(All figures, except per share amounts, are in $US thousands unless otherwise
stated or unless context requires otherwise)
Quadra FNX Mining Ltd. (the "Company" or "Quadra FNX") (TSX:QUX) is pleased to
provide its fourth quarter and year end 2010 financial and operational results.
The Company recorded 2010 earnings of $173 million or $1.11 per share (basic)
compared to earnings of $81 million or $0.89 per share for the previous year.
The increased earnings in the current year are primarily a result of higher
average copper prices, and the increased earnings contribution from Franke and
the Sudbury operations following the merger with FNX. Adjusted earnings totalled
$225 million or $1.45 per share (basic) for the year.
In the fourth quarter of 2010 the Company recorded earnings of $58 million or
$0.30 per share (basic). Unusual items included a $33 million leach pad
inventory write down at the Carlota mine and a $22 million accounting loss on
derivatives. Fourth quarter 2010 adjusted earnings totalled $105 million or
$0.55 per share (basic).
Operating and Financial
Summary Three months ended Year ended
In millions of US dollars December December December December
(except per share data and 31, 31, 31, 31,
production data) 2010 2009 2010 2009
----------------------------------------------------------------------------
Revenues 331.9 176.1 957.7 478.6
Adjusted earnings (1) 105.1 51.0 225.4 110.1
Adjusted earnings per share
(basic) $ 0.55 $ 0.51 $ 1.45 $ 1.22
EBITDA (2) 93.1 60.3 302.1 125.9
EBITDA per share (basic) $ 0.49 $ 0.61 $ 1.95 $ 1.40
Earnings for the period 57.9 46.5 172.5 80.5
Basic earnings per share $ 0.30 $ 0.47 $ 1.11 $ 0.89
Diluted earnings per share $ 0.30 $ 0.46 $ 1.10 $ 0.89
(1) Adjusted earnings is a non-GAAP financial measure and consists of net
earnings with adjustments made to exclude derivative losses, gain on
marketable securities and investments, merger costs, inventory write
down of at Carlota and tax related items.
(2) EBITDA is a non-GAAP financial measure which is defined as earnings
attributable to shareholders before interest expenses, income taxes,
depreciation, amortization and accretion
(3) Revenues and earnings from the former FNX operations are reported only
for the period commencing May 21, 2010 (the day after the closing of the
merger with FNX Mining Ltd.).
2010 AND FOURTH QUARTER HIGHLIGHTS:
On May 20, 2010 the Company completed a merger with FNX Mining Company Inc, and
with this transaction, established a new, mid-cap Canadian mining company with
considerable financial strength and a diverse asset base. The following
financial information only includes the FNX operations since May 21, 1010 unless
otherwise stated.
-- Production for the year was 224 million pounds of copper and 148
thousand ounces of total precious metals (TPMs). Cash costs for the year
were $1.57 per pound of copper. Production in the fourth quarter
totalled 57 million pounds of copper and 39 thousand ounces of TPMs
while cash costs were $1.55 per pound of copper.
-- In 2010 total revenues increased 100% to $958 million compared to $479
million in 2009 supported by an over 30% increase in the copper price,
which ended the year at $4.42 per pound.
-- 2010 earnings increased 114% to $173 million (or $1.11 per share basic)
from $81 million (or $0.89 per share basic) in 2009.
-- Operating income from the Robinson mine increased 36% to $193 million
from $143 million in 2009.
-- The Morrison deposit achieved commercial production on September 1, 2010
and produced 7.1 million pounds of payable copper in the fourth quarter
and 19 million pounds of payable copper for the year, exceeding
expectations.
-- The Sierra Gorda Financing Study approached completion as the Company
continued discussions with potential financial partners.
-- Exploration at the Victoria property resulted in the discovery of the
Zone 4 sulphide mineralized system. Drilling has continued to add
significant confidence and a Scoping Study is underway.
-- The Company ended the year with $320 million of cash and after year end
Quadra FNX sold its holding in Gold Wheaton for initial proceeds of
C$263 million, and contingent proceeds of C$30 million.
The Robinson Mine transitioned from the Veteran to the Ruth pit, and produced
109 million pounds of copper in concentrate for the year. The Morrison deposit
delivered above plan and is expected to continue to increase production in both
2011 and 2012. Both the Franke and Carlota operations emerged at year-end with
strategies that should improve on the 2010 results. Specifically, Carlota is
transitioning to conveyor stacking while Franke is continuing to make progress
on its ongoing optimisation programs.
Paul Blythe, President and CEO of Quadra FNX comments, "In mid-2010 we
successfully completed the merger with FNX. Since then our strong financial
results have been driven by a much improved copper price environment as well as
the increase in copper production from the combined Quadra and FNX asset base.
In January 2011 we closed the sale of our Gold Wheaton shares for initial cash
proceeds of C$263 million which increased our cash balance to approximately $600
million."
"The internal Sierra Gorda Financing Study, which establishes the development
parameters for the project, remains on track for completion by the end of the
first quarter of 2011, with the NI 43-101 compliant Feasibility Study expected
to be completed in the second quarter of 2011. Discussions with potential
partners are ongoing and progressing well and we remain confident that a
favourable partnership and financing structure will be in place by mid-2011. The
environmental permit process (EIS) also remains on track for completion in June.
In the meantime, we will continue to move the project forward in accordance with
our 2014 start-up schedule, with our current focus on detailed engineering and
mining equipment acquisition."
Paul Blythe concludes; "2010 also saw the discovery of Zone 4 at Victoria, which
we view as one of the most important discoveries in the Sudbury district in
recent history. Our next step is to complete an inferred resource calculation
which will be used in our ongoing Scoping Study. We are also advancing
permitting, First Nations consultation and discussions with Vale on processing
terms and their potential back-in right. Our intention is to commence shaft
construction this year, initially for underground exploration, but ultimately
this infrastructure could also be for future production."
"This has been a pivotal year for our Company and, with the integration of
Quadra and FNX essentially complete, we will focus on optimizing the performance
of our existing asset base and on delivering growth."
The complete financial statements and the MD&A will be available at
www.quadrafnx.com and www.sedar.com.
This Management Discussion and Analysis ("MD&A") of Quadra FNX Mining Ltd. and
its subsidiaries ("Quadra FNX" or the "Company") has been prepared as at
February 25, 2011 and is intended to be read in conjunction with the
accompanying audited consolidated financial statements for the year ended
December 31, 2010. This MD&A contains 'forward looking information' and
reference to the cautionary statement at the end of this MD&A is advised.
Additional information relating to the Company, including its Annual Information
Form, is available on the SEDAR website at www.sedar.com. The Company is a
reporting issuer in all provinces and territories of Canada and its common
shares are traded on the Toronto Stock Exchange under the symbol: QUX.All
financial information in this MD&A is prepared in accordance with the Canadian
Generally Accepted Accounting Principles and all dollar amounts are expressed in
millions of United States dollars unless otherwise indicated.
----------------------------------------------------------------------------
Three months ended Year ended December
December 31 31
2010 2009 Change 2010 2009 Change
----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Revenues 332 176 88% 958 479 100%
Operating income 113 63 79% 293 165 77%
EBITDA (1) 93.1 60.3 54% 302.1 125.9 140%
EBITDA per share (basic) 0.49 0.61 -19% 1.95 1.40 39%
Earnings for the period 57.9 46.5 25% 172.5 80.5 114%
Earnings per share (basic) 0.30 0.47 -35% 1.11 0.89 25%
Cash 319 133 139% 319 133 139%
Working capital 755 218 247% 755 218 247%
----------------------------------------------------------------------------
(1) EBITDA is a non-GAAP measure which is defined as earnings attributable
to shareholders before interest expenses, income taxes, depreciation,
amortization and accretion.
Note: The financial results of FNX have been consolidated commencing May
21, 2010.
HIGHLIGHTS:
2010 Annual
-- On May 20, 2010 the Company completed a merger with FNX Mining Company
Inc, and with this transaction, established a new, mid-cap Canadian
mining company with considerable financial strength and a diverse asset
base.
-- Total revenues increased 100% to $958 million in the current year
compared to $479 million in 2009.
-- Earnings increased 114% to $172.5 million (or $1.11 per share basic)
from $80.5 million (or $0.89 per share basic) in 2009.
-- EBITDA increased 140% to $302 million from $126 million in 2009.
-- Costs were $1.57 per pound of copper for the year compared with $1.26
per pound in 2009.
-- Operating income from the Robinson mine increased 36% to $193.1 million
from $142.5 million in 2009.
-- Total production for the year was 224.3 million pounds of copper and
148.1 thousand ounces of TPMs.
-- The Morrison deposit achieved commercial production on September 1, 2010
and produced 18.5 million pounds of copper for the year, exceeding
expectations.
-- The Sierra Gorda Financing Study approached completion as the Company
continued discussions with potential financial partners.
-- On-going exploration at the Victoria property expanded and added
significant confidence in the Zone 4 sulphide mineralized system which
was first discovered in May 2010.
Fourth Quarter
-- Total revenues increased 88% to $332 million in the quarter compared to
$176 million in 2009.
-- Earnings increased 25% to $57.9 million, despite a $33.4 million write
down of Carlota leach pad inventory, compared to $46.5 million in 2009.
-- EBITDA increased 54% to $93.1 million from $60.3 million in 2009.
-- Operating income from the Robinson mine increased 20% to $62 million
compared to $51.8 million in 2009.
-- Total production for the quarter was 57.3 million pounds of copper and
38.7 thousand ounces of total precious metals (TPMs). Cash costs were
$1.55 per pound.
-- The ramp up of mining at Morrison continued during the quarter and
contributed 7.1 million pounds of copper and 4.1 thousand ounces of TPMs
in its first full quarter of commercial production
-- The Company ended the fourth quarter of 2010 with $319 million of cash.
-- In December 2010 the Company agreed to sell its shares in Gold Wheaton
for initial proceeds of C$263 million, and contingent proceeds of C$30
million. The initial transaction closed on January 5, 2011.
MERGER OF QUADRA AND FNX
On May 20, 2010, Quadra and FNX completed a merger of the two companies. The
merger was structured as a court-approved plan of arrangement (the
"Transaction") under the Business Corporations Act (Ontario) pursuant to which
Quadra acquired all of the issued and outstanding common shares of FNX. Under
the terms of the Transaction, former shareholders of FNX received 0.87 common
shares of Quadra and $0.0001 for each common share of FNX. Outstanding options
and warrants to acquire FNX shares were converted into options and warrants to
acquire Quadra shares, adjusted in accordance with the same exchange ratio. A
total of 88.9 million common shares were issued to former FNX shareholders, and
options and warrants to acquire 2.9 million and 6.5 million common shares,
respectively were issued on conversion of FNX options and warrants.
Upon completion of the merger, existing Quadra and FNX shareholders owned
approximately 52% and 48% of the combined company, respectively, on a fully
diluted basis. The acquisition is accounted for as a business combination, and
Quadra is considered to be the acquirer for accounting purposes. The total
purchase consideration for accounting purposes is $980.2 million, based on the
fair value of the issued common shares and other consideration as of May 20,
2010, the closing date of the merger. FNX's assets and liabilities have been
re-measured at their individual fair values at the closing date of the merger
and FNX's financial results have been consolidated commencing from May 21, 2010.
FINANCIAL PERFORMANCE
Earnings
The Company recorded earnings of $172.5 million or $1.11 per share (basic) for
2010 compared to $80.5 million or $0.89 per share (basic) for 2009. The
increased earnings in the current year were primarily a result of higher average
copper prices, the increased earnings contribution from Franke and the inclusion
of the Sudbury operations following the merger with FNX. During 2010, the
Company sold 224.6 million pounds of copper at an average price of $3.32/lb
(excluding price adjustment impact) and 146.2 thousand ounces of TPMs compared
to 144.7 million pounds of copper in 2009 at an average price of $2.60/lb
(excluding price adjustment impact) and 95.7 thousand ounces of TPMs. 2010
earnings were also impacted by a $33.4 million write down of Carlota leach pad
inventory (see "Review of Operations and Projects"), a $34.0 million accounting
loss on derivatives primarily related to future copper price participation in
acid supply contracts, $7.2 million of FNX transaction costs and a $5.8 million
unrealized gain on held for trading marketable securities (see "General &
administrative and other expenses"). 2010 earnings were also positively impacted
by $13.5 million provisional price adjustment (see "Revenues").
