Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2010

 

or

 

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

 

For the transition period from             to             

 

Commission File Number:  001-33783

 

THOMPSON CREEK METALS COMPANY INC.

(Exact name of registrant as specified in its charter)

 

British Columbia, Canada

 

98-0583591

(State or other jurisdiction of incorporation or organization)

 

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

 

 

 

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

 

80120

(Address of principal executive offices)

 

(Zip Code)

 

(303) 761-8801

(Registrant’s telephone number, including area code)

 

 

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

 

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

 

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

 

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

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o
(Do not check if a smaller reporting company)

 

Smaller reporting company o

 

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

 

As of August 5, 2010 there were of record 139,792,091 shares of Common Stock, no par value, outstanding.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

Page

 

 

Part I. Financial Information

 

 

 

Item 1. Financial Statements:

 

 

 

Consolidated Balance Sheets (Unaudited)

3

 

 

Consolidated Statements of Operations (Unaudited)

4

 

 

Consolidated Statements of Cash Flows (Unaudited)

5

 

 

Consolidated Statement of Shareholders’ Equity (Unaudited)

6

 

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

 

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

20

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

43

 

 

Item 4. Controls and Procedures

43

 

 

Part II. Other Information

44

 

 

Item 1. Legal Proceedings

44

 

 

Item 1A. Risk Factors

44

 

 

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

47

 

 

Item 3. Defaults Upon Senior Securities

47

 

 

Item 4. (Removed and Reserved)

47

 

 

Item 5. Other Information

47

 

 

Item 6. Exhibits

47

 

 

Exhibit Index

47

 

 

Signatures

48

 

2



Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

 

CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

 

 

June 30,
2010

 

December 31,
2009

 

 

 

(in millions, except share data)

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

215.6

 

$

158.5

 

Short-term investments

 

267.2

 

353.0

 

Accounts receivable—trade

 

49.1

 

32.4

 

Accounts receivable—related parties

 

10.8

 

10.3

 

Product inventory

 

73.5

 

43.5

 

Material and supplies inventory

 

33.4

 

34.5

 

Prepaid expense and other current assets

 

2.8

 

6.0

 

Income tax receivable

 

5.9

 

4.8

 

 

 

658.3

 

643.0

 

Property, plant and equipment, net

 

676.9

 

605.7

 

Restricted cash

 

19.3

 

16.8

 

Reclamation deposits

 

30.3

 

30.3

 

Goodwill

 

47.0

 

47.0

 

Other assets

 

0.9

 

1.8

 

 

 

$

1,432.7

 

$

1,344.6

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

53.2

 

$

29.9

 

Income and mining taxes payable

 

3.7

 

3.6

 

Current portion of long-term debt

 

2.9

 

3.7

 

Deferred income tax liabilities

 

6.6

 

6.7

 

 

 

66.4

 

43.9

 

Long-term debt

 

7.6

 

9.2

 

Other liabilities

 

24.8

 

24.6

 

Asset retirement obligations

 

25.6

 

24.8

 

Common stock warrant derivatives

 

65.2

 

115.4

 

Deferred income tax liabilities

 

132.1

 

141.3

 

 

 

321.7

 

359.2

 

Commitments and contingencies (Note 8)

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock, no-par, 139,792,091 and 139,511,257 shares issued and outstanding, as of June 30, 2010 and December 31, 2009, respectively

 

700.2

 

697.1

 

Additional paid-in capital

 

47.8

 

45.7

 

Retained earnings

 

360.4

 

232.8

 

Accumulated other comprehensive income

 

2.6

 

9.8

 

 

 

1,111.0

 

985.4

 

 

 

$

1,432.7

 

$

1,344.6

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

(in millions, except per share
amounts)

 

REVENUES

 

 

 

 

 

 

 

 

 

Molybdenum sales

 

$

145.5

 

$

71.2

 

$

269.5

 

$

146.8

 

Tolling, calcining and other

 

2.9

 

2.8

 

6.7

 

6.0

 

Total revenues

 

148.4

 

74.0

 

276.2

 

152.8

 

COSTS AND EXPENSES

 

 

 

 

 

 

 

 

 

Operating expenses

 

73.8

 

52.3

 

150.1

 

110.7

 

Selling and marketing

 

1.8

 

1.3

 

3.3

 

2.7

 

Depreciation, depletion and amortization

 

11.9

 

10.2

 

22.9

 

20.4

 

Accretion expense

 

0.4

 

0.4

 

0.8

 

0.7

 

General and administrative

 

8.4

 

8.1

 

14.2

 

13.1

 

Exploration

 

1.8

 

1.9

 

3.5

 

3.7

 

Total costs and expenses

 

98.1

 

74.2

 

194.8

 

151.3

 

OPERATING INCOME (LOSS)

 

50.3

 

(0.2

)

81.4

 

1.5

 

OTHER (INCOME) AND EXPENSE

 

 

 

 

 

 

 

 

 

Change in fair value of common stock warrants

 

(74.8

)

83.0

 

(50.3

)

83.3

 

Loss (gain) on foreign exchange

 

(1.9

)

7.1

 

(1.3

)

3.9

 

Interest (income) expense, net

 

(0.4

)

(0.3

)

(0.3

)

(0.4

)

Other

 

(0.2

)

 

(0.3

)

(0.4

)

Total other (income) and expense

 

(77.3

)

89.8

 

(52.2

)

86.4

 

Income (loss) before income and mining taxes

 

127.6

 

(90.0

)

133.6

 

(84.9

)

Income and mining tax expense (benefit)

 

1.1

 

(0.7

)

6.0

 

(4.3

)

NET INCOME (LOSS)

 

$

126.5

 

$

(89.3

)

$

127.6

 

$

(80.6

)

NET INCOME (LOSS) PER SHARE

 

 

 

 

 

 

 

 

 

Basic

 

$

0.90

 

$

(0.73

)

$

0.91

 

$

(0.66

)

Diluted

 

$

0.87

 

$

(0.73

)

$

0.86

 

$

(0.66

)

Weighted average number of common shares

 

 

 

 

 

 

 

 

 

Basic

 

139.8

 

122.5

 

139.7

 

122.4

 

Diluted

 

145.4

 

122.5

 

147.6

 

122.4

 

 

See accompanying notes to consolidated financial statements.

 

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THOMPSON CREEK METALS COMPANY INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

(in millions)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

126.5

 

$

(89.3

)

$

127.6

 

$

(80.6

)

Items not affecting cash:

 

 

 

 

 

 

 

 

 

Change in fair value of common stock warrants

 

(74.8

)

83.0

 

(50.3

)

83.3

 

Depreciation, depletion and amortization

 

11.9

 

10.2

 

22.9

 

20.4

 

Accretion expense

 

0.4

 

0.4

 

0.8

 

0.7

 

Stock-based compensation

 

1.7

 

4.0

 

4.2

 

5.4

 

Deferred income tax benefit

 

(1.1

)

(4.3

)

(2.9

)

(11.2

)

Unrealized loss on derivative instruments

 

0.7

 

1.6

 

1.3

 

1.7

 

Change in working capital accounts (Note 13)

 

(24.1

)

0.5

 

(36.8

)

23.8

 

Cash generated by operating activities

 

41.2

 

6.1

 

66.8

 

43.5

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

Short-term investments

 

115.7

 

(81.5

)

85.6

 

(181.8

)

Capital expenditures

 

(71.1

)

(13.7

)

(90.5

)

(41.3

)

Restricted cash

 

(1.0

)

(1.0

)

(2.5

)

(1.8

)

Reclamation deposits

 

 

(0.2

)

 

(2.6

)

Cash generated (used) in investing activities

 

43.6

 

(96.4

)

(7.4

)

(227.5

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common shares, net

 

0.1

 

3.7

 

2.1

 

3.7

 

Repayment of long-term debt

 

(0.9

)

(1.4

)

(2.4

)

(2.7

)

Cash generated (used) by financing activities

 

(0.8

)

2.3

 

(0.3

)

1.0

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

(4.4

)

5.2

 

(2.0

)

2.5

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

79.6

 

(82.8

)

57.1

 

(180.5

)

Cash and cash equivalents, beginning of period

 

136.0

 

160.3

 

158.5

 

258.0

 

Cash and cash equivalents, end of period

 

$

215.6

 

$

77.5

 

$

215.6

 

$

77.5

 

Supplementary cash flow information (Note 13)

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

5



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THOMPSON CREEK METALS COMPANY INC.

