XNYS:TC Thompson Creek Metals Co Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2012

 

or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                     to                     

 

Commission File Number:  001-33783

 

THOMPSON CREEK METALS COMPANY INC.

(Exact name of registrant as specified in its charter)

 

British Columbia, Canada

 

98-0583591

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

26 West Dry Creek Circle, Suite 810, Littleton, CO

 

80120

(Address of principal executive offices)

 

(Zip Code)

 

(303) 761-8801

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

 

As of May 3, 2012 there were 168,077,396 shares of our common stock, no par value, outstanding.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

Page

 

 

Part I. Financial Information

 

 

 

Item 1. Financial Statements:

 

 

 

Consolidated Balance Sheets (Unaudited)

1

 

 

Consolidated Statements of Operations and Comprehensive Income (Unaudited)

2

 

 

Consolidated Statements of Cash Flows (Unaudited)

3

 

 

Consolidated Statement of Shareholders’ Equity (Unaudited)

4

 

 

Notes to the Consolidated Financial Statements (Unaudited)

5

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

34

 

 

Item 4. Controls and Procedures

34

 

 

Part II. Other Information

 

 

 

Item 1. Legal Proceedings

35

 

 

Item 1A. Risk Factors

35

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

Item 3. Defaults Upon Senior Securities

37

 

 

Item 4. Mine Safety Disclosures

37

 

 

Item 5. Other Information

37

 

 

Item 6. Exhibits

37

 

 

Signatures

39

 



Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(in millions, except share data)

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

162.7

 

$

294.5

 

Accounts receivable

 

56.9

 

71.8

 

Accounts receivable—related parties

 

8.7

 

6.8

 

Product inventory

 

84.4

 

77.9

 

Material and supplies inventory

 

34.8

 

35.9

 

Prepaid expense and other current assets

 

7.9

 

5.6

 

Income and mining taxes receivable

 

8.5

 

9.1

 

 

 

363.9

 

501.6

 

Property, plant, equipment and development, net

 

2,590.4

 

2,359.4

 

Restricted cash

 

36.6

 

39.0

 

Reclamation deposits

 

19.5

 

24.6

 

Goodwill

 

47.0

 

47.0

 

Other assets

 

25.7

 

22.6

 

 

 

$

3,083.1

 

$

2,994.2

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

215.3

 

$

186.2

 

Income, mining, and other taxes payable

 

3.2

 

2.2

 

Current portion of long-term debt

 

5.7

 

5.7

 

Current portion of long-term capital lease obligation

 

1.0

 

1.0

 

Deferred income tax liabilities

 

11.5

 

14.0

 

Other current liabilities

 

8.7

 

9.0

 

 

 

245.4

 

218.1

 

Gold Stream deferred revenue

 

409.6

 

364.6

 

Long-term debt

 

359.3

 

361.0

 

Capital lease obligation

 

7.2

 

7.2

 

Other liabilities

 

17.4

 

15.9

 

Asset retirement obligations

 

33.6

 

32.8

 

Common stock purchase warrant derivatives

 

3.0

 

3.0

 

Deferred income tax liabilities

 

247.7

 

262.1

 

 

 

1,323.2

 

1,264.7

 

Commitments and contingencies (Note 9)

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock, no-par, 168,077,396 and 167,963,639 shares issued and outstanding, as of March 31, 2012 and December 31, 2011, respectively

 

1,015.2

 

1,014.3

 

Additional paid-in capital

 

53.6

 

52.6

 

Retained earnings

 

639.7

 

638.6

 

Accumulated other comprehensive income

 

51.4

 

24.0

 

 

 

1,759.9

 

1,729.5

 

 

 

$

3,083.1

 

$

2,994.2

 

 

See accompanying notes to consolidated financial statements.

 

1



Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS and COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

 

 

(in millions, except per share

 

 

 

amounts)

 

REVENUES

 

 

 

 

 

Molybdenum sales

 

$

109.6

 

$

202.4

 

Tolling, calcining and other

 

4.0

 

4.3

 

Total revenues

 

113.6

 

206.7

 

COSTS AND EXPENSES

 

 

 

 

 

Cost of sales

 

 

 

 

 

Operating expenses

 

102.4

 

98.0

 

Depreciation, depletion and amortization

 

16.8

 

18.4

 

Total cost of sales

 

119.2

 

116.4

 

Selling and marketing

 

1.5

 

2.4

 

Accretion expense

 

0.5

 

0.5

 

General and administrative

 

8.1

 

7.9

 

Exploration

 

0.8

 

3.6

 

Total costs and expenses

 

130.1

 

130.8

 

OPERATING (LOSS) INCOME

 

(16.5

)

75.9

 

OTHER (INCOME) AND EXPENSE

 

 

 

 

 

Change in fair value of common stock purchase warrants

 

0.1

 

(66.0

)

(Gain) loss on foreign exchange

 

(6.6

)

0.3

 

Interest and finance fees

 

1.5

 

1.3

 

Interest income

 

(0.2

)

(0.4

)

Other

 

(0.3

)

(0.2

)

Total other (income) and expense

 

(5.5

)

(65.0

)

(Loss) income before income and mining taxes

 

(11.0

)

140.9

 

Income and mining tax (benefit) expense

 

(12.1

)

12.0

 

NET INCOME

 

$

1.1

 

$

128.9

 

COMPREHENSIVE INCOME

 

 

 

 

 

Foreign currency translation

 

27.4

 

30.5

 

Total comprehensive income

 

$

28.5

 

$

159.4

 

 

 

 

 

 

 

NET INCOME PER SHARE

 

 

 

 

 

Basic

 

$

0.01

 

$

0.78

 

Diluted

 

$

0.01

 

$

0.73

 

Weighted average number of common shares

 

 

 

 

 

Basic

 

168.1

 

165.6

 

Diluted

 

168.5

 

176.5

 

 

See accompanying notes to consolidated financial statements.

 

2



Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

 

 

(in millions)

 

OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

1.1

 

$

128.9

 

Items not affecting cash:

 

 

 

 

 

Change in fair value of common stock purchase warrants

 

0.1

 

(66.0

)

Depreciation, depletion and amortization

 

16.8

 

18.4

 

Accretion expense

 

0.5

 

0.5

 

Amortization of finance fees

 

0.7

 

0.5

 

Stock-based compensation

 

1.5

 

1.8

 

Product inventory write-downs

 

11.1

 

 

Deferred income tax (benefit)

 

(11.3

)

(5.3

)

Unrealized loss (gain) on foreign currency derivative instruments

 

1.6

 

(0.6

)

Unrealized foreign exchange (gain) loss

 

(5.1

)

0.9

 

Change in working capital accounts (Note 14)

 

(13.9

)

(2.5

)

Cash generated by operating activities

 

3.1

 

76.6

 

INVESTING ACTIVITIES

 

 

 

 

 

Capital expenditures

 

(187.9

)

(92.9

)

Restricted cash

 

2.7

 

(1.9

)

Reclamation deposit

 

5.2

 

 

Cash (used) in investing activities

 

(180.0

)

(94.8

)

FINANCING ACTIVITIES

 

 

 

 

 

Proceeds from issuance of common shares, net

 

0.5

 

5.4

 

Debt issuance costs

 

 

(1.5

)

Gold Stream Proceeds

 

45.0

 

 

Repayment of long-term debt

 

(1.5

)

(1.5

)

Cash generated by financing activities

 

44.0

 

2.4

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

1.1

 

2.8

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(131.8

)

(13.0

)

Cash and cash equivalents, beginning of period

 

294.5

 

316.0

 

Cash and cash equivalents, end of period

 

$

162.7

 

$

303.0

 

Supplementary cash flow information (Note 14)

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Three Months Ended March 31, 2012

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income

 

Total

 

 

 

(in millions, except share data in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2012

 

167,964

 

$

1,014.3

 

$

52.6

 

$

638.6

 

$

24.0

 

1,729.5

 

Amortization of stock-based compensation

 

 

 

1.4

 

 

 

1.4

 

Stock option exercises

 

109

 

0.9

 

(0.2

)

 

 

0.7

 

Tax expense of stock option exercises

 

 

 

(0.2

)

 

 

(0.2

)

Warrant exercises

 

4

 

 

 

 

 

 

Net income

 

 

 

 

1.1

 

 

1.1

 

Other comprehensive income

 

 

 

 

 

27.4

 

27.4

 

Balances at March 31, 2012

 

168,077

 

$

1,015.2

 

$

53.6

 

$

639.7

 

$

51.4

 

1,759.9

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

1. Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q.  In compliance with those instructions, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”) have been condensed or omitted. This report should be read in conjunction with Thompson Creek Metals Company Inc.’s (“TCM” or the “Company”) consolidated financial statements and notes contained in its Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported.  Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. TCM bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.  Certain comparative information has been reclassified to conform to the current year’s presentation.

