THE BUSINESS
First Quantum Minerals Ltd. was incorporated under the Company Act (British Columbia) on 21
December 1983 under the name of Xenium Resources Ltd. The Company changed its name to
Xenium Resources Inc. on 25 January 1984, to Zeal Capital Ltd. on 29 November 1989 and to First
Quantum Ventures Ltd. on 16 June 1993. In 1996 the Company's current Chairman and CEO,
Philip Pascall and its current Executive Director, Martin Rowley, joined its current President, Clive
Newall who was already a Director of the Company. On 18 July 1996, the Company changed its
name to its current name, First Quantum Minerals Ltd., and continued its incorporation into the
Yukon, pursuant to the provisions of the Business Corporations Act (Yukon). On 7 June 2002, the
Company amalgamated with its wholly-owned subsidiary, First Quantum Minerals (Yukon) Ltd.
pursuant to the provisions of the Business Corporations Act (Yukon). On 11 August 2003 the
Company’s jurisdiction of incorporation was continued from the Yukon to the federal jurisdiction
under the Canada Business Corporations Act. The Company was continued to the Province of
British Columbia under the Business Corporations Act (British Columbia) on 3 June 2005 and
registered with incorporation number C0726351.
The address of the registered office of the Company is 8th Floor, 543 Granville Street, Vancouver,
British Columbia, V6C 1X8, Canada (telephone number +1 604 688 6577). The Company also has
representative offices located in Perth, Australia, London, England, Johannesburg, South Africa and
Toronto, Canada.
On 18 May 2007, the Company’s Common Shares were accepted for trading on the main market of
the London Stock Exchange. As a result, the Company cancelled its listing on AIM, a market of the
London Stock Exchange. The Company now trades on the TSX and the London Stock Exchange
("LSE"), respectively, with the TSX remaining as the Company’s primary market.
2. BUSINESS OVERVIEW
First Quantum is an international mining company which has grown through a combination of
exploration, development, operation, and acquisition of mining projects or companies with
interests in mining projects and the production of London Metal Exchange ("LME") grade "A"
equivalent copper cathode, copper in concentrate, nickel, gold and zinc.
First Quantum currently operates seven mines and is developing five projects worldwide. The
Company’s current operations are the Kansanshi copper-gold mine, the Guelb Moghrein copper-
gold mine, the Las Cruces copper mine, the Kevitsa nickel-copper-PGE mine, the Pyhäsalmi
copper-zinc mine, the Ravensthorpe nickel-cobalt mine, and the Çayeli copper-zinc mine. In
addition, it is developing projects in Zambia, Panama and Peru.
The Common Shares of the Company are listed and posted for trading on the Toronto Stock
Exchange (the "TSX") under the symbol "FM" and are also listed on the Official List of the Financial
Conduct Authority and are admitted to trading on the main market of London Stock Exchange
("LSE") operated by the LSE under the symbol "FQM". Equity options of the Company are listed for
trading and trade on the Montreal Exchange under the root symbol "FM". In July 2011, the
Company also listed depository receipts in Zambia on the Lusaka Stock Exchange under the
symbol "FQMZ".
This document is being published in connection with the issuance of 114,526,277 Common Shares
of common stock pursuant to the Acquisition. The consideration for the Acquisition was a mixture
of cash and the issue of the New Common Shares. First Quantum issued the New Common Shares
to the shareholders of Inmet in several tranches, the first tranche being issued on 27 March 2013.
Under LR 14.3.4 the Company must apply for admission of the New Common Shares to the Official
33
LONDON\33747915.07
List as soon as possible following their allotment and in any event within one year. This document
has been prepared in connection with such application.
3. SIGNIFICANT SUBSIDIARIES
The following table illustrates the intercorporate relationships between the Company and its
material and certain other subsidiaries and sets out the respective jurisdictions of incorporation of
such subsidiaries and the percentage of their voting securities owned, controlled or directed,
directly or indirectly, by the Company.
As at 26 March 2014
Name of Subsidiary
Percentage of Voting
Securities Beneficially
Owned, Controlled or
Directed by the Company
Jurisdiction of
Incorporation/Continuance
Adastra Minerals Inc. 100% Yukon Territory
Congolese Zinc Investments
Ltd.
100% British Virgin Islands
Zincongo Limited
100% British Virgin Islands
Afro American Finance - 100% Barbados
Sumtech (Private) Limited 100% Zimbabwe
First Quantum Minerals
(Australia) Pty Limited
100% Australia
First Quantum Minerals (UK)
Ltd.
100% United Kingdom
Metal Corp Trading (UK) Ltd. 100% United Kingdom
FQM (Akubra) Inc. 100% Canada (Federal)
Inmet Sweden Holdings AB 100% Sweden
Inmet Cobre Espana SA 100% Spain
Çayeli Bakir Isletmeleri A.S. 100% Turkey
Inmet Finland Oy 100% Finland
CLC Holdings Oy 100% Finland
CLC Copper I BV 100% Netherlands
CLC Copper II BV 100% Netherlands
Cobre Las Cruces SA 100% Spain
Pyhäsalmi Mine Oy 100% Finland
Inmet Panama I S.A.R.L. 100% Luxembourg
Inmet Panama II S.A.R.L. 100% Luxembourg
34
LONDON\33747915.07
Name of Subsidiary
Percentage of Voting
Securities Beneficially
Owned, Controlled or
Directed by the Company
Jurisdiction of
Incorporation/Continuance
Minera Panama S.A. 80% Panama
Inmet Finance Company
S.A.R.L.
100% Luxembourg
FQM Australia Holdings (BVI)
Ltd
100% British Virgin Islands
FQM Aus Nickel (BVI) Ltd 100% British Virgin Islands
FQM Australia Holdings Pty Ltd 100% Australia
FQM Australia Nickel Pty Ltd 100% Australia
Ravensthorpe Nickel Operation
Pty Ltd.
100% Australia
FQM Finance Ltd. 100% British Virgin Islands
Black Bark Investments Ltd. 100% British Virgin Islands
Kabitaka Hills Development
Corporation Limited
100% Zambia
Kansanshi Holdings Limited 100% Ireland
Kansanshi Mining Plc ("KMP") 80% Zambia
Kansanshi Projects Ltd 100% Zambia
First Quantum Minerals SA
(Pty) Ltd.
100% South Africa
Metal Corp Trading Logistics
SA (Proprietary) Limited
100% South Africa
Mauritan Holdings Ltd. 100% British Virgin Islands
Mauritanian Copper Mines S.A.
("MCM")
100% Mauritania
Skyblue Enterprises Inc. 100% British Virgin Islands
FQM Exploration Holdings Ltd. 100% British Virgin Islands
First Quantum Burkina Faso
SARL
100% Burkina Faso
Mauritania Exploration SARL
100% Mauritani
FQM Holdings Ltd. 100% Canada (Federal)
FQM (Peru) Ltd. 100% Canada (Alberta)
Minera Antares Peru S.A.C. 100% Peru
FQM LA Services Inc. 100% Canada (Federal)
FQM Scandinavia Ltd. 100% Canada (Federal)
FQM Projects Finance Ltd. 100% Barbados
Kevitsa Mining Oy 100% Finland
FQM Kevitsa Sweden Holdings
AB
100% Sweden
FQM Kevitsa Holding No 1 Oy 100% Finland
FQM Kevitsa Holding No 2 Oy 100% Finland
Kevitsa Mining AB 100% Sweden
FQM Kevitsa Mining Oy 100% Finland
FQM Finnex Oy
100% Finland
35
LONDON\33747915.07
Name of Subsidiary
Percentage of Voting
Securities Beneficially
Owned, Controlled or
Directed by the Company
Jurisdiction of
Incorporation/Continuance
International Quantum
Resources Limited
100% British Virgin Islands
Metal Corp (Sweden) AB 100% Sweden
Metal Corp Trading AG 100% Switzerland
Oryx Limited 100% Barbados
Faloxia Pty Ltd. 100% Botswana
Cover Investments Limited 100% Ireland
First Quantum Mining and
Operations Limited
100% Zambia
FQM Frontier Limited 100% Zambia
Kiwara Resources Ltd. 100% British Virgin Islands
Kiwara Resources Zambia
Limited
100% Zambia
Kalumbila Minerals Limited 100% Zambia
Kalumbila Town Development
Corp
100% Zambia
Trident Projects Ltd.
100% Zambia
Prop Holdings Ltd. 100% British Virgin Islands
Kafue Transport Services
Limited
100% Zambia
Skyfall Holdings Ltd. 100% Canada (Federal)
4. EMPLOYEES
The approximate number of full-time employees employed by the Group as at 31 December 2011, 31 December 2012 and 31 December 2013 are set out below:
As at 31 December
2011
As at 31 December
2012
As at 31
December 2013
No. of
Employees
8,061 8,663 13,661
36
LONDON\33747915.07
PART II
Pro forma Income Statement
Unaudited pro forma statement of earnings
The unaudited pro forma statement of earnings of First Quantum Minerals Limited set out below
has been prepared to illustrate the effect of the acquisition of Inmet on the consolidated statement
of earnings of First Quantum Minerals Limited for the financial year ended 31 December 2013 as if
the acquisition of Inmet had taken place on 1 January 2013. The unaudited pro forma statement of
earnings has been prepared for illustrative purposes only and, because of its nature, addresses a
hypothetical situation and therefore does not represent the actual results of First Quantum
Minerals Limited.
The unaudited pro forma statement of earnings is based on the consolidated statement of earnings
of First Quantum Minerals Limited for the financial year ended 31 December 2013 and has been
prepared in accordance with Annex II to the Prospectus Directive Regulation, using the accounting
policies adopted by First Quantum Minerals Limited in preparing its consolidated financial
statements for the period ended 31 December 2013 and on the basis of the notes set out below.
37
LONDON\33747915.07
Section A: Unaudited Pro Forma Statement of Earnings
First Quantum
Financial year ended
31 December 2013
(Note 1)
Inmet Three
months ended 31
March 2013
(Note 2)
Consolidated Pro Forma
Adjustments
Pro forma
consolidated
Sales revenues 3,552.9 251.3 3,804.2 3,804.2
Cost of sales (2,419.1) (110.9) (2,530.0) (28.7) (2,558.7)
Gross profit 1,133.8 140.4 1,274.2 (28.7) 1,245.5
Exploration (51.6) (9.2) (60.8) (60.8)
General and
administrative
(122.70) (13.1) (135.8) (135.8)
Acquisition
transaction costs
(29.5) (65.1) (94.6) (94.6)
Other income
(expense)
(35.2) 17.2 (18.0) (18.0)
Operating profit 894.8 70.2 965.0 (28.7) 936.3
Finance income 27.8 3.5 31.3 31.3
Financing costs (23.3) (2.9) (26.2) (26.2)
Earnings before
income taxes
899.3 70.8 970.1 (28.7) 941.4
Income taxes (369.6) (44.8) (414.4) 9.5 (404.9)
Net earnings 529.7 26.0 555.7 (19.3) 536.4
Net earnings for the
year attributable
to:
Non-controlling
interests
74.5 (0.8) 73.7 - 73.7
Shareholders of the
Company
455.2 26.8 482.0 (19.3) 462.7
Notes:
(1) The consolidated statement of earnings for the financial year ended 31 December 2013 has
been extracted without material adjustment from the consolidated financial statements of
First Quantum Minerals Limited for the year ended 31 December 2013, as incorporated by
reference in Schedule 4 of the Prospectus.
38
LONDON\33747915.07
(2) The pre-acquisition consolidated financial information of Inmet for the three-month period
ended 31 March 2013 has been obtained from the Inmet Mining Quarterly Report for the
three months ended 31 March 2013.
(3) Other adjustments comprise:
a. the estimated incremental depreciation of $28.7m on the fair value adjustments
recorded to depreciable assets on the Inmet acquisition for the pre-acquisition
period; and
b. the tax effect of this adjustment at the estimated effective rate of Inmet Mining
Corporation for the quarter ended 31 March 2013 of 33%.
The incremental depreciation charge and associated tax impact will continue to impact the
Group in subsequent periods until the fair value adjustments recorded to depreciable
assets have been fully depreciated.
(4) On 22 March 2013, First Quantum had acquired 85.5% of the common shares of Inmet thus
obtaining control. The results of Inmet are consolidated within the results of First
Quantum from 22 March 2013. No adjustment had been made to the financial information
to eliminate the financial results for the period from the date of acquisition of Inmet by the
Group which is incorporated within both the consolidated Group financial information and
in the financial results for Inmet Mining Corporation for the quarter ended 31 March 2013.
(5) No account has been taken of the trading activities of the Group or Inmet since 31
December 2013. In addition, no adjustments have been made to reflect any of the matters
not directly attributable to the Acquisition.
(6) The pro forma financial information does not constitute financial statements within the
meaning of section 434 of the Companies Act.
PricewaterhouseCoopers LLP, 1 Embankment Place, London WC2N 6RH T: +44 (0) 20 7583 5000, F: +44 (0) 20 7212 4652, www.pwc.co.uk PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of
PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Conduct Authority for designated investment business.
39
LONDON\33747915.07
Section B: Accountants' report on pro forma income statement
The Directors First Quantum Minerals Ltd 8th Floor, 543 Granville Street Vancouver, British Columbia, V6C 1X8 Canada 27 March 2014 Dear Sirs First Quantum Minerals Ltd (the “Company”) We report on the unaudited pro forma Income Statement (the “Pro forma Income Statement”) set out in Section A of Part II of the Company’s prospectus dated 27 March 2014 (the “Prospectus” which has been prepared on the basis described in the notes to the Pro forma financial information, for illustrative purposes only, to provide information about how the acquisition of Inmet might have affected the Pro forma income statement presented on the basis of the accounting policies adopted by the Company in preparing the financial statements for the period ending 31 December 2013. This report is required by item 20.2 of Annex I to the PD Regulation and is given for the purpose of complying with that PD Regulation and for no other purpose. Responsibilities It is the responsibility of the directors of the Company to prepare the Pro forma income statement in accordance with item 20.2 of Annex I to the PD Regulation. It is our responsibility to form an opinion, as required by item 7 of Annex II to the PD Regulation as to the proper compilation of the the Pro forma income statementand to report our opinion to you. In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the the Pro forma income statement, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue. Save for any responsibility which we may have to those persons to whom this report is expressly addressed and for any responsibility arising under item 5.5.3R(2)(f) of the Prospectus Rules to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of Annex I to the PD Regulation, consenting to its inclusion in the Prospectus.
PricewaterhouseCoopers LLP, 1 Embankment Place, London WC2N 6RH T: +44 (0) 20 7583 5000, F: +44 (0) 20 7212 4652, www.pwc.co.uk PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of
PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Conduct Authority for designated investment business.
40
LONDON\33747915.07
Basis of opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the the Pro forma income statement with the directors of the Company. We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro forma financial information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Group. Opinion In our opinion:
a) the Pro forma financial information has been properly compiled on the basis stated; and b) such basis is consistent with the accounting policies of the Group.
Declaration For the purposes of Prospectus Rule 5.5.3 R(2)(f), we are responsible for this report as part of the Prospectus and we declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with Item 1.2 of Annex I to the PD Regulation. Yours faithfully PricewaterhouseCoopers LLP Chartered Accountants
41
LONDON\33747915.07
PART III
Additional Information
1. RESPONSIBILITY
The Company and the Directors, whose names and functions appear on pages 51 to 53 of
this document, accept responsibility for the information contained in this document. To
the best of the knowledge and belief of the Company and the Directors (who have taken
all reasonable care to ensure that such is the case), the information contained in this
document is in accordance with the facts and does not omit anything likely to affect the
import of such information.
2. WORKING CAPITAL
The Company is of the opinion that the working capital is sufficient for the Group's present
requirements, that is, for at least 12 months following the date of this document.
3. SHARE CAPITAL
(a) The Common Shares are fully paid up. The authorised capital of the Company is an
unlimited number of Common Shares with no par value. As at 31 December 2013
there were 590,836,559 Common Shares issued and outstanding.
(b) As at 31 December 2013, the Company did not hold any Common Shares as
treasury stock and no member of the Group holds any Common Shares on behalf
of the Company.
(c) As at 31 December 2013, the Company did not have any convertible securities.
Other than this, the Company has no convertible securities, exchangeable securities or
securities with warrants in issue.
(d) Save for stock options and restricted stock or restricted stock unit awards granted
to employees and officers of the Company periodically, no share capital of the
Company or any other member of the Group is under option or is, or will,
immediately following Admission, be agreed, conditionally or unconditionally, to be
put under option. Information on grants of stock options and restricted stock as at
31 December 2013 is set out on pages 26 and 27 of the First Quantum 2013
Financial Statements.
(e) Since 1 January 2011 there have been the following changes in the issued and fully
paid share capital of the Company (Common Shares in thousands):
Common Shares in issue at 31 December 2010 86,176
Common Shares in issue at 31 December 2011 476,310,282
42
LONDON\33747915.07
Common Shares in issue at 31 December 2012 476,310,282
Common Shares issued on 27 March 2013 98,867,917
Common Shares issued on 5 April 2013 8,615,493
Common Shares issued on 9 April 2013 7,042,867
Common Shares in issue at 26 March 2014 (being the latest
practicable date prior to the date of this document)
590,836,559
4. ARTICLES OF CONTINUANCE OF THE COMPANY
The Articles contain provisions, inter alia, to the following effect:
(a) Votes of Shareholders
Shareholders shall have the right to receive notice of, to attend and to vote at all meetings of shareholders. Save as otherwise provided in the Articles, on a show of hands each
holder of shares present in person and entitled to vote shall have one vote and upon a poll each such holder who is present in person or by proxy and entitled to vote shall have one vote in respect of every share held by him.
If the Company retains a share redeemed, purchased or otherwise acquired by it, the Company may sell, gift or otherwise dispose of the share, but, while such share is held by
the Company, it:
(i) is not entitled to vote the share at a meeting of its shareholders;
(ii) must not pay a dividend in respect of the share; and
(iii) must not make any other distribution in respect of the share.
(b) Restrictions on Shares and Variation of Class Rights
(i) The Company may by ordinary resolution create one or more classes or series of shares or, if none of the shares of a class or series of shares are allotted or issued, eliminate that class or series of shares. Subject to the Business Corporations Act (British Columbia) (the "Act"), the Company may by ordinary resolution:
(A) create special rights or restrictions for, and attach those special rights or restrictions to, the shares of any class or series of shares, whether or not any or all of those shares have been issued; or
(B) vary or delete any special rights or restrictions attached to the shares of any class or series of shares, whether or not any or all of those shares have been issued.
(ii) Except when and for so long as the Company is a public company or a pre-existing reporting company which has the statutory reporting company provisions provided for under the Act (the "Statutory Reporting Company Provisions") as part of its Articles or to which Statutory Reporting Company Provisions apply, no share or designated security may be sold, transferred or otherwise be disposed of without the consent of the directors of the Company (the "Directors") and the directors are not required to give any reason for refusing to consent to any such sale, transfer or
other disposition.
43
LONDON\33747915.07
(iii) Except as provided for by the Act, no share may be issued until it is fully paid. A share is fully paid when:
(A) consideration is provided to the Company for the issue of the share by one or more of the following:
(1) past services performed for the Company;
(2) property;
(3) money; and
(B) the value of the consideration received by the Company equals or exceeds the issue price set for the share.
(c) Alteration of capital
Subject to and in addition to paragraph (b), the Company may by ordinary resolution:
(i) create one or more classes or series of shares or, if none of the shares of a class or
series of shares are allotted or issued, eliminate that class or series of shares;
(ii) increase, reduce or eliminate the maximum number of shares that the Company is authorised to issue out of any class or series of shares or establish a maximum number of shares that the Company is authorised to issue out of any class or series of shares for which no maximum is established;
(iii) subdivide or consolidate all or any of its unissued, or fully paid issued, shares;
(iv) if the Company is authorised to issue shares of a class of shares with par value:
(A) decrease the par value of those shares; or
(B) if none of the shares of that class of shares are allotted or issued, increase the par value of those shares;
(v) change all or any of its unissued, or fully paid issued, shares with par value into
shares without par value or any of its unissued shares without par value into shares with par value;
(vi) alter the identifying name of any of its shares; or
(vii) otherwise alter its shares or authorised share structure when required or permitted to do so by the Act.
(d) Transfer of Shares
(i) A transfer of a share of the Company must not be registered unless:
(A) a duly signed instrument of transfer in respect of the share has been received by the Company;
(B) if a share certificate has been issued by the Company in respect of the share
to be transferred, that share certificate has been surrendered to the Company; and
(C) if a non-transferable written acknowledgement of the shareholder's right to obtain a share certificate has been issued by the Company in respect of the
share to be transferred, that acknowledgement has been surrendered to the Company.
(ii) The instrument of transfer in respect of any share of the Company must be either in the form, if any, on the back of the Company's share certificates or in any other form that may be approved by the directors from time to time. Except to the extent
that the Act otherwise provides, the transferor of shares is deemed to remain the
44
LONDON\33747915.07
holder of the shares until the name of the transferee is entered in a securities register of the Company in respect of the transfer.
(iii) If a shareholder, or his or her duly authorised attorney, signs an instrument of transfer in respect of shares registered in the name of the shareholder, the signed instrument of transfer constitutes a complete and sufficient authority to the Company and its directors, officers and agents to register the number of shares specified in the instrument of transfer or specified in any other manner, or, if no number is specified, all the shares represented by the share certificates or set out in
the written acknowledgements deposited with the instrument of transfer:
(A) in the name of the person named as transferee in that instrument of transfer; or
(B) if no person is named as transferee in that instrument of transfer, in the name of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered.
(iv) Neither the Company nor any director, officer or agent of the Company is bound to
inquire into the title of the person named in the instrument of transfer as transferee or, if no person is named as transferee in the instrument of transfer, of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered or is liable for any claim related to registering the transfer by the shareholder or by any intermediate owner or holder of the shares, of any interest in the shares, of any share certificate representing such shares or of any written acknowledgement of a right to obtain a share certificate for such shares.
(v) There must be paid to the Company, in relation to the registration of any transfer, the amount, if any, determined by the directors.
(e) Shareholder Meetings
(i) The Company must hold an annual general meeting at least once each calendar year and not more than 15 months after the last annual reference date at such time and place as the directors may determine.
(ii) If all the shareholders who are entitled to vote at an annual general meeting consent
by a unanimous resolution under the Act to all of the business that is required to be transacted at that annual general meeting, the annual general meeting is deemed to have been held on the date of the unanimous resolution. The shareholders must, in any unanimous resolution passed under this Article, select as the Company's annual
reference date a date that would be appropriate for the holding of the applicable annual general meeting.
