Inmet Announces Third Quarter Net Income From Continuing Operations of $1.68 Per Share Compared to $1.41 Per Share in the Third Quarter of 2011

TORONTO, CANADA--(Marketwire - Nov. 1, 2012) -

All amounts in US dollars unless indicated otherwise

Inmet (IMN.TO) announces third quarter net income from continuing operations of $1.68 per share compared to $1.41 per share in the third quarter of 2011.

Third quarter highlights

  • Strong earnings from operations

Earnings from operations were $168 million compared to $113 million in the third quarter of 2011. This increase is due to the strong performance of our operations.

  • Las Cruces operating consistently at or above design capacity

Las Cruces produced 18,800 tonnes of copper cathode in the quarter compared to 11,400 tonnes produced during the same period of 2011. Plant production exceeded 6,000 tonnes of copper cathode (design capacity) each month this quarter, marking six consecutive months that Las Cruces produced at or above design capacity. Unit costs decreased to $1.01 per pound of copper cathode produced.

  • Construction of Cobre Panama progressing

Since construction commenced in May of this year, Minera Panama S.A. (MPSA) has entered into commitments for approximately $2.4 billion, representing 39 percent of estimated capital expenditures and expects commitments of approximately $4 billion, or 65 percent of estimated capital expenditures before the end of the year.

  • Announcement of Cobre Panama precious metals stream agreement with Franco-Nevada

In August 2012, we announced the completion of a precious metals stream agreement with Franco-Nevada Corporation (Franco-Nevada). Under the terms of the agreement, Franco-Nevada will provide a $1 billion deposit after Inmet's funding since issuing a Full Notice to Proceed reaches $1 billion (expected by Q1 2013) pro-rata on a 1:3 ratio with Inmet's subsequent funding contributions. The amount of precious metals deliverable under the stream is indexed to the copper in concentrate produced from the entire project and approximates 86 percent of the estimated payable precious metals attributable to Inmet's 80 percent ownership based on the current 31 year mine plan.

  • Offer to acquire Petaquilla Minerals Ltd.

On September 28, 2012, we filed a formal offer for all of the outstanding common shares of Petaquilla Minerals Ltd. (Petaquilla), and on October 25, 2012, we increased our offer. Under the offer, Petaquilla shareholders can elect to receive consideration in cash, shares or a combination thereof.

Revisions to production guidance

We have increased our copper production objective for Çayeli from between 27,000 to 30,000 tonnes to between 30,000 and 32,000 tonnes. Additionally, we have narrowed our copper production objective for Las Cruces from between 61,700 tonnes and 68,600 tonnes of copper cathode to between 65,000 tonnes and 68,000 tonnes. Our other production guidance for copper and zinc remains as previously disclosed.

Key financial data  
  three months ended
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  nine months ended
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(thousands, except per share amounts) 2012 2011 change   2012 2011 change  
FINANCIAL HIGHLIGHTS                        
Sales                        
Gross sales $ 327,187 $ 253,432 +29 % $ 864,109 $ 714,517 +21 %
Net income                        
Net income from continuing operations $ 116,226 $ 97,987 +19 % $ 303,486 $ 209,770 +45 %
Net income from continuing operations per share $ 1.68 $ 1.41 +19 % $ 4.38 $ 3.20 +37 %
Net income from discontinued operations   -   - -     -   80,786 -100 %
Net income from discontinued operations per share   -   - -     - $ 1.23 -100 %
Net income attributable to Inmet shareholders $ 116,528   97,987 +19 % $ 304,067 $ 290,556 +5 %
Net income per share $ 1.68 $ 1.41 +19 % $ 4.38 $ 4.43 -1 %
Cash flow                        
Cash flow provided by operating activities $ 135,696 $ 116,813 +16 % $ 426,541 $ 321,208 +33 %
Cash flow provided by operating activities per share (1) $ 1.96 $ 1.68 +17 % $ 6.15 $ 4.91 +25 %
Capital spending (2) $ 168,636 $ 55,220 +205 % $ 443,294 $ 144,809 +206 %
OPERATING HIGHLIGHTS                        
Production                        
  Copper (tonnes)   29,700   21,700 +37 %   84,100   58,600 +44 %
  Zinc (tonnes)   15,800   23,000 -31 %   45,600   62,500 -27 %
  Pyrite (tonnes)   243,300   210,100 +16 %   669,200   594,300 +13 %
Copper cash cost (US $ per pound) (3) $ 0.78 $ 0.69 +13 % $ 0.87 $ 0.88 -1 %
         
  as at
September 30
  as at
December 31
 
FINANCIAL CONDITION 2012   2011  
             
Current ratio   8.3 to 1     9.3 to 1  
Gross debt to total equity   38 %   1 %
Net working capital balance (millions) $ 2,148   $ 1,263  
Cash balance (including bonds and other securities: millions) $ 3,306   $ 1,655  
Gross debt (millions) $ 1,508   $ 17  
Shareholders' equity (millions) $ 3,872   $ 3,306  
   