 

The consolidated financial statements include the accounts of TCM and its subsidiaries, and intercompany accounts and transactions have been eliminated in consolidation.  Financial amounts are presented in United States (“US”) dollars unless otherwise stated.  References to C$ are Canadian dollars.

 

2. Accounts Receivable

 

Accounts receivable are carried at their estimated collectible amounts. Accounts receivable include trade receivables of $44.8 million and other receivables of $12.1 million as of March 31, 2012. Accounts receivable as of December 31, 2011 included trade receivables of $41.9 million and other receivables of $29.9 million. Other receivables primarily consist of $7.3 million and $25.8 million of Canadian Harmonized Sales Tax refundable to TCM as of March 31, 2012 and December 31, 2011, respectively.

 

3. Inventory

 

The carrying value of product inventory is as follows:

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

Finished product

 

$

55.1

 

$

50.3

 

Work-in-process

 

25.2

 

25.7

 

Stockpiled ore

 

4.1

 

1.9

 

 

 

$

84.4

 

$

77.9

 

 

As of March 31, 2012, the carrying value of our inventory exceeded the market value.  Total write-downs were $11.1 million for the three months ended March 31, 2012. The write-down of inventory has been included in operating expenses in the accompanying consolidated statements of operations and comprehensive income for the three months ended March 31, 2012.  No such write-down occurred in the comparative period in the prior year.

 

5



Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

4. Property, Plant, Equipment and Development

 

Property, plant, equipment and development is comprised of the following:

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

Mining properties

 

$

1,166.5

 

$

1,141.2

 

Mining equipment

 

804.0

 

355.0

 

Processing facilities

 

135.8

 

135.8

 

Construction in progress

 

748.1

 

972.8

 

Other

 

9.3

 

11.3

 

 

 

2,863.7

 

2,616.1

 

Less: Accumulated depreciation, depletion and amortization

 

(273.3

)

(256.7

)

 

 

$

2,590.4

 

$

2,359.4

 

 

The construction in progress balance includes nil and $403.5 million related to the mill expansion project at the Endako Mine and $711.9 million and $553.8 million related to the Mt. Milligan project as of March 31, 2012 and December 31, 2011, respectively.  No depreciation is currently being recognized on construction in progress related to the Mt. Milligan project as it has not been completed or placed into service.

 

5. Derivative Financial Instruments

 

TCM enters into various derivative financial instruments in its normal course of operations.  None of TCM’s derivative instruments are treated as hedges for accounting purposes, and all are recorded on the consolidated balance sheet at fair value with changes in fair value recorded to the consolidated statements of operations and comprehensive income, except those contracts for which TCM has elected to apply the normal purchases and normal sales scope exception. TCM is exposed to credit loss when counterparties with which it has entered into derivative transactions are unable to pay. To reduce counterparty credit exposure, TCM deals only with large credit-worthy financial institutions and companies and limits credit exposure to each. TCM believes the counterparties to the contracts to be credit-worthy entities, and therefore, TCM believes credit risk of counterparty non-performance is relatively low.  For information regarding the nature and types of TCM’s derivatives, see the references noted in the following tables.

 

The following table summarizes the location and fair value amounts of all derivative financial instruments in the consolidated balance sheets:

 

 

 

 

 

Fair Value

 

 

 

 

 

March 31,

 

December 31,

 

Derivative Type

 

Balance Sheet Classification

 

2012

 

2011

 

Derivative assets

 

 

 

 

 

 

 

Forward currency contracts(a) 

 

Prepaid expense and other current assets

 

 

1.6

 

Total derivative assets

 

 

 

$

 

$

1.6

 

Derivative liabilities

 

 

 

 

 

 

 

Commodity contract(b)

 

Other current liabilities

 

0.1

 

 

Common stock purchase warrant derivatives(c)

 

Common stock purchase warrant derivatives

 

3.0

 

3.0

 

Total derivative liabilities

 

 

 

$

3.1

 

$

3.0

 

 

6



Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

The following table sets forth the gains (losses) on derivative instruments for the three months ended March 31, 2012 and 2011:

 

 

 

 

 

Gain/(loss)

 

 

 

 

 

for the Three Months Ended

 

Derivative

 

Statement of Operations

 

March 31,

 

March 31,

 

Type

 

Classification

 

2012

 

2011

 

Provisionally-priced sales(d)

 

Molybdenum sales

 

$

 

$

(0.1

)

Provisionally-priced purchases(d)

 

Operating expenses

 

 

(0.4

)

Commodity contract(b)

 

Operating expenses

 

0.1

 

 

Fixed-priced contracts(e)

 

Molybdenum sales

 

 

(0.4

)

Forward currency contracts(a)

 

(Loss) gain on foreign exchange

 

1.4

 

0.6

 

Common stock purchase warrant derivatives(c)

 

Change in fair value of common stock purchase warrants

 

(0.1

)

66.0

 

 

 

 

 

$

1.4

 

$

65.7

 

 

(a)                               Forward Currency Contracts

 

TCM transacts business in various currencies in the normal course of its operations and for capital expenditures.  In addition, with all of its revenues denominated in U.S. dollars, TCM has on-going foreign exchange risk with respect to its Canadian operations.  To help mitigate this risk, TCM, from time to time, enters into various derivative instruments such as foreign currency forward contracts, options and collars. The terms of these instruments are typically less than one year.  TCM records its currency contracts at fair value using a market approach based on observable quoted exchange rates and contracted notional amounts.  As of March 31, 2012, TCM had no open foreign currency contracts.

 

(b)                               Commodity Contract

 

TCM has commodity risk related to its natural gas purchases. To manage this risk, TCM has entered into a commodity forward contract with a supplier. TCM records the fair value of this contract using a market approach based on quoted New York Mercantile Exchange rates. This derivative contract is not designated as a cash flow hedge. Therefore, the periodic change in fair value of this contract is recorded directly to earnings.

 

(c)                                Common Stock Purchase Warrant Derivatives

 

TCM accounts for its common stock purchase warrants as derivative liabilities with the changes in fair value recorded to earnings.

 

The following table summarizes common share warrant transactions during the current period:

 

 

 

Number of Warrants

 

 

 

(000’s)

 

Balance, December 31, 2011

 

7,621

 

Warrants exercised

 

(94

)

Balance, March 31, 2012

 

7,527

 

 

As of March 31, 2012, there were approximately 7.5 million warrants (the “Terrane Warrants”) issued by Terrane Metals Corp. (“Terrane”) outstanding that expire in June 2012.

 

For the three months ended March 31, 2012, TCM recorded a negligible non-cash increase to common stock representing the fair value of warrants exercised.

 

7



Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

(d)                               Provisionally-Priced Contracts

 

Certain molybdenum sales contracts provide for provisional pricing as specified in such contracts.  These sales contain an embedded derivative related to the provisional pricing mechanism, which is bifurcated and accounted for as a derivative.

 

TCM also enters into provisionally-priced molybdenum purchase contracts that also contain an embedded derivative, which is bifurcated and accounted for as a derivative.  Changes to the fair values of the embedded derivatives related to provisionally-priced molybdenum purchases are included in operating expenses in the consolidated statements of operations and comprehensive income as the product is sold.

 

TCM determines the fair value of its provisionally-priced contracts using a market approach based upon observable inputs from published market prices and contract terms.