(iii) The directors may, whenever they think fit, call a meeting of shareholders. The Company must send notice of the date, time and location of any meeting of
shareholders, in the manner provided in the Articles of Association, or in such other manner, if any, as may be prescribed by ordinary resolution (whether previous notice of the resolution has been given or not), to each shareholder entitled to attend the meeting, to each director and to the auditor of the Company, unless the Articles otherwise provide, at least the following number of days before the meeting:
(A) if and for so long as the Company is a public company, 21 days;
(B) otherwise, 10 days.
(iv) The directors may set a date as the record date for the purpose of determining shareholders entitled to notice of any meeting of shareholders. The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Act, by more than four months. The record date must not precede the date on which the meeting is held by fewer than:
(A) if and for so long as the Company is a public company, 21 days;
45
LONDON\33747915.07
(B) otherwise, 10 days.
If no record date is set, the record date is 5 p.m. on the day immediately preceding
the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.
(v) The accidental omission to send notice of any meeting to, or the non-receipt of any notice by, any of the people entitled to notice does not invalidate any proceedings at
that meeting. Any person entitled to notice of a meeting of shareholders may, in writing or otherwise, waive or reduce the period of notice of such meeting.
(vi) If a meeting of shareholders is to consider special business, the notice of meeting must:
(A) state the general nature of the special business; and
(B) if the special business includes considering, approving, ratifying, adopting or authorising any document or the signing of, or giving effect to, any document,
have attached to it a copy of the document or state that a copy of the
document will be available for inspection by shareholders:
(1) at the Company's records office, or at such other reasonably accessible location in British Columbia as is specified in the notice; and
(2) during statutory business hours on any one or more specified days before the day set for the holding of the meeting.
(vii) At a meeting of shareholders, the following business is special business:
(A) at a meeting of shareholders that is not an annual general meeting, all business is special business except business relating to the conduct of or voting at the meeting;
(B) at an annual general meeting, all business is special business except for the following:
(1) business relating to the conduct of or voting at the meeting;
(2) consideration of any financial statements of the Company presented to the meeting;
(3) consideration of any reports of the directors or auditor;
(4) the setting or changing of the number of directors;
(5) the election or appointment of directors;
(6) the appointment of an auditor;
(7) the setting of the remuneration of an auditor;
(8) business arising out of a report of the directors not requiring the passing of a special resolution or an exceptional resolution;
(9) any other business which, under the Articles or the Act, may be
transacted at a meeting of shareholders without prior notice of the business being given to the shareholders.
(viii) A person who is not a shareholder may vote at a meeting of shareholders, whether
on a show of hands or on a poll, and may appoint a proxy holder to act at the meeting, if, before doing so, the person satisfies the chair of the meeting, or the directors, that the person is a legal personal representative or a trustee in bankruptcy for a shareholder who is entitled to vote at the meeting.
46
LONDON\33747915.07
(ix) If there are joint shareholders registered in respect of any share:
(A) any one of the joint shareholders may vote at any meeting, either personally
or by proxy, in respect of the share as if that joint shareholder were solely entitled to it; or
(B) if more than one of the joint shareholders is present at any meeting, personally or by proxy, and more than one of them votes in respect of that
share, then only the vote of the joint shareholder present whose name stands first on the central securities register in respect of the share will be counted.
(x) If a corporation, that is not a subsidiary of the Company, is a shareholder, that corporation may appoint a person to act as its representative at any meeting of shareholders of the Company, and:
(A) for that purpose, the instrument appointing a representative must:
(1) be received at the registered office of the Company or at any other
place specified, in the notice calling the meeting, for the receipt of
proxies, at least the number of business days specified in the notice for the receipt of proxies, or if no number of days is specified, two business days before the day set for the holding of the meeting; or
(2) be provided, at the meeting, to the chair of the meeting or to person designated by the chair of the meeting;
(B) if a representative is appointed under this provision in the Articles:
(1) the representative is entitled to exercise at that meeting the same rights on behalf of the Company that the representative represents as that corporation could exercise if it were a shareholder who is an individual, including, without limitation, the right to appoint a proxy holder; and
(2) the representative, if present at the meeting, is to be counted for the purpose of forming a quorum and is deemed to be a shareholder present in person at the meeting.
Evidence of the appointment of any such representative may be sent to the
Company by written instrument, fax or any other method of transmitting legibly recorded messages.
(xi) The majority of votes required for the Company to pass a special resolution at a meeting of shareholders is two-thirds of the votes cast on the resolution.
(xii) Subject to the special rights and restrictions attached to the rights of any class or series of shares, the quorum for the transaction of business at a meeting of shareholders is two shareholders entitled to vote at the meeting whether in person or by proxy.
(f) Dividends and Distributions on Liquidation to Shareholders
(i) Subject to the Act, the directors may from time to time declare and authorise payment of such dividends as they may deem advisable. The Directors need not give
notice to any shareholder of any such declaration.
(ii) The directors may set a date as the record date for the purpose of determining shareholders entitled to receive payment of a dividend. The record date must not precede the date on which the dividend is to be paid by more than two months. If no record date is set, the record date is 5.00 p.m. on the date on which the directors
pass the resolution declaring the dividend.
(iii) A resolution declaring a dividend may direct payment of the dividend wholly or partly by the distribution of specific assets or of fully paid shares or of bonds, debentures or other securities of the Company, or in any one or more of those ways.
47
LONDON\33747915.07
(iv) If any difficulty arises in regard to a distribution, the directors may settle the difficulty as they deem advisable, and, in particular, may:
(A) set the value for distribution of specific assets;
(B) determine that cash payments in substitution for all or any part of the specific assets to which any shareholders are entitled may be made to any shareholders on the basis of the value so fixed in order to adjust the rights of
all parties; and
(C) vest any such specific assets in trustees for the people entitled to the dividend.
(v) Any dividend may be made payable on such date as is fixed by the directors.
(vi) All dividends on shares of any class or series of shares must be declared and paid according to the number of such shares held.
(vii) If several persons are joint shareholders of any share, any one of them may given
an effective receipt for any dividend, bonus or other money payable in respect of the share.
(viii) No dividend bears interest against the Company.
(ix) If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend, that fraction may be disregarded in making payment of the dividend and that payment represents full payment of the
dividend.
(x) Any dividend or other distribution payable in cash in respect of shares may be paid by cheque, made payable to the order of the person to whom it is sent, and mailed to the address of the shareholder, or in the case of joint shareholders, to the address of the joint shareholder who is first named on the central securities register, or to
the person and to the address the shareholder or joint shareholders may direct in writing. The mailing of such cheque will, to the extent of the sum represented by the cheque (plus the amount of the tax required by law to be deducted), discharge all liability for the dividend unless such cheque is not paid on presentation or the
amount of tax so deducted is not paid to the appropriate taxing authority.
(xi) Notwithstanding anything contained in these Articles, the directors may from time to time capitalise any surplus of the Company and may from time to time issue, as fully paid, shares or any bonds, debentures or other securities of the Company as a dividend representing the surplus or any part of the surplus.
(g) Non-United Kingdom Shareholders
There are no limitations in the Articles on the rights of non-United Kingdom shareholders
to hold, or to exercise voting rights attached to, the Common Shares.
(h) Directors
(i) The first directors are the persons designated as directors of the Company in the Notice of Articles that applies to the Company when it is recognised under the Act. The number of directors, excluding additional directors appointed under the Articles,
is set at:
(A) subject to paragraphs (B) and (C), the number of directors that is equal to the number of the Company's first directors;
(B) if the Company is a public company, the greater of three and the most recently set of:
(aa) the number of directors set by ordinary resolution (whether or not
previous notice of the resolution was given); and
48
LONDON\33747915.07
(bb) the number of directors set under Article 14.4;
(C) if the Company is not a public company, the most recently set of:
(aa) the number of directors set by ordinary resolution (whether or not
previous notice of the resolution was given); and
(bb) the number of directors set under Article 14.4.
Article 14.4 states that if, at any meeting of shareholders at which there
should be an election of directors, the places of any of the retiring
directors are not filled by that election, those retiring directors who are
not re-elected and who are asked by the newly elected directors to
continue in office will, if willing to do so, continue in office to complete the
number of directors for the time being set pursuant to these Articles until
further new directors are elected at a meeting of shareholders convened
for that purpose. If any such election or continuance of directors does not
result in the election or continuance of the number of directors for the
time being set pursuant to these Articles, the number of directors of the
Company is deemed to be set at the number of directors actually elected
or continued in office.
(ii) A director or senior officer who holds a disclosable interest (as that term is used in
the Act) in a contract or translation into which the Company has entered or proposes to enter is liable to account to the Company for any profit that accrues to the director or senior officer under or as a result of the contract or transaction only if and to the extent provided in the Act.
No director or intended director is disqualified by his or her office from contracting
with the Company either with regard to the holding of any office or place of profit
the director holds with the Company or as vendor, purchaser or otherwise, and no
contract or transaction entered into by or on behalf of the Company in which a
director is in any way interested is liable to be voided for that reason.
(iii) A director or officer may be or become a director, officer or employee of, or
otherwise interested in, any person in which the Company may be interested as a shareholder or otherwise, and, subject to the Act, the director or officer is not accountable to the Company for any remuneration or other benefits received by him or her as director, officer or employee of, or from his or her interest in, such other person.
(iv) A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter is not entitled to vote on any directors' resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution.
(v) A director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter and who is present at the meeting of directors at which the contract or transaction is considered for approval may be counted in the quorum at the meeting whether or not the director votes on any or all of the resolutions considered at the meeting.
(vi) A director or senior officer who holds any office or possesses any property, right or interest that could result, directly or indirectly, in the creation of a duty or interest that materially conflicts with that individual's duty or interest as a director or senior officer, must disclose the nature and extent of the conflict as required by the Act.
(vii) The directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine. If the directors so decide, the remuneration of the directors, if any, will be determined by the shareholders. That
49
LONDON\33747915.07
remuneration may be in addition to any salary or other remuneration paid to any officer or employee of the Company as such, who is also a director.
(viii) If any director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director, or if any director is otherwise specially occupied in or about the Company's business, he or she may be paid remuneration fixed by the directors, or, at the option of that director, fixed by ordinary resolution, and such remuneration may be either in addition to, or in substitution for, any other remuneration that he or she may be
entitled to receive.
(ix) The Company must reimburse each director for the reasonable expenses that he or she may incur in and about the business of the Company.
(x) Unless otherwise determined by ordinary resolution, the directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any director who has held any salaried office or place of profit with the Company or to his or her spouse or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.
(i) Borrowing Powers
(i) The Company, if authorised by the directors, may:
(A) borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;
(B) issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and
at such discounts or premiums and on such other terms as they consider appropriate;
(C) guarantee the repayment of money by any other person or the performance of any obligation of any other person; and
(D) mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the
present and future assets and undertaking of the Company.
(ii) If several persons are joint shareholders of any share, any one of them may be given an effective receipt for any dividend, bonus or other money payable in respect of the share.
(iii) No dividend bears interest against the Company.
(iv) If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend, that fraction may be disregarded in making payment of the dividend and that payment represents full payment of the dividend.
(v) Any dividend or other distribution payable in cash in respect of Common Shares may be paid by cheque, made payable to the order of the person to whom it is sent, and mailed to the address of the shareholder, or in the case of joint shareholders, to the address of the joint shareholder who is first named on the central securities register, or to the person and to the address the shareholder or joint shareholders may direct
in writing. The mailing of such cheque will, to the extent of the sum represented by the cheque (plus the amount of the tax required by law to be deducted), discharge all liability for the dividend unless such cheque is not paid on presentation or the amount of tax so deducted is not paid to the appropriate taxing authority.
(vi) Notwithstanding anything contained in these Articles, the directors may from time to time capitalise any surplus of the Company and may from time to time issue, as fully paid, Common Shares or any bonds, debentures or other securities of the Company as a dividend representing the surplus or any part of the surplus.
50
LONDON\33747915.07
5. SIGNIFICANT CHANGE
(a) Save as set out in paragraph 5(b), there has been no significant change in the
financial or trading position of the Group since 31 December 2013, being the end of
the last financial period for which financial information of the Company has been
published.
(b) Since 31 December 2013, the following significant post balance sheet events have
occurred. On 27 January 2014, the Company announced funding restructuring
arrangements, undertaken to optimize the Company’s capital structure and
financial flexibility, including the following:
(A) An offer to exchange any and all of the outstanding 8.75% Senior
notes due 2020 and 7.50% Senior notes due 2021 issued by Inmet,
for 6.75% senior notes due 2020 and 7.00% senior notes due 2021,
to be issued by the Company. This offer expired on 24 February
2014. On 27 February 2014, the Company announced that 97.9% of
the notes due 2020 and 99.8% of the notes due 2021 were
exchanged for the new notes.
(B) On 27 January 2014, the Company announced a solicitation of
consent relating to proposed amendments to the indentures of these
senior notes as part of the Funding Restructuring. On 12 February
2014, the consent was received and the indentures were amended.
On 27 February 2014, the Company announced that the solicitation of
consent had completed.
(C) A mandate letter is in place for a $2,500.0 million five-year term loan
and revolving facility. The facility comprises of a $1,000.0 million
term loan facility available to draw for a period of 24 months from the
date of signing of the facilities agreement with a margin of 2.75%
and a $1,500.0 million revolving credit facility available to draw for a
period of 59 months from the date of signing of the facilities
agreement with a margin of 2.75% per annum. All outstanding loans
must be repaid on the date five years from the date of signing of the
Facilities Agreement.
(D) On 23 January 2014, ENRC repaid $25.0 million of the $500.0 million
promissory note and on 28 February 2014, ENRC paid all interest
accrued at 3% on the promissory note. The remainder of the
promissory note was renegotiated with ENRC. As a result ENRC
repaid an additional $10 million of principal on 18 March 2014, $35
million of principal on 20 March 2014 and its subsidiary issued a $430
million promissory note repayable on 31 December 2015. Interest at
5% per annum from 28 February 2014 to 31 December 2015 was
paid and prepaid on 20 March 2014.
(E) On 27 March 2014, Kansanshi Mining Plc, as borrower, and the
Company, as guarantor, entered into a $350 million five year
unsecured term facility agreement with Standard Chartered Bank as
initial mandated lead arranger, bookrunner, and underwriter.
6. EXECUTIVE OFFICERS AND DIRECTORS
Set out below are the names, principal occupation and five year business history of the Executive
Officers and Directors of the Company.
(a) Executive Officers of the Company (and, where stated, Directors)
51
LONDON\33747915.07
Philip Pascall, Chairman and Chief Executive Officer, and Director
Mr. Pascall graduated from Sussex University in England with an honours degree in Control
Engineering, and later completed an MBA at the University of Cape Town. He worked in
general management positions in South Africa from 1973; and in the mining industry there
from 1977 with RTZ, and E.L. Bateman, and since 1981, in Australia. He was the Project
Manager of the Argyle Diamond Project and then, he was Executive Chairman and part
owner of Nedpac Engineering between 1982 and 1990. During this time, Mr. Pascall was
involved in a wide variety of mineral projects in Australia, New Zealand, South East Asia,
Chile, the United States, and Zimbabwe. After selling his share of Nedpac in 1990, he was a
consultant in the mining industry, including a period with Rio Tinto’s Hamersley Iron, and
with various projects in Zimbabwe and Zambia. He has been Chairman and Chief Executive
Officer of the Company since November 1996.
Mr. Pascall has had no other occupations in the five years preceding the date of this
document.
Clive Newall, President and Director
Mr. Newall graduated from the Royal School of Mines, University of London, England in 1971
with an honours degree in Mining and Geology, and was awarded an MBA from the Scottish
Business School at Strathclyde University. He has worked in mining and exploration
throughout his career, having held senior management positions with Amax Exploration Inc.
and the Robertson Group plc. Mr. Newall was one of the Company’s founders and has been
President and Director of First Quantum since its start up in 1996. He is also a non-
executive director of Gemfields Ltd and Baker Steel Resource Trust Limited.
He has had no other occupations in the five years preceding the date of this document.
Martin Rowley, Executive Director of Business Development and Director
Mr. Rowley graduated from the University of Western Australia with a Bachelor of Commerce
degree in 1975. After starting his career as an accountant working in both Australia and
England he worked as executive assistant to the board of directors of a large Australian
public company from 1980 to 1984. He then established his own resource consulting and
investment company and was involved as a shareholder, Director and Chairman of a number
of Australian public resource companies before co-founding First Quantum in 1996.
Mr. Rowley served as the Company’s CFO and as a Director until January 2007, when he
assumed the role of Executive Director, Business Development. He is also non-executive
Chairman and a director of Forsys Metals Corp, a Toronto Stock Exchange listed company in
the uranium sector, Lithium One Inc, an emerging Canadian listed lithium company, and
non-executive Chairman of Galaxy Resources Limited, an Australian Stock Exchange listed
company.
He has had no other occupations in the five years preceding the date of this document.
Hannes Meyer, Chief Financial Officer (not a Director)
Mr. Meyer is a Chartered Accountant with the South African Institute of Chartered
Accountants, a B Comm (Hons) graduate from the University of Pretoria, South Africa and
has 16 years of broad finance and management experience in the gold and base metals
industries. Most recently, he was Financial Director with Harmony Gold Mining Company Ltd.
Prior to Harmony Gold, Mr. Meyer was an Executive Director, Chief Financial Officer and
Acting Chief Executive Officer with TEAL Exploration and Mining Inc.
52
LONDON\33747915.07
Chris Lemon, General Counsel and Corporate Secretary (not a Director)
Mr. Lemon was called to the Bar in British Columbia in 1994 after graduating from the
University of Victoria Law School. He also holds a Bachelors degree with honours in
Economics from the University of British Columbia and a Masters degree in Economics from
the University of Toronto. Mr. Lemon practiced law with two major Vancouver law firms with
a focus on natural resource and environmental law, litigation and administrative law. He
represented First Nations in the development of Canada’s first two diamond mines in the
Northwest Territories. In 2000 he was appointed Associate Counsel and Assistant Secretary
at Weldwood of Canada Limited, a major Canadian forest products company. In early 2005
he joined International Forest Products Limited and was appointed General Counsel and
Corporate Secretary.
Mr. Lemon joined First Quantum in August 2007. He has been General Counsel and
Corporate Secretary of the Company since August 2007.
(b) Non Executive Directors of the Company
Peter St. George, Non-Executive Director
Mr. St. George worked in the investment banking industry for over 30 years holding senior
positions in the United Kingdom and Australia. He was Managing Director and Chief
Executive/Co-Chief Executive Officer of Salomon Smith Barney Australia and its predecessor,
Natwest Markets Australia, from January 1995 to mid-2001. Up to 1994 he was the
Managing Director Corporate Finance Natwest Markets, having previously been a Director of
Hill Samuel & Co. Limited, both London headquartered merchant and investment banks. He
was previously a non-executive director of Boart Longyear Group Limited, an international
drilling products and services business listed on the ASX, and is currently a non-executive
director of Dexus Property Group, a leading ASX listed Australian property group specializing
in office, industrial and retail properties. He has also served on a number of other public and
private company boards in Australia.
Mr. St. George qualified as a Chartered Accountant in South Africa and holds an MBA from
the University of Cape Town.
Andrew Adams, Non-Executive Director
Mr. Adams obtained his degree in Social Science from Southampton University and qualified
as a Chartered Accountant in the United Kingdom in 1981. He worked for the Anglo
American group of companies for 12 years up to 1999, his final position being Vice President
and Chief Financial Officer of AngloGold North America based in Denver, Colorado.
Mr. Adams worked for Aber Diamond Corporation as Vice President and Chief Financial
Officer from 1999 to 2003. Currently he serves as an independent non-executive director of
Uranium 1 Inc, Torex Gold Resources Inc. and TMAC Resources Inc.
Michael Martineau, Non-Executive Director
Mr. Martineau graduated from the University of Oxford in England with a MA and D.Phil in
Geology. He has worked worldwide in mineral exploration and mine development since 1970,
specializing in Africa since 1986. After seven years in North America with Kennecott Copper
Corporation, he moved to the United Kingdom becoming General Manager Global Exploration
for BP Minerals. After a period as Director Minerals for Seltrust Mining (Australia) and CEO of
Cluff Minerals Exploration in 1989, he founded and acted as CEO for then Toronto-listed
SAMAX Gold Inc, Carpathian Gold and latterly AXMIN Inc. Currently he serves as Chairman
of Eurasia Mining plc.
53
LONDON\33747915.07
Paul Brunner, Non-Executive Director
Mr. Brunner served as President and CEO of Boart Longyear Company (USA), a leading
provider of drilling services, tools and equipment for the natural resource industry, the
construction and quarrying industries and industrial markets worldwide, from 2004 to 2008.
During his 21-year career with Boart Longyear, Mr. Brunner held several senior positions
including Managing Director — Boart Longyear Limited (South Africa); Regional Director —
Boart Longyear Limitada (Chile/Peru); and, President — Boart Canada Ltd. Prior to Boart
Longyear he spent most of his career working at mining operations in Northern Canada.
Mr.Brunner holds a MBA from Harvard Graduate School of Business Administration and is a
mining engineering graduate from the Colorado School of Mines. He also attended the British
Columbia Institute of Technology with a focus on mining.
Michael Hanley, Non-Executive Director
Mr. Hanley holds a business degree from HEC Montréal and is a Chartered Accountant. He
has served as Senior Vice-President Operations and Strategic Initiatives and member of the
Office of the President at National Bank of Canada. From 1998 to 2008, Mr. Hanley held
various executive roles at Alcan, including President and CEO of its global Bauxite and
Alumina business group, and his final position of Executive Vice-President and CFO. He
currently serves as an Independent Director and Audit Committee chair for BRP, a
manufacturer, distributor, and marketer of motorized recreational vehicles and powersports
engines.
Robert Harding, Non-Executive Director
Mr. Harding graduated with a Bachelor of Mathematics from the University of Waterloo in
1980 and received his Chartered Accountant designation the following year. Mr. Harding
began his career at a major accounting firm before joining Hees International (now
Brookfield) where he served in progressively senior roles including Controller, Chief Financial
Officer, Chief Operating Officer, and ultimately, Chief Executive Officer in 1992. He currently
serves on the Boards of Brookfield Asset Management (Chairman from 1997–2010), and
Manulife, and is currently Chairman of the Boards of Norbord and Nexj.