Revenues
To view the tables for Revenues for the year ended December 31, 2010 and the
year ended December 31, 2009, please visit the following link:
http://media3.marketwire.com/docs/qux228_table_01.pdf
Revenues are generated by the sale of copper concentrate, copper cathodes and
copper and nickel ore. For the sale of copper concentrate and copper and nickel
ore, revenues are generally recognized at the time of delivery to a customer
based on metal prices at that time, however, under current sales contracts,
final pricing for copper sold in concentrate and copper and nickel ore is
generally fixed up to six months after the time of arrival of a shipment at the
customer's port of delivery. As a result, the Company's revenues include
estimated prices for sales, based on forward copper prices at year end, as well
as pricing adjustments for sales that occurred in previous year, based on the
actual price received and the price at year end for sales from previous years
that were not settled in the year. The pricing of copper cathode sales is
generally set in the month of shipment or one month after the time of shipment
and therefore pricing adjustments in subsequent periods are minimal. Copper
sales volumes are reported based on the volume of pounds actually paid for by
the customer (payable pounds). Payable pounds at Robinson are generally 3-5%
lower than the metal volume actually delivered, and the amount of the deduction
varies depending on concentrate grade. Revenues from sales of Sudbury copper and
nickel ores are recognized based on the payable metals that are estimates based
on metallurgical testing and interim payment terms, neither of which is binding,
final payment terms could differ from those reported.
Revenues in 2010 were significantly higher than 2009 due to higher sales volumes
and copper prices. Copper spot prices increased from $3.33/lb at December 31,
2009 to $4.42/lb at December 31, 2010 resulting in significant positive pricing
adjustments related to the settlement of sales from the prior periods. The
increase in sales volumes in 2010 was a result of the merger with FNX as well as
ramping up production at the Franke mine and Morrison deposit.
2010 revenues at the Morrison deposit, Levack Complex (excluding Morrison) and
Podolsky also include non-cash revenue of $9.4 million for the amortization of a
deferred revenue liability related to the Company's obligation to sell 50% of
the gold, platinum and palladium contained in ore mined and shipped from certain
deposits to Gold Wheaton Gold Corp. ("Gold Wheaton"). Pursuant to an agreement
with Gold Wheaton dated July 15, 2008, the Company receives a cash payment equal
to the lower of $400 per gold equivalent ounce (subject to a 1.0% annual
inflationary adjustment commencing July 1, 2011) and the prevailing market price
per ounce of gold, for each gold equivalent ounce sold to Gold Wheaton.
Operating expenses and operating income
To view the tables for Operating expenses and operating income for the year
ended December 31, 2010 and the year ended December 31, 2009, please visit the
following link: http://media3.marketwire.com/docs/qux228_table_02.pdf
Cost of sales in 2010 were higher compared to 2009 due primarily to the higher
onsite costs (see "Review of Operations and Projects") as well as higher sales
volumes in the current year.
The existence of a high percentage of fines in the ore at the Carlota mine is
affecting the production and recovery rates. It is now believed that a lower
portion of the copper already on the leach pad will be recovered than was
previously expected to be recoverable. As a result, the leach pad inventory at
Carlota has been written down by $33.4 million to its net realizable value at
December 31, 2010 (see "Review of Operations and Projects").
Amortization, depletion, depreciation and accretion ("AD&D") were higher in 2010
than in 2009, mainly due to higher AD&D expense at the Franke mine as a result
of achieving full year operation in 2010 and the additional AD&D expenses from
Sudbury operations after the merger with FNX. Royalties and mineral taxes in
2010 were higher than 2009, mainly due to the higher copper prices and sales
volumes in the current year.
Operating income increased in 2010 compared to 2009 primarily due to higher
average copper prices and increased revenues from Franke which did not commence
operations until the second half of 2009. Production from the Company's Sudbury
operations also had a positive impact on the 2010 operating income. These
factors were partially offset by higher onsite costs at Robinson and Carlota
(see "Review of Operations and Projects").
General & administrative and other expenses
General and administrative expenses for 2010 were $34.7 million compared to
$18.5 million for 2009. The increased general and administrative expenses in the
current year reflect the Company's increased activity level, increased payroll
and severance costs as a result of the merger with FNX, as well as certain
one-time business development activities during the first quarter of 2010.
Stock- based compensation expenses for 2010 were $8.3 million compared to $6.8
million for 2009. This increase was due to additional grants of stock options
and restricted share units in 2010.
In 2010 the Company recognized a loss of $34.0 million on derivatives primarily
due to the increase in derivative liabilities associated with the Franke
long-term supply contracts as a result of the increase in copper prices during
the current year. The loss on derivatives in 2009 of $54.5 million primarily
related to a decline in value of copper puts and collars (see "Financial
Instruments and Other Instruments"). The Company expensed transaction costs for
the merger with FNX of $7.2 million in 2010.
Other income in the current year primarily resulted from the unrealized gain
from the increase in fair value of held for trading marketable securities and
the realized gain on sale of marketable securities. Other income in 2009
primarily related to an unrealized gain on held for trading marketable
securities.
The Company recorded income tax expense of $47.2 million in 2010 compared to
$11.7 million in the prior year. The tax expense for the current year has been
recorded based on an annual effective tax rate of 22% (2009 - 24%). The decrease
in effective tax rate in 2010 is mainly due to the utilization of U.S.
Alternative Minimum Tax credits which were earned in prior years and the
earnings from the Franke mine in Chile which has a lower statutory tax rate. Tax
expense in 2010 also included a $2.0 million future income tax recovery related
to the gain on marketable securities which has been recorded in other
comprehensive income.
FOURTH QUARTER FINANCIAL PERFORMANCE
The following table summarizes the financial results of the most recent eight
quarters (unaudited):
----------------------------------------------------------------------------
SUMMARY OF QUARTERLY FINANCIAL RESULTS
2010 2009
----------------------------------------------------------------------------
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Revenues (i)
Robinson 132 130 95 133 136 74 84 103
Carlota 30 22 24 31 19 17 16 9
Franke 41 41 25 34 21 - - -
Podolsky 48 28 15 - - - - -
Levack Complex (1) 63 26 5 - - - - -
DMC 18 12 5 - - - - -
---------------------------------------------------
Revenues - Total 332 259 169 197 176 91 100 112
Operating income 113.2 66.5 31.6 81.8 63.4 31.6 24.1 46.2
Earnings (loss) before
income taxes 70.1 46.4 25.3 69.0 45.6 21.2 (7.5) 32.8
Earnings (loss) 57.9 37.2 21.8 55.6 46.5 14.7 (7.3) 26.7
Basic earnings (loss) per
share $0.30 $0.20 $0.16 $0.56 $0.47 $0.16 -$0.08 $0.40
Diluted earnings (loss)
per share $0.30 $0.19 $0.15 $0.55 $0.46 $0.15 -$0.08 $0.40
----------------------------------------------------------------------------
(1) Including Morrison deposit commercial production revenues
(i) See "Financial Performance - Revenues" section for description of
payments process.
Earnings
The Company recorded earnings of $57.9 million or $0.30 per share (basic) for
the fourth quarter of 2010, compared to $46.5 million or $0.47 per share (basic)
for 2009. Fourth quarter earnings were impacted by a $33.4 million leach pad
inventory write down at the Carlota mine (see "Review of Operations and
Projects") and a $22.0 million accounting loss on derivatives primarily related
to future copper price participation in acid supply contracts. Fourth quarter
earnings also included a positive $14.4 million price adjustment (see
"Revenues").
Revenue
Revenues in the fourth quarter of 2010 were higher than the same quarter of 2009
mainly due to the revenue contribution from Sudbury operations and higher copper
prices. In the fourth quarter of 2010, copper prices increased from $3.65/lb at
September 30, 2010 to $4.42/lb at December 31, 2010 resulting in positive
pricing adjustments of $14.4 million related to the settlement of sales from the
third quarter of 2010 and the revaluation of the current quarter shipments using
an average copper price of $4.40/lb at December 31, 2010. 2010 revenues at the
Morrison, Podolsky and Levack Complex (excluding Morrison) also include non-cash
revenue of $4.1 million for the amortization of a deferred revenue liability
related to Gold Wheaton.
At September 30, 2010, receivables at the Robinson mine included 12.8 million
pounds of copper which has been provisionally valued at $3.65/lb. During the
third quarter of 2010, these receivables were settled at an average final price
of $3.79/lb. In the fourth quarter of 2010, Robinson shipped approximately 24.8
million pounds of copper at an average provisional price of $3.86/lb, of which
4.7 million pounds were settled during the quarter with an average final price
of $4.15/lb. At December 31 2010, receivables at the Robinson mine and Sudbury
operations include 31.5 million pounds of copper which has been provisionally
valued at $4.40/lb.
Operating expenses and operating income
Operating expenses in the fourth quarter of 2010 were $218.7 million compared to
$112.8 million in the same period of 2009 due primarily to the 40% increase in
production, higher onsite costs (see "Review of Operations and Projects") as
well as operating expenses at the Sudbury operations after the merger with FNX.
Operating expenses in the fourth quarter of 2010 were also impacted by a $33.4
million leach pad inventory write down at the Carlota mine (see "Review of
Operations and Projects"). Operating income increased by 79% in the fourth
quarter of 2010 primarily due to higher average copper prices and increased
revenues from the Company's Sudbury operations.
General & administrative and other expenses
General and administrative expenses for the fourth quarter of 2010 were $10.7
million compared to $6.0 million for the same quarter of 2009. The increased
general and administrative expenses in the current quarter reflect the Company's
increased activity level and payroll costs as a result of the merger with FNX.
In the fourth quarter of 2010, the Company recognized a loss of $22.0 million on
derivatives primarily due the increase in derivative liabilities associated with
the Franke long-term supply contracts. The loss on derivatives in 2009 of $14.8
million related to a decline in value of copper puts and collars. In the fourth
quarter of 2010, the Company recorded net interest and other expense of $8.0
million compared to net interest and other income of $4.2 million in 2009. Other
expense in the current quarter was primarily related to the reversal of the gain
on settlement of Gold Wheaton note receivable as a result of adjustments made to
the value of the note in the purchase price allocation which was finalized in
the quarter. Other income in the fourth quarter of 2009 primarily related to a
realized gain on sale of marketable securities.
REVIEW OF OPERATIONS AND PROJECTS
(iii)Note: Production and operating statistics in this section are reported for
historical periods for all of the Company's mines, including periods prior to
the merger of Quadra and FNX. For accounting purposes, the financial results of
the Sudbury Operations have been consolidated commencing from May 21, 2010, the
date immediately following the closing date of the merger of Quadra and FNX.
Production for the quarter and year ended December 31, 2010 from the Company's
operating mines is summarized as follows:
----------------------------------------------------------------------------
Three months ended Year ended
December 31, 2010 December 31, 2010
----------------------------------------------------------------------------
Copper production (Mlbs)
Robinson (3) 26.6 109.0
Carlota (4) 6.6 29.5
Franke (4) 7.8 37.2
Morrison deposit (2) (5) 7.1 18.5
Podolsky (5) 8.1 25.3
McCreedy West (5) 1.1 4.8
-------------------- --------------------
57.3 224.3
-------------------- --------------------
Nickel production (Mlbs)
Morrison deposit (2) (5) 1.5 4.5
Podolsky (5) 0.4 1.6
McCreedy West (5) 0.2 0.8
-------------------- --------------------
2.1 6.9
-------------------- --------------------
TPM (1) (kozs)
Robinson (3) 15.7 73.0
Morrison deposit (2) (5) 4.1 9.9
Podolsky (5) 10.6 32.8
McCreedy West (5) 8.3 32.4
-------------------- --------------------
38.7 148.1
-------------------- --------------------
----------------------------------------------------------------------------
(1) Total precious metal, including gold, platinum and palladium
(2) Including pre-production ore
(3) Produced in concentrate
(4) Produced in cathode
(5) Shipped payable metal
U.S OPERATIONS
Robinson (Nevada)
----------------------------------------------------------------------------
Three months ended
December 31 Year ended December 31
2010 2009 2010 2009
----------------------------------------------------------------------------
Copper in concentrate
production (Mlbs) 26.6 29.3 109.0 122.5
Gold in concentrate
production (kozs) 15.7 25.1 73.0 99.0
----------------------------------------------------------------------------
Ore mined (Mt) 3.3 2.8 14.0 14.5
Waste mined (Mt) 11.4 13.9 46.5 46.0
Ore milled (Mt) 3.5 3.4 13.7 13.5
----------------------------------------------------------------------------
Copper grade (%) 0.46 0.59 0.49 0.64
Gold grade (g/t) 0.26 0.31 0.26 0.31
----------------------------------------------------------------------------
Copper recovery (%) 75.4 65.9 74.1 63.6
Gold recovery (%) 53.3 73.1 64.8 73.0
----------------------------------------------------------------------------
Cash cost per pound of
copper produced ($/lb) $1.80 $1.47 $1.50 $1.10
Capital expenditure $21.5 $8.8 $46.9 $39.2
Cost of sales $62.3 $66.1 $251.8 $209.7
----------------------------------------------------------------------------
Operating income $62.0 $51.8 $193.0 $142.6
----------------------------------------------------------------------------
In 2010, Robinson processed ore from both the Veteran and Ruth pits, producing
109 million pounds of copper and 73.0 thousand ounces of gold in concentrate.
Both copper and gold productions in 2010 were lower than in 2009 due mainly to
anticipated lower head grade in the Ruth pit ore and the impact of unexpected
underground workings which affected production in the second quarter of 2010.