 

The following table sets forth TCM’s outstanding provisionally-priced contracts as of March 31, 2012, which all mature in 2012:

 

 

 

Pounds to be

 

 

 

Sold/Purchased

 

 

 

(000’s lb)

 

Provisionally-priced sales

 

79

 

Provisionally-priced purchases

 

1,230

 

 

(e)                                Fixed-Priced Contracts

 

TCM’s results of operations and operating cash flows are affected by changes in market prices for mineral products. To mitigate a portion of this risk, TCM enters into certain mineral product sales contracts pursuant to which it sells future production at fixed prices. These fixed prices may be different than the quoted market prices at the date of sale. Substantially all of the fixed-priced forward molybdenum sales contracts in place at March 31, 2012 cover the period through December 31, 2012.

 

The following table sets forth TCM’s outstanding fixed-priced molybdenum sales contracts as of March 31, 2012:

 

 

 

March 31,

 

 

 

2012

 

Molybdenum committed (000’s lb)

 

13

 

Average price ($/lb)

 

$

19.00

 

 

6. Fair Value Measurement

 

US GAAP accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standards establish a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

 

Level 1

 

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2

 

Quoted prices in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3

 

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

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Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

The following table sets forth TCM’s liabilities measured at fair value by level within the fair value hierarchy. As required, liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. TCM did not have financial assets requiring fair value measurement at March 31, 2012.

 

 

 

Fair Value at March 31, 2012

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

 

Senior unsecured notes

 

$

323.1

 

 

 

323.1

 

Commodity contract

 

0.1

 

0.1

 

 

 

Common stock purchase warrant derivatives

 

3.0

 

3.0

 

 

 

 

 

$

326.2

 

$

3.1

 

$

 

$

323.1

 

 

 

 

Fair Value at December 31, 2011

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Foreign currency contracts

 

$

1.6

 

 

1.6

 

 

 

 

$

1.6

 

$

 

$

1.6

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior unsecured notes

 

$

309.0

 

$

 

$

 

$

309.0

 

Common stock purchase warrant derivatives

 

3.0

 

3.0

 

 

 

 

 

$

312.0

 

$

3.0

 

$

 

$

309.0

 

 

The sensitivity to changes in the unobservable inputs and their impact on the fair value measurement of Senior Unsecured Notes can be significant.  The significant unobservable inputs for the Senior Unsecured Notes are risk-free interest rates and credit spread assumptions.  The risk-free interest rate is negatively correlated to the fair value measure. An increase (decrease) in risk-free interest rates will lower (increase) the fair value measure.  The credit spread is negatively correlated to the fair value measure.  An increase (decrease) in the credit spread will decrease (increase) the fair value measure.

 

There were no transfers into or out of Level 3.  TCM’s policy is to recognize transfers into and out of Level 3 as of the actual date of the event or change in circumstances.

 

7.  Capital Lease

 

On March 30, 2011, TCM entered into an equipment financing facility, which was amended and restated on December 9, 2011 (“the Equipment Facility”) pursuant to which Caterpillar Financial Services Limited (“Caterpillar”) agreed to underwrite up to $132.0 million in mobile fleet equipment financing for the Mt. Milligan project. Each borrowing under the Equipment Facility represents a capital lease and will have a term of 60 months. Interest on the amounts borrowed under the Equipment Facility is payable at either floating or fixed rates, at TCM’s option. TCM’s ability to borrow under the Equipment Facility terminates 33 months following its effective date (or such later date as may be agreed upon by Caterpillar), and any unused commitments under the Equipment Facility will then terminate and no longer be available to TCM. At the end of each 60-month lease period, TCM has the option to purchase the underlying equipment for a nominal sum. The Equipment Facility includes both standard financial and non-financial covenants, including ratio tests for leverage and interest coverage. As of March 31, 2012, TCM had $8.2 million in outstanding borrowings under the Equipment Facility and was in compliance with its covenants. Interest pertaining to the Equipment Facility is allocable to the cost of developing mining properties and is capitalized until assets are ready for their intended use.

 

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Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

8. Debt

 

TCM’s total debt consists of the following:

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

Senior unsecured notes

 

$

350.0

 

$

350.0

 

Equipment loans

 

14.7

 

16.1

 

Other

 

0.3

 

0.6

 

Total debt

 

365.0

 

366.7

 

Less: Current portion

 

(5.7

)

(5.7

)

Total long-term debt

 

$

359.3

 

$

361.0

 

 

7.375% Senior Unsecured Notes

 

On May 20, 2011, TCM issued $350 million of 7.375% senior unsecured notes (the “Notes”).  The proceeds received in the offering were $339.9 million, which were net of financing fees of $10.1 million.  TCM is utilizing the net proceeds from the Notes offering to fund the development of Mt. Milligan and for general working capital purposes.  The Notes are redeemable at TCM’s option, in whole or in part, at any time on or after June 1, 2014.  The Notes mature on June 1, 2018 and accrue interest from May 20, 2011 until maturity at a fixed rate of 7.375% per year.  Interest is payable in cash semi-annually in arrears on June 1 and December 1, and the first interest payment occurred on December 1, 2011.  For the three months ended March 31, 2012, TCM capitalized $7.0 million of the interest and debt issuance costs associated with the Notes.

 

For purposes of the fair market value disclosed in Note 6, the carrying values of the Notes as of March 31, 2012 and December 31, 2011, were higher than the fair values of approximately $323.1 million and $309.0 million, respectively.  TCM determined the fair values of the Notes using a discounted cash flow valuation model, consisting of inputs such as risk-free interest rates and credit spreads.

 

The Notes are guaranteed on a senior basis by substantially all of TCM’s subsidiaries.  The Notes include both standard financial and non-financial covenants, including, among others, limitations on incurring additional indebtedness, making restricted payments, and allowing new liens.  As of March 31, 2012, TCM was in compliance with these covenants.

 

Credit Facility

 

As of March 31, 2012, TCM has in place a senior secured revolving credit agreement (the “Credit Agreement”).  On February 24, 2011, TCM entered into the First Amendment to the Credit Agreement, which increased the facility from $290 million to $300 million.  Subsequently on May 20, 2011, TCM entered into the Second Amendment to the Credit Agreement to, among other things, allow for the issuance of the Notes.  Subsequently, on December 13, 2011, and concurrent with the amended and restated purchase and sale agreement with Royal Gold Inc., TCM entered into the Third Amendment to the Credit Agreement to, among other things, allow for the amended and restated purchase and sale agreement with Royal Gold Inc. as described in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and to amend certain financial covenants and non-financial covenants, including ratio tests for leverage and interest coverage, as well as the liquidity test to be met at the time of any drawdown.  The obligations of TCM under the Credit Agreement are secured by a senior lien on substantially all of the tangible and intangible assets of TCM.  As of March 31, 2012, TCM was in compliance with the Credit Agreement’s financial covenants.

 

In February 2012, our reclamation costs at TC Mine in the form of surety bonds increased from $25.5 million to $42.3 million.  In March 2012, reclamation costs at Endako Mine increased from $5.2 million, our 75% share, to $11.6 million.  The $11.6 million was issued in the form of a letter of credit under our Credit Agreement, and the original $5.2 million reclamation deposit was released. As of March 31, 2012, TCM had no outstanding borrowings under the Credit Agreement and had issued and outstanding $24.5 million in letters of credit under the Credit Agreement. Commitment fees for the three months ended March 31, 2012 related to the Credit Agreement were $0.7 million.

 

Mobile Mining Equipment Loans

 

On December 8, 2010, TCM executed an equipment financing agreement in the amount of $12.8 million secured by six units of mobile mining equipment purchased by TCM during the 2010 year. This fixed rate loan bears interest at 3.6%, is scheduled to

 

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THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

mature no later than December 8, 2015 and has an outstanding payable amount of $9.8 million as of March 31, 2012. TCM has an additional fixed rate loan bearing interest at 5.9% that is scheduled to mature no later than October 31, 2013 and has an outstanding payable of $4.9 million as of March 31, 2012.