(c) At the date of this document none of the Directors have:
(i) any convictions in relation to fraudulent offences for the previous five years;
(ii) been declared bankrupt or been subject to any individual voluntary
arrangement or been associated with any bankruptcy, receivership or
liquidation in his capacity as a director for the previous five years;
(iii) been an executive director or senior manager, within the previous five
years, of any Company which has been subject to a receivership or
liquidation;
(iv) been a partner or senior manager, within the previous five years, in any
partnership which has been subject to a liquidation; and/or
(v) been subject to any official public incrimination and/or sanctions by any
statutory or regulatory authority (including any recognized or designated
professional bodies) or been disqualified by a court from acting as a director
or member of the administrative, management or supervisory bodies of a
Corporation or from acting in the management or conduct of the affairs of
any Corporation for the previous five years.
54
LONDON\33747915.07
(d) Although there are no direct conflicts of interest, certain directors and officers of
the Company are directors of other companies, which could potentially compete
with the Company, as follows: Michael Martineau is a Director of Axmin Inc., which
is a gold exploration company in Africa, and a Director of Golden Star Resources
Limited, a company that explores for and produces gold in Ghana. While there is
potential for conflicts to arise, to the extent that such other companies may
participate in or be affected by ventures involving the Company, the Board has not
received notice from any director or officer of the Company indicating that any
material conflict currently exists. Conflicts of interest affecting the directors and
officers of the Company will be governed by the Business Corporations Act (British
Columbia) and other applicable laws. In the event that such a conflict of interest
arises at a meeting of the Board, a director who has such a conflict must disclose
the nature and extent of his interest and abstain from voting for or against matters
concerning the venture. At the date of this document, no other director or
executive officer, member of an administrative, management or supervisory body
or senior manager of the Company has a potential conflict of interest between any
duties to the Company and his private interests and/or other duties.
(e) Each of the Directors was elected by the shareholders at the annual meeting of the
Company held on 7 May 2013. The term of office of the Directors expires on the
date of the 2014 annual meeting of the Company when each Director will stand for
re-election.
(f) Details of the contractual provisions for the Directors and Executive Officers with
the Company providing for benefits upon termination of employment and change of
control or responsibility are set out in paragraph 11 of Scheule 2 of this document.
(g) Details of the Directors' remuneration on an individual basis (including any
contingent or deferred compensation) during the last completed financial year are
set out in paragraph 11 of Schedule 2 of this document.
(h) The Company has not set aside or accrued any amount to provide pension,
retirement or similar benefits for the Directors or the Executive Officers.
7. MAJOR SHAREHOLDERS
(a) As of 26 March 2014 (being the latest practicable date prior to the date of this
document), (i) BlackRock Investment Management (UK) Limited holds, directly and
indirectly, 12.03% of the voting rights in the Company, and (ii) The Capital Group
Companies, Inc. holds, directly and indirectly, 15.02% of the voting rights in the
Company. The Company is not aware of any other person who, directly or
indirectly, has an interest in Common Shares of the Company which is notifiable
under applicable Canadian laws.
(b) The Company is not aware of any persons, other than the Directors, who could
directly or indirectly, jointly or severally, exercise control over the Company.
(c) There are no differences in the voting rights enjoyed by the Company's
shareholders in respect of the Common Shares.
8. AUDITORS
The auditors of the Company for the period from 1 January 2011 to 5 September 2013
were PricewaterhouseCoopers LLP of PricewaterhouseCoopers Place, 250 Howe Street,
Suite 700, Vancouver, British Columbia, Canada VGC 357, whose partners are members
of the Institute of Chartered Accountants of British Columbia. From 5 September 2013 to
the date of this Prospectus, the auditors of the Company were PricewaterhouseCoopers
55
LONDON\33747915.07
LLP (UK) of 1 Embankment Place, London WC2N 6RH, a member of the Institute of
Chartered Accountants in England and Wales.
9. MATERIAL CONTRACTS
9.1 Save for the contracts described or referred to in paragraphs 9.2 to 9.10 below, no
member of the Group has:
(a) entered into any material contract (not being a contract entered into in the
ordinary course of business) within the two years immediately preceding the date
of this document; or
(b) entered into any other contract (not being a contract entered into in the ordinary
course of business) which contains any provision under which any member of the
Group has any obligation or entitlement which is or may be material to the Group
as at the date of this document.
9.2 New Kansanshi Facility
Kansanshi Mining Plc unsecured term facility
On 27 March 2014, Kansanshi Mining Plc, as borrower, and the Company, as guarantor,
entered into a $350 million five year unsecured term facility (the "New Kansanshi
Facility") agreement with Standard Chartered Bank ("SCB") as initial mandated lead
arranger, bookrunner, and underwriter.
The New Kansanshi Facility is available until 27 June 2014 with a margin of 2.75 per cent
per annum. Availability of the New Kansanshi facility is subject to satisfaction of the
conditions precedent set out in the facility agreement.
Purpose
The Company is permitted to draw the funds available under the New Kansanshi Facility to
repay amounts due under the Kansanshi Facility and for general corporate purposes.
Repayment
The New Kansanshi Facility must be repaid in 6 equal semi-annual instalments
commencing 30 months from the date of the facility agreement with all amounts
outstanding to be repaid no later than the date falling five years after signing (the “Final
Maturity Date”).
Prepayment
The commitments of the lender under the New Facility will immediately be cancelled, and
mandatory prepayment will be automatically triggered if it becomes unlawful for a Lender
(as defined therein) to perform its obligations under the Facility Agreement. Mandatory
prepayment will also be triggered by a Change of Control (as defined therein) of
Kansanshi Mining Plc or the Company.
Voluntary prepayments can only be made at the end of an Interest Period. The New
Kansanshi Facility can be prepaid in whole or in part (if in part in a minimum amount of
$5 million, or if less the balance of the term loan) without penalty, on giving 5 business
days' written notice.
Interest
56
LONDON\33747915.07
The interest rate payable on the loans under the New Kansanshi Facility is calculated for
each Interest Period on the basis of an annual floating rate equal to LIBOR plus the
relevant Margin (defined therein as 2.75 per cent per annum) and mandatory costs if
applicable.
Covenants
The New Kansanshi Facility includes customary positive and restrictive covenants and
undertakings given by Kansanshi Mining Plc, the Company, and, in certain cases, by or on
behalf of other members of the First Quantum Group (as defined therein):
Under the financial covenants, on each 30 June and 31 December, the Company must
ensure that the net debt to EBITDA is not more than 4.25 times from Financial Close (as
defined therein) until 30 June 2015 (subject to increases in the Margin if the ratio is above
3.25 times during this period). Otherwise the net debt to EBITDA Ratio must not be more
than 3.25 times. The debt service ratio (historic) must not be less than 1.25 times and the
debt to equity ratio must not be more than 100 per cent.
Kansanshi Mining Plc may only pay dividends or make other distributions if i) they do not
breach certain financial covenants and; ii) there is no event of default.
Under the financial covenants, on each of 30 June and 31 December, Kansanshi Mining Plc
must ensure that i) the debt to EBITDA ratio shall not exceed 2.5 times; ii) the debt
service ratio (historic) shall not be less than 1.25 times and; iii) the debt to equity ratio
must not be more than 100 per cent.
Events of Default
The New Kansanshi Facility sets out certain events of default which are subject in certain
cases to grace periods and other qualifications, including without limitation:
Failure by any Obligor to pay amounts due under a finance document;
Breach by any Obligors of other obligations under the finance documents;
Breach of the financial covenants
Inaccuracy of a representation or statement by any Obligor when made or deemed
to be made;
Cross defaults in respect of any member of the FQM Group above $25 million or
that has or is reasonably likely to have a Material Adverse Effect;
Insolvency and insolvency proceedings in relation to any Obligor or in relation to
any member of the FQM Group that is not an Obligor that has or is reasonably
likely to have a Material Adverse Effect;
Creditors' process in respect of any Obligor affecting assets having an aggregate
value of $25 million or in respect of any member of the FQM Group that is not an
Obligor that has or is reasonably likely to have a Material Adverse Effect;
Invalidity or unlawfulness of the finance documents;
Cessation of the business of Kansanshi Mining Plc;
Expropriation, nationalisation or abandonment of the Kansanshi mine or other
Government action that may have a Material Adverse Effect on the business of
Kansanshi;
57
LONDON\33747915.07
Repudiation or rescission by any Obligor of any finance document;
Litigation against any member of the FQM Group that has or is reasonably likely to
have a Material Adverse Effect;
Material Adverse Effect in the reasonable opinion of the Majority Lenders (as
defined therein) unless such event(s) are capable of remedy;
Revocation, suspension, termination or material breach of Kansanshi’s operating
licence, or other authorisations required to conduct its business.
9.3 New Facility Mandate Letter and Term Sheet
On 24 January 2014, the Company signed a mandate letter for a $2.5 billion term loan
and revolving credit facility (the "New Facility") with Standard Chartered Bank and BNP
Paribas as initial mandated lead arrangers, bookrunners and underwriters. The
underwriting is subject to, among other things, the negotiation, execution and exchange
of a facilities agreement and related documentation based on the terms and conditions of
the term sheet attached to the mandate letter as amended pursuant to the signed but
undated New Facility agreement (the "Term Sheet") within 90 days of the date of the
mandate letter. Availability of the New Facility is subject to satisfaction of the conditions
precedent set out in the Term Sheet.
The underwriting contained in the mandate letter is subject to a number of conditions
which include the absence, in the opinion of the initial mandated lead arrangers, of any
material adverse change in (i) the business, operations, assets or condition (financial or
otherwise) of the FQM group taken as a whole since the date as at which the latest
consolidated audited financial statements were prepared; (ii) the validity or enforceability
of the mandate letter, term sheet or document evidencing or related to the New Facility;
(iii) the international or any relevant domestic syndicated loan market(s); or (iv) the
political, financial or economic condition in countries where the FQM Operating Companies
(as defined therein) operate, including, without limitation, changes resulting directly or
indirectly from the outbreak of war or other armed conflicts, imposition of sanctions, state
of national emergency, civil unrest, disturbance or similar events, during the period from
the date of the mandate letter to the date of signing of the New Facility agreement. The
underwriting is subject also to the negotiation, execution and exchange of a facilities
agreement and related documentation based on the terms and conditions of the Term
Sheet within 90 days of the date of the mandate letter. Availability of the New Facility is
subject to satisfaction of the conditions precedent set out in the Term Sheet.
General
The Company, as borrower, and the Material Subsidiaries (as defined therein), as
guarantors, Standard Chartered Bank and BNP Paribas as initial mandated lead arrangers
and book runners and Standard Chartered Bank also acting as the security trustee have
signed but not dated a facility agreement (the “Facility Agreement”).
The New Facility will be secured by an assignment of any loans from a member of the
FQM Group (as defined therein) which guarantees the New Facility ("Obligors") to any
member of the FQM Group which does not guarantee the New Facility or Kansanshi Mining
Plc (the "Non-Obligors"), the subordination of loans from a member of the FQM Group
(as defined therein) to an Obligor, a negative pledge on assets and shareholdings, a
restriction on the cash holding of Non-Obligors and certain share pledges in favour of the
security trustee.
It is contemplated that upon the New Facility coming into effect that the Akubra Facility
(as summarized in paragraph 9.4 below) will be repaid in full and terminated.
58
LONDON\33747915.07
Commitment
Under the New Facility, the $1 billion term loan is available for 24 months from the date of
the Facility Agreement with a margin of 2.75% per annum. The $1.5 billion revolving
credit facility is available from the date of satisfaction of the conditions precedent set out
in the facilities agreement for the New Facility to 1 month prior to the Final Maturity Date
(as defined therein) with a margin of 2.75% per annum.
Purpose
The Company is permitted to draw the funds available under the New Facility i) to repay
amounts due under the Akrubra Facility; ii) for the refinancing of all outstanding amounts
under the Kansanshi Facility; iii) for the payment of all fees and expenses relating to the
arranging of the New Facility; iv) for capital expenditure and operating expenses; and v)
for general corporate purposes.
Repayment
The term loan facility must be repaid in 6 equal bi-annual installations of one sixth of the
outstanding aggregate advances, with the first repayment date commencing 30 months
from the date of the Facility Agreement with the last repayment being the Final Maturity
Date.
Each advance under the revolving credit facility will be repayable at the end of its Interest
Period (as defined therein), although the Company may request that an advance be rolled
over on the expiry of the Interest Period for that advance, subject to conditions.
Prepayment
The commitments of the lender under the New Facility will immediately be cancelled, and
mandatory prepayment will be automatically triggered if it becomes unlawful for a Lender
(as defined therein) to perform its obligations under the Facility Agreement. Mandatory
prepayment will also be triggered by a Change of Control (as defined therein) of the
Company.
Voluntary prepayments can only be made at the end of an Interest Period. The New
Facility can be prepaid in whole or in part (if in part in a minimum amount of $50 million,
or if less the balance of the term loan) without penalty, on giving 5 business days' written
notice.
Interest
The interest rate payable on the loans under the New Facility is calculated for each
Interest Period on the basis of an annual floating rate equal to LIBOR plus the relevant
Margin (defined therein as 2.75 per cent per annum) and, in the case of an advance under
the revolving credit facility, a utilisation fee as described below. Fees applicable to the
New Facility include: i) a flat 1.1 per cent per annum commitment fee on any unutilised
and un-cancelled portion of the term loan during the Tranche A Availability Period (as
defined therein); ii) a flat 1.15 per cent per annum commitment fee on any unutilised and
un-cancelled portion of the revolving credit facility during the Tranche B Availability Period
(as defined therein); and iii) a 0.15 per cent per annum utilisation fee on any drawn
amount of the revolving credit facility.
Covenants
The New Facility includes customary positive and restrictive covenants and undertakings
given by the Obligors and, in certain cases, by or on behalf of other members of the First
Quantum Group (as defined therein):
59
LONDON\33747915.07
The Company may only pay dividends or make other distributions if i) they do not breach
certain financial covenants; ii) there is no event of default; and iii) the distributions do not
exceed 50 per cent of the net income from the preceding year.
Under the financial covenants, on each 31 March, 30 June, 30 September and 31
December, the Company must ensure that the net debt to EBITDA is not more than 4.25
times from Financial Close (as defined therein) until 30 June 2015 (subject to increases in
the Margin if the ratio is above 3.25 times during this period). Otherwise the net debt to
EBITDA Ratio must not be more than 3.25 times. The debt service ratio (historic) must
not be less than 1.25 times and the debt to equity ratio must not be more than 100 per
cent.
Events of Default
The New Facility sets out certain events of default which are subject in certain cases to
grace periods and other qualifications, including without limitation:
Failure by any Obligor to pay amounts due under a finance document;
Breach by any Obligors of other obligations under the finance documents;
Inaccuracy of a representation or statement by any Obligor when made or deemed
to be made;
Cross defaults in respect of any member of the FQM Group above $25 million or
that has or is reasonably likely to have a Material Adverse Effect;
Insolvency and insolvency proceedings in relation to any Obligor or in relation to
any member of the FQM Group that is not an Obligor that has or is reasonably
likely to have a Material Adverse Effect;
Creditors' process in respect of any Obligor affecting assets having an aggregate
value of $25 million or in respect of any member of the FQM Group that is not an
Obligor that has or is reasonably likely to have a Material Adverse Effect;
Invalidity or unlawfulness of the finance documents;
Cessation of the business of a FQM Operating Company or Minera Panama SA
which has a Material Adverse Effect;
Seizure, expropriation, nationalisation, intervention, restriction or other
governmental action in relation to any FQM Operating Company or Minera Panama
SA or any of its assets that materially limits or wholly or substantially curtails the
authority or ability of any FQM Operating Company or Minera Panama SA to
conduct its business;
any FQM Operating Company or Minera Panama SA is prevented under any
government authority from exervising normal control over all or any material part
of its assets and revenues and such event has or is reasonably likely to have a
Material Adverse Effect;
Repudiation or rescission by any Obligor of any finance document;
Litigation against any member of the FQM Group that has or is reasonably likely to
have a Material Adverse Effect;
Material Adverse Effect in the reasonable opinion of the Majority Lenders (as
defined therein) unless such event(s) are capable of remedy;
60
LONDON\33747915.07
Revocation, suspension, termination or material breach by any FQM Operating
Company or Minera Panama SA of its operating licence, or other authorisations
required to conduct its business provided that in the case of Minera Antares Peru
S.A.C. or First Quantum Mining and Operations Limited such revocation,
suspension, termination or material breach has or is reasonably likely to have a
Material Adverse Effect; and
Any FQM Operating Company or Minera Panama SA abandons all or any significant
portion of its interest in any material asset or surrender, cancel or release, ir suffer
any termination or cancellation or any of its substantial rights, title or interest in
any material assets if such action has or is reasonably likely to have a Material
Adverse Effect.
9.4 Standard Chartered Akubra Facility
On 20 March 2013, FQM (Akubra) Inc., as borrower, and the Company and FQM Finance
Ltd, as guarantors, entered into a $2.5 billion senior revolving credit facility agreement
(as amended and restated on 29 May 2013, and 29 October 2013) with Standard
Chartered Bank as mandated lead arranger, facility agent and security agent (the
"Akubra Facility"). The Akubra Facility is secured by a share pledge over the shares of
the borrower and an account charge over an account of the Company entitled Mandatory
Prepayment Account held with Standard Chartered Bank.
Under the Akubra Facility, the $2.5 billion revolving facility is available until 30 May 2014
with a margin of 2.75 per cent per annum.
Commitments and additional commitments
The Akubra Facility provides for a revolving facility in the amount of $2.5 billion. As of the
date of this document, $1,571 million has been drawn under the Akubra Facility.
Purpose
The borrower is permitted to draw the funds available under the Akubra Facility for (i)
general corporate purposes other than acquisition or redemption of the Existing Notes (as
defined therein) in excess of $10 million and (ii) any other purpose with Lender (as
defined therein) consent.
Repayment
Each loan made under the Akubra Facility must be repaid in full on the last day of its
interest period. Any amounts repaid may be re-borrowed until 30 May 2014. All
outstanding loans must be repaid on 30 June 2014.
Prepayment
The commitments of a lender under the Akubra Facility will immediately be cancelled, and
all obligations in relation to that lender’s participation in each loan will be payable on the
last day of the interest period of that loan in the event of illegality or if a member of the
Group uses any loan proceeds which results in a Lender being in breach of Sanctions (as
defined therein) or becoming a Restricted Party (as defined therein). If there is any
reduction in the ownership of named subsidiaries of the Company including the borrower
or a change of control of the borrower or any entity acquires 20 per cent or more of the
Company or there is a sale of substantially all of the assets of the Group, the Akubra
Facility will be cancelled and all outstanding loans will be immediately due and payable.
Available commitments are to be reduced and cancelled and outstanding loans prepaid by
the application of the proceeds of claims, disposal of assets, equity issuance or financial
indebtedness subject to exclusions as detailed in the Akubra Facility agreement.
61
LONDON\33747915.07
Subject to the payment of break costs (if any), the borrower may voluntarily prepay
amounts outstanding under the Akubra Facility without penalty or premium on not less
than five business days’ notice to the facility agent and in a minimum amount of $100
million.
Interest
The rate of interest payable on the loans under the Akubra Facility is calculated on the
basis of a formula being the aggregate of the applicable margin, LIBOR and the
mandatory cost, if any. The applicable margin is 2.75 per cent per annum. LIBOR means
for the term of any loan or overdue amount denominated in U.S. dollars, the British
Bankers Association Interest Settlement Rate for U.S. dollars. Fees applicable to the
Akubra Facility include: (i) a commitment fee of 1.00 per cent per annum on the undrawn
amount of each lender’s available commitment; (ii) an arrangement fee and upfront fee
paid to Standard Chartered Bank in its capacity as arranger; and (iii) agency and security
agency fees.
Covenants
The Akubra Facility contains customary operating and financial covenants, subject to
certain agreed exceptions, including covenants restricting the ability of the borrower, each
guarantor and each Material Group Member (as defined therein) to, among other things:
• engage in any activity with any person which it knows is a Restricted Party (as defined
therein) or knows is in violation of any anti-corruption laws (as specified therein);
• merge or consolidate with other companies;
• make a substantial change to the general nature of its business;
• acquire another company or any shares or a business or enter into any joint venture;
• create or permit to subsist any security or quasi-security over any asset;
• dispose of assets;
• enter into non-arm’s length transactions;
• be a creditor in respect of any financial indebtedness;
• issue guarantees;
• pay dividends or redeem share capital (this applies to each member of the Group);
• incur more than $500 million in capital expenditure on Cobre Panama whilst loans
outstanding are $1.25 billion or more;
• redeem the Existing Notes;
• incur financial indebtedness; and
• enter into certain treasury transactions other than in the ordinary course of business
and not primarily for speculative purposes.
The Akubra Facility also requires the borrower and each guarantor (and in certain cases,
the Material Group Members and other members of the Group) to observe certain
62
LONDON\33747915.07
affirmative covenants, subject to certain exceptions and including, but not limited to,
covenants relating to:
• maintenance of relevant authorisations;
• compliance with laws, including environmental laws and regulations;
• payment of taxes;
• preservation of assets;
• ensuring that its obligations under the Akubra Facility rank at least pari passu with the
claims of other creditors;
• maintenance of insurance; and
• provision of financial and other information to the lenders.
The Company may not pay dividends or make other distributions in respect of the share
capital of the Company if they fail to meet certain financial covenants or there is an event
of default or an event of default would arise as a result of the payment under the Akubra
Facility.
Under the financial covenants, on 31 March, 30 June, 30 September and 31 December of
each year, the Company must ensure that the Consolidated Tangible Net Worth is not less
than $7.5 billion and the Debt to Equity Ratio does not exceed 75 per cent. Furthermore,
for any twelve month period ending on 31 March, 30 June, 30 September and 31
December of each year, the Interest Cover is not less than the ratio of 2.75:1; Leverage
does not exceed 350 per cent and Capital Expenditure does not exceed $3.75 billion in
respect of the First Quantum group and in respect of the First Quantum group (excluding
the borrower and its subsidiaries) does not exceed $2.2 billion at any time loans
outstanding under the Akubra Facility exceed $1.25 billion. Each of these terms is as
defined in the Akubra Facility agreement.
Events of Default
The Akubra Facility sets out certain Events of Default (as defined therein), the continuing
occurrence of which would allow the Majority Lenders (as defined therein) to accelerate all
outstanding loans and cancel the lenders’ commitments and/or declare that all or part of
any amounts outstanding are immediately due and payable and/or payable on demand.