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY and COMPREHENSIVE INCOME

 

Six Months Ended June 30, 2010

 

(Unaudited)

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Accumulated
Other
Comprehensive

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income

 

Total

 

 

 

(in millions, except share data in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2010

 

139,511

 

$

697.1

 

$

45.7

 

$

232.8

 

$

9.8

 

$

985.4

 

Amortization of the fair value of stock options

 

 

 

3.1

 

 

 

3.1

 

Stock option exercises

 

281

 

3.1

 

(1.0

)

 

 

2.1

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

127.6

 

 

127.6

 

Foreign currency translation

 

 

 

 

 

(7.2

)

(7.2

)

Total comprehensive income

 

 

 

 

 

 

120.4

 

Balances at June 30, 2010

 

139,792

 

$

700.2

 

$

47.8

 

$

360.4

 

$

2.6

 

$

1,111.0

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

THOMPSON CREEK METALS COMPANY INC.

 

Notes to the Consolidated Financial Statements — Unaudited

 

(US dollars in millions, except per share amounts)

 

1. Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q.  In compliance with those instructions, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”) have been condensed or omitted. This report should be read in conjunction with Thompson Creek Metals Company Inc.’s (“TCM” or the “Company”) consolidated financial statements and notes contained in its 2009 Annual Report on Form 10-K, as amended on Form 10-K/A (the “2009 Form 10-K”) filed with the Securities and Exchange Commission. The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported.  Operating results for the three-month and six-month periods ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

 

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

 

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

 

2. Healthcare Legislation

 

On March 30, 2010, the President of the United States signed the Health Care and Education Reconciliation Act of 2010, which is a reconciliation bill that amends the Patient Protection and Affordable Care Act that was signed by the President on March 23, 2010 (collectively the “Acts”).  As a result of this legislation, the tax treatment related to the Medicare Part D subsidy has changed requiring companies to determine the financial impact, if any.  As of June 30, 2010, TCM has evaluated this change and has determined that there was no impact on TCM’s consolidated financial statements.

 

TCM is continuing to evaluate the other provisions of the Acts and is not able to determine at this time the potential impact the Acts may have on the consolidated financial statements.

 

3. Inventory

 

The carrying value of product inventory is as follows:

 

 

 

June 30,
2010

 

December 31,
2009

 

Finished product

 

$

 45.0

 

$

 27.7

 

Work-in-process

 

23.7

 

13.2

 

Stockpiled ore

 

4.8

 

2.6

 

 

 

$

 73.5

 

$

 43.5

 

 

As of June 30, 2010 and December 31, 2009, the market value of TCM’s inventory exceeded the carrying value.  For the six months ended June 30, 2009, TCM recorded charges related to lower of cost or market adjustments of $0.8 million in its Consolidated Statements of Operations.

 

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Table of Contents

 

4. Property, Plant and Equipment

 

Property, plant and equipment is comprised of the following:

 

 

 

June 30,
2010

 

December 31,
2009

 

Mining properties

 

$

316.8

 

$

320.2

 

Mining equipment

 

244.1

 

213.3

 

Processing facilities

 

120.6

 

113.9

 

Construction in progress

 

148.9

 

86.2

 

Other

 

4.6

 

2.7

 

 

 

835.0

 

736.3

 

Less: Accumulated depreciation, depletion and amortization

 

(158.1

)

(130.6

)

 

 

$

676.9

 

$

605.7

 

 

The construction in progress balance included $122.8 million and $63.9 million related to the Endako mill expansion as of June 30, 2010 and December 31, 2009, respectively.

 

5. Derivative Financial Instruments

 

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

 

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

 

 

 

 

 

Fair Value

 

Derivative Type

 

Balance Sheet Classification

 

June 30,
2010

 

December 31,
2009

 

Derivative assets

 

 

 

 

 

 

 

Provisionally-priced sales (a)

 

Accounts receivable—trade

 

$

(0.4

)

$

(0.1

)

Fixed-priced contracts—current (b)

 

Prepaid expense and other current assets

 

1.2

 

0.9

 

Fixed-priced contracts—noncurrent (b)

 

Other assets

 

0.9

 

1.7

 

Forward currency contracts (c)

 

Prepaid expense and other current assets

 

 

 

Total derivative assets

 

 

 

$

1.7

 

$

2.5

 

Derivative liabilities

 

 

 

 

 

 

 

Fixed-priced contracts (b)

 

Accounts payable and accrued liabilities

 

$

0.4

 

$

0.8

 

Common stock warrant derivatives (d)

 

Common stock warrant derivatives

 

65.2

 

115.4

 

Total derivative liabilities

 

 

 

$

65.6

 

$

116.2

 

 

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The following table sets forth the mark-to-market gains (losses) on derivative instruments for the three and six months ended June 30, 2010 and 2009:

 

 

 

 

 

Gain/(loss)
for the Three Months Ended

 

Gain/(loss)
for the Six Months Ended

 

Derivative
Type

 

Statement of Operations
Classification

 

June 30,
2010

 

June 30,
2009

 

June 30,
2010

 

June 30,
2009

 

Provisionally-priced sales (a)

 

Molybdenum sales

 

$

(1.0

)

$

1.4

 

$

(0.3

)

$

0.3

 

Provisionally-priced purchases (a)

 

Operating expenses

 

1.1

 

(0.7

)

(2.4

)

(1.4

)

Fixed-priced contracts (b)

 

Molybdenum sales

 

 

(1.6

)

(0.2

)

(1.1

)

Forward currency contracts (c)

 

(Loss) gain on foreign exchange

 

(0.1

)

0.1

 

 

0.2

 

Common stock warrant derivatives (d)

 

Change in fair value of common stock warrants

 

74.8

 

(83.0

)

50.3

 

(83.3

)

 

 

 

 

$

74.8

 

$

(83.8

)

$

47.4

 

$

(85.3

)

 


(a)          Provisionally-Priced Contracts

 

As described in Note 2 of the financial statements in TCM’s 2009 Form 10-K under “Revenue Recognition”, certain molybdenum sales contracts provide for provisional pricing as specified in the contract.  These sales contain an embedded derivative related to the provisional pricing mechanism, which is bifurcated and accounted for as a derivative.