 

9.  Commitments and Contingencies

 

Legal Matters

 

Below are descriptions of certain legal actions which involve certain properties of TCM.  Although the results of legal actions cannot be predicted with certainty, it is the opinion of management that the resolution of these actions are not likely to have a material adverse effect on TCM’s future consolidated financial position, results of operations or cash flows.

 

In January, August and December of 2010, the Nak’azdli First Nation commenced separate legal proceedings against Federal or Provincial governments in Canada asserting that it was not adequately consulted by such governments before Terrane was granted various approvals relating to the Mt. Milligan project.  No claim of wrongdoing on the part of TCM or Terrane is alleged, and no claim for damages against TCM or Terrane is sought in any of such proceedings. TCM is not a party in any of the proceedings. Terrane has been added as a participant in two of these proceedings because the relief that is sought in the proceedings would, if granted, have the potential to affect the ongoing construction of the Mt. Milligan project.

 

In May 2010, the Stellat’en First Nation filed a petition in the Supreme Court of British Columbia against the British Columbia Minister of Energy, Mines and Petroleum Resources and TCM alleging that the Endako Mine and the mill expansion project at the Endako Mine represent infringements of the aboriginal title of the petitioners and impacts to their aboriginal rights, and that the government breached its duty to consult with the Stellat’en First Nation in relation to the impacts of the Endako Mine and the mill expansion.  The petitioners sought a declaration that the Provincial Crown has not fulfilled its duty to consult with them in relation to the mill expansion project, a declaration that the mining permits and/or tenures held by TCM are invalid, an order quashing or setting aside the decision to issue a permit amendment to TCM, and an injunction prohibiting further construction or alterations relating to the mill expansion project.  The government and TCM filed materials in response to the petition, and the matter was heard by the Supreme Court of British Columbia in a hearing that took place in late February and early March of 2011.  On August 5, 2011, the Court dismissed the petitioners’ claims in full.  On August 17, 2011, the Stellat’en First Nation filed a notice of appeal from that decision to the Court of Appeal of British Columbia seeking to have the decision of the Supreme Court of British Columbia set aside and seeking an order staying the permit amendment and any future permitting until the Province has engaged in further consultation.

 

Legal Matters - Subsequent Events

 

On April 5, 2012, the Stellat’en First Nation filed a new petition in the Supreme Court of British Columbia against the British Columbia Minister of Energy, Mine and Petroleum Resources and TCM making similar allegations to those discussed above in relation to a new permit amendment and new water license granted to TCM in March 2012 for the Endako Mine.

 

On April 13, 2012, the Stellat’en First Nation, the government and TCM agreed to put the appeal and new petition, both described above, into abeyance for 120 days to allow for discussions between the Stellat’en First Nation and the government.

 

Molybdenum Purchases

 

In the normal course of operations, TCM enters into agreements for the purchase of molybdenum. As of March 31, 2012, TCM had commitments to purchase approximately 17.5 million pounds of molybdenum sulfide concentrate throughout the remainder of 2012 to 2014, to be priced at a discount to the market price for molybdenum oxide at the time of purchase.

 

Molybdenum Sales

 

In the normal course of operations, TCM enters into certain molybdenum sales contracts where it sells future production at fixed prices.  As of March 31, 2012, TCM had commitments to sell approximately 13,000 pounds of molybdenum sulfide concentrate during 2012 at an average price of $19.00 per pound.

 

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Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

Capital Purchase Commitments

 

As of March 31, 2012, TCM had open purchase orders, contracts and capital purchase commitments of $396.3 million for engineering and equipment related to the development of Mt. Milligan and $3.1 million related to the mill expansion at the Endako Mine.

 

Guarantees

 

As discussed in the 2011 Form 10-K, on December 9, 2009, TCM entered into a credit support agreement with British Columbia Hydro and Power Authority (“BC Hydro”) related to the mill expansion project at the Endako Mine. Under this agreement, TCM is required to post financial assurance in an amount equal to BC Hydro’s estimated out-of-pocket costs for work on the Endako mill expansion project.  Subsequent to the commissioning of the new mill and subject to annual measurements of BC Hydro’s incremental revenues following the mill’s commissioning, some or all of this financial assurance may, thereafter, be released in amounts equal to the incremental revenues generated until such time as the full amount of financial assurance has been released or until such time as the expiration period has been reached. The amount of the guarantee as of March 31, 2012 was C$16.5 million. As part of the financial guarantee, TCM provided a surety bond for C$11.2 million for additional financial assurance to BC Hydro.  The surety bond can be drawn down in the event of a shortfall in incremental revenues after the commissioning of the new mill facility.  At this time, TCM does not anticipate having to post any additional financial assurance with respect to the BC Hydro credit support agreement.

 

As of March 31, 2012, a shortfall in Endako’s future electric power usage that would result in incremental payments to BC Hydro is not deemed to be probable.  As such, no accrual has been recorded. An accrual for any expected shortfall will be recorded if and when it is determined that a shortfall is probable and a reasonable estimate can be made.

 

10.  Stock-Based Compensation

 

On May 6, 2010, TCM’s shareholders approved the 2010 Long-Term Incentive Plan (“LTIP”) and the 2010 Employee Stock Purchase Plan (“ESPP”).  The LTIP allows TCM to grant stock options, share appreciation rights, restricted shares, restricted share units, performance share units, or shares as bonus compensation.  As of March 31, 2012, TCM has granted stock options, performance share units (“PSUs”) and restricted share units (“RSUs”) under the LTIP, as discussed below.

 

a)                                    Stock Options

 

The expiration date and vesting provisions of options granted are established at the time an award is made. Options may be exercised by the holder upon vesting of the option award. When an option is exercised, TCM issues the requisite shares from authorized but unissued common stock. The exercise price of option grants awarded is equal to the weighted-average trading price of the underlying shares over the five consecutive trading days immediately before the award date.

 

The following table summarizes stock option activity during the three months ended March 31, 2012:

 

 

 

 

 

Weighted-Average

 

 

 

Shares (000’s)

 

Exercise Price (C$)

 

Stock options outstanding at January 1, 2012

 

2,989

 

$

12.72

 

Granted

 

31

 

7.11

 

Exercised

 

(35

)

7.12

 

Canceled/expired

 

(259

)

10.57

 

Stock options outstanding at March 31, 2012

 

2,726

 

$

13.20

 

 

For the three months ended March 31, 2012 and 2011, TCM recorded compensation expense related to stock options of $0.3 million and $1.3 million, respectively.

 

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Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

b)                                    Performance Share Units

 

The following table summarizes the PSU activity during the three months ended March 31, 2012:

 

 

 

 

 

Weighted-Average

 

 

 

Shares (000’s)

 

Fair Value (US$)

 

Outstanding at January 1, 2012

 

495

 

$

11.91

 

PSUs Granted

 

381

 

12.01

 

Outstanding at March 31, 2012

 

876

 

$

11.95

 

 

The vesting of PSUs outstanding as of January 1, 2012 is contingent upon employee service and the performance of TCM’s share price relative to the established award price.  At each anniversary date during the vesting period, if the per share closing price of TCM’s common stock on such date is at or higher than the award price, then the awards will vest one-third, and the requisite shares will be issued.  If the closing price is less than the award price, and, therefore, the share price condition is not achieved, then those PSUs do not vest and are carried forward to the following anniversary date.  Any PSUs not vested at the end of the three-year vesting period will expire.

 

The vesting of the PSUs granted during the first quarter of 2012 is contingent upon two performance metrics:  1) the Company Total Shareholder Return (TSR) relative to the Russell 2000 Index as measured by the Relative TSR performance percentage as set forth by the plan administrator, and 2) the replaced proven and probable mine reserves as measured by the replacement reserves percentage as set forth by the plan administrator.  These units cliff vest three years from the date of issuance.

 

All PSUs granted are accounted for at fair value using a Monte Carlo simulation valuation model on the date of grant.  The Monte Carlo model is based on random projections of stock price paths.  For the three months ended March 31, 2012 and 2011, TCM recorded compensation expense related to the PSUs of $0.6 million and $0.3 million, respectively.