The Events of Default include, among other events and subject in certain cases to grace
periods, thresholds and other qualifications:
• non-payment of amounts due under a finance document;
• breach of financial covenants;
• inaccuracy of a representation or statement when made or deemed to be made;
• cross defaults in relation to financial indebtedness of at least $15 million;
• insolvency and insolvency proceedings;
• creditors’ process affecting any asset or assets having an aggregate value of at least
$25 million;
• audit qualification;
63
LONDON\33747915.07
• suspension or cessation (or threatened suspension or cessation) of the business of any
Material Group Member;
• invalidity or unlawfulness of the finance documents or the transaction security;
• breach of any provision of, or material inaccuracy of a representation or warranty
given in, the intercreditor agreement by any party other than a finance party or an
obligor;
• commenced or threatened litigation or disputes in relation to the transaction
documents or against any member of the Group or their respective assets which has or
is reasonably likely to have a material adverse effect;
• material adverse change;
• ability of any Material Group Member to conduct its business is materially limited by
governmental action or control over its assets or revenues is prevented and such event
has or is reasonably likely to have a material adverse effect; and
• moratorium on external indebtedness of any Material Group Member where such event
has or is reasonably likely to have a material adverse effect.
Intercreditor Agreement
To establish the relative rights of their creditors in connection with their entry into the
Akubra Facility, FQM (Akubra) Inc., as borrower, the Company and the guarantors under
the Akubra Facility entered into an intercreditor agreement (the "Intercreditor Agreement")
with, among others, various senior creditors and intercompany creditors and Standard
Chartered Bank. The Intercreditor Agreement constitutes a senior finance document under
the Akubra Facility, and a breach of its terms by the borrower, the Company or the
guarantors under the Akubra Facility that are party to the Intercreditor Agreement will give
rise to a default under the Akubra Facility.
The Intercreditor Agreement establishes the relationships and relative priorities among:
(i) the lenders under the Akubra Facility (the "Lenders"); (ii) the Lenders or other persons
that accede to the Intercreditor Agreement as counterparties to hedging agreements (the
"Hedging Agreements", and the Lenders or their affiliates or other persons that accede to
the Intercreditor Agreement as counterparties to the Hedging Agreements are referred to
in such capacity as the "Hedge Counterparties"); (iii) the agent (the "Agent" acting on
behalf of the Lenders, the Hedge Counterparties and the Agent (collectively, the "Senior
Creditors"); and (iv) intragroup lenders ("Intercompany Lenders") and debtors
("Debtors").
Subordination
The Intercreditor Agreement provides that all liabilities ("Senior Debt") payable under the
finance documents specified by the Akubra Facility ("Senior Finance Documents") by any
member of the Group to the Senior Creditors will rank in priority to all liabilities payable or
owing by a Debtor to an Intercompany Lender ("Intercompany Debt"), and that such
Intercompany Debt will be postponed and subordinated in right and priority of payment to
any Senior Debt.
Permitted Payments
Prior to the date on which all the Senior Debt has been unconditionally and irrevocably
paid and discharged in full, to the satisfaction of the Agent, and the Senior Creditors are
under no further obligation to provide financial accommodation to any member of the
64
LONDON\33747915.07
group under any Senior Finance Document (the "Senior Debt Discharge Date") except as
otherwise provided under the Intercreditor Agreement, no member of the First Quantum
group may pay or discharge any amount due and payable in respect of any Intercompany
Debt, unless the following conditions are satisfied:
(i) the payment is due; and
(ii) no Event of Default (as defined in the Akubra Facility) is continuing or would occur as a
result of the making of the payment.
Notwithstanding the foregoing, a Debtor is entitled to make a payment in respect of
Intercompany Debt if the payment is being made to facilitate repayment or prepayment of
Senior Debt or if approved by the Majority Senior Creditors (as defined therein).
Restrictions on Enforcement
The Intercreditor Agreement provides that, until the Senior Debt Discharge Date, except as
expressly allowed under the terms of the Intercreditor Agreement, no Intercompany
Lender may:
(a) demand payment of any Intercompany Debt;
(b) accelerate any of the Intercompany Debt if otherwise entitled to do so or otherwise
declare any Intercompany Debt prematurely due and payable;
(c) enforce any Intercompany Debt by attachment, set-off, execution or otherwise;
(d) initiate or support or take any step with a view to:
(i) any insolvency, bankruptcy, liquidation, reorganization, administration,
Comparative earnings per share4 $0.23 $0.24 $0.39 $0.96 $1.17
1 Results of operations and financial results for the year ended December 31, 2013 in this section include the results of the Çayeli mine (100%), the Las Cruces mine (100%), and the Pyhäsalmi mine (100%) from March 22, 2013, the date of acquisition. The operational review section following also includes historical results for the full twelve months for the acquired operations
without adjustment for acquisition accounting.
2 Cash costs (C1) and earnings before interest, tax, depreciation and amortization (“EBITDA”) are not recognized under IFRS. See “Regulatory Disclosures” for further information.
3 Gross profit before Inmet acquisition accounting adjustments is not recognized under IFRS. A reconciliation to gross profit is provided on page 3 of the MD&A.
4 Earnings attributable to shareholders of the Company have been adjusted to remove the effect of unusual items to arrive at comparative earnings. Comparative earnings and comparative earnings per share are not measures recognized under IFRS and do not have a standardized meaning
90
LONDON\33747915.07
prescribed by IFRS. The Company has disclosed these measures to assist with the understanding of results and to provide further financial information about the results to investors. See
“Regulatory Disclosures” for a reconciliation of comparative earnings.
1.1 Full year highlights
Net earnings and earnings per share reconciliation
(USD millions unless otherwise noted)
Year ended December 31, 2013
Pre- acquisition operations1
Acquired operations2
Acquisition accounting
(recurring)3
Acquisition accounting
(non-recurring)4
Total group
Net earnings attributable to shareholders of the Company
359.4 201.4 (69.0) (33.2) 458.6
Comparative earnings 379.9 228.5 (69.0) 0.0 539.4
Earnings per share 0.64 0.36 (0.12) (0.06) 0.82
Comparative earnings per share 0.68 0.41 (0.13) 0.00 0.96 1 Pre-acquisition operations include Kansanshi, Guelb Moghrein, Ravensthorpe and Kevitsa. 2 Acquired operations include Las Cruces, Çayeli and Pyhäsalmi. 3 The recurring acquisition accounting adjustment is the unwinding to earnings of the uplift to fair value from book values, as at the date of acquisition, of acquired mineral property, plant and equipment. This adjustment will continue on a systematic basis over the remaining lives of the mines. The adjustment of $69.0 million is net of tax of $24.7 million. The adjustment before tax is $93.7 million. 4 The non-recurring acquisition accounting adjustment is the sale of inventory fair valued on the balance sheet of the acquired operations at date of acquisition. This adjustment is non-recurring
with substantially all the inventory being sold in 2013. The adjustment of $33.2 million is net of tax of $11.6 million. The adjustment before tax is $44.8 million. 2. PRODUCTION
2.1 Copper production 34% higher reflecting record production at Kansanshi and the
contribution from the acquired operations
Copper production of 412,281 tonnes in 2013 increased by 105,166 tonnes over 2012,
reflecting a contribution of 88,811 tonnes from Las Cruces, Çayeli and Pyhäsalmi, the
three operating mines acquired (together the “acquired operations”) through First
Quantum’s acquisition of Inmet Mining Corporation (“Inmet”) in March 2013, record
production at Kansanshi and Guelb Moghrein and a full year contribution from Kevitsa.
2.2 Nickel production increased 28% after record production from Ravensthorpe
Nickel production of 47,066 tonnes in 2013 increased by 10,307 tonnes over 2012,
attributable to record production at Ravensthorpe, reflecting higher grades and
throughput than 2012, and a first full year of production at Kevitsa.
2.3 Gold production increased 23% from higher production at Kansanshi and Kevitsa
Gold production increased to 248,078 ounces in the year from a 23% higher gold
production at Kansanshi due to gold circuit enhancements and reprocessing of gold in
tailings and a full year of production at Kevitsa, offset by lower production at Guelb
Moghrein.
2.4 Significantly higher sales volumes in all major commodities
91
LONDON\33747915.07
Overall increase of 31% to 386,057 tonnes of copper, although constrained smelting
capacity in Zambia impacted Kansanshi’s sales volumes of copper concentrate and gold in
concentrate.
2.5 Sales revenues rose 20% despite lower metal prices
Sales revenues rose to $3,552.9 million and included $690.8 million contributed by the
acquired operations and $197.6 million from the first full year of commercial operations at
Kevitsa, which outweighed the impact of lower year-on-year average LME cash prices for
copper and nickel of 8% and 14%, respectively.
2.6 Copper production cash costs lowered by 13%
Average copper production cash cost of $1.30 per lb was lower than $1.49 per lb in 2012.
This reflected the addition of the acquired operations in 2013, lower mining and
processing costs and an increased gold credit at Kansanshi, partially offset by a higher
unit cash cost at Guelb Moghrein.
2.7 Gross profit before acquisition accounting adjustments 16% higher than 2012
Reconciliation of gross profit in 2012 to gross profit in 2013:
(USD millions unless otherwise noted)
Gross profit in 2012 $1,101
Lower realized metal prices (313)
Higher sales volumes 143
Increase in depreciation at pre-acquisition operations (65)
Decrease in costs excluding depreciation at pre-acquisition operations 92
Gross profit contribution from acquired operations 314
Gross profit before Inmet acquisition accounting adjustments 1,272
Acquisition accounting adjustments:
Recurring: depreciation of acquired property, plant and equipment1
Non-recurring: sale of inventory at acquired operations2
(93)
(45)
Gross profit in 2013 $1,134 1 The recurring acquisition accounting adjustment is the unwinding to earnings of the uplift to fair value from book values, as at the date of acquisition, of acquired mineral property, plant and
equipment. This adjustment will continue on a systematic basis over the remaining lives of the mines. The adjustment before tax is $93.7 million. The adjustment net of tax is $69.0 million. 2 The non-recurring acquisition accounting adjustment is the sale of inventory fair valued on the balance sheet of the acquired operations at date of acquisition. The adjustment before tax is $44.8 million. The adjustment net of tax is $33.2 million.
Gross profit is reconciled to EBITDA by including: exploration costs of $51.6 million,
general, administrative and other costs of $187.4 million, and adding back depreciation of
$457.1 million.
3. FOURTH QUARTER HIGHLIGHTS
3.1 Production
92
LONDON\33747915.07
Copper production 35% higher after record production at Kansanshi and the
contribution from the acquired operations
Copper production of 114,791 increased by 29,873 tonnes over 2012, reflecting a
contribution of 29,306 tonnes from the acquired operations and record quarter production
of 72,602 at Kansanshi.
Nickel production increased 25% after record production from Ravensthorpe
Nickel production of 12,634 tonnes increased by 2,538 tonnes over Q4 2012, attributable
to record production of 10,244 tonnes at Ravensthorpe and a contribution of 2,390 tonnes
from Kevitsa.
Gold production decreased 2% from lower production at Kansanshi and Guelb
Moghrein
Gold production of 63,199 ounces in the quarter was impacted by lower gold production at
Kansanshi and Guelb Moghrein, offset in part by increased production at Kevitsa.
Significantly higher sales volumes
Overall increase of 23% to 95,598 tonnes of copper over Q4 2012, although constrained
smelting capacity in Zambia did continue to impact Kansanshi’s sales volumes of copper
concentrate and gold in concentrate with reductions of 16% and 3%, respectively,
compared to Q4 2012.
Sales revenues rose 16% despite lower metal prices
Sales revenues rose to $897.0 million and included $234.2 million contributed by the
acquired operations, which outweighed the impact of lower year-on-year average LME
cash prices for copper and nickel of 10% and 19%, respectively, and lower copper sales
from Kansanshi.
Copper production cash costs lowered by 13%
Average copper production cash cost of $1.23 per lb was lower than the $1.42 per lb of
Q4 2012. This reflected the addition of the acquired operations in 2013, lower mining and
processing costs at Kansanshi, partially offset by higher unit cash cost at Guelb Moghrein.
Gross profit before acquisition accounting adjustments 19% higher than Q4
2012
Reconciliation of gross profit in Q4 2012 to gross profit in Q4 2013:
93
LONDON\33747915.07
(USD millions unless otherwise noted)
Gross profit in Q4 2012 $295
Lower realized metal prices (76)
Lower sales volumes (23)
Decrease in depreciation at pre-acquisition operations 1
Decrease in costs excluding depreciation at pre-acquisition operations 52
Gross profit contribution from acquired operations 101
Gross profit before Inmet acquisition accounting adjustments 350
Acquisition accounting adjustments:
Recurring: depreciation of acquired property, plant and equipment1
Non-recurring: sale of inventory at acquired operations2
(31)
-
Gross profit in Q4 2013 $319 1 The recurring acquisition accounting adjustment is the unwinding to earnings of the uplift to fair value from book values, as at the date of acquisition, of acquired mineral property, plant and equipment. This adjustment will continue on a systematic basis over the remaining lives of the mines. The adjustment before tax is $30.8 million. The adjustment net of tax is $22.6 million. 2 The non-recurring acquisition accounting adjustment is the sale of inventory fair valued on the balance sheet of the acquired operations at date of acquisition. This adjustment is non-recurring
with substantially all of the inventory being sold in 2013. The adjustment before tax is $0.1 million. The adjustment net of tax is $0.0 million.
Gross profit is reconciled to EBITDA by including: exploration costs of $16.8 million;
general, administrative and other costs of $57.9 million; and adding back depreciation of
$119.6 million.
3.2 Strong liquidity and cash flow
The Company ended the year with $694.5 million of unrestricted cash and cash
equivalents in addition to $2,290.0 million of undrawn facilities. Operating cash flows
before changes in working capital and taxes paid of $1,439.9 million compared to
$1,165.2 million in 2012. As part of the Company’s plan to optimize its capital structure
and financial flexibility following the acquisition of Inmet, the Company concluded a
number of initiatives in the first quarter of 2014 that included:
on January 24, 2014 the signing of a mandate letter for a $2.5 billion Five-Year
Term Loan and Revolving Facility (the “Facilities”). The Facilities comprise of a $1.0
billion Term Loan Facility and a $1.5 billion Revolving Credit Facility. The Facilities
will be used to support the Company’s extensive capital program and for general
corporate purposes.
on January 27, 2014 an exchange offer and consent solicitation was launched with
respect to the 8.75% Senior Notes due 2020 and 7.50% Senior Notes due 2021
(together the "Existing Notes") issued by Inmet Mining Corporation (now FQM
(Akubra) Inc.) ("FQM Akubra").
97.3% of the 8.75% Senior Notes due 2020 and 99.8% of the 7.50% Senior Notes
due 2021 accepted before the early acceptance deadline which expired on February
7, 2014 and on February 12, 2014 the Company issued $1.1 billion aggregate
principal amount of new 6.75% Senior Notes due 2020 and $1.1 billion aggregate
principal amount of new 7.00% Senior Notes due 2021 to eligible holders who
tendered their Existing Notes. This offer expired on 24 February 2014. On 27
February 2014, the Company announced that 97.9% of the notes due 2020 and
99.8% of the notes due 2021 were exchanged for the new notes.
94
LONDON\33747915.07
the completion of a consent solicitation with respect to its 7.25% Senior Notes due
2019 and execution of a supplemental indenture which, among other things,
increased in certain circumstances the amount of investments that the Company
can make, and the amount of secured and unsecured debt that the Company can
incur.
3.3 Development projects remain on track
On January 27, 2014, the Company announced the results of the Cobra Panama project
review, which commenced following the acquisition of Inmet. Due to a number of
technical and logistical improvements, the revised project will have installed capacity of
about 70 million tonnes per annum (“Mtpa”) for the first 10 years; approximately 17%
higher than the Inmet plan. Provision has been made for up to 100 Mtpa beyond Year 10.
The project is expected to produce an average of approximately 320,000 tonnes of copper
annually on a life of mine basis; approximately 20% higher than the Inmet plan. The
revised capital estimate is $6.4 billion and the re-engineered and larger project is
scheduled for construction completion and commissioning in the second half of 2017.
The first phase of the Kansanshi smelter project remains on schedule for construction
completion in the second half of 2014 followed by commissioning and ramp-up. Detailed
design work, manufacture of major equipment and earthworks have been completed.
Concrete works are 85% complete and all other construction activities are proceeding
well.
The major elements of the Kansanshi oxide circuit expansions have been completed.
Construction has commenced on the sulphide circuit expansions with environmental
approvals having been granted; completion will be coordinated with the Company’s
availability of the necessary expanded smelting capacity in 2017.
Sentinel project costs are unchanged and estimated at $1.9 billion. The target completion
also remains unchanged with staged commissioning to commence in Q3 2014.
Construction activities at Sentinel reached a peak in Q4 2013 with 75% overall completion
achieved by year-end. Power transmission line works continue with partners ZESCO
Limited and the Company’s construction contractors. The powerline connecting to the
Lumwana mine is the most progressed with completion expected by the end of Q2 2014.
The Kalumbila to Lusaka West powerline is expected to be completed and operational by
the end of 2014.
The majority of equipment and all long-lead items for the Enterprise process plant (co-
located with the Sentinel process plant) have been ordered. Engineering design
progresses well, with concrete and structural drawings issued for construction.
Environmental approval for the Enterprise mine remains under application. Commissioning
of the Enterprise concentrator circuit will commence with the Sentinel copper ore. Target
completion for the Enterprise project is Q1 2015.
Operational outlook for 2014
Copper (000’s
tonnes)
Nickel (000’s
contained tonnes)
Gold (000’s
ounces)
Zinc (000’s
tonnes)
Group 418-444 42-47 221-246 59-65
Kansanshi 255-270 - 145-160 -
Guelb Moghrein 36-39 - 55-60 -
Kevitsa 17-19 9-10 12-13 -
95
LONDON\33747915.07
Ravensthorpe - 33-37 - -
Çayeli 27-29 - 3-5 38-42
Las Cruces 69-72 - - -
Pyhäsalmi 14-15 - 6-8 21-23
Guidance
Production:
Production is set out in the above table. Palladium and platinum production is expected to be between 22,000 and 24,000 ounces each.
Cash operating cost:
Expected average cash cost of approximately $1.32 to $1.48 per pound of copper.
Expected average cash cost of approximately $4.40 to $4.90 per pound of nickel.
Capital expenditures:
Expected total 2014 capital expenditure is approximately $2.1 billion, with approximately $600.0 million at each of Cobre Panama and Sentinel. Sentinel capital expenditure excludes capitalization of any pre-commercial production costs.
3.4 Other corporate developments
The Company has declared a final dividend of C$0.0930 per share in respect of the
financial year ended December 31, 2013. The final dividend of C$0.0930, together with
the interim dividend of C$0.0583, is a total of C$0.1513 for the 2013 financial year. This
total dividend paid for the 2013 financial year is 14.3% of comparative net earnings which
is in line with the 15% of comparative net earnings used as guidance in 2013.
2 C1 and C3 costs and EBITDA are not recognized under IFRS. See “Regulatory Disclosures” for
further information
Full year operating results
The significant increase in both nickel and copper production in 2013 reflected the first full
year of commercial operations and an increase in ore availability, with production
benefiting from the higher throughput.
Efforts to improve nickel recoveries continued with a focus on grind and pulp chemistry
optimization. This resulted in an improved recovery rate in 2013 compared to 2012. Nickel
ore grade in 2013 was in line with 2012. Copper recovery rates and grade in 2013 were
comparable to 2012.
Nickel cash costs decreased by $0.23 per lb compared to 2012 due to higher cobalt,
platinum and palladium by-product credits offset partly by higher mining costs.
Copper cash costs increased by $0.40 per lb compared to 2012 due primarily to increased
mining costs and lower by-product credits.
104
LONDON\33747915.07
The impact of a full year of commercial operations on sales revenue was partly offset by
lower average net copper and nickel realized sales prices, which were 8% and 19% lower
than 2012, respectively. The higher sales revenues flowed through to gross profit and
were partially offset by a higher depreciation charge on mineral properties in line with an
increase in both copper and nickel production in 2013 compared to 2012.
Q4 operating results
Nickel production increased by 28% in Q4 2013 compared to Q4 2012 with production
benefiting from the higher throughput, due to an increase in ore availability and an
improved recovery rate. Ore grade in Q4 2013 was in line with Q4 2012.
Copper production increased by 16% compared to Q4 2012 as a result of higher
throughput.
Nickel cash costs decreased by $1.22 per lb compared to Q4 2012 due primarily to higher
cobalt, platinum and palladium by-product credits arising from higher sales volumes and
lower processing costs.
Copper cash costs decreased by $0.26 per lb compared to Q4 2012 due to an increase in
by-product credits and lower processing costs, offset partly by increased mining costs.
Sales revenue increased 65% compared to Q4 2012, due to a higher nickel sales volume,
offset partly by a 23% lower average net realized nickel sales price compared to Q4 2012.
The higher sales revenues flowed through to gross profit but were more than offset by a
higher depreciation charge on mineral properties in line with an increase in both copper
and nickel production in Q4 2013 compared to Q4 2012.
Outlook
Production is expected to be between 17,000 and 19,000 tonnes of copper, 9,000 and
10,000 tonnes of nickel, 12,000 and 13,000 ounces of gold, and between 22,000 and
24,000 ounces each of platinum and palladium.
The plant operated at full capacity in 2013, processing approximately 6.3 million tonnes
(“Mt”) of ore and is expected to reach 120% of nameplate capacity in 2014 with further
investments in mill grinding. Flotation debottlenecking, which commenced in Q4 2013,
should be finalized in stages throughout the year and is expected to result in incremental
improvements in recoveries, particularly around the nickel circuit.
The only Komatsu PC8000 face shovel in Europe was commissioned in Q4 2013, and will
assist in the removal of approximately 28 Mt of ore and waste during 2014.
Approval of the environmental expansion permit up to 10 Mtpa is expected during Q1
2014, with all outstanding documentation, statements and responses to authorities’
queries submitted.
105
LONDON\33747915.07
The following sections review the results of the Las Cruces mine (100%), the Çayeli mine (100%) and the Pyhäsalmi mine (100%). The tables include the post-acquisition results of the mines from March 22, 2013 to December 31, 2013, and historical results for the full year without adjustment
as well as the results for 2012 as previously reported by Inmet.
1 Results from the Las Cruces mine are only included in First Quantum’s financial results for the
period subsequent to the date of acquisition on March 22, 2013. Prior period results are shown for comparative purposes only and do not include any financial adjustments that would be required had the acquisition taken place on January 1, 2012.
2 C1 and C3 costs and EBITDA are not recognized under IFRS. See “Regulatory Disclosures” for further information. C1 and C3 costs have been recalculated using First Quantum’s methodology and may be different to that previously disclosed by Inmet.
3 C3 costs from the date of acquisition include the acquisition accounting adjustments relating to the uplift to fair value from book value of acquired mineral property, plant and equipment and inventory.
4 Gross profit is defined as sales revenues less cost of sales; disclosure regarding the Las Cruces mine in Inmet’s historical financial reporting defined sales revenues less cost of sales as “operating earnings”.
