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1. BASIS OF PRESENTATION
The accompanying interim unaudited consolidated financial statements of Agnico Eagle Mines Limited ("Agnico Eagle" or the "Company") have been prepared in accordance with United States generally accepted accounting principles ("US GAAP") in US dollars. They do not include all of the disclosures required by US GAAP for annual financial statements. Accordingly, these interim unaudited consolidated financial statements should be read in conjunction with the fiscal 2012 audited annual consolidated financial statements, including the accounting policies and notes thereto, included in the Annual Report and Annual Information Form/Form 20-F for the year ended December 31, 2012. In the opinion of management, the interim unaudited consolidated financial statements reflect all adjustments, which consist only of normal and recurring adjustments necessary to present fairly the financial position as at March 31, 2013 and the results of operations and cash flows for the three months ended March 31, 2013 and March 31, 2012.
Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013.
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2. USE OF ESTIMATES
The preparation of the interim unaudited consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the interim unaudited consolidated financial statements and accompanying notes. Management believes that the estimates used in the preparation of the interim unaudited consolidated financial statements are reasonable and prudent; however, actual results may differ from these estimates.
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3. ACCOUNTING POLICIES
These interim unaudited consolidated financial statements follow the same accounting policies and methods of their application as the December 31, 2012 audited annual consolidated financial statements except for the recently adopted accounting pronouncements discussed below.
Recently Adopted Accounting Pronouncements
Disclosures about Offsetting Assets and Liabilities
In November 2011, ASC guidance was issued relating to disclosure on offsetting financial instrument and derivative financial instrument assets and liabilities. Under the updated guidance, entities are required to disclose gross information and net information about both instruments and transactions eligible for offset in the consolidated balance sheets and instruments and transactions subject to an agreement similar to a master netting arrangement. The Company adopted this updated guidance, effective for the fiscal year beginning January 1, 2013. See notes 4 and 10 for disclosure on offsetting financial instrument and derivative financial instrument assets and liabilities.
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
In February 2013, ASC guidance was issued relating to the reporting of amounts reclassified out of accumulated other comprehensive income. Under the updated guidance, entities are required to provide information about the amounts reclassified out of accumulated other comprehensive income by component and by consolidated statement of income line item, as required under US GAAP. The Company adopted this updated guidance, effective for the fiscal year beginning January 1, 2013. See the Company's interim unaudited consolidated statements of income and comprehensive income for reporting of amounts reclassified out of accumulated other comprehensive income.
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4. FAIR VALUE MEASUREMENT
ASC 820 — Fair Value Measurement and Disclosure defines fair value, establishes a framework for measuring fair value under US GAAP and requires expanded disclosures about fair value measurements including the following three fair value hierarchy levels:
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; and
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).
Fair value is the value at which a financial instrument could be closed out or sold in a transaction with a willing and knowledgeable counterparty over a period of time consistent with the Company's investment strategy. Fair value is based on quoted market prices, where available. If market quotes are not available, fair value is based on internally developed models that use market-based or independent information as inputs. These models could produce a fair value that may not be reflective of future fair value.
The following table summarizes the Company's financial assets and liabilities measured at fair value as at March 31, 2013 within the fair value hierarchy:
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Level 1 | Level 2 | Level 3 | Total | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial assets: |
||||||||||||||
Trade receivables(i) |
$ | — | $ | 70,526 | $ | — | $ | 70,526 | ||||||
Available-for-sale securities(ii) |
55,309 | — | — | 55,309 | ||||||||||
Fair value of derivative financial instruments(iii) |
— | 5,308 | — | 5,308 | ||||||||||
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$ | 55,309 | $ | 75,834 | $ | — | $ | 131,143 | ||||||
Financial liabilities: |
||||||||||||||
Fair value of derivative financial instruments(iii) |
$ | — | $ | 700 | $ | — | $ | 700 | ||||||
The following table details the Company's financial assets and liabilities measured at fair value as at December 31, 2012 within the fair value hierarchy:
|
Level 1 | Level 2 | Level 3 | Total | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial assets: |
||||||||||||||
Trade receivables(i) |
$ | — | $ | 67,750 | $ | — | $ | 67,750 | ||||||
Available-for-sale securities(ii) |
44,719 | — | — | 44,719 | ||||||||||
Fair value of derivative financial instruments(iii) |
— | 2,112 | — | 2,112 | ||||||||||
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$ | 44,719 | $ | 69,862 | $ | — | $ | 114,581 | ||||||
Financial liabilities: |
||||||||||||||
Fair value of derivative financial instruments(iii) |
$ | — | $ | 277 | $ | — | $ | 277 | ||||||
In the event that a decline in the fair value of an investment in available-for-sale securities occurs and the decline in value is considered to be other-than-temporary, an impairment charge is recorded in the interim unaudited consolidated statements of income and comprehensive income and a new cost basis for the investment is established. The Company assesses whether a decline in value is considered to be other-than-temporary by considering available evidence, including changes in general market conditions, specific industry and individual company data, the length of time and the extent to which the fair value has been less than cost, the financial condition and the near-term prospects of the individual investment. New evidence could become available in future periods which would affect this assessment and thus could result in material impairment charges with respect to those investments in available-for-sale securities for which the cost basis exceeds its fair value.