(1) Cash flow provided by operating activities divided by average shares outstanding for the period.
(2) The nine months ended September 30, 2012 includes capital spending of $400 million at Cobre Panama. The nine months ended September 30, 2011 includes capital spending of $87 million at Cobre Panama.
(3) Copper cash cost per pound is a non-GAAP financial measure - see Supplementary financial information on pages 30 to 32.

Third quarter press release

Where to find it

Our financial results 5
Key changes in 2012 5
Understanding our performance 6
  Earnings from operations 8
  Corporate costs 13
Results of our operations 15
  Çayeli 16
  Las Cruces 18
  Pyhäsalmi 20
Status of our development project 22
  Cobre Panama 22
Managing Our Liquidity 25
Financial condition 29
Supplementary financial information 30

In this press release, Inmet means Inmet Mining Corporation and we, us and our mean Inmet and/or its subsidiaries and joint ventures. This quarter refers to the three months ended September 30, 2012. Revised objective is as of November 1, 2012.

Change in Inmet's functional and presentation currencies to the US dollar

The decision to construct Cobre Panama has significantly increased Inmet's exposure to the US dollar. Effective June 1, 2012, the US dollar was adopted as Inmet's functional currency on a prospective basis. We translated Inmet'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). 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.

At the same time we changed our presentation currency from Canadian dollars to US dollars and now report our results in US dollars. We have restated all comparative financial statements from previously reported Canadian dollar amounts to US dollars using the Transition Rate.

Caution with respect to forward-looking statements and information

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

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

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

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

Our financial results

  three months ended
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(thousands, except per share amounts) 2012   2011   change   2012   2011   change  
EARNINGS FROM OPERATIONS (1)                                
Çayeli $ 56,182   $ 35,965   +56 % $ 146,386   $ 119,950   +22 %
Las Cruces   89,131     31,594   +182 %   205,853     81,989   +151 %
Pyhäsalmi   26,154     44,993   -42 %   78,962     108,407   -27 %
Other   (3,032 )   -   -100 %   (7,180 )   -   -100 %
    168,435     112,552   +50 %   424,021     310,346   +37 %
DEVELOPMENT AND EXPLORATION                                
Corporate development and exploration   (7,905 )   (4,539 ) +74 %   (26,996 )   (21,940 ) +23 %
CORPORATE COSTS                                
General and administration   (12,982 )   (9,669 ) +34 %   (38,626 )   (25,819 ) +50 %
Investment and other income   13,276     34,640   -62 %   52,116     33,631   +55 %
Finance costs   (2,463 )   (2,301 ) +7 %   (7,438 )   (6,868 ) +8 %
Income and capital taxes   (42,135 )   (32,696 ) +29 %   (99,591 )   (79,580 ) +25 %
    (44,304 )   (10,026 ) +342 %   (93,539 )   (78,636 ) +19 %
Net income from continuing operations   116,226     97,987   +19 %   303,486     209,770   +45 %
Income from discontinued operation (net of taxes)   -     -   -     -     80,786   -100 %
Non-controlling interest   (302 )   -   +100 %   (581 )   -   +100 %
Net income attributable to Inmet shareholders $ 116,528   $ 97,987   +19 % $ 304,067   $ 290,556   +5 %
Income from continuing operations per common share $ 1.68   $ 1.41   +19 % $ 4.38   $ 3.20   +37 %
Diluted income from continuing operations per common share $ 1.67   $ 1.41   +18 % $ 4.36   $ 3.20   +36 %
Basic net income per common share $ 1.68   $ 1.41   +19 % $ 4.38   $ 4.43   -1 %
Diluted net income per common share $ 1.67   $ 1.41   +18 % $ 4.36   $ 4.43   -2 %
Weighted average shares outstanding   69,366     69,331   +0 %   69,360     65,454   +6 %
(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 2012