Operating income increased 35% although overall grades mined were 23% below 2009
levels. Mining from the lower benches of the Veteran pit was completed in
December 2010 and mining in the Wedge pit ended in the first half of 2010. Total
material moved in 2010 was in line with 2009. Increasing prices enabled the
Company to increase operating income despite the effect of reduced grades.
In the fourth quarter of 2010, Robinson processed ore from the Ruth pit,
producing 26.6 million pounds of copper and 15.7 thousand ounces of gold in
concentrate. Total material mined in fourth quarter of 2010 was lower than in
2009 due to longer haulage distances while December operating performance was
impacted by the highest rainfall event since the 1890's (greater than 3").
Copper production in the fourth quarter of 2010 was lower than in 2009 due to
lower head grade, partially offset by higher copper recoveries and higher
milling rates of 41,600 tpd. Copper recoveries continued to benefit from the
additional flotation capacity that was installed in the fourth quarter of 2009.
In addition, revised contractual terms with concentrate customers provided
Robinson more flexibility with respect to concentrate grade. Operating income
increased 20% although overall grades mined were 16% below 2009 levels.
Gold production in the fourth quarter of 2010 was lower compared to the same
quarter of 2009 due to lower head grades in the Ruth pit which in turn led to
lower gold recoveries as expected.
Robinson cost of sales and capital expenditures
Cost of sales in 2010 was higher than 2009 mainly due to higher operating costs
in the current year. Operating costs are comprised of onsite and offsite costs
(see "Non-GAAP Financial Measures"). Onsite costs include stripping costs and
are primarily driven by the volume of waste and ore moved, payroll costs,
supplies and equipment maintenance costs and royalties. Onsite costs in 2010
were higher than in 2009, primarily due to increased diesel fuel costs caused by
increased diesel fuel usage, increased exploration expenses, increased
dewatering expenses and increased maintenance supplies costs. Onsite costs for
the fourth quarter of 2010 were higher than in the same quarter of 2009
primarily due to increased exploration drilling expenses, dewatering expenses
and diesel fuel usage. Cost of sales for the fourth quarter of 2010 was slightly
lower than 2009 due to lower sales volumes.
Offsite costs are primarily driven by smelting and refining charges, the volume
of concentrate transported, and rail and ocean freight rates. Offsite costs for
2010 were slightly lower than in 2009 primarily due to lower smelting and
refining costs.
The cash cost per pound of copper produced is a non-GAAP term and consists of
onsite and offsite costs, less by-product revenue, divided by the pounds of
copper produced in the period (see "Non-GAAP Financial Measures"). The 2010 cash
cost per pound of copper produced was $1.50 compared to $1.10 in 2009. The
increased unit cost in 2010 is due to lower copper production and higher onsite
costs.
In the fourth quarter of 2010 the cash cost per pound of copper produced was
$1.80 compared to $1.47 in the same quarter of 2009. The increased unit cost in
the fourth quarter of 2010 is due to lower copper production and higher onsite
costs.
Capital expenditures at Robinson in 2010 were primarily related to Ruth pit mud
removal, dewatering, district exploration, and legacy mitigation.
Carlota (Arizona)
----------------------------------------------------------------------------
Three months ended
December 31 Year ended December 31
2010 2009 2010 2009
----------------------------------------------------------------------------
Copper cathode production
(Mlbs) 6.6 8.0 29.5 28.0
----------------------------------------------------------------------------
Ore mined (Mt) 1.5 2.6 6.4 7.1
Waste mined (Mt) 5.6 3.7 21.3 17.9
Ore placed (Mt) 1.5 2.6 6.4 7.1
----------------------------------------------------------------------------
Total copper grade (%) 0.67 0.61 0.59 0.45
----------------------------------------------------------------------------
Cash cost per pound of
copper sold ($/lb) (1) $1.84 $1.61 $1.81 $1.79
Capital expenditure -$4.9 $9.5 $13.3 $26.7
Cost of sales $12.7 $9.3 $51.7 $43.9
----------------------------------------------------------------------------
Operating (loss) income -$20.5 $7.1 $5.3 $18.2
----------------------------------------------------------------------------
(1) In the quarter ended September 30, 2010 the Company changed its
calculation method of cash costs per pound for its heap leach operations to
conform to industry standards (see "Non-GAAP" Financial Measures").
Total tonnes mined in 2010 were slightly higher than in 2009. Total tonnes mined
in the fourth quarter of 2010 were higher than the same quarter of 2009 as
emphasis was placed on waste stripping to open oxide ore along the Kelly Fault.
Ore tonnes mined during the fourth quarter of 2010 were less than the same
quarter of 2009 due to the transition from sulphide ore in the Cactus pit to
oxide ore along the Kelly Fault. Copper production in the fourth quarter of 2010
was less than the same quarter of 2009 as a result of the slower leaching
kinetics of sulphide ore stacked during the third and fourth quarters of 2010.
In addition, in December, the SX-EW plant had upset conditions caused by a
second significant storm event which temporarily reduced plant recovery.
During the second half of 2010 Carlota conducted a comprehensive study of issues
which impact the performance of the leach pad. Studies determined that the high
percentage of fines occurs throughout the leach pad and the orebody. Various
actions to minimize the impact of the fines issue were examined, including
agglomeration, blending, screening and stacking methods. The studies determined
that stacking by conveyor provides a lower bulk density in the heaps and should
produce improved and consistent percolation rates which should limit
channelling, leading to improved copper recovery and production. Improvement to
percolation rates and copper recoveries in the existing heaps are also being
evaluated using drilling and solution injection into the stacked material. As a
result of the fines and lower percolation rates management estimates that a
lower portion of copper than previously estimated will be recovered from the
leach pad, and the Carlota leach pad inventory has been written down by $33.4
million to its estimated net realizable value at December 31, 2010.
Carlota cost of sales and capital expenditures
In 2010 Carlota sold 5.3 million pounds or 24% more copper than 2009. Cost of
sales in 2010, which exclude the leach pad inventory write down, were 18% higher
than 2009 due to the higher sales volumes.
Cost of sales in the fourth quarter of 2010 were higher than the same period of
2009 due to the 20% increase in sales volumes.
Capital expenditures in 2010 were significantly lower than 2009 and primarily
related to construction development of the Leach Pad Phase 2 and to the
implementation of additional storm water control measures, but included an
initial exploration program below the existing orebody.
US operations Outlook
Robinson Outlook
Overall, 2011 production at Robinson is expected to be back-end weighted
contributing between 105 and 120 million pounds of payable copper and 45-50
thousand ounces of gold for the year.
In 2011 ore at the Robinson will be sourced from the Ruth pit and ore blending
is expected to continue to the extent possible in the single pit operation.
Typically, supergene ore types from higher elevations will be blended with ores
from lower pit elevations. These blending efforts enable the operation to
optimize recoveries of high grade ores, improve concentrate grades, reduce lime
consumption and increase throughput. However, it is expected that the complex
and variable nature of the Robinson ore body will continue to cause metal
production variations from quarter to quarter and metallurgical performance is
expected to continue to be highly variable throughout the life of the Ruth pit.
Ruth pit mud removal has ramped up to the required rate with the new contractor
and 2011 production is not expected to be impacted. Pumping capacity and
dewatering of the Ruth pit has also increased which has facilitated mud removal.
Following a localised pit wall slump in January 2011, the Company has
re-sequenced the mine plan and now expects to access higher grade ore in the
second half of 2011. As the mining sequence transitions lower into the Ruth pit,
more benches will become available and operating flexibility should improve
later in the year.
Onsite costs are expected to be in line with 2010. Capital expenditures are
expected to increase in 2011 mainly as a result of the removal of mud from the
bottom of the Ruth Pit. This is expected to contribute an additional $15-$20
million in the capital expenditures in the first half of 2011.
In 2011 the Company has increased its exploration efforts in the Ruth pit and
has also initiated an aggressive exploration and engineering program at the
historical Liberty pit, located between the Veteran and the Ruth pits. While the
evaluation of the Liberty area is still early stage, based on the work to date
the Company believes that this historical pit could improve Robinson's medium
term operating flexibility, and further enhance the longevity of operation.
Exploration and engineering for potential mining in the Liberty Pit is ongoing.
Carlota Outlook
In 2010 Quadra FNX established that the high levels of fines identified in the
Carlota orebody have resulted in a reduced percolation rate, and a broad range
of studies to resolve the issue have been ongoing. Studies completed in the
second half of 2010 determined that stacking by conveyor should provide a lower
bulk density in the heaps. The mine will convert to conveyor stacking during the
first quarter, using a contractor until the concept has been tested on a
sustained basis.
In 2010 geotechnical drilling identified a potential stability concern in the
highwall on the Kelly Fault side of the Cactus pit. The Company has taken these
concerns seriously and, in the current mine plan, adjusted the highwall slope
angles to ensure safety. This change has resulted in a 12 million tonnes
reduction in resources (i.e., approximately 1.5 years of production). Additional
work, including geotechnical drilling, mapping, drains, and a full technical
review is planned in 2011 in order to fully evaluate the pit configuration.
Projected 2011 copper production remains between 30 and 35 million pounds. While
injection processes are tested and changes to stacking methods are implemented
production in the first quarter is expected to be in the range of 6-7 million
pounds.
Total onsite costs at the Carlota Mine are expected to be in line with 2010.
Capital expenditures are primarily related to the planned leach pad expansion. A
new exploration program was initiated in late 2010 and the initial diamond drill
holes indicate mineralization below the defined orebody and appear to confirm
the revised genesis theory. Additional drilling is planned for 2011.
CHILE OPERATIONS
Franke
----------------------------------------------------------------------------
Three months ended
December 31 Year ended December 31
2010 2009 2010 2009
----------------------------------------------------------------------------
Copper cathode production
(Mbs) 7.8 9.4 37.2 13.5
----------------------------------------------------------------------------
Ore mined (Mt) 0.8 0.8 3.8 1.5
Waste mined (Mt) 1.6 0.6 4.9 2.1
Ore placed (Mt) 0.7 0.8 3.2 1.4
----------------------------------------------------------------------------
Copper grade (%) 0.86 0.85 0.85 0.83
----------------------------------------------------------------------------
Cash cost per pound of
copper sold ($/lb) (1) $2.60 $2.06 $2.45 $2.06
Capital expenditure $7.7 $5.0 $24.5 $25.7
Cost of sales $26.8 $14.2 $100.9 $14.2
----------------------------------------------------------------------------
Operating income $9.2 $4.5 $20.5 $4.5
----------------------------------------------------------------------------
(1) Company changed its calculation method of cash costs per pound for its
heap leach operations to conform with industry standards (see "Non-GAAP"
Financial Measures").
Copper cathode production for 2010 totalled 37.2 million pounds compared to 13.5
million pounds in 2009. In the fourth quarter of 2010, a total of 7.8 million
pounds of copper cathode were produced. The Franke mine commenced production in
July 2009 and commercial operations in October 2009. There were 9.4 million
pounds of cathode produced at Franke in the fourth quarter of 2009.
Despite the continuing improvement in the availability of the existing stacker,
copper production declined during the fourth quarter as a result of short-term
shutdowns required for capital projects and low crusher availability. Leach
recoveries and pad permeability also lagged expectations, the permeability being
affected by clays and by destruction of minerals in the high acid environment
required to recover the copper from Franke ore. A number of process changes have
been put in place to resolve these issues, including reducing heap height,
customizing leach solution application rates and increasing acid cure for
recovery. The new stacker, which was delivered in November, had a significant
structural design defect which is being addressed.
Franke cost of sales and capital expenditures
Cost of sales at Franke is mainly driven by onsite costs and sales volumes.
Onsite costs in 2010 were in line with the Company's expectations for copper
placed on the leach pads with the exception of higher acid costs due to
increased copper prices and higher power costs due to higher power consumption.
Capital expenditures at Franke in 2010 primarily related to the construction of
stockpile covers to control dust emissions, a change to the secondary crushing
plant to improve crushing performance and tank construction for additional acid
storage.
Franke Operations Outlook
The assembly and commissioning of the stacking equipment ordered in July has
been delayed due to the structural failure. The manufacturer is reviewing the
failure and proposed a new design in late January 2011. It is now expected that
the earliest date for a workable new stacker to be in operation is mid-year. In
the interim, the Company expects to sustain 85-90% of its nameplate stacking
capacity with its existing equipment.
In January 2011, Marineer Zona Franca S.A. ("Marineer"), the local mining
contractor at the Franke Mine in Chile, shut down all equipment at the site due
to financial difficulties. The Company then made the decision to terminate the
contact with Marineer and take over the mining operations at Franke. Quadra FNX
has negotiated the take-over of the existing mining fleet from Komatsu, who held
the lease and is in the process of recruiting operators. Franke currently has
approximately two months of ore feed stockpiled at the site and does not expect
the transition to owner mining to have a material impact on 2011 production.