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5. PROPERTY, PLANT AND MINE DEVELOPMENT
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As at March 31, 2013 | As at December 31, 2012 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Cost | Accumulated Amortization |
Net Book Value |
Cost | Accumulated Amortization |
Net Book Value |
||||||||||||||
Mining properties |
$ | 1,356,797 | $ | 106,852 | $ | 1,249,945 | $ | 1,356,227 | $ | 86,839 | $ | 1,269,388 | ||||||||
Plant and equipment |
2,552,940 | 663,985 | 1,888,955 | 2,538,328 | 617,826 | 1,920,502 | ||||||||||||||
Mine development costs |
956,226 | 233,988 | 722,238 | 918,482 | 237,967 | 680,515 | ||||||||||||||
Construction in Progress: |
||||||||||||||||||||
Meliadine project |
146,436 | — | 146,436 | 133,840 | — | 133,840 | ||||||||||||||
La India project |
75,691 | — | 75,691 | 32,553 | — | 32,553 | ||||||||||||||
Goldex mine M and E zones |
45,872 | — | 45,872 | 30,658 | — | 30,658 | ||||||||||||||
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$ | 5,133,962 | $ | 1,004,825 | $ | 4,129,137 | $ | 5,010,088 | $ | 942,632 | $ | 4,067,456 | ||||||||
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6. SHAREHOLDERS' EQUITY
In 2009, the Company implemented the restricted share unit ("RSU") plan for certain employees. A deferred compensation balance was recorded for the total grant date value on the date of grant. The deferred compensation balance was recorded as a reduction of shareholders' equity and was amortized as compensation expense over the applicable vesting period of two years.
Effective January 1, 2012, the RSU plan was amended to include directors and senior executives of the Company. A deferred compensation balance was recorded for the total grant date value on the date of grant. The deferred compensation balance was recorded as a reduction of shareholders' equity and is to be amortized as compensation expense over the applicable vesting period of three years.
During the first quarter of 2013, the Company funded the RSU plan by transferring $19.0 million (first quarter of 2012 — $12.0 million) to an employee benefit trust (the "Trust") that then purchased shares of the Company in the open market. For accounting purposes, the Trust is treated as a variable interest entity and consolidated in the accounts of the Company. On consolidation, the dividends paid on the shares held by the Trust are eliminated. The common shares purchased and held by the Trust are treated as not outstanding for the basic earnings per share ("EPS") calculations. They are included in the basic EPS calculations once they have vested. All of the unvested common shares held by the Trust are included in the diluted EPS calculations.