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  see
page
EARNINGS FROM OPERATIONS              
Sales              
Higher (lower) copper prices $ 15   $ (40 ) 8
Lower zinc prices   -     (6 ) 8
Lower other metal prices   (7 )   (3 ) 8
Higher copper sales volumes   81     235   8
Lower zinc sales volumes   (9 )   (25 ) 8
Costs              
Lower processing charges and freight   1     3   10
Higher operating costs   (7 )   (20 ) 11
Charge for mine rehabilitation at closed properties   (3 )   (7 ) 11
Higher depreciation   (11 )   (18 ) 12
Other   (4 )   (5 )  
Higher earnings from operations compared to 2011   56     114    
CORPORATE COSTS              
Higher exploration and administrative costs   (7 )   (18 ) 13
Higher taxes from higher income   (9 )   (20 ) 14
Foreign exchange changes   (32 )   7   13
Unrealized gain on prepayment rights derivative - senior unsecured notes   12     12   13
Other   (1 )   -    
Higher net income from continuing operations compared to 2011   19     95    
Lower income from discontinued operation - Ok Tedi   -     (81 ) 14
Higher net income attributable to Inmet shareholders compared to 2011 $ 19   $
14
   

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
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  2012 2011 change   2012 2011 change  
Copper (per pound) $ 3.57 $ 3.54 +1 % $ 3.63 $ 3.97 -9 %
Zinc (per pound) $ 0.88 $ 0.92 -4 % $ 0.89 $ 0.99 -10 %

Copper

Copper prices on the London Metals Exchange (LME) averaged $3.50 per pound this quarter, in-line with prices in the second quarter of 2012 and a 14 percent decrease from the third quarter of 2011. In the third quarter of 2011, our realized copper price of US $3.54 per pound was significantly lower than the LME average price, mainly because of Çayeli. A high proportion of Çayeli's sales that quarter were not yet finalized so they were valued at the September 30, 2011 forward price of US $3.18 per pound.

Zinc

Zinc prices on the LME averaged $0.86 per pound this quarter, consistent with last quarter's average price of $0.87 per pound and a 15 percent decrease from the third quarter of 2011.

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 2011.

  three months ended
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  2012 2011 change   2012 2011 Change  
Exchange rates                        
1 C$ to US$ $ 1.02 $ 1.02 -   $ 1.00 $ 1.02 -2 %
1 euro to US$ $ 1.25 $ 1.38 -9 % $ 1.28 $ 1.38 -7 %
1 US$ to Turkish lira   TL 1.80   TL 1.65 +9 %   TL 1.80   TL 1.62 +11 %

Compared to the same quarter last year, the value of the US dollar was flat relative to the Canadian dollar, and appreciated 9 percent relative to the euro.

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
  • revalue Canadian dollars and euros that we hold in cash, bonds and other securities corporately at Inmet
  • translate Çayeli's Turkish lira denominated costs into its functional currency (US dollars).

Prior to the adoption of 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.

Treatment charges for zinc decreased this year

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

The table below shows the average charges we realized this quarter and year to date. Treatment charges for zinc concentrates were lower this year than in 2011, reflecting agreements we have signed with customers.

  three months ended
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  2012 2011   change   2012 2011   change  
Treatment charges                            
  Copper (per dry metric tonne of concentrate) $ 57 $ 67   -15 % $ 58 $ 58   -  
  Zinc (per dry metric tonne of concentrate) $ 182 $ 225   -19 % $ 180 $ 225   -20 %
Price participation                            
  Copper (per pound) $ 0.00 $ 0.02   -100 % $ 0.00 $ 0.02   -100 %
  Zinc (per pound) $ 0.00 $ (0.01 ) +100 % $ 0.00 $ (0.01 ) +100 %
Freight charges                            
  Copper (per dry metric tonne of concentrate) $ 51 $ 46   +11 % $ 54 $ 49   +10 %
  Zinc (per dry metric tonne of concentrate) $ 21 $ 26   -19 % $ 24 $ 25   -4 %

Statutory tax rates

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

  2012   2011   change  
Statutory tax rates            
  Çayeli 24 % 24 % -  
  Las Cruces 30 % 30 % -  
  Pyhäsalmi 24.5 % 26 % -1.5 %