To improve leach recovery and copper production, the Company has been adjusting
the leach operating parameters, including reducing the lift height on the heap
leach pad, crush size and tailoring solution application rates to individual ore
types. Additional leach pad space is being developed to optimize recovery from
slower-leaching ores.
The improved copper recovery expected from these changes are expected to offset
the impact of the delay in the commissioning of the stacker and allow the
operation to contribute between 35 and 45 million pounds of cathode copper in
2011. Copper production is expected to ramp up in the second half of the year
benefiting from the transition to owner mining, the commissioning of the new
stacking equipment and higher recoveries.
A portion of the employees at Franke formed a Union in late 2010 and
negotiations on the terms of a new labour contract are ongoing. A final offer
was submitted by Quadra FNX in mid-February, 2011 and the Union is considering
their response.
Franke's 2011 acid supply has been fully contracted with approximately half of
the required quantity provided under the existing long- term contract at a price
dependent on copper price and the remainder at a fixed price. Major capital
expenditures in 2011 include additional dust control on the processing equipment
and the construction of additional leach pads.
The Company has multiple copper occurrences with ore grade intercepts within 3
to 5 kilometers of the Franke mine. The geological re-interpretation is going
well and an aggressive exploration program is planned for the second half of
2011. Drilling of the China deposit has already commenced.
CANADIAN OPERATIONS
Morrison deposit
----------------------------------------------------------------------------
Three months ended
December 31 Year ended December 31
2010 2009 2010 2009
----------------------------------------------------------------------------
Copper ore sold (kt) (1) 39.7 3.1 101.8 3.1
Copper grade (%) 9.5 8.2 9.4 8.2
Nickel ore sold (kt) (1) 4.0 4.5 18.5 11.4
Nickel grade (%) 3.2 3.1 2.9 2.7
----------------------------------------------------------------------------
Copper sold - payable (Mlbs) 7.1 0.7 18.5 1.0
Nickel sold - payable (Mlbs) 1.5 0.3 4.5 0.6
Gold sold - payable (kozs) 0.7 0.1 1.4 0.1
Platinum sold - payable
(kozs) 1.0 0.2 2.4 0.2
Palladium sold - payable
(kozs) 2.4 0.5 6.0 0.7
----------------------------------------------------------------------------
Cash cost per pound of
copper sold ($/lb) (2) -$0.34 - -$0.19 -
Capital expenditure (2) (3) $10.3 - $28.7 -
Cost of sales (2) $16.1 - $22.6 -
----------------------------------------------------------------------------
Operating income (2) $30.9 - $32.7
----------------------------------------------------------------------------
(1) Converted to metric tonnes from short tons
(2) For the period since the May 21, 2010, the day immediately after the
merger of Quadra and FNX
(3) Excluding pre-production revenue credits
Note: Production statistics in the above table are reported for all
historical periods, including the period prior to the merger of Quadra and
FNX on May 20, 2010. The Morrison deposit includes four successive zones MD1
(previously called the Rob's deposit) though MD4. In the first two months of
the third quarter of 2010, pre-production revenues from MD2 and MD3 were
recorded as a credit to the development cost of the Morrison deposit. The
above table includes pre-production and commercial production ore.
The Morrison deposit represents a high grade footwall deposit located in the
lower part of the Levack mine. The Morrison deposit commenced commercial
operations on September 1, 2010. In 2010 production from the Morrison deposit,
including pre-production and the MD1 ore exceeded expectation, contributing 18.5
million pounds of payable copper, 9.8 thousand ounces of TPMs and 4.5 million
pounds of payable nickel.
In 2010 selective mining methods were adopted allowing the mine to surpass its
copper production expectations while mining a lesser amount of ore tonnes. Ramp
and lateral development including drill platforms, secondary egress, ventilation
and air, water and electrical infrastructure also continued to advance to below
the 4000 Level.
In 2010 the Company advanced the rehabilitation of the #2 Shaft, as well as the
3600 Level loading pocket and related infrastructure. During 2010, access was
also established to the neighbouring Craig Mine owned by Xstrata allowing for
extra additional ventilation of workings in the Morrison deposit which will aid
in the overall development of the mine. In late 2010, work started on a major
maintenance shop facility on the 3900 Level, as well as a dewatering station.
Commissioning of a new continuous feed mixing backfill plant was started in
December 2010. The plant is on line and expected to be fully operational by the
end of the quarter of 2011.
Morrison cost of sales and capital expenditures
Morrison achieved commercial production on September 1, 2010. Operating costs
(onsite and offsite costs) prior to September 1, 2010 were capitalized.
Operating costs in production were in line with expectations as additional costs
related to more selective mining techniques were offset by lower haulage and
processing costs.
Since commencing commercial production on September 1, 2010 the cash cost per
pound of payable copper produced from Morrison averaged negative $0.19 as a
result of the by-product metal credits, while cash costs during the fourth
quarter of 2010 averaged negative $0.34.
Overall capital spending in 2010 was less than planned, because the upgrades to
the mine dewatering system were delayed by weather and is now scheduled for
completion in the first quarter of 2011.
Podolsky
----------------------------------------------------------------------------
Three months ended
December 31 Year ended December 31
2010 2009 2010 2009
----------------------------------------------------------------------------
Copper ore sold (kt) (1) 118.0 167.5 415.4 315.6
Copper grade (%) 3.7 4.2 3.3 4.8
----------------------------------------------------------------------------
Copper sold - payable (Mlbs) 8.1 13.0 25.3 28.2
Nickel sold - payable (Mlbs) 0.4 0.8 1.6 1.8
Gold sold - payable (kozs) 1.9 2.6 5.7 3.7
Platinum sold - payable
(kozs) 4.3 6.3 13.4 12.3
Palladium sold - payable
(kozs) 4.4 6.2 13.6 11.3
----------------------------------------------------------------------------
Cash cost per pound of
copper sold ($/lb) (2) $0.74 - $0.83 -
Capital expenditure (2) $4.6 - $8.5 -
Cost of sales (2) $17.4 - $42.5 -
----------------------------------------------------------------------------
Operating income (2) $25.3 - $34.8 -
----------------------------------------------------------------------------
(1) Converted to metric tonnes from short tons
(2) For the period since the May 21, 2010, the date after the merger of
Quadra and FNX
Note: Production statistics in the above table are reported for all
historical periods, including the period prior to the merger of Quadra and
FNX on May 20, 2010.
Podolsky operating income for the period from May 21 to December 31, 2010 was
$34.8 million. In calendar 2010 Podolsky mined a total of 415,000 tonnes at a
grade of 3.3% copper contributing 25 million pounds of payable copper, 33
thousand ounces of TPMs and 1.6 million pounds of nickel. Ore tonnes mined
increased versus the previous year, offsetting the impact of lower copper grade
in the outer extent of the ore zone. In the fourth quarter of 2010, copper
production was strong due to access to high grade stopes offsetting the impact
of the ground control issues experienced in the third quarter of 2010.
Podolsky cost of sales and capital expenditures
Total operating costs for Podolsky in 2010 were above plan due to the higher
throughput. Capital expenditures in 2010 were related to development work,
diamond drilling and mobile equipment purchases.
McCreedy West
----------------------------------------------------------------------------
Three months ended
December 31 Year ended December 31
2010 2009 2010 2009
----------------------------------------------------------------------------
Copper ore sold (kt) (1) 76.1 154.5 283.5 253.5
Copper grade (%) 0.8 1.1 0.9 1.2
----------------------------------------------------------------------------
Copper sold - payable (Mlbs) 1.1 3.3 4.8 5.9
Nickel sold - payable (Mlbs) 0.2 0.6 0.8 2.0
Gold sold - payable (kozs) 0.9 2.3 4.2 3.9
Platinum sold - payable
(kozs) 2.7 6.2 10.5 10.5
Palladium sold - payable
(kozs) 4.6 10.2 17.7 16.6
----------------------------------------------------------------------------
Cash cost per pound of
copper sold ($/lb) (2) $1.55 - $1.59 -
Capital expenditure (2) $5.6 - $10.0 -
Cost of sales (2) $8.5 - $22.2 -
Operating income (2) $5.3 - $4.6 -
----------------------------------------------------------------------------
(1) Converted to metric tonnes from short tons
(2) For the period since the May 21, 2010, the date after the merger of
Quadra and FNX
Note: Production statistics in the above table are reported for all
historical periods, including the period prior to the merger of Quadra and
FNX on May 20, 2010.
The Levack Complex is comprised of two adjacent mining operations, McCreedy West
and Levack, which includes the Morrison deposit. McCreedy West operating income
for the period from May 21 to December 31, 2010 was $4.6 million. In calendar
2010 production at the McCreedy West mine was limited to the PM zone and the 700
Complex footwall orebodies. Throughput of 283,000 tonnes in 2010 exceeded
expectations and the operation surpassed its metal copper and TPM production
targets for the year. Contact Nickel ore production was not undertaken in 2010
due to unfavourable metal prices and processing terms.
McCreedy West cost of sales and capital expenditures
Total operating costs for McCreedy West in 2010 were higher than planned. The
higher total costs were due to the higher than planned production tonnes.
Capital expenditures in 2010 were related to development work, diamond drilling
and mobile equipment purchases.
Canadian Operations Outlook
Morrison deposit
The Company expects 2011 production from Morrison to range between 30 and 40
million pounds of payable copper, approximately 20-25 thousand ounces of payable
TPMs and approximately 5 million pounds of payable nickel. Quadra FNX's ability
to attain the upper end of the production range is mainly dependent on
maximizing utilization of the internal ramp system and the successful
commissioning of the backfill plant. Production is expected to continue to
increase through 2011 and into 2012. Work continues on the rehabilitation of the
Levack #2 shaft to the 3600 Level and conditions have proven more challenging
than expected, but the Company expects during 2011 to resolve the access issues
with no material affect on the 2011 production profile. Additional haul truck
capacity is expected to allow continued improvement in the ore production rate
until the #2 Shaft is fully serviceable. Completion of the shaft rehabilitation
is expected to allow the annual production rate to be increased to over 45
million payable pounds of copper.
In 2011 exploration efforts will focus on drilling and expanding the known
resource below the 4200 Level. The Morrison deposit remains open at depth, with
limited drilling information is available below the 5200 Level. In 2011 onsite
and offsite costs at Morrison are expected to be in the $70 to $80 million
range. In addition, the Company expects to spend approximately $50 million for
further development of the Morrison deposit. Key capital programs include
vertical and lateral development as well as infrastructure projects such as the
continuing rehabilitation of the #2 Shaft and major underground infrastructure.
Podolsky
The Company expects 2011 production from Podolsky to range between 18 and 21
million pounds of payable copper, approximately 20-25 thousand ounces of payable
TPMs and about 1 million pounds of payable nickel. In 2011 increased focus will
also be placed on exploration with the aim of expanding the existing resource
and reserve base. The 2011 onsite and offsite costs at Podolsky are expected to
be in line with 2010. Capital expenditures are primarily related to mobile
equipment, mine infrastructure and additional development work.
McCreedy West
The Company currently expects 2011 production at McCreedy West to be sourced
only from the copper-rich footwall zones contributing approximately 5-6 million
pounds of payable copper, 25-30 thousand ounces of payable TPMs and
approximately 1 million pounds of payable nickel. In 2011, onsite and offsite
costs at McCreedy West are expected to be in line with 2010 Capital expenditures
are primarily related to mobile equipment, mine infrastructure and development
work.
Plans for mining from the Contact Nickel resources remain on hold. However
access to the mining areas developed prior to the shutdown of nickel mining has
been kept in a state of readiness for future mining. Negotiations continue in
order to find acceptable terms which would allow contact nickel mining to
recommence. In addition, a pilot plant for electromagnetic/optical sorting is
being built on the McCreedy West site to evaluate the potential for improvement
of the economics of the contact nickel ore. This pilot plant is expected to be
commissioned by the end of the first quarter of 2011.
PROJECTS UNDER DEVELOPMENT
Sierra Gorda
In 2010 the Company incurred costs of $61.2 million on the project, including
$4.8 million of land and land option costs.
In late 2009, the Company commenced the studies required to advance the Sierra
Gorda project towards production.
In 2010 the Company's principal activities have been those required to support a
development decision including infill and condemnation drilling, geological
modeling and reserve calculation, metallurgical and process test work,
permitting, as well as infrastructure and engineering studies to establish
capital and operating costs. As part of the completion of the Financing Study,
the Company has involved a series of world class engineering and consulting
companies as advisors.
The Environmental Impact Study ("EIS") was submitted to the regulatory
authorities of Chile on May 31, 2010 and was accepted as containing all
necessary elements on June 7, 2010. Since then, there has been a normal course
interchange of questions and clarifications with regulators with no substantive
issues. Based on other projects in Chile, the permitting timeframe is expected
to be approximately 12 months.