The following table summarizes the maximum number of common shares that would be outstanding if all instruments outstanding at March 31, 2013 were exercised:
Common shares outstanding at March 31, 2013 |
172,376,107 | ||||
Employee stock options |
11,726,491 | ||||
Warrants |
8,600,000 | ||||
RSU plan |
491,417 | ||||
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193,194,015 | ||||
The following table provides the weighted average number of common shares used in the calculation of basic and diluted net income per share:
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Three Months Ended March 31, |
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2013 | 2012 | ||||||
Net income for the period |
$ | 23,859 | $ | 78,548 | ||||
Weighted average number of common shares outstanding — basic (in thousands) |
172,280 | 170,837 | ||||||
Add: Dilutive impact of employee stock options |
— | — | ||||||
Dilutive impact of warrants |
— | — | ||||||
Dilutive impact of shares related to RSU plan |
343 | 180 | ||||||
Weighted average number of common shares outstanding — diluted (in thousands) |
172,623 | 171,017 | ||||||
Net income per share — basic |
$ | 0.14 | $ | 0.46 | ||||
Net income per share — diluted |
$ | 0.14 | $ | 0.46 | ||||
The calculation of diluted net income per share has been calculated using the treasury stock method. In applying the treasury stock method, employee stock options and warrants with an exercise price greater than the average quoted market price of the common shares for the period outstanding are not included in the calculation of diluted net income per share as the impact is anti-dilutive.
For the first quarter of 2013 and the first quarter of 2012, all employee stock options and warrants were excluded from the calculation of diluted weighted average common shares outstanding as their effect would have been anti-dilutive.
Accumulated other comprehensive loss
The following table details the changes in accumulated other comprehensive loss components:
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Cumulative Translation Adjustment |
Available-for-sale Securities |
Derivative Financial Instruments |
Pension Benefits |
Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance December 31, 2012 |
$ | (16,206 | ) | $ | (7,680 | ) | $ | 137 | $ | (3,562 | ) | $ | (27,311 | ) | |||
Other comprehensive (loss) income before reclassifications |
— | (173 | ) | 81 | — | (92 | ) | ||||||||||
Tax expense |
— | — | (19 | ) | — | (19 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive loss |
— | 10,995 | 10 | 131 | 11,136 | ||||||||||||
Tax expense |
— | — | (3 | ) | (34 | ) | (37 | ) | |||||||||
Net current-period other comprehensive income |
— | 10,822 | 69 | 97 | 10,988 | ||||||||||||
Balance March 31, 2013 |
$ | (16,206 | ) | $ | 3,142 | $ | 206 | $ | (3,465 | ) | $ | (16,323 | ) | ||||
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7. STOCK-BASED COMPENSATION
The following continuities summarize activity with respect to the Company's outstanding employee stock options:
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Three Months Ended March 31, 2013 |
Three Months Ended March 31, 2012 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Number of Employee Stock Options | Weighted Average Exercise Price |
Number of Employee Stock Options | Weighted Average Exercise Price |
||||||||||
Outstanding, beginning of period |
10,587,126 | C$56.60 | 8,959,051 | C$62.88 | ||||||||||
Granted |
2,803,000 | 52.13 | 3,228,000 | 36.96 | ||||||||||
Exercised |
(212,500 | ) | 37.06 | — | — | |||||||||
Forfeited |
(156,500 | ) | 61.88 | 90,000 | 60.30 | |||||||||
Expired |
(1,294,635 | ) | 54.44 | 449,150 | 48.09 | |||||||||
Outstanding, end of period |
11,726,491 | C$56.05 | 11,647,901 | C$56.29 | ||||||||||
Exercisable, end of period |
7,505,295 | C$59.41 | 7,246,739 | C$59.09 | ||||||||||
Agnico Eagle estimated the fair value of employee stock options under the Black-Scholes option pricing model using the following weighted average assumptions:
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Three Months Ended March 31, |
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---|---|---|---|---|---|---|---|---|
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2013 | 2012 | ||||||
Risk-free interest rate |
1.49% | 1.23% | ||||||
Expected life of employee stock options (in years) |
2.7 | 2.7 | ||||||
Expected volatility of Agnico Eagle's share price |
35.0% | 37.5% | ||||||
Expected dividend yield |
1.73% | 2.17% |
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8. AVAILABLE-FOR-SALE SECURITIES
During the three months ended March 31, 2013 and the three months ended March 31, 2012, the Company did not dispose of any available-for-sale securities.