 

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

 

The following table sets forth TCM’s outstanding provisionally-priced contracts as of June 30, 2010, which all mature in 2010:

 

 

 

Pounds to be
Sold/Purchased
(000’s lb)

 

Provisionally-priced sales

 

248

 

Provisionally-priced purchases

 

1,078

 

 

(b)                               Fixed-Priced Contracts

 

TCM’s earnings and operating cash flows are affected by changes in market prices for molybdenum. To mitigate a portion of this risk, TCM enters into certain molybdenum sales contracts where it sells future molybdenum production at fixed prices. These fixed prices may be different than published market prices at the date of sale.

 

Beginning October 1, 2009, TCM elected to apply the normal purchases and normal sales scope exception to its fixed-priced contracts in accordance with derivative and hedge accounting guidance.  The mark-to-market net asset of $3.5 million, as of September 30, 2009, is being amortized to molybdenum sales revenue as TCM makes the physical deliveries related to those contracts.  As of June 30, 2010 and December 31, 2009, the remaining unamortized balance was $1.7 million and $1.8 million, respectively.

 

The following table sets forth TCM’s outstanding fixed-priced molybdenum sales contracts as of June 30, 2010:

 

 

 

2010

 

2011

 

Molybdenum committed (000’s lb)

 

1,135

 

417

 

Average price ($/lb)

 

$

15.70

 

$

21.00

 

 

(c)                                Forward Currency Contracts

 

As a company operating in North America, TCM transacts business in various currencies in the normal course of its operations and for capital expenditures related to the Endako mill expansion.  Foreign currency transactions at TCM’s Canadian operations increase its risk as exchange rates can change between the time agreements are made and the time foreign currency transactions are settled.  TCM uses foreign currency forward contracts to mitigate the exchange risk of US dollars for foreign currency

 

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dollars at future dates. The terms of these contracts are typically less than one year. As of June 30, 2010, TCM had open forward currency contracts to purchase $0.6 million Australian dollars at a US dollar to Australian dollar exchange rate of 1 to 1.14 for purchases related to the Endako mill expansion.  At December 31, 2009 TCM had no open forward currency contracts.

 

(d)                               Common Stock Warrant Derivatives

 

As described in Note 3 of the financial statements in TCM’s 2009 Form 10-K under “Common stock warrant derivatives”, TCM is required to account for its common stock warrants as derivative liabilities with changes in fair value recorded to earnings.  As of June 30, 2010, TCM had 24.5 million warrants outstanding.   There were nil and one warrant exercises during the six months ended June 30, 2010 and 2009, respectively.

 

6. Fair Value Measurement

 

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

 

Level 1

 

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

Level 2

 

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

Level 3

 

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

 

The following table sets forth TCM’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

 

 

Fair Value at June 30, 2010

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Provisionally-priced sales

 

$

(0.4

)

$

 

$

(0.4

)

$

 

Fixed-priced contracts—current

 

1.2

 

 

 

1.2

 

Fixed-priced contracts—noncurrent

 

0.9

 

 

 

0.9

 

Foreign currency contracts

 

 

 

 

 

 

 

$

1.7

 

$

 

$

(0.4

)

$

2.1

 

Liabilities:

 

 

 

 

 

 

 

 

 

Common stock warrant derivatives

 

$

65.2

 

$

65.2

 

$

 

$

 

Fixed-priced contracts—current

 

0.4

 

 

 

0.4

 

 

 

$

65.6

 

$

65.2

 

$

 

$

0.4

 

 

 

 

Fair Value at December 31, 2009

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Provisionally-priced sales

 

$

(0.1

)

$

 

$

(0.1

)

$

 

Fixed-priced contracts—current

 

0.9

 

 

 

0.9

 

Fixed-priced contracts—noncurrent

 

1.7

 

 

 

1.7

 

 

 

$

2.5

 

$

 

$

(0.1

)

$

2.6

 

Liabilities:

 

 

 

 

 

 

 

 

 

Common stock warrant derivatives

 

$

115.4

 

$

115.4

 

$

 

$

 

Fixed-priced contracts—current

 

0.8

 

 

 

0.8

 

 

 

$

116.2

 

$

115.4

 

$

 

$

0.8

 

 

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The following table sets forth a summary of the fair value of TCM’s Level 3 financial assets and liabilities for the six months ended June 30, 2010:

 

 

 

Fixed-
Priced
Contracts

 

Balance at January 1, 2010

 

$

1.8

 

Unrealized and realized (loss)

 

(0.1

)

Balance at June 30, 2010

 

$

1.7

 

 

As of June 30, 2010 and December 31, 2009, the carrying values of TCM’s financial assets and liabilities are not significantly different from their fair values.

 

7. Long-term Debt

 

Effective February 2, 2010, TCM voluntarily terminated its $35 million revolving line of credit that was secured by a significant amount of TCM’s assets.

 

8. Commitments and Contingencies

 

In the normal course of operations, TCM may be subject to litigation.  As of June 30, 2010, there are no material litigation matters.  In May 2010, TCM received notification of a petition filed in the Supreme Court of British Columbia by the Stellat’en First Nation claiming that the British Columbia Ministry of Energy, Mines and Petroleum Resources has not fulfilled its duty to consult with or accommodate Stellat’en’s asserted aboriginal rights and title interests in relation to the Endako Mine expansion project.  The petition names TCM, a 75% owner of the Endako Mine, as one of the parties involved but does not cite TCM in any of its claims regarding the lack of consultation.

 

In the normal course of operations, TCM enters into agreements for the purchase of molybdenum. As of June 30, 2010, TCM had commitments to purchase approximately 3.0 million pounds of molybdenum sulfide concentrate throughout the remainder of 2010, to be priced at a discount to the market price for molybdenum oxide at the time of purchase.

 

As of June 30, 2010, TCM had contractual obligations related to the mill expansion project at the Endako Mine of $48.7 million (75% share).

 

On December 9, 2009, TCM entered into a credit support agreement with British Columbia Hydro and Power Authority (“BC Hydro”) related to the mill expansion project at the Endako Mine. Under this agreement, TCM is required to post financial assurance in an amount equal to BC Hydro’s estimated out-of-pocket costs for work on the expansion project, estimated at C$16.5 million.  Subsequent to the commissioning of the new mill and subject to annual measurements of incremental revenues following the mill’s commissioning, some or all of this financial assurance may, thereafter, be released in amounts equal to the incremental revenues generated until such time as the full amount of financial assurance has been released or until such time as the expiration period has been reached. The new mill facility is currently scheduled for completion in late 2011. The amount of the guarantee as of June 30, 2010 was C$16.5 million. As part of the financial guarantee, TCM provided a surety bond for C$11.2 million for additional financial assurance to BC Hydro.  The surety bond can be drawn down in the event of a shortfall in incremental revenues after the commissioning of the new mill facility, as discussed above.  At this time, TCM does not anticipate having to post any additional financial assurance with respect to the BC Hydro credit support agreement.

 

As of June 30, 2010, a shortfall in Endako’s future electric power usage that would result in incremental payments to BC Hydro cannot be determined and is not deemed to be probable. As such, no accrual has been recorded. An accrual for any expected shortfall will be recorded if and when it is determined that a shortfall is probable and a reasonable estimate can be made.

 

9. Income and Mining Taxes

 

The effective tax rates, as a percentage of income (loss) before income and mining taxes, for the three months ended June 30, 2010 and 2009 were an expense of 0.90% and a benefit of 0.78%, respectively.  The effective tax rates for the six months ended June 30, 2010 and 2009 were an expense of 4.53% and a benefit of 5.06%, respectively.