To ensure the earliest start to project development, orders for key mining
equipment were placed in 2010 in advance of completing the ongoing Financing
Study. Major items included two electric shovels and two drills with a total
purchase price of $51 million and deposits and progress payments of $15.4
million have been paid on this equipment. A further progress payment of $30.6
million is scheduled in the first half of 2011 for shovels and drills. An order
was also placed in October 2010 for the initial truck fleet; but no payments are
due in the first half of 2011 on this equipment. The Sierra Gorda project is
subject to several lawsuits that have been filed in Chilean courts against the
Company's wholly-owned Chilean subsidiary (see section below "Contingencies").
Sierra Gorda Outlook
The internal Sierra Gorda Financing Study, which establishes the development
parameters for the project, remains on track for completion by the end of the
first quarter of 2011, with the NI 43-101 compliant Feasibility Study expected
to be completed in the second quarter of 2011. Discussions with potential
partners are progressing well and targeted for a favourable partnership and
financing structure to be in place by mid-2011. Total capital expenditures to
the end of June 2011 are expected to be in the $110 million range.
The Company is continuing to advance all aspects of project development
including detailed engineering, key equipment selection, ordering and
construction and Build-Own-Operate contract negotiations, while partnering
negotiations continue. Partner selection is dependent on completion of the
Financial Study.
The EIA environmental permit is on schedule for approval in mid-2011.
Victoria Project
In 2006, exploration recommenced on Victoria, following the discovery of Zone 1
in 2008. Since then drilling has resulted in the identification of three
additional Zones, the most significant of which was Zone 4. On September 7, 2010
the Company announced a summary of significant intersections from this zone,
including;
-- 624 feet of 1.9% Cu, 1.7% Ni and 4.1 g/t TPMs intersection in drill hole
FNX1186G,
-- 308 feet of 2.1% Cu, 3.1% Ni and 5.1 g/t TPMs intersected in FNX1195C,
and
-- 71 feet of 4.1% Cu, 2.0% Ni and 60.1 g/t TPMs in FNX1200.
Throughout the fourth quarter of 2010, there were five diamond drill rigs on the
Victoria property focused on Zone 4. Based on the results to date, the Company
has determined that the next appropriate step is to consider developing
underground, shaft-accessed infrastructure which would support exploration and
could subsequently serve as production infrastructure. In order to evaluate the
economic potential a Scoping Study was commenced in 2010. In addition, work is
also progressing on environmental permitting and consultations with First
Nations and other community stakeholders.
Victoria Project Outlook
The Company considers the Victoria discovery a significant part of its growth
pipeline and will continue to aggressively advance the project. Activities
planed for 2011 include drilling, more advanced engineering and metallurgical
work. An inferred resource is expected to be completed early in the second
quarter of 2011, while the ongoing Scoping Study on options for the development
of underground infrastructure and permitting is expected to be completed by
mid-2011. First Nations consultations and discussions with other stakeholders
are also ongoing. Initial discussions have also been held with Vale with respect
to future production. While the ultimate timeline of a shaft sinking decision
remains dependent on several factors, the Company continue to aggressively
advance this project.
Sudbury Exploration Properties
In addition to Victoria, the Company has exploration efforts at various stages
in four other exploration properties: Kirkwood, Falconbridge Footwall, Foy
Offset, and North Range. The Falconbridge Footwall and Foy Offset properties are
pursuant to a joint venture agreement (the "Falconbridge Joint Venture") with
Xstrata Nickel.
As at December 31, 2010, the Company and Xstrata Nickel held an 80% and 20%
interest (2009 - 79% and 21%), respectively, in the Falconbridge Joint Venture.
Xstrata Nickel has declined to participate in the 2010 work program. The Company
is the operator of the Falconbridge Joint Venture and holds between a 30% and
100% interest in certain mineral exploration properties under the joint venture.
All of the Company's Sudbury mineral exploration properties are at the
exploration stage and there can be no assurance that commercially viable mineral
deposits or reserves exist therein.
DMC MINING SERVICES
In December 2010, DMC announced it had signed a five year contract to develop
two new mine shafts at BHP Billiton's proposed Jansen Potash Project near
Saskatoon, Saskatchewan. The total value of the contract is estimated at
approximately $400 million and the Company will be required to post bonds
totalling $37 million prior to the end of 2011. Over the five years DMC is
expected to receive a combination of fixed and variable fees based on a
percentage of the total contract value. The ultimate margin DMC will earn is
dependent on certain performance criteria including safety, schedule and costs.
DMC will be hiring staff and hourly employees for this new work as 2011
progresses. DMC continues to provide contract expertise to third parties and to
the overall Quadra FNX organization, particularly with respect areas where mine
access, contracting or underground mining is involved. Activity in the raise
boring business also continues to be strong. Revenue from DMC post May 20, 2010
was $35 million and operating income was $2 million.
SAFETY AND ENVIRONMENTAL
Zero Lost Time Accidents
The Sudbury operations achieved zero lost time accidents for 2010. This
represents a significant safety accomplishment for both employees and
contractors working at these sites. The employees at the Franke Mine also worked
the year without a lost time accident.
Safety Performance
The Company's open pit operations (Franke, Robinson and Carlota) safety
performance achieved a Total Recordable Injury Rate ("TRIR") of 1.8, compared to
a national average rate of 2.1 for U.S. surface mines. Employees at the Sudbury
operations experienced a TRIR of 10.3 compared to a 4.5 rate for Ontario mines.
Employees of DMC Mining Services experienced a TRIR of 2.3 compared to a 4.1
rate for Ontario mine contractors.
Environmental Incident
On December 29, 2010 a rail shipment of copper concentrate from Robinson Mine
derailed while enroute to the ship loading facility in Vancouver, Washington.
The incident occurred near Baker City, Oregon and resulted in the derailment of
sixteen rail cars loaded with concentrate. The derailed cars were covered and
only minor amounts of concentrate were lost during the derailment. Response
crews from the Union Pacific Railroad performed the cleanup and repair of the
damaged track and cars.
Permitting
The Environmental Impact Assessment for the Victoria project in the Sudbury
Basin, Ontario has been completed and permitting work with the Ontario Ministry
of Environment is scheduled to begin in early 2011.
The Carlota mine received a letter from the Arizona Department of Environmental
Quality confirming that Carlota has met all the conditions that were imposed as
a result of the January 2010 storm event.
2011 OUTLOOK AND GUIDANCE SUMMARY
For 2011 the Company expects consolidated copper production of 240 million
pounds +/- 10% of payable copper, plus approximately 115 thousand ounces of
payable TPMs and approximately 7 million pounds of payable nickel. The table
below outlines a guidance range for each of the operations.
----------------------------------------------------------------------------
Payable Copper (Mlbs)
----------------------------------------------------------------------------
Low High
----------------------------------------------------------------------------
Robinson 105 120
Morrison 30 40
Franke 35 45
Carlota 30 35
Podolsky 18 21
Levack Complex excluding Morrison 5 6
----------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2010, the Company had cash and cash equivalents of $319 million.
These amounts are comprised of cash deposits and highly liquid investments that
are readily convertible to cash. The counter parties include banks, governments
and government agencies. The Company also held marketable securities, excluding
the Gold Wheaton shares, with a total fair value of $57.2 million. During the
third quarter of 2010, the Company converted the C$50 million note receivable
from Gold Wheaton into common shares of Gold Wheaton, increasing its ownership
in Gold Wheaton to 34.5%. On December 9, the Company signed a Sale and Purchase
agreement with Franco-Nevada Corporation ("Franco-Nevada") to sell all of the
56,464,126 Gold Wheaton common shares that the Company owned to Franco-Nevada at
C$4.65 per share. The transaction was closed on January 5, 2011 and the Company
received initial proceeds of C$263 million, a further C$30 million payment is
contingent.
In connection with the merger with FNX in May 20, 2010, the Company increased
cash and cash equivalents by $205 million. The Company generated cash flow from
operating activities of $254 million for the current year compared to $67.4
million in 2009. The increase in operating cash flow is largely driven by the
increased copper price, as well as higher sales volumes due to the operation of
Franke and the merger with FNX.
At December 31, 2010, the Company had working capital of $755.5 million as
compared to $217.5 million at December 31, 2009. The increase in working capital
in 2010 is primarily the result of the merger with FNX combined with operating
cash flow net of capital expenditures. At December 31, 2010, accounts receivable
and revenues include approximately 31.5 million pounds of copper that has been
provisionally valued at $4.40/lb. The final pricing for these provisionally
priced sales is expected to occur between January and June 2011. Changes in the
price of copper from the amounts used to calculate the provisional values will
impact the Company's revenues and working capital position in the first quarter
of 2011.
Capital spending in 2010 was $188.7 million for operations and projects, which
included $12.5 million of capitalized Ruth pit mud removal costs. An additional
$6.2 million was paid to increase environmental bonding, mainly for Robinson. In
2010, the Company also made payments of $16.8 million for equipment and other
security deposits for the Sierra Gorda project.
During 2010 the Company settled 19.8 million pounds of Franke copper collars and
paid $21.2 million to the counter parties. This completes the collar program for
Franke. In addition, the Company purchased additional copper put options under
the price protection program at a cost of $10.1 million. In the first quarter of
2010, the Franke project finance facility was increased by $12.5 million and in
the fourth quarter of 2010, the Company repaid the remaining facility balance
with no penalty. During 2010, the Company entered into new operating lease
agreements for loading equipment for deployment at Carlota with a value of $15
million.
Liquidity Outlook
The Company's future profitability and cash position is highly dependent on the
price of copper and gold and to a lesser extent nickel. Future changes in the
price of copper will also impact the final settlement price of provisionally
priced sales. The Company has purchased copper put options to protect a minimum
floor price for a portion of its future copper production (see "Financial
Instruments"). The Company is planning to spend $110 million in the first half
2011 to progress the Sierra Gorda project. In addition, the Company expects to
spend $140 million on capital expenditures at its five operating mines. At
current metal prices, the Company expects that it will be able to fund the 2011
capital requirements for all of its mines and projects, including the Sierra
Gorda Financing Study, from existing cash on hand and internally generated
funds.
Based on ongoing work, the Company is using $2.75 billion as the capital cost
funding requirement in discussions with potential partners with the objective of
arranging the financing for the Sierra Gorda project. The partnering arrangement
is likely to include the sale of up to 50% of the project to a partner.
Commitments and contractual obligations
----------------------------------------------------------------------------
Less than 1-2 2-3 3-4 4-5 After
1 year years years years years 5 years Total
----------------------------------------------------------------------------
Reclamation liabilities 0.8 0.8 0.8 0.8 0.8 73.9 77.9
Franke Mine supply
contracts 16.1 15.2 15.0 12.7 10.4 51.1 120.5
Robinson Mine power
supply contract 9.2 9.2 - - - - 18.4
Sierra Gorda project
equipment purchase 30.6 5.1 - - - - 35.7
Minimum lease payments
(capital and
operating) 14.2 8.1 6.2 3.3 0.9 - 32.7
----------------------------------------------------------------------------
Total 70.9 38.4 22.0 16.8 12.1 125.0 285.2
----------------------------------------------------------------------------
Reclamation liabilities
The Company has estimated total future reclamation costs of $77.9 million
(undiscounted), which primarily relate to the closure of the Robinson, Carlota
and Franke mines and the Sudbury operations. The Company has estimated the fair
value of this liability to be $37.5 million at December 31, 2010 based on the
estimated discounted future payments. To secure a portion of the closure costs
related to Robinson and Carlota, the Company has posted environmental bonds and
held cash in a reclamation trust totalling $57.5 million as at December 31,
2010. The Company revises the reclamation plan and cost estimate for Robinson
annually as required by the US Bureau of Land Management and adjusts the amount
of the bond accordingly. The reclamation plan and cost estimate for Carlota is
updated every five years as required by the regulator and the amount of the bond
is adjusted accordingly. There is currently no environmental bonding in place at
Franke. A closure plan for Podolsky has been submitted to the Ontario Government
resulting in a bonding requirement of $4.0 million. Closure plans for the
McCreedy and Levack operations are governed by arrangements between the Ontario
Government and Vale and between Vale and the Company. Under the latter
agreement, the Company has placed $2.5 million in trust with Vale.
Franke Mine supply contracts
The Company has a long-term supply contract for sulphuric acid for use in the
copper extraction process at Franke. The minimum commitment under the contract
is estimated to be $4.1 million per annum subject to adjustment based on the
prevailing copper prices over the term of the contract which expires in 2022.
The Company is committed to purchase 150,000 tonnes of sulfuric acid per annum
at a base price of $27/tonne. The base price for acid in the contract is
increased by $2.50/tonne for each $0.10/lb that the copper price exceeds
$1.10/lb.
Franke also has a long-term supply contract for industrial water. The minimum
commitment under the contract is estimated to be approximately $1.1 million per
annum subject to adjustment based on the prevailing copper prices over the term
of the contract which expires in 2020. The copper price adjustment requires, on
an annualized basis, that approximately an additional $120 be paid for each
$0.15/lb that the copper price exceeds a base price of $1.50/lb. The Company has
also entered into various supply and other contracts for operation and
development of Franke.