Earnings from operations

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(thousands) 2012   2011   change   2012   2011   change  
Gross sales $ 327,187   $ 253,432   +29 % $ 864,109   $ 714,517   +21 %
Smelter processing charges and freight   (30,023 )   (35,865 ) -16 %   (87,841 )   (99,239 ) -11 %
Cost of sales:                                
  Direct production costs   (78,192 )   (73,008 ) +7 %   (235,646 )   (216,932 ) +9 %
  Inventory changes   (7,332 )   (4,682 ) +57 %   (8,289 )   (6,135 ) +35 %
  Other non-cash expenses   (5,572 )   (873 ) +538 %   (11,419 )   (3,431 ) +233 %
  Depreciation   (37,633 )   (26,452 ) +42 %   (96,893 )   (78,434 ) +24 %
Earnings from operations $ 168,435   $ 112,552   +50 % $ 424,021   $ 310,346   +37 %

Gross sales were higher

  three months ended
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(thousands) 2012 2011 change   2012 2011 change  
Gross sales by operation                        
  Çayeli $ 110,689 $ 90,204 +23 % $ 300,222 $ 265,334 +13 %
  Las Cruces   163,827   83,618 +96 %   402,072   247,837 +62 %
  Pyhäsalmi   52,671   79,610 -34 %   161,815   201,346 -20 %
  $ 327,187 $ 253,432 +29 % $ 864,109 $ 714,517 +21 %
Gross sales by metal                        
  Copper $ 272,175 $ 171,016 +59 % $ 704,499 $ 496,772 +42 %
  Zinc   29,967   46,099 -35 %   88,829   138,231 -36 %
  Other   25,045   36,317 -31 %   70,781   79,514 -11 %
  $ 327,187 $ 253,432 +29 % $ 864,109 $ 714,517 +21 %

Key components of the change in gross sales: increasing sales volumes at Las Cruces, higher realized copper prices


(millions)
three months ended
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Higher (lower) copper prices $ 15   $ (40 )
Lower zinc prices   -     (6 )
Higher copper sales volumes at Las Cruces   79     189  
Higher copper sales volumes at our other mines   8     58  
Lower zinc sales volumes   (16 )   (43 )
Changes in other metal sales   (12 )   (8 )
Higher gross sales, compared to 2011 $ 74   $ 150  

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 negative finalization adjustments from second quarter 2012 sales.

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

  • 32 million pounds of copper provisionally priced at $3.72 per pound
  • 12 million pounds of zinc provisionally priced at $0.95 per pound.

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

(millions of pounds) copper zinc
October 2012 19 12
November 2012 5 -
December 2012 6 -
January 2013 - -
February 2013 2 -
Unsettled sales at September 30, 2012 32 12

Higher copper sales volumes, lower zinc sales volumes

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

  • Copper production and sales volumes were higher this quarter and year to date mainly because of production at Las Cruces and the mining of higher-grade areas and a continued improvement in recoveries at Çayeli. The timing of shipments resulted in copper sales volumes exceeding production volumes by a combined 4,900 tonnes for this quarter as compared to a combined excess of shipments over production of 1,400 tonnes in the third quarter of 2011.
  • Zinc production and sales volumes were lower than in 2011 due to lower zinc grades at Çayeli and Pyhäsalmi, which production was consistent with our objectives. 

Sales volumes

  three months ended
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  2012 2011 change   2012 2011 change  
Copper contained in concentrate (tonnes) 13,700 12,300 +11 % 38,300 30,900 +24 %
Copper cathode (tonnes) 20,900 10,800 +94 % 51,400 29,200 +76 %
Total copper (tonnes) 34,600 23,100 +50 % 89,700 60,100 +49 %
Zinc (tonnes) 15,500 23,900 -35 % 46,100 67,000 -31 %
Pyrite (tonnes) 213,400 269,200 -21 % 552,800 633,200 -13 %

Production

...
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  revised
objective
  2012 2011 Change   2012 2011 change   2012
Copper (tonnes)                  
Çayeli 7,800 7,100 +10 % 24,400 20,100 +21 % 30,000 - 32,000
Las Cruces 18,800 11,400 +65 % 50,400 28,000 +80 % 65,000 - 68,000
Pyhäsalmi 3,100 3,200 -3 % 9,300 10,500 -11 % 11,300 - 12,600
  29,700 21,700 +37 % 84,100 58,600 +44 % 106,300 - 112,600
Zinc (tonnes)                  
Çayeli 10,700 13,900 -23 % 29,600 36,900 -20 % 36,000 - 39,800
Pyhäsalmi 5,100 9,100 -44 % 16,000 25,600 -38 % 22,800 - 25,200
  15,800 23,000 -31 % 45,600 62,500 -27 % 58,800 - 65,000
Pyrite (tonnes)