 

c)                                                     Restricted Stock Units

 

The following table summarizes the RSU activity during the three months ended March 31, 2012:

 

 

 

 

 

Weighted-Average

 

 

 

Shares (000’s)

 

Fair Value (US$)

 

Outstanding at January 1, 2012

 

306

 

$

10.33

 

RSUs granted

 

413

 

8.82

 

Canceled/expired

 

(18

)

10.53

 

Outstanding at March 31, 2012

 

701

 

$

9.43

 

 

TCM accounts for RSUs at fair value, which is based on the market value of TCM’s common shares on the day of grant and recognized over the vesting period of three years.  Upon vesting, TCM will issue the requisite shares.  TCM recorded $0.4 million and $0.2 million of compensation expense related to its RSUs for the three months ended March 31, 2012 and 2011, respectively.

 

11.  Income and Mining Taxes

 

Income and mining taxes for the three months ended March 31, 2012 was a benefit of $12.1 million compared to the three months ended March 31, 2011 expense of $12.0 million. The tax benefit/expense differ from the tax that would result from applying the Canadian federal and provincial income tax rates primarily due to the US percentage depletion benefit and the pre-tax book loss (which was primarily attributable to Canadian operations) in the first quarter of 2012 and the US percentage depletion benefit and the non-taxable gain due to the change in the fair value of TCM’s common stock purchase warrants in the first quarter of 2011.  The tax benefit for the three months ended March 31, 2012 was also impacted by an immaterial correction of $1.8 million related to the British Columbia mineral tax associated with TCM’s share of the expansion costs at the Endako mine. The adjustment relates to the quarter ended December 31, 2011.

 

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Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

12. Net Income per Share

 

The following is a reconciliation of net income and weighted-average common shares outstanding for purposes of calculating diluted net income per share for the three months ended March 31, 2012 and 2011:

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Net income

 

$

1.1

 

$

128.9

 

Basic weighted-average number of shares outstanding

 

168.1

 

165.6

 

Effect of dilutive securities

 

 

 

 

 

Common stock purchase warrants

 

0.4

 

8.9

 

Share based awards

 

 

2.0

 

Diluted weighted-average number of shares outstanding

 

168.5

 

176.5

 

Net income per share

 

 

 

 

 

Basic

 

$

0.01

 

$

0.78

 

Diluted

 

$

0.01

 

$

0.73

 

 

For the three months ended March 31, 2012, approximately 2.5 million of stock options, 0.9 million of PSUs, and 0.7 million of RSUs were excluded from the computation of diluted weighted-average shares as the exercise prices exceeded the average price of TCM’s common stock for the period.

 

For the three months ended March 31, 2011, approximately 1.0 million of stock options were excluded from the computation of diluted weighted-average shares as the exercise prices exceeded the average price of TCM’s common stock for the period.

 

13. Related Party Transactions

 

Total sales to members of a group of companies affiliated with the other participant in the Endako Mine joint venture were $33.7 million and $52.5 million for the three months ended March 31, 2012 and 2011, respectively. This represented 29.7% and 25.4% of TCM’s total revenues for the three months ended March 31, 2012 and 2011, respectively.

 

For both the three months ended March 31, 2012 and 2011, TCM recorded management fee income of $0.1 million and selling and marketing expenses of $0.2 million from this group of companies.

 

As of March 31, 2012 and December 31, 2011, TCM’s accounts receivable included $8.7 million and $6.8 million, respectively, owing from this group of companies.

 

14. Supplementary Cash Flow Information

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Change in working capital accounts:

 

 

 

 

 

Accounts receivable

 

$

20.2

 

$

(33.2

)

Product inventory

 

(17.4

)

7.6

 

Material and supplies inventory

 

1.4

 

(0.6

)

Prepaid expense and other current assets

 

(2.2

)

2.4

 

Income tax receivable

 

0.7

 

5.8

 

Accounts payable and accrued liabilities

 

(17.8

)

9.1

 

Income and mining taxes payable

 

1.2

 

11.4

 

 

 

$

(13.9

)

$

(2.5

)

Cash interest paid

 

$

0.2

 

$

0.2

 

Cash income taxes paid

 

$

2.2

 

$

 

Change in capital expenditure accrual

 

$

20.3

 

$

28.5

 

 

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Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

15. Concentration of Credit Risk

 

TCM is exposed to counterparty risk from its cash and cash equivalent balances, its short-term cash investments, and its reclamation deposits held by financial institutions and governmental entities. TCM monitors its positions with, and the credit quality of, the financial institutions and companies in which it invests its cash, cash equivalents and short-term investments, and that hold its reclamation deposits. Counterparties to cash balances, investments and its reclamation deposits, other than balances maintained in various bank operating accounts, are US and Canadian institutions and the US and Canadian governments. TCM’s investment policy limits investments to government-backed financial instruments, commercial paper, and other investments meeting the guidelines of its investment policy.

 

TCM manages its credit risk from its accounts receivable through its collection activities. As of March 31, 2012, TCM had 4 customers which owed TCM more than $3.0 million and accounted for approximately 47.2% of all receivables outstanding. Another 5 customers had balances greater than $2.0 million but less than $3.0 million that accounted for approximately 11.4% of total receivables.  All of these customers were compliant with credit terms and scheduled payment dates.

 

TCM’s maximum counterparty and credit risk exposure is the carrying value of its cash and accounts receivable. The carrying amounts of accounts receivable, accounts payable, accrued liabilities, and fixed rate debt, excluding the Notes, as discussed in Note 6, approximate fair value as of March 31, 2012.

 

16. Segment Information

 

TCM has three reportable segments, based on products and geography: US Operations Molybdenum, Canadian Operations Molybdenum, and Copper-Gold (Development). The US Operations Molybdenum segment includes all mining, milling, mine site administration, roasting and sale of molybdenum products from the TC Mine and the Langeloth Facility, as well as all roasting and sales of third-party purchased material. The Canadian Operations Molybdenum segment includes all mining, milling, mine site administration, roasting and sale of molybdenum products from the 75% owned Endako Mine. The Copper-Gold (Development) segment includes all development expenditures and development site administration from Mt. Milligan. The Inter-segment represents the elimination of management fee income, revenue, and cost of sales of product transported from the Canadian Operations to the US Operations for processing.

 

TCM’s chief operating decision makers (Chief Executive Officer and Chief Operating Officer) evaluate segment performance based on segment revenue less costs and expenses. TCM attributes other income and expenses to the reporting segments if the income or expense is directly related to segment operations, as described above. TCM does not allocate corporate expenditures such as general and administrative, exploration, and interest income and expense items to its reporting segments, unless such expenditures are directly related to segment operations.  Segment information for the three months ended as of March 31, 2012 and 2011 is as follows:

 

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Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

For the three months ended March 31, 2012:

 

 

 

US

 

Canadian

 

 

 

 

 

 

 

 

 

Operations

 

Operations

 

Copper-Gold

 

Inter-

 

 

 

 

 

Molybdenum

 

Molybdenum

 

(Development)

 

segment

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Molybdenum sales

 

$

84.5

 

$

25.1

 

$

 

$

 

$

109.6

 

Tolling, calcining and other

 

4.0

 

 

 

 

4.0

 

 

 

88.5

 

25.1

 

 

 

113.6

 

Cost and expenses

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

70.9

 

31.5

 

 

 

102.4

 

Selling and marketing

 

1.0

 

0.8

 

 

(0.3

)

1.5

 

Depreciation, depletion and amortization

 

5.7

 

10.5

 

 

 

16.2

 

Accretion expense

 

0.4

 

0.1

 

 

 

0.5

 

 

 

78.0

 

42.9

 

 

(0.3

)

120.6

 

Segment revenue less costs and expenses

 

10.5

 

(17.8

)

 

0.3

 

(7.0

)

Other segment expenses

 

 

 

 

 

 

 

 

 

 

 

Loss (gain) on foreign exchange

 

(0.6

)

(0.9

)

(3.0

)

 

(4.5

)

Segment income (loss) before income and mining taxes

 

$

11.1

 