Robinson Mine power supply contract
Robinson has a three year supply contract for electricity. The minimum
commitment under the contract is estimated to be $8.8 million plus service
charges per annum over the term of the contact which expires in 2012.
Sierra Gorda project equipment purchase
During 2010, the Company placed orders for two electric shovels and two drills
with a total purchase price of $51 million. Non- refundable deposits and
progress payments of $15.4 million have been paid on this equipment. The
equipment is expected to be delivered in 2012.
MARKET TRENDS AND FUNDAMENTALS
Since trading to a multiyear low of $1.26/lb in December 2008, due to the global
credit crisis and corresponding economic downturn, copper prices have rebounded
sharply over the past two years. Falling ore grades at aging large mines, the
lack of funding for higher cost/new projects due to the 2008 financial crisis
and project delays have caused mine supply to underperform. Continued strong
emerging market demand and a rebound in 2010 Organization for Economic
Cooperation and Development ("OECD") demand, coupled with a weakening USD, have
provided the backdrop for copper prices to trade to all time highs in December
of 2010. Going forward, the company believes that copper market fundamentals
will remain strong. Continued robust demand from China and other emerging market
countries, together with increasing OECD demand from a gradual recovery in the
global economy, will drive global copper demand ahead of both scrap and primary
mine supply.
The following graph shows the spot price of copper from 2006 to January 31, 2011
as published by the London Metal Exchange ("LME").
To view the graph for LME Copper Price, please visit the following link:
http://media3.marketwire.com/docs/qux228_graph_01.pdf
At December 31, 2010, the closing spot price was $4.42/lb. At January 31, 2011,
the closing spot price was $4.43/lb. The reference price of copper metal is
determined by trading on the LME, where the price is set in U.S. dollars at the
end of each business day.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
The Company's revenues and cash flows are subject to fluctuations in the market
price of copper and gold. In addition, there is a time lag between the time of
initial payment on shipment and final pricing, and changes in the price of
copper and gold during this period impact the Company's revenues and working
capital position.
The following table summarizes the impact of the changes in copper price on the
Company's after tax earnings for 2011, excluding the impact of changes in fair
value of copper put options:
----------------------------------------------------------------------------
Impact on the after tax earnings (excluding
Copper price derivates)
----------------------------------------------------------------------------
+ $0.20/lb 38.6
----------------------------------------------------------------------------
- $0.20/lb (38.6)
----------------------------------------------------------------------------
The Company has a floor price protection program in place for a portion of its
anticipated copper sales from January 2011 to July 2011. During 2010, the
Company purchased additional copper put options for 190 million pounds of copper
at an average strike price of $2.52/lb at a cost of $10.1 million. A total of
175 million pounds of copper put options expired unexercised.
At December 31, 2010, the Company had 95 million pounds of copper puts
outstanding with an average strike price of $2.65/lb (December 31, 2009 - 79
million pounds with an average strike price of $1.86). The expiry dates of these
put options are between January 2011 and July 2011.
Under the terms of these contracts, if the average LME cash price for the month
is less than the strike price of the put option the Company will receive the
difference in price between the average LME cash price and the strike price for
the contracted number of pounds. The counter parties consist of several
international financial institutions. The Company monitors its counter party
exposures and does not believe there are any credit or collection issues at the
current time. The change in fair value of these instruments is recorded as a
derivative gain or loss on the statement of earnings.
The following table summarizes the impact of different copper prices on the
Company's cash flows from copper put options in 2011:
----------------------------------------------------------------------------
Copper price Cash flows from copper put options
----------------------------------------------------------------------------
$1.50/lb 109.0
----------------------------------------------------------------------------
$2.00/lb 61.6
----------------------------------------------------------------------------
$2.50/lb 14.2
----------------------------------------------------------------------------
$3.00/lb -
----------------------------------------------------------------------------
The Company has entered into NYMEX heating oil futures contracts and collar
contracts in order to manage the price risk associated with diesel fuel. During
the year ended December 31, 2010, the Company settled 10.9 million gallons of
NYMEX heating oil contracts resulting in a cash payment of $0.6 million to the
Company (2009 - 8.1 million gallons at $6,246), which has been recorded in cost
of sales on the statement of earnings. During the year ended 2010, the Company
entered into contracts for a total of 8.1 million gallons of NYMEX heating oil
futures at no cost (2009 - 11.9 million gallons).
At December 31, 2010, the Company had 8.1 million gallons of NYMEX heating oil
futures contracts outstanding with an average strike price of $2.25/gallon
(December 31, 2009 - 10.9 million gallons). The expiry dates of these NYMEX
heating oil futures contracts are between January 2011 and December 2011. As a
result of a review of risks to the Company the diesel price protection program
was curtailed as of December 2010 and the existing contracts will be allowed to
run out.
CONTINGENCIES
(a) The Company was originally served with four lawsuits that were filed in
Chilean Courts against the Company's wholly-owned Chilean subsidiary,
Minera Quadra Chile Limitada ("MQCL"). These lawsuits seek to invalidate
certain of the option agreements under which the Company acquired mining
tenements that comprise a significant part of the Sierra Gorda project.
MQCL is aware that the same plaintiffs are attempting to initiate
additional lawsuits seeking to declare null and void the option
agreements relating to the mineral properties that are already the
subject of the first case. Based on advice of Chilean counsel, Quadra
believes that the option agreements are valid and that the lawsuits are
without merit.
The plaintiffs in the lawsuits are or were shareholders in the
"sociedades legales mineras" ("SLM") or legal mining companies that
owned certain of the mining tenements that were optioned to the Company
in 2004. The Company believes it fully complied with the terms of all
option agreements and the plaintiffs accepted all option payments until
April 2008. In 2009 the company has settled one case for an immaterial
sum and recently a court dismissed the plaintiff's appeal in another
case. In another case an arbitrator found that the contracts were valid
and in a further case the court ruled in favour of MQCL and awarded MQCL
costs. The plaintiffs are appealing or attempting to appeal certain
decisions.
Although the Company believes, based on advice from Chilean counsel,
that the disputed option agreements are valid and that the legal claims
are without merit, the outcome is uncertain. These lawsuits are subject
to the procedural and substantive laws of Chile and the allegations are
based on the actions of the SLM management, in respect of which MQCL has
no direct knowledge. MQCL is vigorously defending these lawsuits;
however, there is no assurance that it will be successful.
(b) The payable metals the processor is required to pay for ore shipped and
sold by the Company are determined based on the metal which the
processor is able to recover from the various ore deposits. This will
vary depending on the particular metallurgical composition of each ore
deposit as determined by metallurgical testing of the various ore
deposits. There are several different final payable metals terms with
Vale Inco for the various ore deposits at the Levack Complex to reflect
the differences in the metallurgical composition of the ore deposits.
Interim processing costs terms and interim payable metals terms, based
on preliminary metallurgical testing, have been established by Vale for
the Levack and Podolsky mines. Once final payable metals and processing
costs terms are determined, it is expected that they may be applied to
ore shipped from Levack in prior periods. The Company cannot, at this
time, determine the amount, if any, of such adjustment. Depending on the
outcome of the final payable metals and costs terms there may be a
material increase or decrease in payable metals and/or processing costs
to be recorded.
(c) In the normal course of business DMC enters into agreements that contain
indemnification commitments and may contain features that meet the
expanded definition of guarantees. The terms of these indemnification
agreements will vary based on the contract and typically do not provide
for a limit on the maximum potential liability. The Company has not made
any payments under such indemnifications and no amounts have been
accrued in the financial statements with respect to these
indemnification commitments.
(d) The Company is subject to other lawsuits from time to time which are not
disclosed on the grounds that they are not believed to be material.
TRANSACTIONS WITH RELATED PARTIES
One of the directors of the Company is a partner of an affiliate of Blake,
Cassels & Graydon LLP. During the year ended December 31, 2010, the Company
incurred legal fees of $1.8 million with that entity (year ended December 31,
2009: $0.5 million), all of which were at normal business terms. As a result of
the merger with FNX, Gold Wheaton became a significantly influenced investee and
thus became a related party. All transactions conducted with Gold Wheaton are at
terms in the purchase and sale agreement. Since the merger, sales to Gold
Wheaton for the period ended December 31, 2010 totaled $13.9 million and
accounts receivable at December 31, 2010 from Gold Wheaton was $10.9 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing financial statements management has to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Based on historical experience, current conditions and expert
advice, management makes assumptions that are believed to be reasonable under
the circumstances. These estimates and assumptions form the basis for judgments
about the carrying value of assets and liabilities and reported amounts for
revenues and expenses. Different assumptions would result in different estimates
and actual results may differ materially from results based on these estimates.
These estimates and assumptions are also affected by management's application of
accounting policies. Critical accounting policies and estimates are those that
affect the consolidated financial statements materially and involve a
significant level of judgment by management.
Mineral Properties
Mineral property development costs, including exploration, mine construction,
and stripping costs, are capitalized until production is achieved, and are then
amortized over the remaining life of the mine based on proven and probable
reserves. The determination of the extent of reserves is a complex task in which
a number of estimates and assumptions are made. These involve the use of
geological sampling and models as well as estimates of future costs. New
knowledge derived from further exploration and development of the ore body may
also affect reserve estimates. In addition the determination of economic
reserves depends on assumptions on long-term commodity prices and in some cases
exchange rates.
The carrying value of mineral properties is reviewed regularly and whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. An impairment loss is recognized for a mineral property
if its carrying value exceeds the total undiscounted cash flows expected from
its use and disposal. Undiscounted cash flows for mineral properties are
estimated based on a number of assumptions including management's view of
long-term commodity prices, proven and probable reserves, estimated value beyond
proven and probable reserves, and estimates of future operating, capital, and
reclamation costs. Based on management's view of future metal prices and cost
assumptions, the carrying value of the Company's mineral properties was not
impaired at December 31, 2010.
Leach Pad Inventory
Leach pad inventory is comprised of ore that has been extracted from the mine
and placed on the heap leach pad for further processing. Costs are removed from
leach pad inventory as cathode copper is produced, based on the average cost per
recoverable pound of copper in process. The quantity of recoverable copper in
process is an engineering estimate which is based on the expected grade and
recovery of copper from the ore placed on the leach pad. The nature of the
leaching process inherently limits the ability to precisely monitor inventory
levels. However, the estimate of recoverable copper placed on the leach pad is
reconciled to actual copper production, and the engineering estimates will be
refined based on actual results over time.
Revenue Recognition
Sales are recognized and revenues are recorded at market prices when title
transfers and the rights and obligations of ownership pass to the customer. The
majority of the Company's product is sold under pricing arrangements where final
prices are determined by quoted market prices in a period subsequent to the date
of sale. For sales of Robinson's concentrates and Sudbury's copper and nickel
ores, final pricing is generally determined three to six months after the date
of sale. For the sales of copper cathode, final pricing is generally determined
in the month or the subsequent month after the date of sale. The Company
estimates provisional pricing for its product based on forward prices for the
expected date of the final settlement. Subsequent variations in price are
recognized as revenue adjustments as they occur until the price is finalized. As
a result, revenues include estimated prices for sales in that period as well as
pricing adjustments for sales that occurred in the previous period. These types
of adjustments can have a material impact on revenues.
Asset Retirement Obligations, Reclamation and Mine Closure
Due to uncertainties concerning environmental remediation, the ultimate cost to
the Company of future site restoration could differ from the amounts provided.
In 2010 and in previous years the Company has revised its estimate of the timing
and amount of closure costs at its mines, which resulted in adjustments to the
liability recorded in the Company's financial statements. The estimate of the
total liability for future site restoration costs is subject to change based on
cost inflation, amendments to laws and regulations and may also change as new
information concerning the Company's operations becomes available. The Company
is not able to determine the impact on its financial position, if any, of
environmental laws and regulations that may be enacted in the future.
Future Income Tax Assets
Management believes that uncertainty exists regarding the realization of certain
future tax assets and therefore a valuation allowance has been recorded as of
December 31, 2010. At December 31, 2010 the Company had additional available
U.S. Alternative Minimum Tax Credits of $7.0 million, which have not been
recognized due to the uncertainty of realization. The Company also has not
recognized the benefit of the tax basis of Carlota and Franke in excess of the
acquisition price, and certain non-capital losses. However, the Company has
recognized a net current future income tax asset for other temporary differences
created between the tax and accounting basis of assets and liabilities in the
United States, Chile and the Company's Sudbury operations. Management estimates
that, using long term copper prices in line with its mine plan estimates, the
future taxable income will be sufficient to utilize the future tax assets which
have been recognized.
OUTSTANDING SHARE DATA
The Company had 190,415,494 common shares issued and outstanding at December 31,
2010. As of February 25, 2011, the Company had 190,607,095 common shares issued
and outstanding.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting. Any system of internal
control over financial reporting, no matter how well designed, has inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
On May 20, 2010, the Company completed a merger with FNX. As a result, FNX is a
business that the Company has acquired not more than 365 days before the last
day of the period covered by the interim filings. Management believes that the
internal controls and procedures of FNX have a material effect on its financial
reporting internal controls. The Company is reviewing FNX's processes and
controls and will be expanding its internal control over financial reporting
scope to include FNX over the next fiscal year. The Company will exclude FNX
from its disclosure controls and procedures and internal controls over financial
reporting assessments for the year ended December 31, 2010, as permitted by NI
52-109 and applicable rules relating to business acquisitions.