Full year operating results
Copper production increased by 2% compared to 2012. A 16% increase in throughput was
achieved due to a number of projects developed during the year, despite a fire in early
April in one of the plant’s leach reactors which reduced copper output for the month to
1,000 tonnes.
106
LONDON\33747915.07
Copper recovery increased slightly due to commissioning of the second leach pre-reactor
and a pregnant leach solution recycling system later in the year, in addition to improved
belt filter performance. Cash costs in 2013 were in line with 2012.
Sales revenues and gross profit both decreased in comparison to 2012 by 9% and 38%,
respectively. The decrease in sales revenues was driven by lower realized copper prices as
well as 3% lower copper cathode sales volumes.
Gross profit in 2013 was impacted by the recognition in net earnings of fair value
adjustments to the value of mineral property, plant and equipment which increased
depreciation and reduced gross profit by $34.1 million for the year. Additional fair value
adjustments made to inventory held on the date of acquisition reduced gross profit by a
further $12.6 million during the year. Fair value adjustments were recognized on
property, plant and equipment (including the value of mineral property) and on inventory
on hand at the date of acquisition. These fair value adjustments at date of acquisition are
recognized in earnings as the inventory is sold and on a systematic basis as the property,
plant and equipment is utilized.
Gross profit excluding fair value adjustments was 21% lower than 2012, primarily due to
lower metal prices and sales volumes.
Q4 operating results
Copper production increased by 6% compared to Q4 2012. This was due to a 21%
increase in throughput, due to a number of projects developed during the year, partially
offset by lower copper grade. Copper recovery was relatively consistent with Q4 2012.
Cash costs in Q4 2013 were $0.10 per lb higher than Q4 2012 due primarily to higher
mining costs.
Sales revenues and gross profit both decreased in comparison to Q4 2012 by 11% and
50%, respectively. The decrease in sales revenues was driven by lower realized copper
prices as well as a 3% decrease in copper cathode sales volumes. Operating costs were
lower compared to Q4 2012, benefiting from improvements in plant processing.
Gross profit in Q4 2013 was impacted by the recognition in net earnings of fair value
adjustments to the value of mineral property, plant and equipment which increased
depreciation and reduced gross profit by $12.7 million for the quarter. Additional fair
value adjustments made to inventory held on the date of acquisition reduced gross profit
by a further $1.0 million during the quarter.
Gross profit excluding fair value adjustments was 32% lower than 2012, primarily due to
lower metal prices, increased cash costs and lower sales volumes.
Outlook
Guidance on production of copper in 2014 is between 69,000 and 72,000 tonnes. Efforts
have been underway, and will continue for some time, to test and debottleneck the plant
for higher throughput rates as a result of lower grades, which are expected in late 2014.
Two completed projects in particular, replacement of the classification cyclones and PLS
recycling, have increased ball mill capacity and increased flows through the reactors,
respectively.
A permitting process for a new surface waste dump, underway for more than four years,
was finally approved in late 2013. This will allow efficient stripping of the successive
phases of the mine, commencing in 2014.
107
LONDON\33747915.07
The installation of the first leach pre-reactor in 2012, with oxygen injection, has already
improved leach and overall recovery by several percentage points. A second unit was
commissioned in mid-2013 and is expected to further increase residence time, improve
iron leaching and further improve recovery going forward.
To improve tailings filtering initially, two extra vacuum pumps have been sourced from
the Company’s Zambian operations. In addition, a project to install three new pressure
filters is underway. These initiatives, planned to be completed by the end of 2014, are
expected to improve copper recovery by at least 3%.
1 Results from the Çayeli mine are only included in First Quantum’s financial results for the period
subsequent to the date of acquisition on March 22, 2013. Prior period results are shown for comparative purposes only and do not include any financial adjustments that would be required had the acquisition taken place on January 1, 2012.
2 C1 and C3 costs and EBITDA are not recognized under IFRS. See “Regulatory Disclosures” for
further information. C1 and C3 costs have been recalculated using First Quantum’s methodology and may be different to that previously disclosed by Inmet.
3 C3 costs from the date of acquisition include the acquisition accounting adjustments relating to the uplift to fair value from book value of acquired mineral property, plant and equipment and inventory.
4 Gross profit is defined as sales revenues less cost of sales; disclosure regarding the Çayeli mine in Inmet’s historical financial reporting defined sales revenues less cost of sales as “operating earnings”.
Full year operating results
Despite lower grades, copper production remained in line with 2012 due to significantly
higher throughput. Zinc production increased by 6% over 2012 due to significantly higher
throughput, partially offset by lower grades. Recoveries were similar to the previous year
and in line with expectations. Driving the higher throughput was improved mine planning
and operational efficiencies, captured through a formal performance improvement
initiative.
Cash costs in 2013 increased by $0.11 per lb from 2012 due to a decrease in the by-
product credit, resulting from the lower realized metal prices.
Sales revenues were 15% below 2012 due to lower copper sales volumes as a result of
timing and lower realized metal prices.
109
LONDON\33747915.07
Gross profit in 2013 was impacted by the recognition in net earnings of fair value
adjustments to the value of mineral property, plant and equipment which increased
depreciation and reduced gross profit by $21.4 million for the year. Additional fair value
adjustments made to inventory held on the date of acquisition reduced gross profit by a
further $26.4 million during the year. Fair value adjustments were recognized on
property, plant and equipment (including the value of mineral property) and on inventory
on hand at the date of acquisition. These fair value adjustments at date of acquisition are
recognized in earnings as the inventory is sold and on a systematic basis as the property,
plant and equipment is utilized.
Gross profit excluding fair value adjustments was 22% below 2012, primarily due to lower
metal prices and lower sales volumes.
In early July 2013, Çayeli finalized a new three-year labour agreement effective June 1,
2012. The previous three-year agreement expired in May 2012 and negotiation of a new
agreement commenced in early 2013 after initial delays due to changes to government
labour regulations.
Q4 operating results
Copper production increased by 7% from Q4 2012 due to higher throughput and recovery.
Sustained improvements in mine planning and operational efficiencies accounted for the
higher throughput. Zinc production decreased by 12% over Q4 2012 due to lower grades
and recovery. Higher throughput helped mitigate the decrease in grades.
Cash costs in Q4 2013 increased by $0.30 per lb from Q4 2012 due primarily to a
decrease in by-product credit due to lower prices.
Sales revenues were 36% above Q4 2012 due to higher copper sales volumes as a result
of timing, partly offset by lower realized metal prices this quarter.
Gross profit in Q4 2013 was impacted by the recognition in net earnings of fair value
adjustments to the value of mineral property, plant and equipment and inventory which
increased depreciation and reduced gross profit by $5.2 million for the quarter. Gross
profit excluding fair value adjustments was 65% higher than 2012, primarily due to
increased sales volumes.
Outlook
Production in 2014 is expected to be between 27,000 and 29,000 tonnes of copper and
between 38,000 and 42,000 tonnes of zinc. Throughput is expected to remain at 2013
levels but grades are expected to decline slightly as more low-grade ore from the footwall
areas is mined.
The mine should benefit from the commissioning of a second new ore pass by mid-2014,
the first having been commissioned in mid-2013. The extension of a shotcrete slickline to
the lower levels of the mine, commissioned in mid-2013, will facilitate the development of
1 Results from the Pyhäsalmi mine are only included in First Quantum’s financial results for the period subsequent to the date of acquisition on March 22, 2013. Prior period results are shown for comparative purposes only and do not include any financial adjustments that would be required had the acquisition taken place on January 1, 2012.
2 C1 and C3 costs and EBITDA are not recognized under IFRS. See “Regulatory Disclosures” for further information. C1 and C3 costs have been recalculated using First Quantum’s methodology and may be different to that previously disclosed by Inmet.
3 C3 costs from the date of acquisition include the acquisition accounting adjustments relating to the uplift to fair value from book value of acquired mineral property, plant and equipment and
inventory.
4 Gross profit is defined as sales revenues less cost of sales; disclosure regarding the Pyhäsalmi
mine in Inmet’s historical financial reporting defined sales revenues less cost of sales as “operating earnings”.
Full year operating results
Copper production increased by 18% in 2013 compared to 2012 due to higher copper
grades and recoveries, with throughput in line with the prior year. Zinc production was
15% lower than 2012 due to an absence of higher grade zinc stopes in the production
plan. Pyrite production was 7% lower compared to 2012 with no pyrite reclaimed from B
pond in 2013 due to the uncertainty in the pyrite markets.
112
LONDON\33747915.07
Cash costs in 2013 increased by $0.67 per lb compared to 2012 primarily due to lower by-
product credits caused by unfavourable realized prices.
Sales revenues were 4% lower in 2013 compared to 2012, with higher copper volumes
being partially offset by lower zinc and pyrite sales and lower realized prices.
Gross profit in 2013 was impacted by the recognition in net earnings of fair value
adjustments to the value of mineral property, plant and equipment which increased
depreciation and reduced gross profit by $38.2 million for the year. In addition, fair value
adjustments to the value of inventory held on the balance sheet at acquisition reduced
gross profit by a further $5.8 million during the year. Fair value adjustments were
recognized on property, plant and equipment (including the value of mineral property)
and on inventory on hand at the date of acquisition. These fair value adjustments at date
of acquisition are recognized in earnings as the inventory is sold and on a systematic basis
as the property, plant and equipment is utilized.
Gross profit excluding fair value adjustments was 11% below 2012, primarily due to lower
metal prices, offset partly by higher volumes.
Q4 operating results
Copper production for Q4 2013 increased slightly compared to Q4 2012 due to higher
copper grades, with throughput in line with the prior year quarter.
Zinc production was 42% below Q4 2012 due to lower grade stopes being mined in the
quarter, resulting in lower zinc grade and recovery.
Cash costs in Q4 2013 increased by $1.65 per lb compared to Q4 2012 primarily due to
lower by-product credits and higher production costs in the milling area.
Sales revenues for the quarter were in line with Q4 2012, with higher copper and pyrite
sales volumes being partially offset by lower zinc sales volumes and lower realized prices.
Higher pyrite sales were achieved via additional shipments made in advance of the icy
season.
Gross profit in Q4 2013 was impacted by the recognition in net earnings of fair value
adjustments to the value of mineral property, plant and equipment which increased
depreciation and reduced gross profit by $11.7 million for the quarter. In addition, fair
value adjustments to the value of inventory held on the balance sheet at acquisition
reduced gross profit by a further $0.3 million during the quarter.
Gross profit excluding fair value adjustments was 23% below Q4 2012, primarily due to
lower metal prices, offset partly by higher sales volumes.
Outlook
Production in 2014 is expected to be between 14,000 and 15,000 tonnes of copper and
21,000 and 23,000 tonnes of zinc. Pyrite production is expected to be approximately
860,000 tonnes, in line with the previous year.
113
LONDON\33747915.07
5. DEVELOPMENT ACTIVITIES
5.1 Kansanshi expansions, Zambia
The multi-stage Kansanshi plant upgrade to an annual production capacity of 400,000
tonnes of copper continued in 2013. The Stage 1 oxide circuit expansion to 7.2 Mtpa was
completed in Q2 2012 and optimized during Q3 2012 with the benefits being seen in the
oxide throughput rates. The major elements of the Stage 2 oxide capacity expansion to
14.5 Mtpa were commissioned during Q4 2013 and are operational. The Stage 2
The Company implemented its dividend policy in 2005. Under this policy, the Company
expects to pay two dividends per year, the first an “interim” dividend declared after the
release of second quarter results; the second, a “final” dividend based on year end
results. Interim dividends are set at one-third of the total dividends (interim and final)
declared on a per common share basis applicable in respect of the previous financial year.
Final dividends are determined based on the financial performance of the Company during
the previous applicable financial year.
Due to the economic downfall in 2008, the Company did not issue a final dividend for the
2008 fiscal period. On August 10, 2009, the Company announced that it would pay an
interim dividend of Cdn$0.08 per common share to shareholders of record as of August
28, 2009. The dividend was paid to shareholders on September 21, 2009.
On March 16, 2010, the Company announced that it would pay a final dividend of
Cdn$0.512 per common share to shareholders of record on April 15, 2010. The dividend
was paid to shareholders on May 6, 2010. On August 10, 2010, the Company announced
that it would pay an interim dividend of Cdn$0.197 per common share to shareholders of
record on August 27, 2010. The dividend was paid to shareholders on September 20,
2010.
On March 15, 2011, the Company announced that it would pay a final dividend of
Cdn$0.603 per common share to shareholders of record as of April 14, 2011. The
dividend was paid to shareholders on May 5, 2011. On August 8, 2011, following a 5 for 1
split of the Company’s common shares, the Company announced that it would pay an
interim dividend of Cdn$0.0533 per common share to shareholders of record on August
29, 2011. The dividend was paid to shareholders on September 20, 2011.
On March 6, 2012, the Company announced that it would pay a final dividend of
Cdn$0.1277 per common share to shareholders of record as of April 17, 2012. The
dividend was paid to shareholders on May 8, 2012. On August 1, 2012, the Company
announced that it would pay an interim dividend of Cdn$0.0603 per common share to
shareholders of record on August 29, 2012. The dividend was paid to shareholders on
September 20, 2012.
On March 5, 2013, the Company announced that it would pay a final dividend of
Cdn$0.1147 per common share to shareholders of record as of April 16, 2013. The
dividend was paid to shareholders on May 7, 2013. On July 31, 2013, the Company
announced that it would pay an interim dividend of Cdn$0.0583 per common share to
shareholders of record on August 28, 2013. The dividend was paid to shareholders on
September 19, 2013.
On February 20, 2014, the Company announced that it would pay a final dividend of Cdn
$0.0930 per common share to the shareholders of record as of April 14, 2014.
10. SHAREHOLDING AND OPTIONS OF DIRECTORS
As at 26 March 2014 (being the latest practicable date prior to the date of this document),
and to the best of the knowledge of the Company, the current directors and executive
officers of the Company, as a group, beneficially owned, directly or indirectly, or exercised
control or direction over 9,996,482 common shares constituting 1.69% of the issued and
outstanding common shares of the Company. None of the directors or executive officers
of the Company held shares of the Company’s subsidiaries except shares required for
qualification as a director of a subsidiary or where otherwise required under local law.
167
LONDON\33747915.07
11. REMUNERATION AND BENEFITS OF DIRECTORS
The following table sets out details relating to the compensation of the executive officers
of First Quantum for the Company’s financial period ending 31 December 2013. All
amounts referenced are in US dollars.
Name and
Principal
Position
Salary
($)
Share
Awards
($)(1)(3)
Annual
Incentive
Plans
($)
All Other
Compensation
($)(2)(4)
Total
Compensation
($)
PHILIP K. R.
PASCALL
1,125,000 1,065,642 1,225,000 30,679 3,446,321
MARTIN R.
ROWLEY
757,000 646,999 800,275 32,673 2,236,947
G CLIVE
NEWALL
593,500 452,138 425,250 12,674 1,483,562
HANNES MEYER
542,500 332,743 297,500 263,924 1,436,667
CHRISTOPHER
LEMON
401,200 226,402 193,200 218,470 1,039,272
(1) For disclosure purposes, all share awards paid in Canadian dollars have been converted as follows (the exchange rate on the first business day following the grant): CAD$1.00 = USD$0.9500 (as at 1 July 2013).
(2) For disclosure purposes, any compensation or other compensation paid in Canadian dollars have been
converted as follows: CAD$1.00 = USD$0.9711 (year average); and any other compensation paid in Great British Pounds have been converted as follows: GBP£1.00 = USD$1.6111 (year average).
(3) Messrs. Pascall, Rowley, Newall and Meyer all received share awards in the form of PSUs. Mr Lemon received a combination of PSUs and RSUs. Both the PSUs and RSUs were valued on the Grant Date (1 July 2013) at Fair Market Value (assuming a share price of CAD$15.60 – previous business day closing price), and using the Monte Carlo Simulation for PSUs (46.2% probability of vesting).
(4) The All Other Compensation consists of dividends equivalents paid on unvested Share Awards and tax adjusted allowances. The Company pays dividend equivalents on all unvested Share Awards in accordance with the Company’s Dividend Policy pursuant to which, in recent years, the Company has used as guidance and paid 10% of net after tax profits. 2013 dividend equivalency payments were made on unvested RSUs / PSUs on 7 May 2013 for $0.1147 per unit and 19 September 2013 for $0.0583 per unit. Mr. Lemon was relocated to London, UK, in 2010 and received tax adjusted cost of living allowances for schooling and housing. Mr. Meyer was relocated to London, UK, in 2012 and received tax adjusted cost of living allowances for schooling and housing. These amounts also include pension savings payments contributed by the Company in 2013 for Mr Lemon.
The following table sets out details relating to the fees (and other compensation) of the
independent officers (the "Non-executive Directors") of First Quantum for the
Company’s financial period ending 31 December 2013. All amounts referenced are in US
dollars.
168
LONDON\33747915.07
Name
Fees Earned
($)
Share Awards
All Other
Compensation
Total
($)
Michael Martineau 165,000 Nil Nil 165,000
Peter St. George 225,000 Nil Nil 225,000
Andrew Adams 185,000 Nil Nil 185,000
Paul Brunner 170,000 Nil Nil 170,000
Steven McTiernan 75,000 Nil Nil 75,000
Michael Hanley 162,500 Nil 1,730(1) 164,230
Robert Harding(2) 117,500 156,000(2) 583(1) 274,083
(1) Other compensation included dividend equivalency payments issued on all unvested RSUs. (2) Mr Harding was appointed as a director on 7 May 2013.
Mr Harding received a share award of 10,000 RSUs on 1 July 2013. The RSUs were valued at Fair Market Value of CAD$15.60 (previous day closing price).
All annual Non-executive Directors’ Fees are pro-rated and paid quarterly. Non-executive
Directors are also reimbursed for their out-of-pocket expenses incurred in attending
director and committee meetings.
All Non-executive Directors are eligible to be granted stock options under the Company’s
2004 Stock Option Plan and RSUs under the LTIP adopted by the Company in 2006. Mr
Harding received 10,000 RSUs upon appointment to the board. No options or LTIP awards
were granted to any of the other independent directors of the Company during 2013.
Termination and Change Of Control Benefits
The following table shows amounts payable executive officers of First Quantam in the event
of a termination of employment without cause and for a change of control which results in a
termination of employment, or material change in terms of employment, as described
below. All amounts referenced are in US dollars.
Name
Estimated Cash Payout on
Termination
($)
Estimated Value
Vested Share
Awards on
Termination
without Cause (1)
($) Without Cause Change of
Control and
Termination
Philip K.R. Pascall 1,817,054 8,615,802 5,470,250
Martin Rowley 1,175,481 5,592,368 5,371,813
G. Clive Newall 781,619 3,708,905 2,281,947
Hannes Meyer 373,826 2,155,001 2,272,147
Christopher Lemon 503,438 1,558,908 1,153,491
(1) Amounts shown are in CAD$ based on a share price of CAD$19.14 as at 31 December 2013 and assuming all PSUs and RSUs vested. Actual amounts will be determined based on the share price on the date of vesting.
The Company has management services or employment agreements with each of the
executive officers or their holding companies (as the case may be, and for the purposes of
this paragraph 11, each executive officer or his holding company, is referred to as an
"Executive Officer") in respect of their positions with the Company. Each Executive
Officer is engaged for an indefinite term and remains bound by confidentiality obligations.
169
LONDON\33747915.07
The CEO and CFO are required to provide their services exclusively to the Company
(except with the prior written consent of the Company).
The following is a general summary of the termination and change of control or
responsibility provisions applicable to each of the Executive Officers, under existing
agreements:
The Company may terminate the Executive Officer’s engagement for cause following five (5)
days’ written notice, and all compensation and benefits will cease accruing on the Executive
Officer’s termination date. In this instance "cause" includes: any breach of the agreement,
or inadequate performance of the Executive Officer’s duties that is not cured within five (5)
days following written notice by the Company; unauthorized possession of the Company’s
property, theft or dishonesty, being under the influence of alcohol or illegal drugs on the
Company’s operational premises, assault or fighting where the Executive Officer is an active
participant, being charged with a civil or serious criminal offence, unethical practices,
intentional disloyalty, a serious breach of the Company’s policies and procedures, or
behaviour that brings the Company into disrepute.
The Company may terminate the Executive Officer’s engagement at any time without cause
following six (6) months written notice, or payment of six months salary and benefits in lieu of
such notice for the CEO, President, Executive Director Business Development, and General
Counsel and Corporate Secretary, and in the case of the CFO following three (3) months
written notice or payment of salary and benefits in lieu. The Executive Officer is not obligated
to mitigate any damages that may be suffered by reason of the termination without cause by
the Company.
If the Executive Officer is terminated by the Company, or if there is a material change in the
Executive Officer’s conditions of employment, at any time within the period commencing on
the date of a change of control and ending twenty four (24) months thereafter, the Company
is required to pay the CEO, President, and Executive Director Business Development an
amount equivalent to thirty (30) months, and the CFO and General Counsel and Corporate
Secretary eighteen (18) months, of the Executive Officer’s compensation package (which
includes salary, bonus, and other compensation) for or paid in relation to the previous calendar
year and any stock options or incentive awards held by or granted to the Executive Officer
immediately vest.
Each Executive Officer may terminate his engagement without cause only upon one hundred
twenty (120) days advance written notice to the Company in the case of the CEO, President,
and Executive Director Business Development; 180 days in the case of the General Counsel &
Corporate Secretary; and three months in the case of the CFO. All compensation will cease
accruing upon the Executive Officer’s termination date for any termination by the Executive
Officer without cause.
For each of the Executive Officers, upon disability, the Company may terminate his services
or make such other arrangements as the Company, in its sole discretion, deems necessary to
accommodate the Executive Officer. The term “disability” is defined as any health condition
or other cause beyond the reasonable control of the Executive Officer that reasonably
prevents the Executive Officer from performing his duties for a period of 120 days within any
twelve (12) month period.
12. AUDIT COMMITTEE
The Audit Committee operates under the guidelines of the Audit Committee Charter. The
Audit Committee, among other things, reviews the annual financial statements of the
Company for recommendation to the Board, reviews and approves the quarterly financial
statements, oversees the annual audit process, the Company’s internal accounting
controls and the resolution of issues identified by the Company’s auditors, and
recommends to the Board the firm of independent auditors to be nominated for
170
LONDON\33747915.07
appointment by the shareholders at the next annual general meeting. In addition, the
Audit Committee meets annually with the Company’s auditors both with and without the
presence of any other members of the Company’s management.
Composition of the Audit Committee
The Audit Committee is comprised of the following four independent directors who are
financially literate as defined by National Instrument 52-110 – Audit Committee: Messrs.
Adams, St. George, Hanley and Harding. The Chairman of the Audit Committee is
Mr. Adams.