$

(16.9

)

$

3.0

 

$

0.3

 

$

(2.5

)

 

For the three months ended March 31, 2011:

 

 

 

US

 

Canadian

 

 

 

 

 

 

 

 

 

Operations

 

Operations

 

Copper-Gold

 

Inter-

 

 

 

 

 

Molybdenum

 

Molybdenum

 

(Development)

 

segment

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Molybdenum sales

 

$

167.3

 

$

35.1

 

$

 

$

 

$

202.4

 

Tolling, calcining and other

 

4.3

 

 

 

 

4.3

 

 

 

171.6

 

35.1

 

 

 

206.7

 

Cost and expenses

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

72.1

 

25.9

 

 

 

98.0

 

Selling and marketing

 

1.8

 

1.0

 

 

(0.4

)

2.4

 

Depreciation, depletion and amortization

 

10.0

 

8.1

 

 

 

18.1

 

Accretion expense

 

0.4

 

0.1

 

 

 

0.5

 

 

 

84.3

 

35.1

 

 

(0.4

)

119.0

 

Segment revenue less costs and expenses

 

87.3

 

 

 

0.4

 

87.7

 

Other segment expenses

 

 

 

 

 

 

 

 

 

 

 

Loss (gain) on foreign exchange

 

 

0.7

 

 

 

0.7

 

Segment income (loss) before income and mining taxes

 

$

87.3

 

$

(0.7

)

$

 

$

0.4

 

$

87.0

 

 

16



Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

Notes to the Consolidated Financial Statements — Unaudited

(US dollars in millions, except per share amounts)

 

Reconciliation of segment income to net income

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Segment (loss) income

 

$

(2.5

)

$

87.0

 

Other (income) expense

 

 

 

 

 

Change in fair value of common stock purchase warrants

 

0.1

 

(66.0

)

General and administrative

 

8.1

 

7.9

 

Exploration

 

0.8

 

3.6

 

Interest expense, net

 

1.3

 

0.9

 

(Gain) on foreign exchange

 

(2.1

)

(0.4

)

Corporate depreciation

 

0.6

 

0.3

 

Other

 

(0.3

)

(0.2

)

(Loss) income before income and mining taxes

 

(11.0

)

140.9

 

Income and mining tax (benefit) expense

 

(12.1

)

12.0

 

Net income

 

$

1.1

 

$

128.9

 

 

Other segment information regarding capital expenditures, assets and liabilities, including the assets and liabilities attributed

to corporate operations, is as follows:

 

 

 

US

 

Canadian

 

 

 

 

 

 

 

 

 

Operations

 

Operations

 

Copper-Gold

 

 

 

 

 

As of March 31, 2012

 

Molybdenum

 

Molybdenum

 

(Development)

 

Corporate

 

Total

 

Property, Plant, Equipment and Development(1)

 

$

4.9

 

$

42.1

 

$

140.8

 

$

0.1

 

$

187.9

 

Capital assets

 

$

291.5

 

$

740.0

 

$

1,552.7

 

$

6.2

 

$

2,590.4

 

Goodwill

 

$

47.0

 

$

 

$

 

$

 

$

47.0

 

Assets

 

$

583.3

 

$

815.0

 

$

1,605.3

 

$

79.5

 

$

3,083.1

 

Liabilities

 

$

92.1

 

$

128.9

 

$

698.7

 

$

403.5

 

$

1,323.2

 

 

 

 

US

 

Canadian

 

 

 

 

 

 

 

 

 

Operations

 

Operations

 

Copper-Gold

 

 

 

 

 

As of March 31, 2011

 

Molybdenum

 

Molybdenum

 

(Development)

 

Corporate

 

Total

 

Property, Plant, Equipment and Development(1)

 

$

5.1

 

$

48.4

 

$

38.1

 

$

1.3

 

$

92.9

 

Capital assets

 

$

283.3

 

$

564.8

 

$

977.1

 

$

6.0

 

$

1,831.2

 

Goodwill

 

$

47.0

 

$

 

$

 

$

 

$

47.0

 

Assets

 

$

695.8

 

$

711.0

 

$

997.6

 

$

59.3

 

$

2,463.7

 

Liabilities

 

$

127.6

 

$

153.2

 

$

447.2

 

$

138.8

 

$

866.8

 

 


(1)  Property, Plant, Equipment and Development are for the three months ended March 31.

 

17.  Guarantor Financial Information

 

TCM has not presented separate combined financial statements of subsidiary guarantors that guarantee its Senior Unsecured Notes issued and outstanding by TCM, because (1) each of the subsidiary guarantors is wholly owned by TCM, (2) the guarantees are full and unconditional, (3) the guarantees are joint and several, and (4) TCM has no independent assets and operations, and all subsidiaries of TCM other than the subsidiary guarantors are minor.

 

Pursuant to the indenture governing the Notes, a guarantor may be released from its guarantee obligations only under certain customary circumstances specified in the indenture, namely upon (1) the sale or other disposition (including by way of merger, amalgamation or consolidation) of such guarantor, (2) a release or discharge of such guarantor from its guarantee under the Credit Agreement and certain other indebtedness, (3) the designation of such guarantor as an unrestricted subsidiary for covenant purposes in accordance with the terms of the indenture, (4) upon a legal defeasance or covenant defeasance pursuant, or (5) upon the full satisfaction of our obligations under the indenture.

 

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Table of Contents

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

This Management’s Discussion and Analysis (“MD&A”) provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Thompson Creek Metals Company Inc. and its subsidiaries (collectively, “Thompson Creek,” “TCM,” “we,” “us,” and “our”) for the three months ended March 31, 2012, and should be read in conjunction with TCM’s interim financial statements and the notes thereto included in Item 1 herein and the discussion of “Risk Factors” included in Part II, Item 1A herein. Additionally, the following discussion should be read in conjunction with the consolidated financial statements, the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the discussion of “Risk Factors” and the discussion of TCM’s “Business and Properties” in our Annual Report on Form 10-K for the year ended December 31, 2011.

 

The results of operations reported and summarized below are not necessarily indicative of future operating results. References to “Notes” are Notes included in the “Notes to Consolidated Financial Statements” in Item 1 herein. Throughout the MD&A, all references to earnings or losses per share are on a diluted basis, unless otherwise noted.  The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”).  All dollar amounts are expressed in United States dollars (“US$”) unless otherwise indicated. References to C$ refer to Canadian dollars. Additional information on TCM is available on EDGAR at www.sec.gov and on SEDAR at www.sedar.com.

 

Forward-looking Statements

 

Certain statements in this report (including information incorporated by reference) are “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and applicable Canadian securities legislation.  These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.  Our forward looking statements include, without limitation: estimates of future capital expenditures and other cash needs for operations, including with respect to the development of Mt. Milligan, and expectations as to the funding thereof; statements as  to the projected development of Mt. Milligan and other projects, including expected production commencement dates; estimates of future mineral production and sales, including statements with respect to expected production from the Endako Mine; statements regarding future earnings and operating results, and the sensitivity of earnings to molybdenum prices; estimates of future production costs and other expenses for specific operations and on a consolidated basis; estimates of mineral reserves and resources, including estimated mine life and annual production; statements with respect to our future financial or operating performance or our subsidiaries and our projects; and statements with respect to the costs and timing of future exploration projects and the development of new deposits, including the Berg property and the Davidson property.

 

Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis.  However, our forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from future results expressed, projected or implied by those forward-looking statements.  Important factors that could cause actual results to differ materially from those described in such forward-looking statements include mining and processing conditions, construction delays and related disruptions in production, costs of capital expenditures, industrial accidents, weather and geologically related conditions, permitting and regulatory matters (including penalties, fines, sanctions and shutdowns) and the other risks described in the discussion of “Risk Factors” included in Part II, Item 1A herein and in the section entitled ‘‘Risk Factors’’ in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, and other documents filed on EDGAR at www.sec.gov and on SEDAR at www.sedar.com.  Although we have attempted to identify those factors that could cause actual results or events to differ from those described in such forward-looking statements, there may be other factors that cause results or events to differ from those anticipated, estimated or intended.  Many of these factors are beyond our ability to control or predict.  Given these uncertainties, the reader is cautioned not to place undue reliance on our forward-looking statements.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

Overview

 

We are a growing, diversified North American mining company.   We produce molybdenum at our 100%-owned Thompson Creek Mine in Idaho and Langeloth Metallurgical Facility in Pennsylvania and our 75%-owned Endako Mine in central British Columbia.  We also are in the process of constructing the Mt. Milligan copper-gold mine in central British Columbia, which is expected to commence production in the fourth quarter of 2013.  The Company’s development projects include the Berg copper-molybdenum-silver property and the Davidson molybdenum property, both located in central British Columbia.