Other than as described above, there have been no changes in internal control
over financial reporting during the year ended December 31, 2010 that have
materially affected, or are reasonably likely to materially affect internal
control over financial reporting.
CONVERSION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")
Canadian publicly listed companies will be required to prepare financial
statements in accordance with IFRS for interim and annual periods beginning on
or after January 1, 2011. The Company's reporting under IFRS will commence in
the first quarter of 2011.
The Company has appointed a project manager to lead the conversion to IFRS. The
project manager is working with other members of the finance group to execute
the implementation plan. The project planning is substantially completed and
included an initial diagnostic review of significant IFRS differences that was
completed by the Company's external auditors. Based on the work done so far, the
Company does not expect that the conversion to IFRS will have a significant
impact on its accounting processes and internal controls (including information
technology systems). The Company will be updating its disclosure controls and
procedures to ensure they are appropriate for reporting under IFRS. In addition,
the Company does not expect the conversion to IFRS to have a significant impact
on its risk management or other business activities.
Significant accounting impacts of conversion to IFRS
The Company has completed its assessment of all accounting policy differences
that may arise on conversion from Canadian GAAP to IFRS. The following is a
summary of the key accounting policy differences that have been identified to
date including quantification of these differences on its consolidated financial
statements. Management is continuing to evaluate the differences and the full
impact on future financial reporting is not reasonably determinable and
estimable at this time.
Property, Plant & Equipment - IFRS requires that the Company identify the
different components of its fixed assets and record amortization based on the
useful lives of each component. The Company has reviewed and analyzed the
depreciation of its existing property, plant & equipment on this basis, and has
concluded that there are no material differences between IFRS and current
depreciation policies. As such, no adjustment will be required on the opening
Statement of Financial Position as at January 1, 2010. Subsequent additions to
property, plant & equipment from the transition date will be subject to
componentization and amortized over their respective useful lives. Based on
current IFRS guidance, current accounting policies for stripping costs and
exploration costs will not be impacted by the conversion to IFRS.
Business Combinations - IFRS 1 provides an exemption that allows companies
transitioning to IFRS not to restate business combinations completed prior to
the date of transition. The Company has elected to use this exemption and will
not be restating the accounting for any acquisitions prior to January 1, 2010.
The impact of this policy decision is that, all business combinations entered
before January 1, 2010 will continue to be accounted for as they originally were
under Canadian GAAP. The acquisition of FNX has been accounted for under the new
CICA Handbook Section 1582 Business Combinations, which the Company early
adopted in 2010. This section is consistent with IFRS.
Asset Retirement Obligations - The Company has elected to use an IFRS 1
exemption to take a simplified approach to calculate and recognize the asset
related to the asset retirement obligation on the opening IFRS Statement of
Financial Position. The provision for asset retirement obligation is calculated
as at the transition date in accordance with IAS 37 "Provisions, contingent
liabilities and contingent assets" ("IAS 37"). To determine the amount of the
corresponding asset, the calculated provision under IAS 37 is discounted back to
the date when the provision first arose, at which date the corresponding asset
is recognized. This asset is depreciated to its carrying amount as at the
transition date. IFRS will require the Company to re-measure its provision for
asset retirement obligations on a quarterly basis using a pre-tax risk free rate
adjusted for the risks specific to the obligation, which will result in some
variability in both the carrying value of the liability and corresponding asset,
and associated expenses in profit or loss.
The above asset retirement obligations policy choices resulted in a net decrease
of shareholders' equity as at January 1, 2010. The net decrease comprise of an
increase in provision for asset retirement obligations resulting from changes in
discount rates, and corresponding increase in related asset of the provision
(net of accumulated depreciation to transition date).
Impairment - IAS 36 "Impairment of Assets", uses a one-step approach to both
testing for and measurement of impairment, with asset carrying values compared
directly with the higher of fair value less costs to sell and value in use
(which uses discounted future cash flows). This may potentially result in more
write-downs where carrying values of assets were previously supported under
Canadian GAAP on an undiscounted cash flow basis, but could not be supported on
a discounted cash flow basis. IFRS also has the requirement under IAS 36 to
reverse any previous impairment losses up to carrying value had there been no
impairment losses where circumstances have changed. Canadian GAAP prohibits
reversal of impairment losses.
Warrants - IFRS requires a change in accounting of the Company's warrants to
lenders and those in connection with the FNX merger from treatment as equity
instruments under Canadian GAAP to a derivative financial liability under IAS 39
"Financial Instruments: Recognition and Measurement" ("IAS 39"). The warrants
were also measured at carrying value under Canadian GAAP. Although the exercise
price of the warrants is fixed in Canadian dollars, the functional currency of
the Company is in US dollars, thus, the foreign exchange conversion is
considered a derivative under IAS 39 as the Company will report a variable
amount of cash upon the exercise of the warrants. In compliance with IFRS, the
warrants will be classified and accounted for as a financial liability, thereby
decreasing shareholders' equity at January 1, 2010 and subsequent financial
reporting dates. The financial liability will be stated at fair value at each
date of the statement of financial position with changes in fair value and
foreign exchange included in the periods' profit or loss.
Financial instruments - All financial assets and liabilities, including
derivatives are recognized on the Statement of Financial Position under IFRS.
They are re-measured to fair value at each subsequent Statement of Financial
Position date until the financial assets/liabilities are derecognized. Gains and
losses arising from changes in fair value are included in the profit and loss of
the period in which they occur. Management has considered all material contracts
and has reviewed a representative sample of them for applicability. There were
two separate agreements to buy non-financial items having features that would
qualify it as having an embedded derivative. The pricing of these non-financial
items has variable elements based on future price of copper and annual
fluctuations of various price indices. Current accounting of these agreements
under Canadian GAAP is consistent with the requirements under IFRS; therefore,
no adjustment is required at the Transition Date.
Accounting for income taxes - Under IAS 12 "Income Taxes" ("IAS 12"), the
accounting for deferred taxes for the acquisition of assets that do not
constitute a business combination is different from Canadian GAAP. As such, on
transition to IFRS, the Company may be required to adjust deferred tax assets
related to the acquisition of asset. The Company is currently accessing the
impact. Another significant difference from Canadian GAAP is the deferred tax
liability arising from the QuadraFNX warrants. If the warrant expires, the
entity will incur a taxable capital gain, and the deferred tax liability should
reflect the tax consequences that QuadraFNX expects at the end of the reporting
period. The Company will increase the deferred tax liability upon transition to
reflect current market value of the warrants. There are also certain differences
arising from the measurement of assets and liabilities under IFRS as compared to
Canadian GAAP which has a tax impact on the financial statements. These would
include Share-Based Payments, and Provision for Asset Retirement Obligations.
Business Activities
The impact of the IFRS conversion project on our compensation arrangements will
be reviewed during the first quarter of 2011. Such arrangements are calculated
based on financial information disclosed in the financial statements. The plan
is to ensure that all compensation arrangements are amended for the applicable
IFRS changes in accordance with compensation policies. The Company does not
anticipate a significant impact to existing compensation arrangements due to the
IFRS conversion project. The Company's budgeting and forecasting models will be
amended to reflect the IFRS changes in accounting policies, reclassifications,
and measurements of applicable financial statement line items.
Controls and Procedures
Based on the work done so far, the Company does not expect that the conversion
to IFRS will have a significant impact on its internal controls (including
information technology systems), and accounting processes. However, the extent
of change in accounting framework has required the Company to update its
internal controls, disclosure controls and procedures to ensure they are
appropriately designed and operated effectively for reporting under IFRS. These
would include: training/communication - to ensure IFRS knowledge is transferred
from subject matter experts to entire organization; documentation - to ensure
corporate accounting policies are updated for IFRS, and transitional analysis
and decisions are adequately supported; and review - to ensure segregation of
duties in the review and approval of IFRS information from preparer to
management, and ultimately by the Audit Committee. As a result of these
incremental internal control enhancements, the impact of the conversion from
Canadian GAAP to IFRS on the Company's risk management or other business
activities are reduced.
Ongoing Activities
The completion of the Implementation and commencement of Post-Implementation
phases will involve continuous monitoring of the changes implemented to date to
ensure completeness and accuracy of our IFRS financial reporting. There are
processes in place to ensure that significant standard setting projects that may
result in additional differences between Canadian GAAP and IFRS in the future
are monitored and evaluated.
The following table summarizes the operating results of the most recent eight
quarters (unaudited):
----------------------------------------------------------------------------
SUMMARY OF QUARTERLY OPERATING RESULTS
2010 2009
----------------------------------------------------------------------------
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Robinson
Cu produced in
concentrate (Mlbs) 26.6 26.7 23.7 32.0 29.3 33.6 22.9 36.7
Ore milled (Mt) 3.5 3.3 3.6 3.3 3.4 3.6 3.2 3.4
Au production (kozs) 15.7 15.3 15.2 26.8 25.1 21.1 18.0 34.6
Cu grade (%) 0.46 0.49 0.40 0.59 0.59 0.75 0.58 0.65
Au grade (g/t) 0.26 0.25 0.20 0.31 0.31 0.26 0.25 0.42
Cu recovery (%) 75.4 75.3 73.5 72.2 65.9 57.4 56.3 75.4
Au recovery (%) 53.3 58.2 66.3 78.1 73.1 71.4 70.4 75.4
Cu sales (Mlbs) 24.7 28.5 26.6 27.8 31.7 21.1 24.2 34.5
Average final
settlement price
($/lb) $3.79 $3.19 $3.19 $3.37 $3.02 $2.42 $2.14 $1.56
Cash cost per pound
of copper produced
($/lb) $1.80 $1.58 $1.60 $1.10 $1.47 $1.07 $1.54 $0.57
Carlota
Cu production (Mlbs) 6.6 7.3 7.4 8.2 8.0 6.6 6.8 6.6
Total Cu grade (%) 0.7 0.77 0.39 0.35 0.61 0.45 0.34 0.30
Ore placed (Mt) 1.5 2.3 1.6 1.0 2.6 1.4 1.3 1.7
Cu sales (Mlbs) 7.7 6.6 7.7 9.5 6.4 6.5 7.5 5.9
Average realized
price ($/lb) $3.88 $3.29 $3.13 $3.25 $3.01 $2.63 $2.10 $1.53
Cash cost per pound
of copper sold
($/lb) $1.84 $1.74 $1.89 $1.76 $1.61 $1.88 $1.89 $1.54
Franke
Cu production (Mlbs) 7.8 10.1 10.4 8.9 9.4 4.1 - -
Ore placed (Mt) 0.7 0.9 0.8 0.8 0.8 0.5 - -
Total Cu grade (%) 0.86 0.77 0.86 0.91 0.85 0.80 - -
Cu sales (Mlbs) 10.3 12.8 7.8 10.3 6.9 - - -
Average realized
price ($/lb) $3.97 $3.23 $3.24 $3.25 $3.03 - - -
Cash cost per pound
of copper sold
($/lb) $2.60 $2.60 $2.60 $1.99 $2.07 - - -
Morrison
Cu ore sold (kt) (1) 39.7 29.3 20.0 12.7 3.1 - - -
Cu grade (%) 9.5 11.2 9.1 5.8 8.2 - - -
Payable Cu sold
(Mlbs) 7.1 6.3 3.5 1.6 0.7 - 0.1 0.1
Payable Ni sold
(Mlbs) 1.5 1.2 0.9 0.9 0.3 - 0.2 0.1
Payable TPM sold
(kozs) (2) 4.1 3.0 1.9 0.9 0.8 - 0.1 0.1
Average realized
price ($/lb) $4.37 $3.67 $2.89 $3.49 $3.17 - $3.29 $3.02
Cash cost per pound
of copper sold
($/lb) -$0.34 -$0.04 -$2.70 -$7.39 $0.36 - -$5.07 $5.10
Podolsky
Cu ore sold (kt) (1) 118.0 97.2 128.9 71.3 167.5 6.2 58.1 83.8
Cu grade (%) 3.7 3.2 3.7 2.6 4.2 3.5 4.5 6.0
Payable Cu sold
(Mlbs) 8.1 5.4 8.6 3.2 13.0 0.4 5.4 9.4
Payable Ni sold
(Mlbs) 0.4 0.3 0.6 0.3 0.8 0.03 0.3 0.8
Payable TPM sold
(kozs) (2) 10.6 5.4 11.5 5.3 15.1 0.9 7.8 3.9
Average realized
price ($/lb) $4.36 $3.82 $2.88 $3.63 $3.17 $3.32 $2.58 $1.73
Cash cost per pound
of copper sold
($/lb) $0.74 $1.67 $1.07 $1.69 $1.16 $1.17 $0.55 $1.11
McCreedy West
Cu ore sold (kt) (1) 76.1 72.6 67.5 67.3 154.5 2.3 89.2 7.5
Cu grade (%) 0.8 0.8 1.1 1.1 1.1 0.8 1.3 1.4
Payable Cu sold
(Mlbs) 1.1 1.2 1.2 1.3 3.3 0.03 2.4 0.4
Payable Ni sold
(Mlbs) 0.2 0.2 0.2 0.2 0.6 0.01 1.2 0.4
Payable TPM sold
(kozs) (2) 8.3 8.1 8.3 7.7 18.8 0.1 8.8 3.5
Average realized
price ($/lb) $4.46 $3.69 $2.84 $3.25 $3.17 $30.92 $2.37 $2.82
Cash cost per pound
of copper sold $1.55 $2.83 $3.15 $1.23 $1.77 -$5.46 $1.23 -$6.94
($/lb)
----------------------------------------------------------------------------
(1) Converted into metric tonne from original short ton
(2) Total precious metal, including gold, platinum and palladium
(3) Production and operating statistics in this table are reported for
historical periods for all of the Company's mines, including periods prior
to the merger of Quadra and FNX on May 20, 2010
The quarterly performance of Robinson varies as a result of changes in head
grade, metal recovery and waste stripping requirements. Due to the complex
nature of the Robinson ore body, volatility in metal prices, and industry cost
pressures the results have varied from quarter to quarter and this is expected
to continue in the future.