 

The 2010 effective tax rate differs from the amount that would result from applying the Canadian federal and provincial income tax rates to earnings before income taxes primarily due to a non-taxable change in the fair value of common stock warrants and a $10.7 million net refund of certain state income taxes related to prior year tax returns.  The 2009 effective tax rate differs from the amount that would result from applying the Canadian federal and provincial income tax rates to earnings before income taxes

 

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primarily due to changes in the enacted provincial statutory income tax rates and the impact of the common stock warrants.

 

10. Stock-Based Compensation

 

                On May 6, 2010, TCM’s shareholders approved the 2010 Long-Term Incentive Plan (“LTIP”) and the 2010 Employee Stock Purchase Plan (“ESPP”).  Under the LTIP, TCM can grant stock options, share appreciation rights, restricted shares, restricted share units, performance share units, or shares granted as bonus compensation.  The number of common shares available for awards under the LTIP plan is 2.5 million plus those shares still remaining under the previous stock option plan.  As of June 30, 2010, TCM has granted stock options and approved performance share units and restricted share units under the LTIP, as discussed below.

 

                The ESPP plan provides an opportunity for TCM’s employees to purchase its common shares at 85% of the closing price at the beginning of the offering period or at the end of the offering period, whichever is lower.  The ESPP has two six-month offering periods beginning on the first day of January and on the first day of July.  There are 1.0 million shares available for purchase by TCM’s employees under the ESPP plan.  The first offering period for 2010 is July 1, and, therefore, there is no stock-based compensation expense recorded during the current quarter related to the ESPP.

 

                TCM does not realize a tax benefit for stock-based awards granted to Canadian employees under the current Canadian tax law.

 

a)            Stock Options

 

The expiration date and vesting provisions of options granted are established at the time an award is made. Options may be exercised by the holder upon vesting of the grant. When an option is exercised, TCM issues the requisite shares from authorized but unissued common stock (new shares). The exercise price of option grants awarded is the greater of: (i) the weighted-average trading price of the underlying shares over the five consecutive trading days immediately before the grant date and (ii) if the award date occurs in a trading black-out period, the weighted-average trading price over the five consecutive trading days immediately after the black-out period has been lifted.

 

The following table summarizes stock option activity during the six months ended June 30, 2010:

 

 

 

Shares (000’s)

 

Weighted Average
Exercise Price (C$)

 

Stock options outstanding at January 1, 2010

 

6,314

 

$

10.89

 

Granted

 

105

 

12.71

 

Exercised

 

(281

)

7.43

 

Canceled/expired

 

(304

)

19.02

 

Stock options outstanding at June 30, 2010

 

5,834

 

10.63

 

 

               For the three and six months ended June 30, 2010, TCM recorded expense related to stock options of $1.4 million and $3.9 million, respectively.

 

                For the three and six months ended June 30, 2009, TCM recorded expense related to stock options of $4.0 million and $5.4 million, respectively.  In June 2009, TCM completed a voluntary stock option surrender program offered to all holders of stock options with an exercise price of C$16.19 per share and above. Under the terms of the surrender program, options to acquire an aggregate of 2,414,500 common shares were voluntarily surrendered, effective June 22, 2009. A non-cash compensation charge of approximately $2.8 million, representing the remaining unamortized stock-based compensation cost for the surrendered options, was recorded in the quarter ended June 30, 2009.

 

b)            Performance Stock Units

 

                On May 6, 2010, TCM approved a total of 240,000 performance stock units (“PSUs”), which were granted to eligible executives on July 22, 2010.  PSUs granted are accounted for at fair value using a Monte Carlo simulation valuation model on the date of grant.  The vesting of the PSUs is contingent upon employee service and a market condition based on the performance of TCM’s share price.  To determine whether or not this market condition is achieved and the PSUs vest, TCM establishes an award price using the same formula as that used in determining the exercise price for stock options granted, as discussed above.  At each anniversary date during the vesting period (three years for the May 2010 awards), if the per share closing price of TCM’s common stock on such date is higher than the award price, then the awards will vest one-third on each anniversary date, and the requisite shares will be issued from authorized but unissued common stock.  If the award price exceeds the per share closing price, and, therefore, the market

 

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condition is not achieved, then those PSUs do not vest and are carried forward to the following anniversary date.  Any PSUs not vested at the end of the three-year vesting period year will expire.  For the PSUs approved on May 6, 2010, TCM established an award price of $11.88.

 

c)            Restricted Stock Units

 

                On May 6, 2010, TCM approved 209,050 restricted stock units (“RSUs”), which were granted to eligible employees on July 22, 2010.  TCM accounts for RSUs at fair value, which is based on the market value of TCM’s common shares on the day of grant.  The total fair value is recognized over the vesting period of three years.  Upon vesting, TCM will issue the requisite shares from authorized but unissued common stock.

 

11. Net Income per Share

 

The following is a reconciliation of net income and weighted-average common shares outstanding for purposes of calculating diluted net income per share for the three and six months ended June 30, 2010 and 2009:

 

 

 

For the Three Months Ended
June 30,

 

For the Six Months Ended
June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Net income

 

$

126.5

 

$

(89.3

)

$

127.6

 

$

(80.6

)

Basic weighted-average number of shares outstanding

 

139.8

 

122.5

 

139.7

 

122.4

 

Effect of dilutive securities Stock options

 

0.5

 

 

0.9

 

 

Common stock warrants

 

5.1

 

 

7.0

 

 

Diluted weighted-average number of shares outstanding

 

145.4

 

122.5

 

147.6

 

122.4

 

Net income per share

 

 

 

 

 

 

 

 

 

Basic

 

$

0.90

 

$

(0.73

)

$

0.91

 

$

(0.66

)

Diluted

 

$

0.87

 

$

(0.73

)

$

0.86

 

$

(0.66

)

 

For the three and six months ended June 30, 2010, approximately 2.8 million and 1.2 million stock options, respectively, were excluded from the computation of diluted weighted-average shares as the exercise prices exceeded the average price of TCM’s common stock for the period.

 

                For the three and six months ended June 30, 2009, 5.7 million stock options and 24.5 million common stock warrants, respectively, were excluded from the computation of diluted weighted-average shares as their effect would have been anti-dilutive.

 

12. Related Party Transactions

 

Total sales to members of a group of companies affiliated with the other participant in the Endako Mine joint venture were $48.1 million and $81.7 million for the three and six months ended June 30, 2010, respectively. This represented 32.4% and 30.0% of TCM’s total revenues for the three and six months ended June 30, 2010, respectively.

 

Total sales with the other participant in the Endako Mine joint venture were $12.1 million and $24.2 million for the three and six months ended June 30, 2009, respectively.  This represented 16.4% and 15.9% of TCM’s total revenues for the three and six months ended June 30, 2009, respectively.

 

For the three and six months ended June 30, 2010, TCM recorded management fee income of $0.1 million and $0.2 million, respectively, and selling and marketing expenses of $0.3 million and $0.5 million, respectively, from this group of companies.

 

For the three and six months ended June 30, 2009, TCM recorded management fee income of $0.1 million and $0.2 million, respectively, and selling and marketing expenses of $0.1 million and $0.2 million, respectively, from this group of companies.

 

As of June 30, 2010 and December 31, 2009, TCM’s accounts receivable included $10.8 million and $10.3 million, respectively, owing from this group of companies.