Available-for-sale securities consist of equity securities whose cost basis is determined using the average cost method. Available-for-sale securities are carried at fair value and comprise the following:
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As at March 31, 2013 |
As at December 31, 2012 |
||||||
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Available-for-sale securities in an unrealized gain position: |
||||||||
Cost (net of impairments) |
$ | 38,387 | $ | 4,352 | ||||
Unrealized gains in accumulated other comprehensive loss |
4,753 | 1,902 | ||||||
Estimated fair value |
43,140 | 6,254 | ||||||
Available-for-sale securities in an unrealized loss position: |
||||||||
Cost (net of impairments) |
13,654 | 48,047 | ||||||
Unrealized losses in accumulated other comprehensive loss |
(1,485 | ) | (9,582 | ) | ||||
Estimated fair value |
12,169 | 38,465 | ||||||
Total estimated fair value of available-for-sale securities |
$ | 55,309 | $ | 44,719 | ||||
The Company's investments in available-for-sale securities consist primarily of investments in common shares of entities in the mining industry. During the three months ended March 31, 2013, certain available-for-sale securities fell into an unrealized loss position. In each case, the Company evaluated the near-term prospects of the issuers in relation to the severity and duration of the impairment. During the first quarter of 2013, the Company recorded an $11.0 million (first quarter of 2012 — nil) impairment loss on certain available-for-sale securities that were determined to be other-than-temporarily impaired.
At March 31, 2013, the fair value of available-for-sale securities in an unrealized loss position was $12.2 million (December 31, 2012 — $38.5 million) with total unrealized losses in accumulated other comprehensive loss of $1.5 million (December 31, 2012 — $9.6 million). Based on an evaluation of the severity and duration of the impairment of these available-for-sale securities (less than three months) and on the Company's intent to hold the investments for a period of time sufficient for a recovery of fair value, the Company does not consider these available-for-sale securities to be other-than-temporarily impaired as at March 31, 2013.
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9. LONG-TERM DEBT
Credit Facility
On June 22, 2010, the Company amended and restated its Credit Facility, increasing the amount available from $900.0 million to $1,200.0 million.
On July 20, 2012, the Company further amended the Credit Facility, extending the maturity date from June 22, 2016 to June 22, 2017 and updating pricing terms to reflect improved market conditions.
At March 31, 2013, the Credit Facility was drawn down by nil (December 31, 2012 — $30.0 million). Amounts drawn down, together with related outstanding letters of credit, resulted in Credit Facility availability of $1,198.9 million at March 31, 2013.
2012 Notes
On July 24, 2012, the Company closed a private placement consisting of $200.0 million of guaranteed senior unsecured notes due in 2022 and 2024 (the "2012 Notes") with a weighted average maturity of 11.0 years and weighted average yield of 4.95%.
The following are the individual series' of the 2012 Notes:
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Principal | Interest Rate | Maturity Date | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Series A |
$ | 100,000 | 4.87% | 7/23/2022 | |||||||
Series B |
100,000 | 5.02% | 7/23/2024 | ||||||||
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$ | 200,000 | |||||||||
2010 Notes
On April 7, 2010, the Company closed a private placement consisting of $600.0 million of guaranteed senior unsecured notes due in 2017, 2020 and 2022 (the "2010 Notes") with a weighted average maturity of 9.84 years and weighted average yield of 6.59%.
The following are the individual series' of the issued 2010 Notes:
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Principal | Interest Rate | Maturity Date | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Series A |
$ | 115,000 | 6.13% | 7/4/2017 | |||||||
Series B |
360,000 | 6.67% | 7/4/2020 | ||||||||
Series C |
125,000 | 6.77% | 7/4/2022 | ||||||||
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$ | 600,000 | |||||||||
Covenants
Payment and performance of Agnico Eagle's obligations under the Credit Facility, 2012 Notes and 2010 Notes is guaranteed by each of its significant subsidiaries and certain of its other subsidiaries (the "Guarantors").
The Credit Facility contains covenants that limit, among other things, the ability of the Company to incur additional indebtedness, make distributions in certain circumstances, sell material assets and carry on a business other than one related to the mining business.
The 2012 Notes and 2010 Notes contain covenants that restrict, among other things, the ability of the Company to amalgamate or otherwise transfer its assets, sell material assets, carry on a business other than one related to mining and the ability of the Guarantors to incur indebtedness.
The Credit Facility, 2012 Notes and 2010 Notes also require the Company to maintain a total net debt to EBITDA ratio below a specified maximum value as well as a minimum tangible net worth.