Relevant Education and Experience of the Audit Committee
Mr. Adams obtained his B.Sc (Accounting and Statistics) from Southampton University and
then qualified as a chartered accountant in the United Kingdom in 1981. He has over 20
years of financial experience in the mining industry, and served as Chief Financial Officer of
Aber Diamond Corporation from 1999 to 2003 and Chief Financial Officer of Anglo Gold
North America from 1995 to 1999. He is also currently Chairman of the Audit Committee of
Uranium One Inc., Torex Gold Resources Inc and TMAC Resources Inc.
Mr. St. George qualified as a chartered accountant in South Africa in 1970 and has more
than thirty years of experience in the finance industry in mergers and acquisitions and
corporate advice. He was Chief Executive Officer of Salomon Smith Barney Australia and
Natwest Markets Australia for a combined period of more than six years. Mr. St. George
was Chairman of Walter Turnbull, an accountancy and financial services firm, until October
2008 and is a former director of the Sydney Futures Exchange. Mr. St. George obtained a
Masters of Business Administration from the University of Cape Town in 1972. He is also
currently a member of the Audit Committee of Dexus Property Group.
Mr. Hanley holds a business degree from HEC Montréal and is a Chartered Accountant. He
has served as Senior Vice-President Operations and Strategic Initiatives and member of the
Office of the President at National Bank of Canada. From 1998 to 2008, Mr. Hanley held
various executive roles at Alcan, including President and CEO of its global Bauxite and
Alumina business group, and his final position of Executive Vice-President and CFO. He
currently serves as an Independent Director and Audit Committee chair for BRP, a
manufacturer, distributor, and marketer of motorized recreational vehicles and powersports
engines.
Mr. Harding graduated with a Bachelor of Mathematics from the University of Waterloo in
1980 and received his Chartered Accountant designation the following year. Mr. Harding
began his career at a major accounting firm before joining Hees International (now
Brookfield) where he served in progressively senior roles including Controller, Chief Financial
Officer, Chief Operating Officer, and ultimately, Chief Executive Officer in 1992. He currently
serves on the Boards of Brookfield Asset Management (Chairman from 1997 – 2010),
Manulife, Norbord and Nexj.
13. COMPENSATION COMMITTEE
The Compensation Committee is composed of four independent directors: Messrs.
Brunner, Martineau, St.George and Adams. The Chairman of the Compensation
Committee is Mr. Brunner.
The Compensation Committee is responsible for reviewing and approving corporate goals
and objectives relevant to Chief Executive Officer’s compensation and making
recommendations to the Board with respect to the compensation of the Company’s
executive officers. The Board, exclusive of any executive Board member to whom the
recommendation applies, reviews such recommendations and is responsible for
determining executive compensation. The Compensation Committee discusses executive
171
LONDON\33747915.07
compensation throughout the year and makes any necessary determinations (usually prior
to the annual general meeting of the Company) relating to executive compensation.
The Compensation Committee is responsible for obtaining information on executive
compensation from a variety of sources, including independent consultants, compensation
surveys and information from companies similar in size and function to that of the
Company and then takes recommendations to the Board on compensation and all of its
various elements. The Compensation Committee also reviews, identifies and mitigates
risks that may be associated with the Company’s compensation policies.
Each of the Committee members has held senior management positions in public
companies and has considerable experience in developing compensation programs,
particularly in the context of executive compensation.
Director Number of
Shares Held Number of
Performance Share
Units Held
Number of Restricted Share
Units Held % of existing share capital
held immediately after
admission
Phillip K.R. Pascall 5,772,725 258,372 0.97
G. Clive Newall 2,785,990 96,323 0.47
Martin R. Rowley 689,075 193,011 0.11
Peter St. George 515,930 0.08
Andrew B. Adams 75,000 0.01
Michael Martineau 10,130 0.001
Paul Brunner 60,000 0.01
Michael Hanley 16,000 10,000 0.001
Robert Harding 0.0
172
LONDON\33747915.07
SCHEDULE 3
The tables set out below summarise the Mineral Resources and Reserves as identified at
the nominated mine sites, projects and key exploration targets operated/held by the
Company at end of year 31 December 2013. The tables include all assets that were taken
over by the Company during the Acquisition.
The Mineral Resources and Reserves as shown in the tables are based on the respective
geological models that have been developed and reported, as required; and have
subsequently been utilised for the purposes of mine and group development, production
planning and reconciliation. The respective Mineral Resources and Reserves are valid at
the 31 December 2013 for each of the mines/projects set out.
The geological databases at each operating mine and development project continue to be
updated and enhanced by on-going operations, delineation drilling and brown-fields
exploration, as part of the continuation and expansion strategies employed by the
Company. There has been significant development drilling during 2013 at Kansanshi,
Sentinel, Enterprise and Guelb Moghrein (Oriental). This data is currently being evaluated
and updated Mineral Resources are in the process of being completed. As such, with
exception of Guelb Moghrein, these Mineral Resource updates have not been completed as
at 31 December 2013, but will be finalised during 2014. Therefore the reported Mineral
Resources and Reserves for these assets have been estimated using depletion
methodologies – hence reflect the 2012 values depleted by actual 2013 production. The
exploration targets of Haquira and Kashime have not been re-evaluated during 2013
hence the values shown are the same as previously reported.
Each of the reported Mineral Resources and Reserves has been developed by the identified
Qualified Person. The Mineral Resources and corresponding Reserves are assessed at the
year end and are estimated using recognised methods of geological modelling and/or or
depletion, using accepted industry practices and processes.
The following tables summarise the Mineral Resources and Reserves of the Company
including recoverable Resources for all operating mines, projects under development and
key exploration targets.
173
LONDON\33747915.07
Summary of mineral resources at 31 December 2013 (all grades are in-situ)
Inferred 0.1% Ni 34.4 0.37 0.09 0.27 0.13 0.10 0.09-
Ravensthorpe Measured/Indicated 0.3% Ni 251.5 0.62 1.56
Inferred 0.3% Ni 115.8 0.52 0.60
Sentinel Measured/Indicated 0.2%
TCu 1027.0 0.51 5.24
Inferred 0.2%
TCu 166.0 0.42 0.70
Enterprise Measured/Indicated 0.15% Ni 40.1 1.07 0.43
Inferred 0.15% Ni 7.1 0.70 0.05
Haquira Measured/Indicated 0.26%
Cu 569.9 0.57 0.03 3.25 0.55
Inferred 0.26%
CU 405.9 0.52 0.02 2.11 0.26
174
LONDON\33747915.07
Summary of mineral reserves at 31 December 2013 (all grades are diluted in-situ)
Mine/Project Classification Resource
Cut-off
Tonnes
Mt
Cu
Grade
%
Au
Grade
g/tonne
Ni
Grade
%
Contained metal in-
situ
Cu Nt
Au
Moz Ni Mt
Kansanshi Proved and
Probable
$3.00/lb
Cu 710.9 0.74 0.13 - 5.26 2.97
$1200/oz
Au -
All Stockpiles 44.3 0.70 0.13 0.31 0.19
Guelb
Moghrein
Proved and
Probable
$3.00/lb
Cu 22.9 1.00 0.67 0.23 0.49 -
$1200/oz
Au - -
All Stockpiles 8.3 0.72 0.78 0.06 0.21
Kevitsa Proved and
Probable
$7.50/lb
Ni 151.3 0.41 0.12 0.27 0.62 0.58 0.41-
$2.25/lb
Cu -
Ravensthorpe Proved and
Probable
$6.0/lb
Ni 221.1 0.62 1.37
(tbc)
Sentinel Proved and
Probable
$3.00/lb
Cu 774.0 0.50 3.87
Enterprise Proved and
Probable
$7.50/lb
Ni 32.7 1.10 0.36
Cobre
Panama (May
2010)
Proved and
Probable
$2.00/lb
Cu 2142.6 0.41 0.07 8.78 4.82
Haquira
(Recoverable
Resources)
M, I & I $2.25/lb
Cu 910.5 0.47 0.03 4.28 0.88
175
SCHEDULE 4
The information set out in this schedule 4 has been obtained from external publications
and/or third parties. The Company confirms that this information has been accurately
reproduced and, so far as the Company is aware and is able to ascertain from information
published by third parties, no facts have been omitted that would render the reproduced
information inaccurate or misleading. This information has not been audited.
1. Inmet Financial Statements for Quarter end 31 March 2013
Quarterly Report Three Months Ended March 31, 2013
All amounts in US dollars unless indicated otherwise
Management’s Interim Discussion and Analysis
The following is management’s interim discussion and analysis of operations and consolidated financial condition and should be read in conjunction with the 2012 annual consolidated audited financial statements and management’s discussion and analysis.
Highlights
Strong earnings from operations Earnings from operations were $140 million compared to $146 million in the first quarter of 2012. The impact of higher copper sales volumes at Las Cruces resulting from higher production volumes was offset by lower realized metals prices. Additionally, operating earnings in the first quarter of 2012 benefited from the timing of shipments at Çayeli, where copper sales volumes exceeded its production volumes by 3,000 tonnes.
First Quantum successfully acquires Inmet
On March 21, 2013 FQM (Akubra) Inc., a wholly owned subsidiary of First Quantum Minerals Ltd (First Quantum) acquired 86.6 percent of the issued and outstanding common shares of Inmet, and on April 1, 2013, it acquired a further 7.3 percent. On April 9, 2013, FQM (Akubra) Inc. acquired the remaining common shares of Inmet it did not already own through a compulsory acquisition, and Inmet Mining ceased to be a publicly traded company.
Costs associated with First Quantum’s takeover reduced net income Inmet incurred $65 million (or $0.94 per share) in connection with First Quantum’s acquisition of Inmet, including $35 million related to the accelerated settlement of stock-based compensation plans, as well as costs for financial and legal advisors and termination benefits. Adjusting for these costs, comparable net income this quarter was $1.32 per share, in-line with comparable net income per share of $1.34 in the first quarter of 2012.
176
Key financial data three months ended March 31
(thousands, except per share amounts) 2013 2012 change
FINANCIAL HIGHLIGHTS
Sales
Gross sales $276,250 $285,526 -3% Net income Net income $26,047 $93,080 -72% Net income attributable to Inmet shareholders
$26,810 $93,080
-71%
Net income per share $0.39 $1.35 -71% Comparable net income attributable to Inmet shareholders(3) $91,917 $93,081 -1% Comparable net income per share(3) $1.32 1.34 -1% Cash flow Cash flow provided by operating activities(3) $85,360 $114,514 -25% Cash flow provided by operating activities(3) per share
as at March 31 as at December 31 FINANCIAL CONDITION 2013 2012
(US $millions, except ratio) Current ratio
(7) 1.4 to 1 8.4 to 1
Net working capital balance(7)
$637 $2,358 Cash balance (including bonds and other securities) $3,489 $3,618 Gross debt
(4) $1,961 $1,960
Net debt (net cash)(5)
($1,528) ($1,658) Shareholders’ equity attributable to Inmet shareholders $3,694 $3,719
(1) Cash flow provided by operating activities divided by average shares outstanding for the period.
(2) The three months ended March 31, 2013 includes capital spending of $250 million at Cobre Panama. The three months ended March 31, 2012 includes capital spending of $71 million at Cobre Panama.
(3) This is a non-GAAP financial measure – see Supplementary financial information on pages 24 to 25.
(4) Gross debt includes long-term debt and the current portion of long-term debt
(5) Net debt (net cash) is a non-GAAP measure defined as long-term debt less cash and short-term investments, including
bonds and other securities (6)
Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP measure defined as net income before finance costs, income tax expense and depreciation
(7) The decrease in the current ratio and net working capital balance this quarter reflects the reclassification of the senior unsecured notes from long-term debt to current – see note 13 on page 41.
177
First quarter report We prepared this report as of May 15, 2013. In this report, Inmet means Inmet Mining Corporation and we, us and our mean Inmet and/or its subsidiaries and joint ventures. This quarter refers to the three months ended March 31, 2013.
Caution with respect to forward-looking statements and information Securities regulators encourage companies to disclose forward-looking information to help investors understand a company’s future prospects. This report contains statements about our business, results of operation and future financial condition.
These statements are “forward-looking” because we have used what we know and expect today to make a statement about the future. Forward-looking statements usually include words like may, expect, anticipate, believe or other similar words. Our objectives and outlook have been prepared based on our existing operations, expectations and circumstances. Actual events and results could be substantially different, however, because of the risks and uncertainties associated with our business or events that happen after the date of this interim report.
You should not place undue reliance on forward-looking statements. As a general policy, we do not update forward-looking statements except if there is an offering document or where securities legislation requires us to do so.
Although we have attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements or information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Also, many of the factors are beyond the control of Inmet. Accordingly, readers should not place undue reliance on forward-looking statements or information. Inmet undertakes no obligation to update forward-looking statements or information as a result of new information after the date of this interim report except as required by law. All forward-looking statements and information herein are qualified by this cautionary statement.
178
Our financial results
three months ended March 31
(thousands, except per share amounts) 2013 2012 change
EARNINGS FROM OPERATIONS (1)
Çayeli $31,320 $66,000 -53% Las Cruces 73,885 51,619 +43% Pyhäsalmi 30,535 26,130 +17% Other 4,658 2,747 +70%
140,398 146,496 -4%
DEVELOPMENT AND EXPLORATION Corporate development and exploration (9,223) (8,801) +5%
CORPORATE COSTS General and administration (13,083) (9,745) +34% Costs related to takeover by First Quantum (65,107) - +100% Investment and other income 20,694 (6,263) +430% Finance costs (2,872) (2,596) +11% Income taxes (44,760) (26,011) +72%
(105,128) (44,615) +136%
Net income 26,047 93,080 -68% Non-controlling interest 763 - +100%
Net income attributable to Inmet shareholders $26,810 $93,080 -72%
Basic net income per common share $0.39 $1.35 -71%
Weighted average shares outstanding 69,375 69,349 -
(1) Gross sales less smelter processing charges and freight, cost of sales including depreciation and provisions for mine reclamation at closed properties.
Key changes in 2013
(millions)
three months ended March 31
see page
EARNINGS FROM OPERATIONS Market factors
Lower copper prices ($9) 8
Lower other metal prices (3) 8
Operational factors
Higher copper sales volumes at Las Cruces 31 17
Lower copper sales volumes at Çayeli (18) 15
Higher operating costs (3) 10
Higher depreciation (4) 11
Decrease in operating earnings, compared to 2012 (6)
Higher taxes (19) 13
Costs related to takeover by First Quantum (65) 12
Higher general and administrative costs (3)
Foreign exchange changes 29 13
Other (3)
Lower net income compared to 2012 (67)
Non-controlling interest 1 Lower net income attributable to Inmet shareholders compared to 2012 ($66)
179
Understanding our performance Metal prices The table below shows the average metal prices we realized this quarter and year to date. The prices we realize include finalization adjustments – see Gross sales on page 8.
three months ended March 31
2013 2012 change
Copper (per pound) $3.59 $3.87 -7%
Zinc (per pound) $0.89 $0.93 -4%
Copper Copper prices on the London Metals Exchange (LME) averaged $3.60 per pound this quarter, a decrease of 5 percent from the first quarter of 2012 and consistent with the fourth quarter of 2012. Zinc
LME zinc prices averaged $0.92 per pound this quarter, consistent with the first quarter of 2012 and a 3 percent increase from the fourth quarter of 2012. Exchange rates
Exchange rates affect our revenue and earnings. The table below shows the average exchange rates we realized this quarter and year to date compared to 2012.
three months ended March 31
2013 2012 change
Exchange rates
1 C$ to US$ $0.99 $1.00 -1%
1 euro to US$ $1.32 $1.31 +1%
1 US$ to Turkish lira TL 1.79 TL 1.79 -
Compared to the same quarter last year, the value of the US dollar appreciated 1 percent relative to the Canadian dollar, and depreciated 1 percent relative to the euro. The value of the US dollar was flat relative to the Turkish lira compared to the first quarter of 2012. Our earnings are affected by changes in foreign currency exchange rates when we:
translate the operating expenses of our euro-based operations from their functional currency to US dollars
revalue US dollars that we hold in cash at our operations whose functional currency is the euro
translate Çayeli’s Turkish lira denominated costs into its functional currency (US dollars). Prior to the change in accounting to adopt the US dollar as Inmet’s functional currency effective June 1, 2012, our earnings were affected by changes in foreign currency exchange rates when we revalued our US dollar denominated cash, bonds and other securities and senior unsecured notes held corporately at Inmet.
180
Treatment charges for zinc were lower Treatment charges are one component of smelter processing charges. We also pay smelters for content losses and price participation. The table below shows the average charges we realized this quarter. Zinc contracts for 2013 and 2012 were not finalized in the first quarter of the respective years and therefore the average charges represent the contract prices from the relevant prior year. Adjustments to contracts will be reflected in the second quarter.
three months ended March 31
(US$) 2013 2012 change
Treatment charges
Copper (per dry metric tonne of concentrate) $57 $58 -2%
Zinc (per dry metric tonne of concentrate) $187 $207 -10%
Price participation
Copper (per pound) $0.00 $0.00 -%
Zinc (per pound)
$0.00 ($0.01) -100%
Freight charges
Copper (per dry metric tonne of concentrate) $47 $61 -23%
Zinc (per dry metric tonne of concentrate) $22 $30 -27%
Statutory tax rates The table below shows the statutory tax rates for each of our taxable operating mines.
Smelter processing charges and freight (24,868) (29,338) -15%
Cost of sales:
Direct production costs (81,434) (78,172) +4%
Inventory changes 2,602 (5,255) -150%
Other non-cash expenses 1,668 3,802 -56%
Depreciation (33,820) (30,067) +12%
Earnings from operations 140,398 $146,496 -4%
Gross sales were lower
three months ended March 31
(thousands) 2013 2012 change
Gross sales by operation
Çayeli $79,313 $123,370 -36%
Las Cruces 139,284 110,382 +26%
Pyhäsalmi 57,653 51,774 +11%
$276,250 $285,526 -3%
Gross sales by metal
Copper $230,786 $236,226 -2%
Zinc 27,619 28,642 -4%
Other 17,845 20,658 -14%
$276,250 $285,526 -3%
Key components of the change in gross sales: lower realized metals prices, higher sales volumes at Las Cruces, timing of shipments at Çayeli (millions)
three months ended March 31
Lower copper prices ($9)
Lower other metal prices (3)
Higher copper sales volumes at Las Cruces 31
Lower copper sales volumes at our other mines (27)
Lower zinc sales volumes (1)
Lower gross sales, compared to 2012 ($9)
We record sales that settle during the reporting period using the metal price on the day they settle. For sales that have not settled, we use an estimate based on the month we expect the sale to settle and the forward price of the metal at the end of the reporting period. We recognize the difference between our estimate and the final price by adjusting our gross sales in the period when we settle the sale (finalization adjustment).
This quarter, we recorded $1 million in positive finalization adjustments from fourth quarter shipments.
At the end of this quarter, the following sales had not been settled:
17 million pounds of copper provisionally priced at US $3.41 per pound
3 million pounds of zinc provisionally priced at US $0.85 per pound.
The finalization adjustment we record for these sales will depend on the actual price we receive when they settle, which can be up to five months from the time we initially record the sales. We expect these sales to settle in the following months:
182
Higher copper sales volumes, lower zinc sales volumes this quarter
Our sales volumes are directly affected by the amount of production from our mines and our ability to ship to our customers.
Copper sales volumes were slightly higher this quarter compared to the same quarter last year, while copper production volumes were significantly higher reflecting higher production volumes at Las Cruces. In the first quarter of 2013, the timing of shipments resulted in copper sales volumes lagging production volumes by a combined 1,000 tonnes. Conversely, in the first quarter of 2012 sales volumes exceeded production volumes by 3,800 tonnes, mainly due to the timing of shipments at Çayeli.
Zinc production volumes were higher this quarter than the first quarter of 2012 due to higher zinc grades at Pyhäsalmi. Zinc sales volumes lagged production volumes by 2,500 tonnes this quarter, mainly due to the timing of shipments at Çayeli.
Sales volumes
three months ended March 31
2013 2012 change
Copper contained in concentrate 11,800 15,000 -21%
Copper cathode (tonnes) 17,400 13,600 +28%
Total copper (tonnes) 29,200 28,600 +2%
Zinc (tonnes) 13,900 14,500 -4%
Pyrite (tonnes) 114,500 112,300 +2%
Production
three months ended March 31
2013 2012 change objective 2013
Copper (tonnes)
Çayeli
7,900 8,100 -2% 27,800 - 30,900
Las Cruces 17,900 13,300 +35% 68,500 - 72,000
Pyhäsalmi 4,400 3,400 +29% 12,000 - 13,400
30,200 24,800 +22% 108,300 - 116,300
Zinc (tonnes)
Çayeli 10,200 10,500 -3% 35,900 - 39,900
Pyhäsalmi 6,200 4,600 +35% 20,300 - 22,500
16,400 15,100 +9% 56,200 - 62,400
Pyrite (tonnes)
Pyhäsalmi 190,000 211,300 -10% 820,000
(millions of pounds) copper zinc
April 2013 13 3
June 2013 4 -
Unsettled sales at March 31, 2013 17 3
183
Lower copper and zinc smelter processing charges
three months ended March 31
(thousands) 2013 2012 change
Smelter processing charges and freight by operation
Çayeli $14,026 $21,469 -35%
Las Cruces 751 295 +155%
Pyhäsalmi 10,091 7,574 +33%
$24,868 $29,338 -15% Smelter processing charges and freight by metal
Copper
$12,180 $16,441 -26%
Zinc 10,175 10,967 -7%
Other 2,513 1,930 +30%
$24,868 $29,338 -15% Smelter processing charges by type, and freight
Copper treatment and refining charges
$4,513 $5,696 -21%
Zinc treatment charges 5,102 5,758 -11%
Zinc price participation 35 (251) +114%
Content losses 8,664 10,555 -18%
Freight 6,378 7,175 -11%
Other 176 405 -57%
$24,868 $29,338 -15%
Our copper treatment and refining charges were lower this quarter due to lower copper sales volumes at Çayeli. Zinc treatment charges this quarter were lower. Our zinc smelter and processing charges reflect last year’s contract terms, which were favourable compared to the year prior, as contract terms for the current year will be finalized in the second quarter. Direct production costs were higher
three months ended March 31
(thousands) 2013 2012 change
Direct production costs by operation
Çayeli $24,632 $23,288 +6%
Las Cruces 40,655 39,907 +2%
Pyhäsalmi 16,147 14,977 +8%
Total direct production costs 81,434 78,172 +4%
Inventory changes (2,602) 5,255 -150% Charges for mine rehabilitation and other non-cash
charges (1,668) (3,802) -56%
Total cost of sales (excluding depreciation) $77,164 $79,625 -3%
Direct production costs Direct production costs were $3 million higher than in the first quarter of 2012, mainly reflecting higher production at Las Cruces. Inventory changes Zinc inventories at Çayeli increased at the end of this quarter, while copper inventories decreased at Çayeli at the end of the first quarter of 2012, because of the timing of shipments.