SELECTED ANNUAL INFORMATION
----------------------------------------------------------------------------
2010 2009 2008
----------------------------------------------------------------------------
Statement of operations
Revenues 958 479 505
Earnings 172.5 80.5 38.6
Basic earnings per share $1.11 $0.89 $0.61
Diluted earnings per share $1.10 $0.89 $0.60
Financial positions
Total assets 2,834 1,247 859
Total long-term financial liabilities 473 79 46
Dividends n/a n/a n/a
----------------------------------------------------------------------------
NON-GAAP FINANCIAL MEASURES
The cash cost per pound of copper, and onsite costs and offsite costs are
non-GAAP financial measures that do not have a standardized meaning under
Canadian Generally Accepted Accounting Principles ("GAAP"), and as a result may
not be comparable to similar measures presented by other companies. Management
uses these statistics to monitor operating costs and profitability. Onsite costs
include mining costs, equipment operating lease costs, mill costs, mine site
general and administration costs, environmental costs and royalties. Offsite
costs include the costs of transportation, smelting and refining of concentrate,
and treatment costs for ores. By-product revenues from the Sudbury Operations
reflect the actual cash price earned from sales of precious metals to Gold
Wheaton. Costs of sales, as reported on the statement of operations, is
different that the costs of production because of changes in concentrate
inventory levels. The following table shows a reconciliation of these non-GAAP
financial measures to the consolidated statements of operations:
To view the table of Reconciliation of Non-GAAP Financial Measures to the
Consolidated Statements of Operations, please visit the following link:
http://media3.marketwire.com/docs/qux228_table_03.pdf
Three months ended Three months ended
December 31, 2010 December 31, 2009
-------------------------- --------------------------
Robinson Carlota Franke Robinson Carlota Franke
Cost of sales 62.3 12.7 26.8 66.1 9.3 14.2
Adjustment for change
in inventory 3.2 11.1 (1.0) 0.5 9.8 8.7
Capitalized stripping
costs - - - - - -
Royalties 4.5 1.5 - 5.1 1.0 -
-------------------------- --------------------------
Total onsite and
offsite costs 70.0 25.3 25.8 71.7 20.1 22.9
-------------------------- --------------------------
-------------------------- --------------------------
Year ended Year ended
December 31, 2010 December 31, 2009
-------------------------- --------------------------
Robinson Carlota Franke Robinson Carlota Franke
Cost of sales 251.8 51.7 100.9 209.7 43.9 14.2
Adjustment for change
in inventory 1.0 40.5 (2.40) 13.4 27.6 8.7
Royalties 15.2 5.4 - 12.1 3.2 -
-------------------------- --------------------------
Total onsite and
offsite costs 268.0 97.6 98.5 235.2 74.7 22.9
-------------------------- --------------------------
-------------------------- --------------------------
Note: onsite and offsite costs at Morrison, Podolsky and Levack Complex
(excluding Morrison) equal to cost of sales as inventory movement at these
mines is minimal.
Cash flow from operating activities (before working capital changes) is also not
a defined term under GAAP, and consists of cash provided from operating
activities less net changes in non-cash working capital.
Adjusted earnings and adjusted earnings per share are non-GAAP measures which
determine the performance of the Company, excluding certain impacts which the
Company believes are either non-recurring, or recurring, but of a nature which
are not reflective of the Company's underlying performance, such as the impact
of gain and loss on derivatives, gains and losses from marketable securities and
investments, foreign exchange gains and losses on translation of future income
tax liabilities, inventory write down (reversal), merger costs, and adjustments
of prior year taxes. Management believes that these measures provide investors
with ability to better evaluate underlying performance. The following table
provides a reconciliation of earnings to adjusted earnings for the periods
presented:
Three months ended Three months ended
December 31, 2010 December 31, 2009
---------------------- ----------------------
(All amounts in millions of United States dollars except per share amounts)
Net earnings - GAAP 57.9 46.5
Adjusting items:
Loss on derivatives 22.0 14.8
Gain on marketable securities (0.6) (5.8)
Accounting gains from
investment in Gold Wheaton (1.5) -
Foreign exchange loss on
translation of future income
tax liabilities 4.5 -
Inventory write down at
Carlota 33.4 -
Tax impact of the above items (13.3) (2.8)
Taxes in respect of prior
years 2.7 (1.7)
---------------------- --------------------
47.2 4.5
---------------------- --------------------
Net earnings - Adjusted 105.1 51.0
---------------------- ----------------------
---------------------- ----------------------
Weighted-average number of
shares outstanding - basic 189.9 99.4
Earnings per share - adjusted $ 0.55 $ 0.51
Year ended Year ended
December 31, 2010 December 31, 2009
---------------------- ----------------------
(All amounts in millions of United States dollars except per share amounts)
Net earnings - GAAP 172.5 80.5
Adjusting items:
Loss on derivatives 34.0 54.5
Gain on marketable securities (8.1) (6.7)
Transaction costs for FNX
merger 7.2 -
Accounting gains from
investment in Gold Wheaton (10.3) -
Foreign exchange loss on
translation of future income
tax liabilities 13.5 -
Inventory write down
(reversal) at Carlota 33.4 (9.7)
Tax impact of the above items (18.9) (9.1)
Taxes in respect of prior
years 2.1 0.6
---------------------- ----------------------
52.9 29.6
---------------------- ----------------------
Net earnings - Adjusted 225.4 110.1
---------------------- ----------------------
---------------------- ----------------------
Weighted-average number of
shares outstanding - basic 154.9 90.0
Earnings per share - adjusted $ 1.45 $ 1.22
February 25, 2011
FORWARD-LOOKING INFORMATION
This Press Release that includes the MD&A contains "forward-looking information"
that is based on Quadra FNX's expectations, estimates and projections as of the
dates as of which those statements were made. This forward-looking information
includes, among other things, statements with respect to the Company's business
strategy, plans, outlook, financing plans, long-term growth in cash flow,
earnings per share and shareholder value, projections, targets and expectations
as to reserves, resources, results of exploration (including targets) and
related expenses, property acquisitions, mine development, mine operations, mine
production costs, drilling activity, sampling and other data, estimating grade
levels, future recovery levels, future production levels, capital costs, costs
savings, cash and total costs of production of copper, gold and other minerals,
expenditures for environmental matters, projected life of Quadra FNX's mines,
reclamation and other post closure obligations and estimated future expenditures
for those matters, completion dates for the various development stages of mines,
availability of water for milling and mining, future copper, gold, molybdenum
and other mineral prices (including the long-term estimated prices used in
calculating Quadra FNX's mineral reserves), end-use demand for copper, currency
exchange rates, debt reductions, use of future tax assets, timing of expected
sales and final pricing of concentrate sales, the percentage of anticipated
production covered by option contracts or agreements, anticipated outcome of
litigation and anticipated impact of converting to IFRS,. Generally, this
forward-looking information can be identified by the use of forward-looking
terminology such as "outlook", "anticipate", "project", "target", "believe",
"estimate", "expect", "intend", "should", "scheduled", "will", "plan" and
similar expressions. Forward-looking information is subject to known and unknown
risks, uncertainties and other factors that may cause Quadra FNX's actual
results, level of activity, performance or achievements to be materially
different from those expressed or implied by such forward-looking information,
and developed based on assumptions about such risks, uncertainties and other
factors set out herein, including but not limited to:
-- risks associated with the mineralogy and block model assumptions at all
mines and projects including, in particular the complex Robinson mine;
-- uncertainties related to the extent to which historical mining
activities at Robinson have removed mineral material expected to be
present;
-- uncertainties related to the impact of the 2010 storm event at the
Carlota Mine and uncertainty relating to the leaching rate achieved at
Carlota;
-- risks related to maintaining current operating parameters at Podolsky;
-- uncertainties related to actual capital costs, operating costs,
production schedules and economic returns associated with the ramp- up
of the Morrison deposit;
-- risks associated with Quadra FNX's off-take agreement with Vale Inco,
including the risk of potential adjustment to final payable metal and
processing cost terms;
-- uncertainties relating to availability of updated equipment, the
leaching rate and the transition to owner mining at Franke;
-- uncertainties related to the construction quality and structural design
at Franke;
-- risks associated with the development of the Sierra Gorda project, a
large project with significant capital expenditure, permitting and
infrastructure requirements;
-- risks relating to the preliminary nature of the testwork underlying the
scoping study described in the Sierra Gorda 2009 Technical Report;
-- risks associating with ongoing litigation at Sierra Gorda and with
potential future litigation at Sierra Gorda and other projects;
-- risks relating to Quadra FNX's ability to find a suitable partner or
obtain project financing for Sierra Gorda;
-- uncertainties related to the amount of funding required to achieve full
production levels at Franke and Carlota and at the Morrison deposit;
-- uncertainties related to Quadra FNX's ability to expand or replace
depleted reserves;
-- uncertainties related to the possible recalculation or reduction of the
Company's mineral reserves and resources;
-- risks that Quadra FNX's title to its property could be challenged,
including potential challenges from First Nations with respect to the
Sudbury operations;
-- risks associated with Quadra FNX's dependence on transportation
facilities and infrastructure;
-- risk associated with labour relations;
-- risks related to Quadra FNX's shareholder rights plan;
-- risk related to derivative contracts and exposure to the credit risk of
counterparties;
-- risks associated with taxation;
-- conflicts of interest;
-- risks associated with fluctuations in costs of operating supplies and
other inputs;
-- uncertainties related to actual capital costs, operating costs and
expenditures, production schedules and economic returns from the
Company's mining projects;
-- inherent hazards and risks associated with mining operations;
-- inherent uncertainties associated with mineral exploration;
-- risks associated with Quadra FNX being subject to government regulation,
including changes in regulation;
-- risks associated with Quadra FNX being subject to extensive
environmental laws and regulations, including change in regulation;
-- risks associated with Quadra FNX's need for governmental license and
permits;
-- political and country risk;
-- Quadra FNX's need to attract and retain qualified personnel;
-- risks related to the need for reclamation activities on Quadra FNX's
properties, including the nature of reclamation required and uncertainty
of costs estimates related thereto;
-- risk of water shortages and risks associated with competition for water;
-- increases in off-site transportation and concentrate processing costs;
-- risks related to the stability of mine pit walls;
-- uncertainties related to fluctuations in copper and other metal prices;
-- uncertainties related to the current global financial conditions; and
-- uncertainties related to fluctuation in foreign currency exchange rates.
A discussion of these and other factors that may affect Quadra FNX's actual
results, performance, achievements or financial position is contained in the
filings by Quadra FNX with the Canadian provincial securities regulatory
authorities, including Quadra FNX's Annual Information Form and the Annual
Information Form filed by FNX prior to the merger between Quadra and FNX.
Forward- looking statements are based on assumptions management believes to be
reasonable, including but not limited to the continued operation of Quadra FNX's
mining operations, no material adverse change in the market price of
commodities, that the mining operations will operate in accordance with Quadra
FNX's public statements and achieve its stated production outcomes, and such
other assumptions and factors as set out herein. Although Quadra FNX has
attempted to identify important factors that could cause actual results to
differ materially from those contained in forward-looking statements, there may
be other factors that cause results not to be as anticipated, estimated or
intended. There can be no assurance that forward-looking statements will prove
to be accurate. Accordingly, readers should not place undue reliance on
forward-looking statements. Quadra FNX disclaims any intent or obligations to
update or revise publicly any forward-looking statements whether as a result of
new information, estimates or options, future events or results or otherwise,
unless required to do so by law.
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