The Company was in compliance with all covenants contained within the Credit Facility, 2012 Notes and 2010 Notes as at March 31, 2013.
Interest on long-term debt
For the first quarter of 2013, total interest expense was $13.9 million (first quarter of 2012 — $14.4 million) and total cash interest payments were $6.8 million (first quarter of 2012 — $4.1 million). For the first quarter of 2013, cash interest on the Credit Facility was nil (first quarter of 2012 — $1.7 million), cash standby fees on the Credit Facility were $1.2 million (first quarter of 2012 — $1.0 million), and cash interest on the 2010 Notes and 2012 Notes was $4.9 million (first quarter of 2012 — nil). Total interest costs capitalized to property, plant and mine development for the first quarter of 2013 were $1.1 million (first quarter of 2012 — $0.2 million).
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10. FINANCIAL INSTRUMENTS
Currency Risk Management
The Company utilizes foreign exchange hedges to reduce the variability in expected future cash flows arising from changes in foreign currency exchange. The hedged items represent a portion of the Canadian dollar denominated cash outflows arising from Canadian dollar denominated expenditures in 2012.
As at March 31, 2012, forward contracts with a cash flow hedging relationship that did qualify for hedge accounting under ASC 815 — Derivatives and Hedging, hedged $225.0 million of 2012 expenditures. $25.0 million will expire under the contract each month during 2012 at an average rate of US$1.00 = C$1.01. The effective hedges that expired for the three months ended March 31, 2012 resulted in a net realized gain of $0.5 million. As of March 31, 2012, the Company recognized a mark-to-market gain of $2.4 million in Accumulated other comprehensive loss ("AOCL"). Amounts deferred in AOCL are reclassified to the production costs line item on the interim unaudited consolidated statements of income and comprehensive income, as applicable, when the derivative financial instrument has settled. There were no effective forward contracts purchased or outstanding for the three months ended March 31, 2012.
During the first quarter of 2013, the Company entered into a foreign exchange zero cost collar with a cash flow hedging relationship that did qualify for hedge accounting under ASC 815 — Derivatives and Hedging. The purchase of US dollar put options was financed through selling US dollar call options at a higher level such that the net premium payable to the different counterparties by the Company was nil. The hedged item represents monthly forecast Canadian dollar cash outflows during 2013. At March 31, 2013, the zero cost collars hedged $45.0 million of 2013 expenditures at an average exchange rate of US$1.00 = C$1.03 and the Company recognized a mark-to-market gain of $0.1 million in AOCL. Amounts deferred in AOCL are reclassified to the production costs line item of the consolidated statements of income and comprehensive income, as applicable, when the hedged transaction has occurred. For the contracts that expired during the first quarter of 2013, no realized gains or realized losses were recognized. No effective foreign exchange zero cost collars were purchased or outstanding for the three months ended March 31, 2012.
Mark-to-market gains (losses) related to foreign exchange derivative financial instruments are based on broker-dealer quotations that utilize period end forward pricing of the currency hedged to calculate fair value.
The Company's other foreign currency derivative strategies in 2013 and 2012 consisted mainly of writing US dollar call options with short maturities to generate premiums that would, in essence, enhance the spot transaction rate received when exchanging US dollars for Canadian dollars. All of these derivative transactions expired prior to period-end such that no derivatives were outstanding on March 31, 2013 or March 31, 2012. For the three months ended March 31, 2013, the Company's foreign currency derivative financial instruments generated $0.7 million, (three months ended March 31, 2012 — $0.4 million) in call option premiums that were recognized in the gain on derivative financial instruments line item of the interim unaudited consolidated statements of income and comprehensive income.
Commodity Price Risk Management
During the three months ended March 31, 2013, the Company recorded intra-quarter zinc derivative financial instruments realized gains of nil (2012 — $0.4 million) that were recognized in the gain on derivative financial instruments line item of the interim unaudited consolidated statements of income and comprehensive income. There were no intra-quarter zinc derivative financial instruments outstanding at March 31, 2013 and no intra-quarter zinc derivative financial instruments were purchased during the three months ended March 31, 2013.