 

In March 2012, we completed a mill expansion project at our Endako mine, with our share of the aggregate capital expenditures totaling approximately C$500 million (including $2.3 million of our share of start-up and commissioning costs that were

 

18



Table of Contents

 

expensed through operating expenses).  The Endako mill expansion project included the construction of a new mill and replacing the existing mill constructed in the 1960s.  The new mill is designed to increase ore-processing capacity from the previous 31,000 tons per day to 55,000 tons per day.  Commissioning of the new SAG/Ball mill and rougher flotation circuit was completed in early January, followed by a successful ramp-up to commercial production beginning February 1, 2012.  The remaining construction work on the regrind circuit and the pebble crusher was completed in late March.  The mill is regularly meeting its design capacity throughput of approximately 55,000 tons per day.  Concentrate grades and recovery continue to improve and are expected to meet design specifications in the near future. The existing 45-year old mill at the site has been shut down and will be left on care and maintenance.

 

For the first quarter of 2012, we realized an operating loss of $16.5 million primarily due to the start-up and commissioning of the new mill at the Endako mine.  The operating loss was offset by $6.6 million of foreign exchange gains (most of which was an unrealized gain) and an income tax benefit of $12.1 million, resulting in net income of $1.1 million.  First quarter 2012 results included our 75% share of a lower-of-cost-or-market product inventory write-down at the Endako mine of $11.1 million and our share of Endako commissioning and start-up costs of $2.3 million that were expensed through operating expenses.  The first quarter 2012 results were impacted by significantly lower production, higher unit costs, higher unit depreciation, lower sales volumes and lower average realized prices compared to the first quarter of 2011, as well as significant stripping costs at the Thompson Creek mine associated with the ongoing mine pit sequencing.

 

At March 31, 2012, our future estimated cash capital project expenditures total approximately $842.4 million to $972.4 million for the Mt. Milligan project together with the remaining cash payments for the Endako mill expansion (Canadian to US foreign exchange rate is assumed to be C$1.00 = US$1.00). At March 31, 2012, we have $162.7 million of consolidated cash on hand, the remaining expected proceeds from Royal Gold under an amended gold stream arrangement of $171.9 million, $123.8 million of undrawn capacity under an equipment lease financing for the mobile mining fleet at Mt. Milligan, a $275.5 million undrawn revolving credit facility and our ongoing expected cash flow from operations.  To ensure the completion of the Mt. Milligan project, we expect to secure additional financings to meet our liquidity needs. In connection therewith, we would expect to secure an amendment to our Credit Agreement.

 

Highlights First Quarter 2012

 

·                  Net income for the first quarter of 2012 was $1.1 million, or $0.01 per share, which included a non-cash unrealized loss on common stock purchase warrants of $0.1 million, or nil per share. Net income for the first quarter of 2011 was $128.9 million, or $0.73 per share, which included a non-cash unrealized gain on common stock purchase warrants of $66.0 million, or $0.37 per share.

 

·                  Non-GAAP adjusted net income for the first quarter of 2012 was $1.2 million, or $0.01 per share, compared to non-GAAP adjusted net income of $62.9 million, or $0.36 per share, for the first quarter of 2011 (excluding the non-cash unrealized loss and gain on the warrants for 2012 and 2011, respectively).  See “Non-GAAP Financial Measures” below for the definition and reconciliation of adjusted net income.  Non-cash unrealized gains and losses on common stock purchase warrants result from a requirement under US GAAP to account for outstanding common stock purchase warrants as derivatives, with changes in the fair market value recorded in net income.

 

·                  Consolidated revenues for the first quarter of 2012 were $113.6 million, or a decrease of 45.0% from $206.7 million in the first quarter of 2011 primarily as a result of a decrease in molybdenum pounds sold and a lower average realized sales price.  Sales volumes in the first quarter of 2012 decreased 36.1% over the first quarter of 2011.  The average realized molybdenum sales price for the first quarter of 2012 was $14.74 per pound, down 15.2% from $17.39 per pound for the first quarter of 2011.

 

·                  Mined molybdenum production in the first quarter of 2012 was 4.4 million pounds, down 57.2% from 10.3 million pounds in the first quarter of 2011 primarily due to lower production from TC Mine as a result of a higher stripping ratio associated with the ongoing mine pit sequencing and lower production from Endako Mine due to the start-up and commissioning of the new mill, combined with significantly lower ore grade and recovery rates at both of our mines.

 

·                  Non-GAAP average cash cost per pound produced for the first quarter of 2012 was $12.95 per pound, compared to $5.37 per pound for the first quarter of 2011.  The cash costs include stripping costs at TC Mine of $10.1 million, or $2.95 per pound, for the 2012 quarter compared to $10.0 million, or $1.15 per pound, for the 2011 quarter at TC Mine and exclude $2.3 million of start-up and commissioning costs at the Endako mine.  See “Non-GAAP Financial Measures” below for the definition and reconciliation of cash cost per pound produced.

 

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Table of Contents

 

·                  Operating cash flow for the first quarter of 2012 was $3.1 million, compared to $76.6 million in the first quarter of 2011.

 

·                  Capital costs incurred for the first three months of 2012 were $208.2 million, comprised of $164.8 million for the development of Mt. Milligan, $37.5 million of capital costs for the mill expansion project at the Endako Mine (which represents our 75% share), and $5.9 million of other capital costs for the Endako and TC Mines, the Langeloth Facility and corporate combined.  The capital costs for the first three months of 2012 included increases in accrued amounts of $20.3 million; therefore, cash used for capital expenditures for the first three months of 2012 was $187.9 million.

 

·                  Total cash and cash equivalents at March 31, 2012 were $162.7 million, compared to $294.5 million at December 31, 2011.

 

Outlook

 

Our near-term financial results can vary significantly as a result of fluctuations in the market prices of molybdenum. World market prices for molybdenum have fluctuated historically and are affected by numerous factors beyond our control. During the first quarter of 2012, the average Platts Metals Week published price for molybdenum oxide was $14.17 per pound, compared to $13.38 per pound in the fourth quarter of 2011, $14.62 per pound in the third quarter of 2011, $16.70 per pound in the second quarter of 2011 and $17.24 per pound in the first quarter of 2011. The monthly average Platts Metals Week published price for April 2012 was $14.18 per pound. We anticipate that the price for molybdenum oxide in 2012 will continue to be volatile. Any significant weakness in demand for molybdenum or reduction in molybdenum prices may have a material adverse effect on our operating results and financial condition.

 

Because we cannot control the price of molybdenum, the key operating measures that management focuses on in operating our business are production, cash costs per pound produced and capital expenditures. We continually review our operating strategy as molybdenum market conditions change.

 

We anticipate meeting our total 2012 production guidance of approximately 26 to 28 million pounds of molybdenum set forth in the table below.  However, due to inflationary pressures on diesel fuel, consumables, and electricity, we are currently tracking to the higher range of our current 2012 average cash cost guidance of approximately $7.75 to $9.00 per pound produced.  Despite our efforts to aggressively manage costs, inflationary pressures may cause actual costs to vary from current guidance. Our operating performance for the first half of 2012 is expected to be less than the operating performance for the second half of 2012. Production is expected to be higher in the second half of 2012 due to the anticipated ramp-up of production from the newly completed mill at the Endako mine together with improved ore accessibility at the TC Mine. However, waste stripping activities at the TC Mine are expected to continue throughout 2012 and 2013. The outlook for each of the key operating measures follows.