 

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Table of Contents

 

13. Supplementary Cash Flow Information

 

 

 

For the Three Months Ended
June 30,

 

For the Six Months Ended
June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Change in working capital accounts:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

(6.1

)

$

(5.7

)

$

(17.3

)

$

17.8

 

Product inventory

 

(18.5

)

3.3

 

(29.7

)

12.0

 

Material and supplies inventory

 

(0.3

)

0.3

 

1.0

 

1.3

 

Prepaid expense and other current assets

 

2.7

 

1.6

 

3.1

 

1.7

 

Income tax receivable

 

0.8

 

(0.8

)

(1.2

)

(0.8

)

Accounts payable and accrued liabilities

 

0.5

 

(0.2

)

7.1

 

(2.7

)

Income and mining taxes payable

 

(3.2

)

2.0

 

0.2

 

(5.5

)

 

 

$

(24.1

)

$

0.5

 

$

(36.8

)

$

23.8

 

Cash interest paid

 

$

0.2

 

$

0.2

 

$

0.3

 

$

0.4

 

Cash income taxes paid

 

$

4.7

 

$

3.1

 

$

10.1

 

$

13.9

 

 

14. Concentration of Credit Risk

 

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

 

TCM manages its credit risk from its accounts receivable through established credit monitoring activities. As of June 30, 2010, TCM had three customers which owed TCM more than $3.0 million and accounted for approximately 23% of all receivables outstanding. There were another twelve customers having balances greater than $1.0 million but less than $3.0 million that accounted for approximately 32% of total receivables. All of these balances were compliant with credit terms and scheduled payment dates.

 

TCM’s maximum credit risk exposure is the carrying value of its accounts receivable. The carrying amounts of accounts receivable, accounts payable and accrued liabilities, and fixed and variable rate debt approximate fair value as of June 30, 2010.

 

15. Segment Information

 

TCM has two reportable segments: US Operations and Canadian Operations. The US Operations segment includes all mining, milling, mine site administration, roasting and sale of molybdenum products from the Thompson Creek Mine and the Langeloth Facility, as well as all roasting and sales of third-party purchased material. The Canadian Operations segment includes all mining, milling, mine site administration, roasting and sale of molybdenum products from the 75% owned Endako Mine. The Inter-segment represents the revenue and cost of sales elimination of product transported from the Canadian Operations to the US Operations for processing.  TCM’s chief operating decision makers (Chief Executive Officer and Chief Operating Officer) evaluate segment performance based on segment revenue less costs of sales. TCM attributes other income and expenses to the reporting segments if the income or expense is directly related to segment operations, as described above. TCM does not allocate corporate expenditures such as general and administrative, exploration, and interest income and expense items to its reporting segments.  Segment information for the three and six months ended as of June 30, 2010, and 2009 is as follows:

 

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Table of Contents

 

For the three months ended June 30, 2010

 

 

 

US Operations

 

Canadian
Operations

 

Inter-
segment

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

Molybdenum sales

 

$

114.2

 

$

34.8

 

$

(3.5

)

$

145.5

 

Tolling, calcining and other

 

2.9

 

0.1

 

(0.1

)

2.9

 

 

 

117.1

 

34.9

 

(3.6

)

148.4

 

Costs of sales

 

 

 

 

 

 

 

 

 

Operating expenses

 

61.4

 

17.1

 

(4.7

)

73.8

 

Selling and marketing

 

1.2

 

1.1

 

(0.5

)

1.8

 

Depreciation, depletion and amortization

 

6.3

 

5.6

 

 

11.9

 

Accretion expense

 

0.3

 

0.1

 

 

0.4

 

 

 

69.2

 

23.9

 

(5.2

)

87.9

 

Segment revenue less costs of sales

 

47.9

 

11.0

 

1.6

 

60.5

 

Other segment expenses:

 

 

 

 

 

 

 

 

 

Loss (gain) on foreign exchange

 

 

(3.8

)

 

(3.8

)

Segment income before income and mining taxes

 

$

47.9

 

$

14.8

 

$

1.6

 

$

64.3

 

 

For the three months ended June 30, 2009

 

 

 

US Operations

 

Canadian
Operations

 

Inter-
segment

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

Molybdenum sales

 

$

56.3

 

$

14.9

 

$

 

$

71.2

 

Tolling, calcining and other

 

2.8

 

 

 

2.8

 

 

 

59.1

 

14.9

 

 

74.0

 

Costs of sales

 

 

 

 

 

 

 

 

 

Operating expenses

 

44.2

 

8.1

 

 

52.3

 

Selling and marketing

 

0.9

 

0.4

 

 

1.3

 

Depreciation, depletion and amortization

 

6.9

 

3.3

 

 

10.2

 

Accretion expense

 

0.3

 

0.1

 

 

0.4

 

 

 

52.3

 

11.9

 

 

64.2

 

Segment revenue less costs of sales

 

6.8

 

3.0

 

 

9.8

 

Other segment expenses:

 

 

 

 

 

 

 

 

 

Loss (gain) on foreign exchange

 

 

7.1

 

 

7.1

 

Segment income (loss) before income and mining taxes

 

$

6.8

 

$

(4.1

)

$

 

$

2.7

 

 

For the six months ended June 30, 2010

 

 

 

US Operations

 

Canadian
Operations

 

Inter-
segment

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

Molybdenum sales

 

$

214.5

 

$

61.8

 

$

(6.8

)

$

269.5

 

Tolling, calcining and other

 

6.7

 

0.1

 

(0.1

)

6.7

 

 

 

221.2

 

61.9

 

(6.9

)

276.2

 

Costs of sales

 

 

 

 

 

 

 

 

 

Operating expenses

 

123.8

 

32.8

 

(6.5

)

150.1

 

Selling and marketing

 

2.3

 

1.8

 

(0.8

)

3.3

 

Depreciation, depletion and amortization

 

12.8

 

10.1

 

 

22.9

 

Accretion expense

 

0.6

 

0.2

 

 

0.8

 

 

 

139.5

 

44.9

 

(7.3

)

177.1

 

Segment revenue less costs of sales

 

81.7

 

17.0

 

0.4

 

99.1

 

Other segment expenses:

 

 

 

 

 

 

 

 

 

Loss (gain) on foreign exchange

 

 

(1.7

)

 

(1.7

)

Segment income before income and mining taxes

 

$

81.7

 

$

18.7

 

$

0.4

 

$

100.8

 

 

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Table of Contents

 

For the six months ended June 30, 2009

 

 

 

US Operations

 

Canadian
Operations

 

Inter-
segment

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

Molybdenum sales

 

$

109.5

 

$

37.3

 

$

 

$

146.8

 

Tolling, calcining and other

 

6.0

 

 

 

6.0

 

 

 

115.5

 

37.3

 

 

152.8

 

Costs of sales

 

 

 

 

 

 

 

 

 

Operating expenses

 

88.7

 

22.0

 

 

110.7

 

Selling and marketing

 

1.8

 

0.9

 

 

2.7

 

Depreciation, depletion and amortization

 

13.1

 

7.3

 

 

20.4

 

Accretion expense

 

0.5

 

0.2

 

 

0.7

 

 

 

104.1

 

30.4

 

 

134.5

 

Segment revenue less costs of sales

 

11.4

 

6.9

 

 

18.3

 

Other segment expenses:

 

 

 

 

 

 

 

 

 

Loss (gain) on foreign exchange

 

 

3.9

 

 

3.9

 

Segment income before income and mining taxes

 

$

11.4

 

$

3.0

 

$

 

$

14.4

 

 

Reconciliation of segment income to net income

 

 

 

For the Three Months Ended
June 30,

 