184
Higher depreciation
three months ended March 31
(thousands) 2013 2012 change
Depreciation by operation
Çayeli $6,348 $7,262 -13%
Las Cruces 24,621 20,468 +20%
Pyhäsalmi 2,851 2,337 +22%
$33,820 $30,067 +12%
Depreciation was higher this quarter than in the first quarter of 2012 mainly because of higher copper sales volumes at Las Cruces.
185
Corporate costs Corporate costs include corporate development and exploration, general and administration costs, taxes, interest and other income.
Costs related to takeover by First Quantum
This quarter, we incurred $65 million in connection with First Quantum’s acquisition of Inmet Mining, including $35 million related to the accelerated settlement of stock-based compensation plans, as well as costs for financial and legal advisors and termination benefits. 1. Investment and other income
three months ended March 31
(thousands) 2013 2012
Interest income $3,545 $4,252
Foreign exchange gain (loss) 17,204 (12,070)
Dividend and royalty income - 484
Other (55) 1,071
$20,694 ($6,263)
Foreign exchange gains and losses We have foreign exchange gains or losses when we revalue certain foreign denominated assets and liabilities. Our foreign exchange gains and losses were from:
three months ended March 31
(thousands) 2013 2012
Translation of US dollar cash held in euro-based entities $21,914 ($4,392)
Translation of Cdn dollar cash held by Corporate (608) - Translation of Cdn dollar bonds and other securities held by
Corporate (4,499) -
Translation of other monetary assets and liabilities 397 (2,627) Translation of US dollar amounts in Corporate prior to the change
in functional currency to the US dollar - (5,051)
$17,204 ($12,070)
Effective June 1, 2012, Inmet’s functional currency changed from the Canadian dollar to the US dollar. As of this date, Inmet’s US dollar-denominated monetary assets and liabilities were no longer revalued. Instead we began recognizing foreign exchange impacts on the revaluation of Inmet’s Canadian dollar denominated monetary assets and liabilities. We recognized $5 million in foreign exchange losses this quarter on the revaluation of Inmet’s Canadian dollar denominated cash, bonds and other securities due to a strengthening of the US dollar relative to the Canadian dollar. In the first quarter of 2012, which preceded the date of Inmet’s functional currency change, we recognized foreign exchange losses of $5 million from the revaluation of US dollar denominated cash, bonds and other securities due to a strengthening of the Canadian dollar relative to the US dollar. We also recognized $22 million in foreign exchange gains this quarter on the revaluation of US denominated cash balances held in our euro functional currency companies due to an appreciation in the US dollar relative to the euro, compared to a $4 million loss in the first quarter of 2012.
186
Income tax expense
three months ended March 31
(thousands) 2013 2012 change
Çayeli $13,975 $9,479
Las Cruces 22,274 11,213
Pyhäsalmi 7,197 5,183
Corporate and other 1,314 136
$44,760 $26,011
Consolidated effective tax rate 63% 22% +41%
Our tax expense changes as our earnings change. The consolidated effective tax rate was higher this quarter compared to the same quarter of 2012 mainly because:
There was no tax recovery in Inmet Mining relating to the costs associated with First Quantum’s takeover
Çayeli’s taxes were higher this quarter as it recognized a foreign exchange gain from its US dollar denominated cash (Çayeli’s income taxes are denominated in Turkish lira), compared to a significant foreign exchange loss on its US dollar cash in the comparable quarter of 2012.
187
Results of our operations
Çayeli three months ended March 31
2013 2012 change
Tonnes of ore milled (000’s) 323 299 +8%
Tonnes of ore milled per day 3,600 3,300 +8%
Grades (percent) copper 3.2 3.4 -6%
zinc 4.6 5.4 -15%
Mill recoveries (percent) copper 77 79 -3%
zinc 68 65 +5%
Production (tonnes) copper 7,900 8,100 -2%
zinc 10,200 10,500 -3%
Cost per tonne of ore milled $76 $78 -3%
Higher throughput offset impact of lower copper and zinc grades Çayeli produced at an annualized rate of 1.29 million tonnes this quarter, an 8 percent increase over the first quarter of 2012, resulting from improved mine planning and logistical control. Despite higher throughput, copper production this quarter decreased by two percent compared to the first quarter of 2012 due to slightly lower copper grades and recoveries. The deferral of several higher copper grade stopes to later in the year led to the reduced copper grades. Zinc production decreased by three percent compared to the first quarter of 2012 due to lower zinc grades somewhat offset by higher zinc recoveries and higher throughput. The decrease in zinc grades resulted from lower grade stopes in the areas mined, while optimized blending and controlled throughput increased zinc recoveries. Due to the timing of shipments, Çayeli’s zinc sales volumes lagged production volumes by approximately 3,000 tonnes this quarter. In the first quarter of 2012, Çayeli’s earnings benefited from copper sales volumes exceeding production volumes by approximately 3,000 tonnes. The three-year labour agreement at Çayeli expired in May 2012. The negotiation of a new labour agreement, initially delayed due to changes to government labour regulations, is proceeding and Çayeli will make a strong effort to manage labour cost escalations to retain the operation’s cost competitiveness. Cost per tonne of ore milled this quarter was slightly lower than the same quarter last year because we processed more ore through the mill. 2013 outlook for production
In 2013, the production level should increase from 1.2 million tonnes to 1.25 million tonnes. The mine should benefit from the commissioning of the two new ore passes by the third quarter of 2013, the extension of a shotcrete slickline to the lower levels of the mine, improved lower mine infrastructure and the addition of stope production from a new mining block, all of which should ease pressure on existing production areas. Çayeli’s ground conditions require constant monitoring and reinforcement, including the need to minimize any underground void area. Continued progress in meeting the challenges of poor ground conditions and planned operational efficiencies is aimed at reducing the risks associated with achieving our production plan.
Copper recoveries should be lower in 2013, reflecting the increased proportions of metallurgically challenging ore types.
We expect to produce between 27,800 tonnes and 30,900 tonnes of copper and between 35,900 tonnes and 39,900 tonnes of zinc in 2013.
188
We expect operating costs in 2013 to be slightly higher than 2012 levels primarily due to increased manpower levels, increased electricity costs and increased mine department consumables.
Financial review
Lower earnings due to lower sales volumes and lower realized metals prices this quarter
(millions unless three months ended March 31
otherwise stated) 2013 2012
Sales analysis
Copper sales (tonnes) 8,100 11,100
Zinc sales (tonnes) 7,200 10,300
Gross copper sales $61 $94
Gross zinc sales 14 20
Other metal sales 4 9
Gross sales 79 123
Smelter processing charges and freight (14) (21)
Net sales $65 $102
Cost analysis
Tonnes of ore milled (thousands) 323 299
Direct production costs ($ per tonne) $76 $78
Direct production costs $25 $23
Change in inventory - 5
Depreciation and other non-cash costs 9 8
Operating costs $34 $36
Operating earnings $31 $66
Operating cash flow $20 $30
The table below shows what contributed to the change in operating earnings and operating cash flow between 2013 and 2012.
(millions)
three months ended March 31
Lower copper prices ($7) Lower other metal prices (5) Lower copper sales volumes (18) Lower zinc sales volumes (3) Higher operating costs (2) Lower operating earnings, compared to 2012 (35)
Change in cash taxes (2) Changes in working capital (see note 11 on page 39) 27 Lower operating cash flow, compared to 2012 ($10)
2. 3. Capital spending 4.
2013 outlook for capital spending We expect to spend $18 million on capital in 2013, including $6 million on mine development and $7 million to complete the upgrade of our ore pass system to address deterioration that has accumulated over time from normal abrasion.
Cathode copper production (tonnes) 17,900 13,300 +35%
Cost per pound of cathode produced $1.03 $1.36 -24%
Higher copper production
Las Cruces production was 35 percent higher this quarter than the first quarter of 2012 due to increased throughput and plant recoveries. Production in the first quarter of 2012 was negatively impacted by a nine-day planned maintenance shutdown, a one-day national strike, and the time required for overall process stabilization following each of these stoppages. Improved plant recoveries this quarter reflects the full implementation of the leach feed surge tank with oxygen addition completed during mid-2012.
Cost per pound of copper produced this quarter was significantly lower than the first quarter of 2012 due to higher production volumes. 2013 outlook for production In early April, a fire occurred in one of the plant’s eight leach reactors. All eight reactors were shut down following the fire to allow for a thorough assessment of damages and to investigate the cause of the fire. As of April 23, seven of the eight reactors were re-commissioned and the final reactor is expected to be online by mid-May. The fire and related re-commissioning period could result in up to 3,300 tonnes of lost copper cathode production in the second quarter of 2013; however plans are being assessed to recover some or all of the lost production during the second half of the year. We therefore continue to expect to produce between 68,500 tonnes and 72,000 tonnes copper cathode in 2013. The plant will be tested at higher ore throughput and lower grade to assess the effects on plant performance before we enter into lower copper grade areas of the mine that we expect in 2014. In 2013, we will concentrate on reducing recovery losses downstream of the leaching reactors that have increased with the increase in copper cathode production and due to operating with process solutions that contain more copper.
190
Financial review
Higher sales volumes due to higher production
(millions unless
three months ended March 31
otherwise stated) 2013 2012
Sales analysis
Copper sales (tonnes) 17,400 13,600
Gross copper sales $139 $110
Smelter processing charges and freight (1) -
Net sales $138 $110
Cost analysis
Pounds of copper produced (millions) 40 29
Direct production costs ($ per pound) $1.03 $1.36
Direct production costs $41 $40
Change in inventory (1) -
Depreciation and other non-cash costs 24 18
Operating costs $64 $58
Operating earnings $74 $52
Operating cash flow $119 $77
The table below shows what contributed to the change in operating earnings and operating cash flow between 2013 and 2012.
Changes in working capital (see note 11 on page 39) 8 Change in depreciation 4 Foreign exchange gain on US dollar cash 7 Other 1 Higher operating cash flow, compared to 2012 $42
5. Capital spending
(thousands) three months ended March 31 Objective
2013 2012 change 2013
Capital spending $4,500 $6,000 -25% $49,000
2013 outlook for capital spending We expect to spend $49 million on capital projects in 2013. The largest expenditures should be for mine development ($22 million), tailings facility expansion ($5 million), debottlenecking ($8 million) and other plant improvement projects.
191
Pyhäsalmi
6. Higher grades increased copper and zinc production Pyhäsalmi maintained its strong performance in the first quarter of 2013, processing at an annualized rate in line with its annual objective and achieving copper recoveries of 97 percent and zinc recoveries of 92 percent. Copper production increased by 29 percent in the first quarter of 2013 compared to the same quarter last year due to higher copper grades and recoveries. Zinc production was 35 percent higher than the first quarter of 2012 due to significantly higher zinc grades and the resulting higher recoveries. The copper and zinc grades achieved this quarter were higher than our plan for the year due to areas mined outside of the mine plan. Copper and zinc grades are expected to return to planned levels throughout the remainder of 2013. Operating costs were slightly higher this quarter mainly due to higher contractor costs. 2013 outlook for production Pyhäsalmi expects to mine 1.4 million tonnes in 2013, and produce between 12,000 tonnes and 13,400 tonnes of copper and 20,300 tonnes and 22,500 tonnes of zinc. Zinc production should be lower than it was in 2012 as we expect a decrease in zinc grades in 2013. Pyhäsalmi expects to produce and sell 820,000 tonnes of pyrite in 2013.
three months ended
March 31
2013 2012 change_
Tonnes of ore milled (000’s) 346 342 +1%
Tonnes of ore milled per day 3,800 3,800 -
Grades (percent) copper 1.3 1.0 +30%
zinc 2.0 1.5 +33%
sulphur 42 43 -2%
Mill recoveries (percent) copper 97 96 +1%
zinc 92 90 +2%
Production (tonnes) copper 4,400 3,400 +29%
zinc 6,200 4,600 +35%
pyrite 190,000 211,300 -10%
Cost per tonne of ore milled $47 $44 +7%
192
Financial review
Higher zinc sales volumes due to higher production
(millions unless three months ended March 31
otherwise stated) 2013 2012
Sales analysis
Copper sales (tonnes) 3,700 3,900
Zinc sales (tonnes) 6,700 4,200
Pyrite sales (tonnes) 114,500 112,300
Gross copper sales $30 $32
Gross zinc sales 14 8
Other metal sales 14 12
Gross sales $58 52
Smelter processing charges and freight (10) (8)
Net sales $48 $44
Cost analysis
Tonnes of ore milled (thousands) 346 342
Direct production costs ($ per tonne) $47 $44
Direct production costs $16 $15
Change in inventory (2) 1
Depreciation and other non-cash costs 3 2
Operating costs $17 $18
Operating earnings $31 $26
Operating cash flow $29 $26
7. The table below shows what contributed to the change in operating earnings and operating cash flow between 2013 and 2012.
(millions)
three months ended March 31
Higher zinc sales volumes $3
Higher other metal sales 2
Higher operating costs (1)
Other 1
Higher operating earnings, compared to 2012 5
Change in tax expense (2)
Changes in working capital (see note 11 on page 39) (2)
Other 2
Higher operating cash flow, compared to 2012 $3
8. Capital spending
three months ended March 31 objective
(thousands) 2013 2012 change 2013
Capital spending $1,900 $2,400 -21% $8,000
2013 outlook for capital spending Capital spending of $8 million in 2013 will primarily be to replace underground mobile equipment, upgrade the pyrite flotation cleaner cells and flotation air blower system, and improve the reclaim water system.
193
Status of our development project
Cobre Panama Capital expenditures were $250 million for the first quarter of 2013. Project spending for Cobre Panama this quarter was mainly to advance the coastal access road, Llano Grande road extension, preparation of the plant site, development work at the port site and camp construction at the plant and port sites. Advancements were also made to the process plant, including the concentrator and the tailings management facility. Following its successful acquisition of Inmet, First Quantum has commenced a detailed review of the Cobre Panama project. The objective is to re-establish the project on a more ‘self-perform’ basis to maximize the benefit of First Quantum’s core project development skills. To this end a number of key contracts, including the main engineering, procurement and construction management contract, have been modified or cancelled and a rationalization of the work force is currently under way. This review is expected to take between two and four months before a revised capital cost estimate and project timetable will be available.
194
Managing our liquidity We develop our financing strategy by looking at our long-term capital requirements and deciding on the optimal mix of cash, future operating cash flow, credit facilities and project financing. Our capital structure includes a liquidity cushion that gives us the flexibility to deal with operational disruptions or general market downturns. three months ended March 31
(millions) 2013 2012
CASH FROM OPERATING ACTIVITIES
Çayeli $20 $30
Las Cruces 119 77
Pyhäsalmi 29 26
Costs related to takeover by First Quantum (71) - Corporate development and exploration not incurred by operations (5) (6)
General and administration (13) (10)
Other 6 (2)
85 115
CASH FROM INVESTING AND FINANCING
Purchase of property, plant and equipment (263) (83)
Purchase and maturity of bonds and other securities, net 33 46
Funding from non-controlling shareholder 80 -
Foreign exchange on cash held in foreign currency (23) 1
Other (4) (4)
(177) (40)
Increase (decrease) in cash (92) 75
Cash and short-term investments
Beginning of period 1,541 1,048
End of period $1,449 $1,123
Our available liquidity also includes $2,040 million of bonds and other securities ($2,077 million at December 31, 2012), providing a total of $3,489 million in available capital. OPERATING ACTIVITIES
9. Key components of the change in operating cash flows (millions)
three months ended March 31
Lower earnings from operations (see page 5) ($6) Add back higher depreciation included in earnings from operations
4
Higher income tax expense (5)
Costs related to takeover by First Quantum (71)
Foreign exchange gain on cash 26
Changes in working capital (see note 11 on page 39) 32
Other (10) Lower operating cash flow, compared to 2012 ($30)
Operating cash flow this quarter was lower than the first quarter of 2012 primarily due to costs related to First Quantum’s take-over of Inmet Mining. This was partly offset by realized foreign exchange gains on US denominated cash held in our euro-based entities and a decrease in net working capital at Çayeli due to the timing of shipments to and collections from customers.
195
INVESTING AND FINANCING Capital spending three months ended March 31
(millions) 2013 2012
Çayeli $3 $2
Las Cruces 5 6
Pyhäsalmi 2 2
Cobre Panama 250 72
Corporate and other 3 1
$263 $83
Please see Results of our operations and Status of our development project for a discussion of actual results. Capital spending this quarter was mainly for Cobre Panama.
Purchase and maturing of investments
This quarter $805 million of our bonds and other securities matured, $33 million of which was converted into cash. The remaining $772 million was reinvested in US dollar-denominated bonds and other securities comprising US Treasury bonds, Canadian government and corporate bonds and Supranational bonds with credit ratings of A to AAA. The securities mature between 2013 and 2018 and have a weighted average annual yield to maturity of 0.47 percent. In the first quarter of 2012, $46 million of our bond portfolio matured and was converted into cash.
196
Financial condition
Our strategy is to make sure we have sufficient liquidity (including cash and committed credit facilities) to finance our operating requirements as well as our growth projects. At March 31, 2013, we had $3,489 million in total funds, including $1,449 million of cash and short-term investments and $2,040 million invested in bonds and other securities. Cash At March 31, 2013 our cash and short-term investments of $1,449 million included cash and money market instruments that mature in 90 days or less. Our policy is to invest excess cash in highly liquid investments of high credit quality, and to limit our exposure to individual counterparties to minimize the risk associated with these investments. We base our decisions about the length of maturities on our cash flow requirements, rates of return and other factors. At March 31, 2013 we held cash and short-term investments in the following:
A to AAA rated treasury funds and money market funds managed by leading international fund managers, who are investing in money market and short-term debt securities and fixed income securities issued by leading international financial institutions and their sponsored securitization vehicles.
Cash, term and overnight deposits with leading Canadian and international financial institutions. See note 4 on page 36 in the consolidated financial statements for more details about where our cash is invested. Bonds and other securities We hold a portfolio of bonds and other securities to provide better yields while minimizing our investment risk. As at March 31, 2013, our portfolio was $2,040 million. The portfolio includes: 28 percent US Treasury bonds 18 percent Canadian and provincial government bonds 50 percent corporate bonds 4 percent Supranational bonds. The securities mature between 2013 and 2018. Restricted cash Our restricted cash balance of $80 million as at March 31, 2013 included:
$19 million in cash collateralized letters of credit for Inmet
$59 million at Las Cruces related to a reclamation bond, issuing letters of credit to suppliers and the local water authority and for its labour bond to the government
$2 million for future reclamation at Pyhäsalmi.
Accounting changes We adopted the following new and amended standards, none of which had a material impact on our consolidated interim financial statements:
IFRS 10
IFRS 11
IFRS 12
IFRS 13
amendments to IAS 19
IFRIC 20.
197
Supplementary financial information Page 24 and 25 includes supplementary financial information about comparable net income and cash costs. These measures do not fall into the category of measures acceptable under International Financial Reporting Standards. Comparable net income has been adjusted to remove the effects of costs related to First Quantum’s takeover of Inmet. We use unit cash cost information as a key performance indicator, both on a segmented and consolidated basis. We have included cash costs as supplementary information because we believe our key stakeholders use these measures as a financial indicator of our profitability and cash flows before the effects of capital investment and financing costs, such as interest. Since cash costs are not recognized financial measures under International Financial Reporting Standards, they should not be considered in isolation of earnings or cash flows. There is also no standard way to calculate cash costs, so they are not a reliable way to compare us to other companies.