 

 

 

 

 

Years Ended December 31,

 

 

 

Three Months Ended

 

2012

 

2013

 

 

 

March 31, 2012

 

(Estimated,

 

 

 

 

 

(Actual)

 

including Q1 2012)

 

(Estimated)

 

Molybdenum Production (000’s lb): (1)

 

 

 

 

 

 

 

TC Mine

 

3,422

 

16,000 - 17,000

 

19,000 - 22,000

 

Endako Mine (75% Share)

 

1,002

 

10,000 - 11,000

 

11,000 - 12,000

 

Total molybdenum production (000’s lb)

 

4,424

 

26,000 - 28,000

 

30,000 - 34,000

 

Cash cost ($/lb produced): (2)

 

 

 

 

 

 

 

TC Mine

 

$

10.34

 

$

7.50 - 8.50

 

$

6.00 - 7.00

 

Endako Mine

 

21.87

 

 

8.25 - 9.25

 

 

8.00 - 9.00

 

Total cash cost ($/lb produced)

 

$

12.95

 

$

7.75 - 9.00

 

$

6.75 - 7.75

 

Capital Expenditures (in millions):

 

 

 

 

 

 

 

Mt. Milligan (3),(4)

 

$

140.8

 

$

750 - 825

 

$

190 - 245

 

Endako mill expansion (3),(4)

 

39.8

 

 

83

 

 

 

TC and Endako mines, Langeloth & other(3),(4)

 

7.3

 

 

35 - 40

 

 

15 - 20

 

Total capital expenditures

 

$

187.9

 

$

868 - 948

 

$

205 - 265

 

 


(1)

 

Mined production pounds reflected are molybdenum oxide and high performance molybdenum disulfide (“HPM”) from our share of production from the mines; excludes molybdenum processed from purchased product.

 

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Table of Contents

 

(2)

 

Weighted-average of TC Mine and Endako Mine (75% share) cash costs (mining, milling, mine site administration, roasting, and packaging) for molybdenum oxide and HPM produced in the period, including all stripping costs. Cash cost excludes: the effect of purchase price adjustments, the effects of changes in inventory, corporate allocations, stock-based compensation, other non-cash employee benefits, depreciation, depletion, amortization and accretion, and commissioning and start-up costs for the Endako mill. The cash cost for the TC Mine, which only produces molybdenum sulfide and HPM on site, includes an estimated molybdenum loss (sulfide to oxide), an allocation of roasting and packaging costs from the Langeloth Facility, and transportation costs from the TC Mine to the Langeloth Facility. See “Non-GAAP Financial Measures” for additional information.

 

 

 

(3)

 

Excludes capitalized interest and debt issuance costs and excludes changes in accruals of $20.3 million for the quarter ended March 31, 2012. The 2012 estimate includes our share of start-up and commissioning costs.

 

 

 

(4)

 

Canadian to US foreign exchange rate for the remainder of 2012 and the year 2013 assumed at parity (C$1.00 = US$1.00).

 

21



Table of Contents

 

Selected Consolidated Financial and Operational Information

(US$ in millions except per share and per pound amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

 

 

(unaudited)

 

Financial

 

 

 

 

 

Revenues

 

 

 

 

 

Molybdenum sales

 

$

109.6

 

$

202.4

 

Tolling, calcining and other

 

4.0

 

4.3

 

 

 

113.6

 

206.7

 

Costs and expenses

 

 

 

 

 

Operating expenses

 

102.4

 

98.0

 

Depreciation, depletion and amortization

 

16.8

 

18.4

 

Total cost of sales

 

119.2

 

116.4

 

Selling and marketing

 

1.5

 

2.4

 

Accretion expense

 

0.5

 

0.5

 

General and administrative

 

8.1

 

7.9

 

Exploration

 

0.8

 

3.6

 

Total costs and expenses

 

130.1

 

130.8

 

Operating (loss) income

 

(16.5

)

75.9

 

Other income

 

(5.5

)

(65.0

)

(Loss) income before income and mining taxes

 

(11.0

)

140.9

 

Income and mining taxes (benefit) expense

 

(12.1

)

12.0

 

Net income

 

$

1.1

 

$

128.9

 

Net income per share

 

 

 

 

 

Basic

 

$

0.01

 

$

0.78

 

Diluted

 

$

0.01

 

$

0.73

 

Cash generated by operating activities

 

$

3.1

 

$

76.6

 

Adjusted non-GAAP Measures:(1)

 

 

 

 

 

Adjusted net income(1)

 

$

1.2

 

$

62.9

 

Adjusted net income per share - basic(1)

 

$

0.01

 

$

0.38

 

Adjusted net income per share - diluted(1)

 

$

0.01

 

$

0.36

 

Operational Statistics

 

 

 

 

 

Mined molybdenum production (000’s lb)(2)

 

4,424

 

10,329

 

Cash cost ($/lb produced)(3)

 

$

12.95

 

$

5.37

 

Molybdenum sold (000’s lb):

 

 

 

 

 

Thompson Creek and Endako Mine product

 

4,871

 

10,060

 

Purchased and processed product

 

2,567

 

1,580

 

 

 

7,438

 

11,640

 

Average realized sales price ($/lb)(1)

 

$

14.74

 

$

17.39

 

 


(1)

See “Non-GAAP Financial Measures” for the definition and reconciliation of these non-GAAP measures.

 

 

(2)

Mined production pounds reflected are molybdenum oxide and high performance molybdenum disulfide (“HPM”) from our share of production from the mines; excludes molybdenum processed from purchased product.

 

 

(3)

Weighted-average of TC Mine and Endako Mine (75% share) cash costs (mining, milling, mine site administration, roasting and packaging) for molybdenum oxide and HPM produced in the period, including all stripping costs. Cash cost excludes: the effect of purchase price adjustments, the effects of changes in inventory, corporate allocations, stock-based compensation,

 

22



Table of Contents

 

 

other non-cash employee benefits, depreciation, depletion, amortization and accretion, and commissioning and start-up costs for the Endako mill. The cash cost for the TC Mine, which only produces molybdenum sulfide and HPM on site, includes an estimated molybdenum loss (sulfide to oxide), an allocation of roasting and packaging costs from the Langeloth Facility, and transportation costs from the TC Mine to the Langeloth Facility. See “Non-GAAP Financial Measures” for additional information.

 

 

 

As of

 

As of

 

 

 

March 31,

 

December 31,

 

US$ in millions except share data

 

2012

 

2011

 

Cash and cash equivalents

 

$

162.7

 

$

294.5

 

Total assets

 

$

3,083.1

 

$

2,994.2

 

Total debt, including capital lease obligations

 

$

373.2

 

$

374.9

 

Total liabilities

 

$

1,323.2

 

$

1,264.7

 

Shareholders’ equity

 

$

1,759.9

 

$

1,729.5

 

Shares outstanding (000’s)

 

168,077

 

167,964

 

 

Summary of Quarterly Results

(US$ in millions except per share and per pound amounts — unaudited)

 

 

 

Mar 31

 

Dec 31

 

Sep 30

 

Jun 30

 

Mar 31

 

Dec 31

 

Sep 30

 

Jun 30

 

 

 

2012

 

2011

 

2011

 

2011

 

2011

 

2010

 

2010

 

2010

 

Financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

113.6

 

$

116.7

 

$

154.8

 

$

190.9

 

$

206.7

 

$

156.8

 

$

161.8

 

$

148.4

 

Operating (loss) income

 

$

(16.5

)

$

(18.1

)

$

22.4

 

$

69.1

 

$

75.9

 

$

47.4

 

$

45.6

 

$

50.3

 

Net income (loss)

 

$

1.1

 

$

0.8

 

$

45.6

 

$

116.8

 

$

128.9

 

$

(45.0

)

$

31.1

 

$

126.5

 

Income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- basic

 

$

0.01

 

$

 

$

0.27

 

$

0.70

 

$

0.78

 

$

(0.28

)

$

0.22

 

$

0.90

 

- diluted

 

$

0.01

 

$