For the Six Months Ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Segment income

 

$

64.3

 

$

2.7

 

$

100.8

 

$

14.4

 

Other (income) expense

 

 

 

 

 

 

 

 

 

Change in fair value of common stock warrants

 

(74.8

)

83.0

 

(50.3

)

83.3

 

General and administrative

 

8.4

 

8.1

 

14.2

 

13.1

 

Exploration

 

1.8

 

1.9

 

3.5

 

3.7

 

Interest (income) expense, net

 

(0.4

)

(0.3

)

(0.3

)

(0.4

)

Loss (gain) on foreign exchange

 

1.9

 

 

0.4

 

 

Other

 

(0.2

)

 

(0.3

)

(0.4

)

Income (loss) before income and mining taxes

 

127.6

 

(90.0

)

133.6

 

(84.9

)

Income and mining taxes (benefit)

 

1.1

 

(0.7

)

6.0

 

(4.3

)

Net income (loss)

 

$

126.5

 

$

(89.3

)

$

127.6

 

$

(80.6

)

 

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Other segment information regarding capital expenditures, assets and liabilities, including the assets and liabilities attributed to corporate operations, is as follows:

 

As of June 30, 2010

 

US
Operations

 

Canadian
Operations

 

Corporate

 

Total

 

Capital expenditures

 

$

32.4

 

$

55.8

 

$

2.3

 

$

90.5

 

Capital assets

 

$

277.2

 

$

393.3

 

$

6.4

 

$

676.9

 

Goodwill

 

$

47.0

 

$

 

$

 

$

47.0

 

Assets

 

$

651.4

 

$

624.5

 

$

156.8

 

$

1,432.7

 

Liabilities

 

$

105.3

 

$

118.1

 

$

98.3

 

$

321.7

 

 

As of June 30, 2009

 

US
Operations

 

Canadian
Operations

 

Corporate

 

Total

 

Capital expenditures

 

$

20.4

 

$

18.6

 

$

2.3

 

$

41.3

 

Capital assets

 

$

264.5

 

$

303.6

 

$

0.5

 

$

568.6

 

Goodwill

 

$

47.0

 

$

 

$

 

$

47.0

 

Assets

 

$

607.2

 

$

428.5

 

$

17.9

 

$

1,053.6

 

Liabilities

 

$

133.6

 

$

98.7

 

$

107.2

 

$

339.5

 

 

16. Reconciliation to Canadian Generally Accepted Accounting Principles

 

TCM’s consolidated financial statements have been prepared according to US GAAP, which differs in certain respects from those principles that TCM would have followed had the consolidated financial statements been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). The significant differences between US GAAP and Canadian GAAP and their effect on the consolidated financial statements are detailed below.

 

 

 

 

 

June 30, 2010

 

December 31, 2009

 

 

 

 

 

US GAAP

 

Canadian
GAAP

 

US GAAP

 

Canadian
GAAP

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

215.6

 

$

215.6

 

$

158.5

 

$

158.5

 

Short-term investments

 

 

 

267.2

 

267.2

 

353.0

 

353.0

 

Accounts receivable

 

 

 

59.9

 

59.9

 

42.7

 

42.7

 

Product inventory

 

(a)

 

73.5

 

68.5

 

43.5

 

40.6

 

Material and supplies inventory

 

 

 

33.4

 

33.4

 

34.5

 

34.5

 

Prepaid expense and other current assets

 

 

 

2.8

 

2.8

 

6.0

 

6.0

 

Income tax receivable

 

 

 

5.9

 

5.9

 

4.8

 

4.8

 

 

 

 

 

658.3

 

653.3

 

643.0

 

640.1

 

Property, plant and equipment, net

 

(a)

 

676.9

 

759.1

 

605.7

 

680.0

 

Restricted cash

 

 

 

19.3

 

19.3

 

16.8

 

16.8

 

Reclamation deposits

 

 

 

30.3

 

30.3

 

30.3

 

30.3

 

Goodwill

 

 

 

47.0

 

47.0

 

47.0

 

47.0

 

Other assets

 

 

 

0.9

 

0.9

 

1.8

 

1.8

 

 

 

 

 

$

1,432.7

 

$

1,509.9

 

$

1,344.6

 

$

1,416.0

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

 

$

53.2

 

$

53.2

 

$

29.9

 

$

29.9

 

Income and mining taxes payable

 

 

 

3.7

 

2.7

 

3.6

 

3.6

 

Current portion of long-term debt

 

 

 

2.9

 

2.9

 

3.7

 

3.7

 

Deferred income tax liabilities

 

 

 

6.6

 

6.6

 

6.7

 

6.7

 

 

 

 

 

66.4

 

65.4

 

43.9

 

43.9

 

Long-term debt

 

 

 

7.6

 

7.6

 

9.2

 

9.2

 

Other liabilities

 

 

 

24.8

 

24.8

 

24.6

 

24.6

 

Asset retirement obligations

 

 

 

25.6

 

25.6

 

24.8

 

24.8

 

Common stock warrant derivatives

 

(b)

 

65.2

 

 

115.4

 

 

Deferred income tax liabilities

 

(a,c)

 

132.1

 

163.9

 

141.3

 

168.0

 

 

 

 

 

321.7

 

287.3

 

359.2

 

270.5

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

 

700.2

 

698.6

 

697.1

 

695.5

 

Common stock warrants

 

(b)

 

 

35.0

 

 

35.0

 

Additional paid-in-capital

 

 

 

47.8

 

47.8

 

45.7

 

45.7

 

Retained earnings

 

(a,b,c)

 

360.4

 

438.6

 

232.8

 

359.5

 

Accumulated other comprehensive income

 

 

 

2.6

 

2.6

 

9.8

 

9.8

 

 

 

 

 

1,111.0

 

1,222.6

 

985.4

 

1,145.5

 

 

 

 

 

$

1,432.7

 

$

1,509.9

 

$

1,344.6

 

$

1,416.0

 

 

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The following table reconciles the consolidated net income and consolidated comprehensive income as reported under US GAAP with that which would have been reported under Canadian GAAP:

 

 

 

For the Three Months Ended
June 30,

 

For the Six Months Ended
June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Net income (loss)—US GAAP

 

$

126.5

 

$

(89.3

)

$

127.6

 

$

(80.6

)

Reconciling items:

 

 

 

 

 

 

 

 

 

Change in fair value of common stock warrants

 

(74.8

)

83.0

 

(50.3

)

83.3

 

Stripping costs incurred during production (net of amortization)

 

1.5

 

5.6

 

5.7

 

9.0

 

Income tax effect of above adjustments

 

(2.3

)

0.3

 

(3.9

)

(0.9

)

Net income (loss)—Canadian GAAP

 

$

50.9

 

$

(0.4

)

$

79.1

 

$

10.8

 

Net income (loss) per share—Canadian GAAP

 

 

 

 

 

 

 

 

 

Basic

 

$

0.36

 

$

(0.00

)

$

0.57

 

$

0.09

 

Diluted

 

$

0.35

 

$

(0.00

)

$

0.54

 

$

0.09

 

Net income (loss)—Canadian GAAP

 

$

50.9

 

$

(0.4

)

$

79.1

 

$

10.8

 

Foreign currency translation adjustment

 

(22.7

)

26.1

 

(7.2

)

17.0

 

Comprehensive income—Canadian GAAP

 

$

28.2

 

$

25.7

 

$

71.9

 

$

27.8

 

 

For the three months ended June 30, 2010 and 2009, under Canadian GAAP, cash flows from operating activities would increase by $6.6 million and $7.1 million, respectively, and cash flows from investing activities would decrease by $6.6 million and $7.1 million, respectively, due to stripping costs incurred during production.