In the second quarter of 2012, to mitigate the risks associated with fluctuating diesel fuel prices, the Company entered into financial contracts to hedge the price on a portion of diesel fuel costs associated with the Meadowbank mine's diesel fuel exposure as it relates to operating costs. Financial contracts expiring in 2012 and totaling 9.5 million gallons of heating oil were entered into at an average price of $2.97 per gallon, which was approximately 55% of the Meadowbank mine's expected 2012 diesel fuel exposure. In addition, financial contracts expiring in 2013 and totaling 0.5 million gallons of heating oil were entered into at an average price of $2.45 per gallon, which is approximately 3% of the Meadowbank mine's expected 2013 diesel fuel exposure. The contracts expiring in 2013 did qualify for hedge accounting and the related $0.1 million market-to-market gain as at March 31, 2013 was recognized in AOCL. No heating oil financial contracts expired during the first quarter of 2013 and no similar derivative financial instruments existed for the Company in the first quarter of 2012. Amounts deferred in AOCL are reclassified to the production costs line item of the interim unaudited consolidated statements of income and comprehensive income, as applicable, when the derivative financial instrument has settled. Mark-to-market gains (losses) related to heating oil derivative financial instruments are based on broker-dealer quotations that utilize period end forward pricing to calculate fair value.
The fair value of the Company's derivative financial instruments are reported on the fair value of derivative financial instruments line item of the interim unaudited consolidated balance sheets.
The following table summarizes the changes in AOCL balances recorded in the interim unaudited consolidated financial statements pertaining to derivative financial instruments:
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Three Months Ended March 31, |
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2013 | 2012 | ||||||
Accumulated other comprehensive loss, beginning of period |
$ | (260 | ) | $ | (4,404 | ) | ||
Other comprehensive gain — foreign exchange derivative financial instruments |
81 | 7,274 | ||||||
Reclassification to the interim unaudited consolidated statements of income |
10 | (510 | ) | |||||
Accumulated other comprehensive income, end of period |
$ | (169 | ) | $ | 2,360 | |||
The following table summarizes the amounts recognized in the gain on derivative financial instruments line item of the interim unaudited consolidated statements of income:
|
Three Months Ended March 31, |
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---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | ||||||
Premiums realized on written foreign exchange call options |
$ | 684 | $ | 419 | ||||
Mark-to-market gain on derivative equity contracts |
2,298 | — | ||||||
Realized gain on zinc derivative financial instruments |
— | 476 | ||||||
Gain on derivative financial instruments |
$ | 2,982 | $ | 895 | ||||
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11. COMMITMENTS AND CONTINGENCIES
As part of its ongoing business and operations, the Company has been required to provide assurance in the form of letters of credit for environmental and site restoration costs, custom credits, government grants and other general corporate purposes. As at March 31, 2013, the total amount of these guarantees was $152.6 million.
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12. SEGMENTED INFORMATION
Agnico Eagle operates in a single industry, the exploration for and production of gold. The Company's primary operations are in Canada, Mexico and Finland. The Company identifies its reportable segments as those operations whose operating results are reviewed by the Chief Executive Officer and that represent more than 10% of the combined revenue, profit or loss or total assets of all operating segments. The following are the reportable segments of the Company and reflect how the Company manages its business and how it classifies its operations for planning and measuring performance:
Canada: |
LaRonde mine, Lapa mine, Goldex mine, Meadowbank mine, Meliadine project and the Regional office | ||
Latin America: |
Pinos Altos mine, Creston Mascota deposit at Pinos Altos and the La India project | ||
Europe: |
Kittila mine | ||
Exploration: |
United States Exploration office, Europe Exploration office, Canada Exploration offices and the Latin America Exploration office |
The accounting policies of the reportable segments are the same as those described in the accounting policies note. There are no transactions between the reportable segments affecting revenue. Production costs for the reportable segments are net of intercompany transactions. Of the $229.3 million of goodwill reflected on the interim unaudited consolidated balance sheets at March 31, 2013, $200.1 million relates to the Meliadine project which is a component of the Canada segment and $29.2 million relates to the La India project which is a component of the Latin America segment.
Corporate head office assets are included in the Canada segment and specific corporate income and expense items are noted separately below.