Reconciliation of net income to comparable net income
For the three months ended March 31
(thousands of US dollars, except where otherwise noted) 2013 2012
Net income attributable to Inmet shareholders per financial statements $26,810 $93,081
Deduct costs related to takeover by First Quanum 65,107 -
Comparable net income $91,917 $93,081
Weighted average shares outstanding 69,375 69,349
Comparable net income per share $1.32 $1.34
Reconciliation to cash costs reported by First Quantum
2013 For the three months ended March 31
per pound of copper
ÇAYELI
LAS
CRUCES PYHÄSALMI TOTAL
(US dollars)
Cash cost - Inmet $0.83 $1.05 ($0.34) $0.78
Remove royalties (0.13) (0.05) - (0.06)
Difference in conversion approach(1)
0.23 - (0.21) 1.19
Cash cost - First Quanum $0.93 $1.00 ($0.55) $1.91
2012 For the three months ended March 31
per pound of copper
ÇAYELI
LAS
CRUCES PYHÄSALMI TOTAL
(US dollars)
Cash cost - Inmet $0.79 $1.42 ($0.19) $1.00
Remove royalties (0.12) (0.07) - (0.08)
Difference in conversion approach(1)
0.09 - 0.70 0.45
Other - 0.03 - (0.94)
Cash cost $0.76 $1.38 $0.51 $0.43 (1) Inmet adjusts by product metal credits, smelter processing charges and freight from income statement basis to
production basis using respective volumes for each metal, w hereas First Quantum divides by product metal credits,
smelter processing charges and freight by copper sales volumes
198
INMET MINING CORPORATION
Supplementary financial information continued
Cash costs
2013 For the three months ended March 31
per pound of copper
ÇAYELI
LAS
CRUCES PYHÄSALMI TOTAL
(US dollars)
Direct production costs $1.29 $0.98 $1.66 $1.16
Royalties 0.13 0.05 - 0.06
Smelter processing charges and freight 0.93 0.02 0.76 0.36
Metal credits (1.52) - (2.76) (0.80)
Cash cost $0.83 $1.05 ($0.34) $0.78
2012 For the three months ended March 31
per pound of copper
ÇAYELI
LAS
CRUCES PYHÄSALMI TOTAL
(US dollars)
Direct production costs $1.23 $1.34 $2.11 $1.41
Royalties 0.12 0.07 - 0.08
Smelter processing charges and freight 1.03 0.01 0.79 0.45
Metal credits (1.59) - (3.09) (0.94)
Cash cost $0.79 $1.42 ($0.19) $1.00
Reconciliation of cash costs to statements of earnings
2013 For the three months ended March 31
per pound of copper
(millions of US dollars, except w here
otherw ise noted) ÇAYELI
LAS
CRUCES PYHÄSALMI TOTAL
GAAP reference page 15 page 17 page 19
Direct production costs $25 $41 $16 $82
Smelter processing charges and freight 14 1 10 25
By product sales (18) - (28) (46)
Adjust smelter processing and freight,
and sales to production basis (7) - (1) (8)
Operating costs net of metal credits $14 $42 ($3) $53
Inmet's share of production (000's) 17,400 39,500 9,600 66,500
Cash cost (US dollars) $0.83 $1.05 ($0.34) $0.78
2012 For the three months ended March 31
per pound of copper
(millions of US dollars, except w here
otherw ise noted) ÇAYELI
LAS
CRUCES PYHÄSALMI TOTAL
GAAP reference page 15 page 17 page 19
Direct production costs $23 $40 $15 $78
Smelter processing charges and freight 21 - 8 29
By product sales (29) - (20) (49)
Adjust smelter processing and freight,
and sales to production basis (1) - (4) (5)
Operating costs net of metal credits $14 $40 ($1) $53
Inmet's share of production (000's) 17,800 29,400 7,500 54,700
Cash cost (US dollars) $0.79 $1.42 ($0.19) $1.00
199
INMET MINING CORPORATION
Quarterly review(unaudited)
Latest Four Quarters
2013 2012(1)
2012 2012
First Fourth Third Second
(thousands of US dollars, except per share amounts) quarter quarter quarter quarter
STATEMENTS OF EARNINGS
Gross sales 276,250$ 259,868$ 327,187$ 251,395$
Smelter processing charges and freight (24,868) (26,155) (30,023) (28,480)
Cost of sales (excluding depreciation) (77,164) (91,381) (91,096) (84,634)
Depreciation (33,820) (30,079) (37,633) (29,193)
140,398 112,253 168,435 109,088
Corporate development and exploration (9,223) (8,620) (7,905) (10,290)
Costs related to takeover by First Quantum Minerals Ltd (65,107) - - -
General and administration (13,083) (14,972) (12,982) (15,899)
Investment and other income 20,694 (16,279) 1,645 45,103
Finance costs (2,872) (2,561) (2,463) (2,379)
Income tax expense (44,760) (31,706) (42,135) (31,444)
Notes to the consolidated financial statements 1. Corporate information Prior to April 9, 2013, Inmet Mining Corporation was a publicly traded corporation listed on the Toronto stock exchange with a registered and head office at 330 Bay Street, Suite 1000, Toronto Canada. On March 21, 2013 FQM (Akubra) Inc., 2013, a wholly owned subsidiary of First Quantum Minerals Ltd (First Quantum) acquired 86.6 percent of the issued and outstanding common shares of Inmet Mining, and on April 1, 2013, it acquired a further 7.3 percent. On April 9, 2013, FQM (Akubra) Inc. acquired the remaining common shares of Inmet Mining it did not already own through a compulsory acquisition, and Inmet Mining ceased to be a publicly traded company. Our principal activities are the exploration, development and mining of base metals. 2. Basis of presentation and statement of compliance We prepared these interim consolidated financial statements using the same accounting policies and methods as those described in our consolidated financial statements for the year ended December 31, 2012, except as described in note 3. These interim financial statements are in compliance with International Accounting Standard (IAS) 34, Interim Financial Reporting (IAS 34). Accordingly, certain information and disclosure normally included in annual financial statements prepared in accordance with International Financial Reporting Standards have been omitted or condensed. The preparation of financial statements in accordance with IAS 34 requires us to use certain critical accounting estimates and requires us to exercise judgement in applying our accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, have been set out in note 5 to our consolidated financial statements for the year ended December 31, 2012. These interim financial statements should be read in conjunction with our annual consolidated financial statements for the year ended December 31, 2012. 3. Changes in accounting policies
Adoption of new and amended standards We adopted IFRS 10, IFRS 11, IFRS 12, IFRS 13, IFRIC 20 and amendments to IAS 19, which resulted in the following changes to our 2012 financial statements:
lowered other assets by $1.4 million
lowered deferred income tax assets by $0.2 million
lowered provisions by $1.2 million
lowered comprehensive income by $0.1 million
increased opening 2012 accumulated other comprehensive loss by $0.2 million
lowered opening 2012 retained earnings by $0.1 million. Change in functional and presentation currency Prior to June 1, 2012, Inmet Mining’s functional currency and our presentation currency were the Canadian dollar. The decision to proceed with full scale development of Cobre Panama has significantly increased Inmet Mining's exposure to the US dollar considering:
Inmet Mining's share of the development costs for the project, the vast majority of which are denominated in US dollars; and
our issuance of US $1.5 billion of senior unsecured notes Consequently, effective June 1, 2012, the US dollar was adopted as Inmet Mining’s functional currency. Our operating entities continue to measure the items in their financial statements using their functional currencies; Çayeli and Cobre Panama use the US dollar, and Pyhäsalmi and Las Cruces use the euro. IFRS requires a change in functional currency to be accounted for prospectively. We therefore translated Inmet Mining’s May 31, 2012 financial statement items from Canadian dollars to US dollars using the May 31, 2012 exchange rate US $0.97 per Canadian dollar (Transition Rate). The resulting translated amounts for non-monetary items are treated as their historical cost.
209
Following the change in Inmet Mining’s functional currency, we elected to change our presentation currency from Canadian dollars to US dollars as we believe that changing the presentation currency to US dollars will provide shareholders with a more accurate reflection of our underlying financial performance and position. The change in presentation currency represents a voluntary change in accounting policy. We have restated all comparative financial statements from previously reported Canadian dollar amounts to US dollars using the Transition Rate.
Total cash and short-term instruments $1,448,662 $1,541,219 $1,048,457 (i) Bank sponsored securitized programs with highest credit quality rating and supported by global liquidity lines.
.
5. Bonds and other securities The table below provides a breakdown of our bonds and other securities as at the balance sheet date by financial instrument classification.
March
31, 2013
December
31, 2012
January 1,
2012
Current available for sale securities $807,996 $736,387 $ -
Current held to maturity securities 142,161 147,212 175,921
950,157 883,599 175,921
Available for sale securities 736,235 824,092 -
Held to maturity securities 351,869 366,513 427,727
1,088,104 1,190,605 427,727
Other 2,168 2,483 3,060
$2,040,429 $2,076,687 $606,708
6. Stock-based compensation On February 1, 2013, the Board granted 75,102 performance share units (PSUs) to senior executives with a 3 year vesting period from January 1, 2013 to December 31, 2015.
210
As a result of First Quantum’s acquisition of Inmet Mining on March 21, 2013, all unvested stock options, long-term incentive plan (LTIP) units, PSUs, deferred share units (DSUs) and share award plan shares outstanding at that time immediately vested in accordance with change-in-control provisions under each plan. Accordingly, Cdn $2.8 million was paid to settle the 463,084 stock options, Cdn $21.6 million was paid to settle the 312,000 LTIP units, Cdn $20.8 million was paid to settle the 141,170 PSUs and 113,121 Inmet common shares were issued from treasury to settle the 113,121 DSUs such that all stock based compensation awards have been settled. We recognized the following stock-based compensation expense relating to all awards, including the impact of accelerated vesting:
three months ended March 31 2013 2012
Stock option plan $ 4,350 $1,689 Performance share unit plan 17,112 245 Long-term incentive plan 13,247 - Deferred share unit plan - 217 Share award plan - 47
$34,709 $2,198
An amount of $10.4 million remains in stock based compensation for settled stock options representing the amount by which their grant date fair value exceeded their cash settlement value.
7. Accumulated other comprehensive loss Accumulated other comprehensive loss includes:
March
31, 2013 December
31, 2012 January 1,
2012
Unrealized gains (losses) on bonds and other securities
(net of tax of nil) (December 31, 2012 - $91, December 31, 2011 - $91) $ 1,806 $ 421 $ (534)
Actuarial gains (losses) – post retirement employee benefits (net of tax of $51) (December 31, 2012 - $234, December 31 2011 - $176) (1,040) (308) (214)
Las Cruces (euro functional currency) (102,591) (63,557) (103,071)
Çayeli (US dollar functional currency) (12,237) (12,003) (15,068)
Cobre Panama (US dollar functional currency) 8,707 8,707 (13,493)
($131,842) ($85,834) ($159,010)
8. Investment and other income
three months ended March 31 2013 2012
Interest income $ 3,545 $ 4,252 Foreign exchange gain (loss) 17,204 (12,070)
211
Dividend and royalty income - 484 Other (55) 1,071
$20,694 ($6,263)
Foreign exchange gain (loss) is a result of:
three months ended March
31 2013 2012
Translation of US dollar cash held in euro based entities $21,914 ($4,392) Translation of Cdn dollar cash held by Corporate (608) - Translation of Cdn dollar bonds and other securities held by Corporate (4,499) -
Translation of other monetary assets and liabilities 397 (2,627) Translation of US dollar amounts in Corporate prior to the change in functional currency to the US dollar - (5,051)
$17,204 ($12,070)
9. Income tax
For the three months ended March 31, 2013:
Corporate and other
Çayeli (Turkey)
Las Cruces (Spain)
Pyhäsalmi (Finland) Total
Current income taxes $456 $10,686 $599 $7,316 $19,057
Deferred income taxes 858 3,289 21,675 (119) 25,703
Income tax expense $1,314 $13,975 $22,274 $7,197 $44,760
For the three months ended March 31, 2012:
Corporate and other
Çayeli (Turkey)
Las Cruces (Spain)
Pyhäsalmi (Finland) Total
Current income taxes $142 $8,649 $ - $5,268 $14,059
Deferred income taxes (6) 831 11,213 (85) 11,953
Income tax expense $136 $9,480 $11,213 $5,183 $26,012
212
10. Net income per share
three months ended March 31 (thousands) 2013 2012
Net income available to common shareholders $26,810 $93,081
three months ended March 31 (thousands) 2013 2012
Weighted average common shares outstanding 69,375
69,349
Plus incremental shares from assumed conversions:
DSUs 100 92 Stock options 29 - LTIP units 277 -
Diluted weighted average common shares outstanding
69,781
69,441
The table below shows our earnings per common share for the three months ended March 31.
three months ended March 31
(US dollars per share) 2013 2012
Basic Diluted Basic Diluted
Net income per share $0.39 $0.38 $1.35 $1.34
11. Statements of cash flows For the three months ended March 31, 2013:
We calculate the fair value of the senior unsecured notes using period end market yields.
We classify fair value measurements based on a three-level hierarchy that prioritizes the inputs to valuation techniques as follows:
Level 1 – quoted prices in active markets for the same instrument;
Level 2 – quoted prices in active markets for similar assets or liabilities or other valuation techniques for which all significant inputs are based on observable market data; and
Level 3 – valuation techniques for which any significant input is not based on observable market data.
The table below discloses the classification level for financial instruments we measured at fair value in the balance sheet.
March
31, 2013
December 31,
2012 January 1,
2012
Financial assets
Cash and short-term investments Level 1 Level 1 Level 1
Restricted cash Level 1 Level 1 Level 1
Accounts receivable from metal sales Level 2 Level 2 Level 2
Available for sale bonds and other securities Level 2 Level 2 n/a
Investments in equity securities Level 1 Level 1 Level 1
214
13. Events after the reporting period Senior unsecured notes The acquisition of Inmet by FQM (Akubra) Inc. triggered the change of control clause in the senior unsecured notes’ indentures which requires an offer be made to repurchase the notes. Subsequent to the end of the first quarter of 2013, a mandatory offer has been issued to purchase these notes in cash at a price equal to 101 percent of the aggregate principal plus accrued and unpaid interest up to, but not including, the date of purchase. As a result of the requirement to make this repurchase offer these notes have been classified as a current liability. The notes that remain outstanding after the expiry of the mandatory repurchase offer will be reclassified as a non-current liability at that time. Amalgamation of Inmet Mining and FQM (Akubra) Inc. On April 9, 2013, FQM (Akubra) Inc. acquired the remaining common shares of Inmet Mining it did not already own through a compulsory acquisition whereby FQM (Akubra) Inc. and Inmet Mining were amalgamated, continuing as FQM (Akubra) Inc. FQM (Akubra) Inc. entered into a $2,500 million debt arrangement in order to finance its acquisition of Inmet. The minimum facility repayment is the greater of 50 percent of the outstanding debt or $1,000 million on December 31, 2013, with the remainder being due on March 26, 2014. Interest is payable monthly in arrears and calculated at a rate equal to LIBOR plus 2.75 percent. Outstanding debt under facility at March 31, 2013 was $2,116.3 million, net of issue and transaction costs of $22.1 million.
215
SCHEDULE 5
Checklist of Documentation Incorporated by Reference
Sections of the following documents, which can be accessed on the SEDAR website
(www.sedar.com), are incorporated by reference into this document. The non-incorporated parts
of these documents are not relevant for the purposes of this document. Where these documents
make reference to other documents, such other documents are not incorporated into and do not
form part of this prospectus. For the avoidance of doubt, no information incorporated by reference
into the documents set out below shall be incorporated into, nor shall such incorporated
information form any part of, this document.
First Quantum's consolidated financial statements for the year ended 31 December 2013 (the
"First Quantum 2013 Financial Statements")
First Quantum's Annual Report for the year ended 31 December 2012 (the "First Quantum 2012
Annual Report")
First Quantum's Annual Report for the year ended 31 December 2011 (the "First Quantum 2011
Annual Report")
Information Incorporated
by Reference
Document Reference Prospectus Rule
Operating and Financial
Review
"Management's Discussion and
Analysis" on pages 23-50 of the First
Quantum 2012 Annual Report
Annex I, Item 9
"Management's Discussion and
Analysis" on pages 21-48 of the First
Quantum 2011 Annual Report
Principal investments in
progress and principal future
investments
"Investments" on page 18 and
"Property, Plant and Equipment" on
page 19 of First Quantum 2013
Financial Statements
Annex I, Items 5.2.2
and 5.2.3
Revenues by activity and
geographic market
"Segmented Information" on pages 30
to 33 to First Quantum 2013 Financial
Statements
Annex I, Item 6.2
Annex I, Item 6.3
"Sales Revenue by Nature" on pages 75
of the First Quantum 2012 Financial
Statements
"Segmented Revenues" on pages 77 of
the First Quantum 2012 Financial
Statements
Property, plant and
equipment
"Property, Plant and Equipment" on
page 19 of the First Quantum 2013
Financial Statements
Annex I, Item 8.1
"Property, Plant and Equipment" on
pages 61-62 and 67 of the First
Quantum 2012 Annual Report
216
Capital resources "Capital Management" at page 85 of the
First Quantum 2012 Annual Report
"Consolidated Statements of Cash
Flows" at page 55 of the First Quantum
2012 Annual Report
"Consolidated Statements of Cash
Flows" on page 55 of the First Quantum
2012 Annual Report
"Derivative Financial Instruments" at
page 39 of the First Quantum 2012
Annual Report
"Financial Instruments" on pages 64-65
of the First Quantum 2012 Annual
Report
"Financial Risk Management" on pages
81-85 of the First Quantum 2012
Annual Report
"Hedging Program" at page 38 of the
First Quantum 2012 Annual Report
"Treasury Shares" at pages 57 and 73
of the First Quantum 2012 Annual
Report
Annex I, Item 9
Annex I, Item 10, ESMA
33, ESMA 34, ESMA 35,
ESMA 36
Trend information "Management's Discussion and
Analysis" on pages 23–50 of the First
Quantum 2012 Annual Report
Annex I, Item 12
Arrangements for employee
involvement in capital
See "Share-Based Compensation" on
pages 63 and 74-75 of the First
Quantum 2012 Annual Report
Annex I, Items 17.3
and 21.1.6
Audited historical financial
information and audit report
"Consolidated Balance Sheets" as at 31
December 2013 and 31 December 2012
on page 6 of the First Quantum 2013
Financial Statements
"Consolidated Balance Sheets" as at 31
December 2012 and 31 December 2011
on page 56 of the First Quantum 2012
Annual Report
"Consolidated Balance Sheets" as at 31
December 2011 and 31 December 2010
on page 54 of the First Quantum 2011
Annual Report
"Consolidated Statements of Earnings"
for the years ended 31 December 2013
and 31 December 2012 on page 3 of
the First Quantum 2013 Financial
Annex I, Item 20.1
Annex I, Item 20
217
Statements
"Consolidated Statements of Earnings"
for the years ended 31 December 2012
and 31 December 2011 on page 53 of
the First Quantum 2012 Annual Report
"Consolidated Statements of Earnings "
for the years ended 31 December 2011
and 31 December 2010 on page 51 of
the First Quantum 2011 Annual Report
"Consolidated Statements of Changes in
Shareholders' Equity" for the years
ended 31 December 2013 and 31
December 2012 on page 7 of the First
Quantum 2013 Financial Statements
"Consolidated Statements of Changes in
Shareholders' Equity" for the years
ended 31 December 2012 and 31
December 2011 on page 57 of the First
Quantum 2012 Annual Report
"Consolidated Statements of Changes in
Shareholders' Equity" for the years
ended 31 December 2011 and 31
December 2010 on page 55 of the First
Quantum 2011 Annual Report
"Consolidated Statements of Cash
Flows" for the years ended 31
December 2013 and 31 December 2012
on page 5 of the First Quantum 2013
Financial Statements
"Consolidated Statements of Cash
Flows" for the years ended 31
December 2012 and 31 December 2011
on page 55 of the First Quantum 2012
Annual Report
"Consolidated Statements of Cash
Flows" for the years ended 31
December 2011 and 31 December 2010
on page 53 of the First Quantum 2011
Annual Report
"Notes to the Consolidated Financial
Statements" for the years ended 31
December 2013 and 31 December 2012
on page 5 of the First Quantum 2013
Financial Statements
"Notes to the Consolidated Financial
Statements" for the years ended 31
December 2012 and 31 December 2011
on pages 58-86 of the First Quantum
218
2012 Annual Report
"Notes to Consolidated Financial
Statements" for the years ended 31
December 2011 and 31 December 2010
on pages 56-87 of the First Quantum
2011 Annual Report
"Auditors' Report" for the year ended
31 December 2013 on page 2 of the
First Quantum 2013 Financial
Statements
"Auditors' Report" for the year ended
31 December 2012 on page 52 of the
First Quantum 2012 Annual Report
"Auditors' Report" for the year ended
31 December 2011 on page 50 of the
First Quantum 2011 Annual Report
Comparable Dividend Per
Share
"Dividends Declared per Common
Share" on page 40 of the First Quantum
2012 Annual Report
Annex I, Item 20.7.1
"Dividends" on page 73 of the First
Quantum 2012 Annual Report
"Dividends Delcared per Common
Share" on page 35 of the First Quantum
2011 Annual Report
"Dividends" on page 74 of the First
Quantum 2011 Annual Report
Capital under option See "Share Based Compensation" at
page 63 of the 2012 Annual Report
Annex I, Items 17.3
and 21.1.6
219
Definitions
2020 Notes 8.75% Senior Notes of FQM Akubra
2021 Notes 7.50% Senior Notes of FQM Akubra
Acquisition the acquisition by the Company of all the
common shares of Inmet
Admission the admission of the New Common Shares to
the Official List together with admission to
trading on the London Stock Exchange's
market for listed securities
Board the board of Directors of the Company
Bond Offering Document the Offering Circular in respect of
U.S.$350,000,000 7.25 per cent. Senior Notes
due 2019 issued by the Company on 11
October 2012
Cdn.$ the lawful currency of Canada
CIM Standards the Canadian Institute of Mining, Metallurgy
and Petroleum Standards on Mineral Resources
and Mineral Reserves
Common Shares Common Shares of common stock of First
Quantum
Company or First Quantum First Quantum Minerals Ltd.
CREST the system of paperless settlement of trades in
securities and the holding of uncertificated
securities operated by Euroclear UK & Ireland
Limited in accordance with the Uncertificated
Securities Regulations 2001 (SI 2001/3755)
CSA Canadian Standards Association
Directors the directors of the Company as set out on
pages 51 to 53 of this document
Disclosure Rules and Transparency Rules
the disclosure rules and transparency rules
made by the Financial Conduct Authority for
the purposes of Part VI of FSMA, as amended
ESMA European Securities and Markets Authority
Exchange Notes the notes offered in exchange for, and
redemption of, the 2020 Notes and the 2021
Notes
FCA the UK Financial Conduct Authority
FQM Akubra FQM (Akubra) Inc, a wholly owned subsidiary
of the Company (and being the entity which
Inmet Mining Corporation amalgamated with
220
following the Acquisition)
First Quantum 2011 Annual Report First Quantum's Annual Report for the year
ended 31 December 2011
First Quantum 2012 Annual Report First Quantum's Annual Report for the year
ended 31 December 2012
First Quantum 2013 Financial Statements First Quantum's Financial Statements for the
year ended 31 December 2013
FSMA the Financial Services and Markets Act 2000
(as amended)
Group First Quantum and its subsidiaries
GRZ the Government of Zambia
Inmet Inmet Mining Corporation (which has
amalgamated in to FQM (Akubra) Inc)
Inmet Board the board of Directors of Inmet
Kansanshi Development Agreement the agreement to develop the Kansanshi mine
KPMC Korea Panama Mining Corporation
Listing Rules the listing rules made by the FCA for the
purposes of Part VI of FSMA, as amended
LSE The London Stock Exchange
MCM Mining Convention a Convention d’Establishment with the
Government of Mauritania
New Common Shares the 114,526,277 Common Shares in the
Company issued on 27 March 2013, 5 April
2013 and 9 April 2013 pursuant to the
Acquisition
New Notes Indentures the Exchange Notes
Non-Resident Shareholder a holder of Common Shares who, for the
purposes of the Income Tax Act (Canada) the
("Tax Act") deals at arms-length with the
Company, is not affiliated with the Company
and holds Common Shares as capital property
and who, for the purposes of the Tax Act and
any applicable income tax treaty or
convention, is neither resident nor deemed to
be resident in Canada, does not and is not
deemed to use or hold the Common Shares in
carrying on a business in Canada, and does
not hold Common Shares as part of the
business property of a permanent
establishment in Canada or in connection with
a fixed base in Canada
221
NYSE New York Stock Exchange
Official List the official list maintained by the UK Listing
Authority for the purposes of Part VI of FSMA
Prospectus Directive Directive 2003/71/EC
Prospectus Rules the prospectus rules made by the FCA for the
purposes of Part VI of FSMA, as amended
Q1 first quarter of the year
Q2 second quarter of the year
Q3 third quarter of the year
Q4 fourth quarter of the year
SEC the US Securities and Exchange Commission
SEDAR the System for Electronic Document Analysis
and Retrieval, used for electronically filing
securities related information with the
Canadian securities regulatory authorities
Shareholders holders of Common Shares
TSX Toronto Stock Exchange
UK or United Kingdom the United Kingdom of Great Britain and
Northern Ireland
US or United States the United States of America, its territories,