 

For the six months ended June 20, 2010 and 2009, under Canadian GAAP, cash flows from operating activities would increase by $12.6 million and $14.4 million, respectively, and cash flows from investing activities would decrease by $12.6 million and $14.4 million, respectively, due to stripping costs incurred during production.

 

Current Differences in Accounting Principles

 

a)                                      Stripping Costs Incurred During Production

 

Under US GAAP, capitalization of stripping costs after a mine has entered its production phase is not permitted and stripping costs are accounted for as a variable production cost to be included in the costs of inventory.

 

Effective January 1, 2007, for Canadian GAAP purposes, TCM prospectively adopted EIC-160 “Stripping Costs Incurred in the Production Phase of a Mining Operation”. Under EIC-160, stripping activity at operating mines that represents a betterment is capitalized to property, plant and equipment and amortized on a unit-of-production basis over the related proven and probable reserves. Betterment occurs when the stripping activity increases future output of the mine by providing additional sources of mineral reserves.

 

Accordingly, for the three months ended June 30, 2010 and 2009, costs and expenses for Canadian GAAP purposes would decrease by $1.5 million and $5.6 million, respectively.  For the six months ended June 30, 2010 and 2009, costs and expenses for Canadian GAAP purposes would decrease by $5.7 million and $9.0 million, respectively.

 

As of June 30, 2010, property, plant and equipment would increase by $82.2 million (net of amortization) and product inventory would decrease by $5.0 million.

 

b)                                     Common Stock Warrant Derivatives

 

In June 2008, the EITF reached a conclusion that an equity-linked financial instrument would not be considered indexed to TCM’s own stock if the strike price is denominated in a currency other than the issuer’s functional currency, for fiscal years beginning on or after December 15, 2008. Given that the functional currency of TCM is the US dollar and the common stock warrant exercise price is denominated in the Canadian dollar, these warrants are required to be treated as a derivative liability under US GAAP with changes in fair value recorded to earnings. This guidance was adopted by TCM under US GAAP on January 1, 2009.

 

Under Canadian GAAP, TCM’s common stock warrants are treated as equity. Accordingly, for the three months ended June 30, 2010 and 2009, the change in fair value of common stock warrants would increase by $74.8 million and decrease by

 

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$83.0 million, respectively, under Canadian GAAP.  For the six months ended June 30, 2010 and 2009, the change in fair value of common stock warrants would increase by $50.3 million and decrease by $83.3 million, respectively, under Canadian GAAP.

 

As of June 30, 2010, common stock warrant derivatives would decrease by $65.2 million and common stock warrants would increase by $35.0 million under Canadian GAAP.

 

c)                                      Realization of Deferred Tax Asset for Stock Compensation

 

For US GAAP purposes, a deferred tax asset is recognized for the temporary difference related to share options based on the stock-based compensation recognized for financial statement purposes. The deferred tax asset is recognized in the period that the stock-based compensation expense is recorded. At each reporting period, the deferred tax asset is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized.

 

For Canadian GAAP purposes, a deferred tax asset is recognized for the temporary difference related to share options based on the stock-based compensation recognized for financial statement purposes. However, at each reporting period, if there is a decline in the market price of the Corporation’s common stock below the option strike price, this factor is taken into account in determining whether recoverability of the deferred tax asset is considered more likely than not.

 

Under Canadian GAAP, TCM recorded a valuation allowance of $2.6 million for the three and six months ended June 30, 2010.  In 2009, TCM recorded a benefit of $2.8 million related to the release of the valuation allowance for the three and six months ended June 30, 2009, respectively.

 

17.  Subsequent Events

 

On July 15, 2010, TCM entered into a definitive agreement to acquire all of the issued and outstanding equity of Terrane Metals Corp. (“Terrane”).  The transaction is expected to be implemented by way of a court-approved plan of arrangement under British Columbia law (the “Arrangement”). TCM has also concurrently entered into a letter agreement with Royal Gold, Inc. with respect to the purchase and sale of 25% of the payable gold from Terrane’s Mt. Milligan Copper Gold Project (the “Gold Stream Transaction”).  Goldcorp Inc. (“Goldcorp”) has entered into a support agreement with TCM under which it has agreed to vote in favor of the transaction.  Goldcorp holds approximately 240.0 million preference shares and approximately 27.3 million common shares.  Under the Arrangement, Goldcorp has agreed to convert its preference shares to common shares of Terrane prior to the record date of the meeting of Terrane shareholders to approve the Arrangement.  On a combined basis, Goldcorp’s shares represent approximately 58% of the outstanding voting equity of Terrane.  In addition, certain officers and directors of Terrane holding approximately 1% of the common shares in the aggregate have entered into support agreements.

 

Under the Arrangement, holders of Terrane shares will receive C$0.90 in cash and 0.052 of TCM’s common shares per Terrane share. The consideration implies an offer value of C$1.41 per Terrane share based on TCM’s closing price on the Toronto Stock Exchange (“TSX”) of C$9.90 per share on July 14, 2010, which results in a total value of consideration offered to the shareholders of Terrane of approximately C$650 million.  In the event that the transaction is not completed, Terrane has agreed to pay TCM a termination fee equal to C$20 million, under certain circumstances.

 

Since the announcement of the Gold Stream Transaction, TCM and Royal Gold have made progress regarding certain material open issues relating to the purchase and sale agreement (Exhibit 1 to the Letter Agreement with Royal Gold (originally included as Exhibit 10.13 to TCM’s Current Report on Form 8-K filed with the United States Securities and Exchange Commission on July 21, 2010)), including the terms of Section 8.6 of the purchase and sale agreement and the underlying security agreements and exhibits thereto. While TCM and Royal Gold expect to resolve these issues soon, the parties have not yet finalized the agreements and there is no assurance that such negotiations will be successful. The Arrangement provides that Terrane is not obligated to consummate the Arrangement if TCM does not enter into a definitive agreement for the sale of gold proceeds with Royal Gold or another third party for proceeds of not less than $300 million or other financing of an equal or superior value as determined by Terrane’s board of directors.  There can be no assurance that a definitive Gold Stream Transaction will be entered into or that the acquisition of Terrane will be consummated.

 

On June 22, 2010, employees at the Endako Mine received union certification.  Voting took place on May 26 and 28, 2010, with voter turnout of approximately 90%. Of the 231 eligible employees who voted, 127 voted in favor of representation by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, Local # 1-424 (“Union”) and 104 voted against. On July 22, 2010, the British Columbia Labour Relations Board certified the Union to represent the employees in the mine, milling and maintenance departments. The Endako Mine expects to receive a notice to bargain in the near future. It is not currently known what effect, if any, this will have on the Endako Mine until a labor agreement is negotiated and executed.