Three Months Ended March 31, 2013 |
Revenues from Mining Operations |
Production Costs |
Exploration and Corporate Development |
Amortization of Property, Plant and Mine Development |
Foreign Currency Translation Gain (Loss) |
Segment Income (Loss) |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Canada |
$ | 259,688 | $ | (168,102 | ) | $ | — | $ | (51,516 | ) | $ | 1,352 | $ | 41,422 | ||||||
Latin America |
88,596 | (34,769 | ) | — | (9,965 | ) | (17,344 | ) | 26,518 | |||||||||||
Europe |
72,138 | (27,182 | ) | — | (8,590 | ) | 11,120 | 47,486 | ||||||||||||
Exploration |
— | — | (8,571 | ) | — | 1,214 | (7,357 | ) | ||||||||||||
|
$ | 420,422 | $ | (230,053 | ) | $ | (8,571 | ) | $ | (70,071 | ) | $ | (3,658 | ) | $ | 108,069 | ||||
Segment income |
$ | 108,069 | ||||||||||||||||||
Corporate and other: |
||||||||||||||||||||
Interest and sundry expense |
(212 | ) | ||||||||||||||||||
Impairment loss on available-for-sale securities |
(10,995 | ) | ||||||||||||||||||
Gain on derivative financial instruments |
2,982 | |||||||||||||||||||
General and administrative |
(37,320 | ) | ||||||||||||||||||
Interest expense |
(13,916 | ) | ||||||||||||||||||
Income before income and mining taxes |
$ | 48,608 | ||||||||||||||||||
Three Months Ended March 31, 2012 |
Revenues from Mining Operations |
Production Costs |
Exploration and Corporate Development |
Amortization of Property, Plant and Mine Development |
Foreign Currency Translation Loss |
Segment Income (Loss) |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Canada |
$ | 293,559 | $ | (153,844 | ) | $ | (11,713 | ) | $ | (47,105 | ) | $ | (8,613 | ) | $ | 72,284 | ||||
Latin America |
104,296 | (35,161 | ) | — | (10,053 | ) | (5,744 | ) | 53,338 | |||||||||||
Europe |
75,079 | (26,030 | ) | — | (7,395 | ) | (1,064 | ) | 40,590 | |||||||||||
Exploration |
— | — | (11,395 | ) | — | (96 | ) | (11,491 | ) | |||||||||||
|
$ | 472,934 | $ | (215,035 | ) | $ | (23,108 | ) | $ | (64,553 | ) | $ | (15,517 | ) | $ | 154,721 | ||||
Segment income |
$ | 154,721 | ||||||||||||||||||
Corporate and other: |
||||||||||||||||||||
Interest and sundry income |
269 | |||||||||||||||||||
Gain on derivative financial instruments |
895 | |||||||||||||||||||
General and administrative |
(33,928 | ) | ||||||||||||||||||
Interest expense |
(14,447 | ) | ||||||||||||||||||
Income before income and mining taxes |
$ | 107,510 | ||||||||||||||||||
|
Total Assets as at | |||||||
---|---|---|---|---|---|---|---|---|
|
March 31, 2013 | December 31, 2012 | ||||||
Canada |
$ | 3,234,265 | $ | 3,280,158 | ||||
Latin America |
1,113,157 | 1,069,379 | ||||||
Europe |
839,500 | 846,941 | ||||||
Exploration |
63,898 | 59,641 | ||||||
|
$ | 5,250,820 | $ | 5,256,119 | ||||
|
13. RECLAMATION PROVISION
Agnico Eagle's reclamation provision includes both asset retirement obligations and environmental remediation liabilities. Reclamation provision estimates are based on current legislation, third party estimates, management's estimates and feasibility study calculations.
Due to the suspension of mining operations at the Goldex mine on October 19, 2011, an environmental remediation liability was recognized. During the three months ended March 31, 2013, the Company incurred $2.5 million in remediation costs that were applied against the environmental remediation liability recognized in 2011. As at March 31, 2013, the remaining Goldex mine environmental remediation liability was $20.1 million, $9.5 million of which was classified as a current liability. The Goldex mine is part of the Canada segment as described in note 12.