 

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

 

This Management’s Discussion and Analysis (“MD&A”) of consolidated financial condition and results of operations of Thompson Creek Metals Company Inc. was prepared as of August 5, 2010.  In the MD&A, “TCM” and “Thompson Creek” refer to Thompson Creek Metals Company Inc. and its consolidated subsidiaries. You should read this discussion in conjunction with TCM’s financial statements, the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the discussion of “Risk Factors” and the discussion of TCM’s “Business and Properties” in the Annual Report on Form 10-K, as amended, for the year ended December 31, 2009, filed with the United States Securities and Exchange Commission (“SEC”). The results of operations reported and summarized below are not necessarily indicative of future operating results. References to “Notes” are Notes included in the “Notes to Consolidated Financial Statements” in Item 1 herein. Throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations, all references to earnings or losses per share are on a diluted basis, unless otherwise noted.  The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”).  All dollar amounts are expressed in United States dollars (“US$”) unless otherwise indicated. References to C$ refers to Canadian dollars. Additional information on Thompson Creek Metals Company Inc. is available on EDGAR at www.sec.gov, or on SEDAR at www.sedar.com.

 

Business Overview

 

Thompson Creek is a North American molybdenum mining company, governed by the laws of British Columbia, with vertically integrated mining, milling, processing and marketing operations in Canada and the US.  Thompson Creek’s operations include the Thompson Creek Mine (mine and mill) in Idaho, a metallurgical facility in Pennsylvania (the “Langeloth Facility”) and a 75% joint venture interest in the Endako Mine (mine, mill and roaster) in British Columbia.  In addition, Thompson Creek has two underground molybdenum development projects comprised of the Davidson Project, located in British Columbia, and an option to acquire up to 75% of the Mount Emmons Project, located in Colorado.

 

Acquisition Definitive Agreement

 

On July 15, 2010, Thompson Creek and Terrane Metals Corp. (“Terrane”) (TSX Venture:TRX) jointly announced that they have entered into a definitive agreement pursuant to which Thompson Creek will acquire all of the issued and outstanding equity of Terrane. The transaction, if consummated, will be implemented by way of a court-approved plan of arrangement under British Columbia law (the “Arrangement”). Thompson Creek has also concurrently entered into a letter agreement with Royal Gold, Inc. (“Royal Gold”) with respect to the purchase and sale of 25% of the payable gold (the “Gold Stream Transaction”) from Terrane’s Mt. Milligan Copper Gold Project (“Mt. Milligan”).

 

Under the Arrangement, holders of Terrane shares will receive C$0.90 in cash and 0.052 of TCM’s common shares per Terrane share. The consideration implies an offer value of C$1.41 per Terrane share based on TCM’s closing price on the Toronto Stock Exchange (“TSX”) of C$9.90 per share on July 14, 2010, which results in a total value of consideration offered to the shareholders of Terrane of approximately C$650 million. In the event that the transaction is not completed, Terrane has agreed to pay TCM a termination fee equal to C$20 million, under certain circumstances.

 

The acquisition of Terrane and the Gold Stream Transaction, if consummated, are expected to provide the following benefits to shareholders of Thompson Creek:

 

·                  Mt. Milligan offers diversification beyond Thompson Creek’s current asset base of primary molybdenum deposits providing for strong contributions from molybdenum, copper, and gold subsequent to the start-up of Mt. Milligan which is expected in 2013;

·                  the Gold Stream Transaction should allow shareholders to immediately capture value from future gold production while providing funds for mine construction, retaining full leverage to base metal production and maintaining significant gold by-product credits;

·                  the combined business should have the ability to finance its strong combined project pipeline, which would generate significant production growth when the mill expansion at the Endako Mine and the start-up of the Mt. Milligan project are completed; and

·                  going forward, Thompson Creek should have avenues for future exploration and growth with a broader suite of earlier stage projects, including Mt. Emmons, Davidson and Berg that can be prioritized optimally for development and value creation.

 

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The transaction has been unanimously approved by the executive committee and the board of directors of Thompson Creek. The board of directors of Terrane has also unanimously approved the transaction following the report and favorable unanimous recommendation of a special committee of independent directors.  In doing so, the board of directors of Terrane determined that the Arrangement is fair to its shareholders and in the best interests of Terrane and authorized the submission of the Arrangement to the shareholders of Terrane for their approval at a special meeting of shareholders. Goldcorp Inc. (“Goldcorp”) has entered into a support arrangement with Thompson Creek under which it has agreed to vote in favor of the transaction. Goldcorp holds approximately 240.0 million preference shares and approximately 27.3 million common shares. Under the Arrangement, Goldcorp has agreed to convert its preference shares to common shares of Terrane prior to the record date of the meeting of Terrane shareholders to approve the Arrangement.  On a combined basis, Goldcorp’s shares represent approximately 58% of the outstanding voting equity of Terrane. In addition, certain officers and directors of Terrane holding approximately 1% of the common shares in aggregate have entered into support agreements.  A management information circular will be sent to shareholders of Terrane in connection with a special meeting to consider the Arrangement.

 

Since the announcement of the Gold Stream Transaction, TCM and Royal Gold have made progress regarding certain material open issues relating to the purchase and sale agreement (Exhibit 1 to the Letter Agreement with Royal Gold (originally included as Exhibit 10.13 to TCM’s Current Report on Form 8-K filed with the United States Securities and Exchange Commission on July 21, 2010)), including the terms of Section 8.6 of the purchase and sale agreement and the underlying security agreements and exhibits thereto. While TCM and Royal Gold expect to resolve these issues soon, the parties have not yet finalized the agreements and there is no assurance that such negotiations will be successful.  The Arrangement provides that Terrane is not obligated to consummate the Arrangement if TCM does not enter into a definitive agreement for the sale of gold proceeds with Royal Gold or another third party for proceeds of not less than $300 million or other financing of an equal or superior value as determined by Terrane’s board of directors.  There can be no assurance that a definitive Gold Stream Transaction will be entered into or that the acquisition of Terrane will be consummated.

 

Second Quarter 2010 Highlights

 

·                  Net income for the second quarter of 2010 was $126.5 million, or $0.87 per share, which included a non-cash unrealized gain on common share purchase warrants of $74.8 million, or $0.51 per share.  Net loss for the second quarter of 2009 was $89.3 million, or $0.73 per share, which included a non-cash unrealized loss on common share purchase warrants of $83.0 million, or $0.68 per share.

 

·                  Non-GAAP adjusted net income for the second quarter of 2010 (excluding the non-cash unrealized gain on the warrants) was $51.7 million, or $0.36 per share.  Non-GAAP adjusted net loss for the second quarter of 2009 (excluding the non-cash unrealized loss on warrants) was $6.3 million, or $0.05 per share.  See “Non-GAAP Financial Measures” below for the definition and calculation of adjusted net income (loss).  Non-cash unrealized gains and losses on common stock purchase warrants were the result of a requirement under US GAAP to account for Thompson Creek’s outstanding common stock purchase warrants as a derivative, with changes in the fair market value recorded in net income.

 

·                  Consolidated revenues for the second quarter of 2010 were $148.4 million, or an increase of approximately 100.5% from the second quarter of 2009 primarily as a result of higher molybdenum sales prices.  The average realized molybdenum sales price for the second quarter of 2010 was $16.84 per pound, up 79% from $9.41 per pound for the second quarter of 2009.

 

·                  Mined molybdenum production in the second quarter of 2010 was 7.0 million pounds, up 4% from 6.7 million pounds in the second quarter of 2009 primarily due to higher sales demand.

 

·                  Average cash cost per pound produced for the second quarter of 2010 was $7.06 per pound, compared to $5.21 per pound for the second quarter of 2009.  See “Non-GAAP Financial Measures” below for the calculation of cash cost per pound.

 

·                  Operating cash flow was $41.2 million in the second quarter of 2010, compared to $6.1 million in the second quarter of 2009.

&nb