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14. ACQUISITIONS
On November 18, 2011, the Company acquired 94.77% of the outstanding shares of Grayd Resource Corporation ("Grayd"), on a fully-diluted basis, by way of a take-over bid. The November 18, 2011 purchase price of $222.1 million was comprised of $166.0 million in cash and 1,250,477 newly issued Agnico Eagle shares. The acquisition was accounted for as a business combination and goodwill of $29.2 million was recognized on the Company's consolidated balance sheets.
On January 23, 2012, the Company acquired the remaining outstanding shares of Grayd it did not already own, pursuant to a previously announced compulsory acquisition carried out under the provisions of the Business Corporations Act (British Columbia). The January 23, 2012 purchase price of $11.8 million was comprised of $9.3 million in cash and 68,941 newly issued Agnico Eagle shares valued at $2.4 million. The non-controlling interest as reported on the December 31, 2011 consolidated balance sheets of the Company was eliminated as a result of this transaction.
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15. GENERAL AND ADMINISTRATIVE
Due to a kitchen fire at the Meadowbank mine in March 2011, the Company recognized a loss on disposal of the kitchen of $6.9 million, incurred related costs of $7.4 million, and recognized an insurance receivable for $11.2 million. The difference of $3.1 million was recognized in the general and administrative line item of the interim unaudited consolidated statements of income and comprehensive income during the three months ended March 31, 2011.
During the subsequent months of 2011 and 2012, the Company received $4.6 million of insurance proceeds and had a remaining insurance receivable of $6.6 million as at December 31, 2012 within the other current assets line item of the interim unaudited consolidated balance sheets. During the first three months of 2013, the Company received nil of insurance proceeds and had a remaining insurance receivable of $6.6 million as at March 31, 2013.
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16. SUBSEQUENT EVENTS
On April 9, 2013, the Company announced that it had entered into a subscription agreement for 26,966,292 units of Sulliden Gold Corporation Ltd. ("Sulliden") at a non-brokered private placement price of C$0.89 per unit for total consideration of C$24.0 million. Each unit is comprised of one common share of Sulliden and 0.7 of one common share purchase warrant, representing 9.96% of the issued and outstanding common shares of Sulliden. Each whole common share purchase warrant entitles the holder to acquire one common share of Sulliden at a price of C$1.31 for a period of two years from the April 12, 2013 closing date.
On April 23, 2013, the Company announced that it had entered into a subscription agreement for 6,250,000 units of Kootenay Silver Inc. ("Kootenay") at a non-brokered private placement price of C$0.76 per unit for total consideration of C$4.8 million. Each unit is comprised of one common share of Kootenay and one-half of one common share purchase warrant, representing 9.96% of the issued and outstanding common shares of Kootenay. Each whole common share purchase warrant entitles the holder to acquire one common share of Kootenay at a price of C$1.08 for a period of two years from the April 26, 2013 closing date.
On April 30, 2013, Agnico Eagle announced that the Board approved the payment of a quarterly cash dividend of $0.22 per common share, payable on June 17, 2013 to holders of record of the common shares of the Company on June 3, 2013.
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17. SECURITIES CLASS ACTION LAWSUITS
On November 7, 2011 and November 22, 2011, the Company and certain current and former officers who also are, or were, directors were named as defendants in two putative class action lawsuits, styled Jerome Stone v. Agnico-Eagle Mines Ltd., et al., and Chris Hastings v. Agnico-Eagle Mines Limited, et al., respectively, which were filed in the United States District Court for the Southern District of New York. On February 6, 2012, the court entered an order consolidating the actions under the caption In re Agnico-Eagle Mines Ltd. Securities Litigation and appointed a lead plaintiff (not one of the plaintiffs who filed the original complaints). On April 6, 2012, the lead plaintiff served its Consolidated Complaint (the "Complaint"). The Complaint names the Company, its current Chief Executive Officer and its former President and Chief Operating Officer as defendants and purports to be brought on behalf of all persons and entities who purchased or otherwise acquired the Company's publicly traded securities in the United States or on a U.S. exchange during the period July 28, 2010 through October 19, 2011 (the "Class Period"). The Complaint alleges, among other things, that defendants violated U.S. securities laws by misrepresenting the Company's gold reserves and the status, ability to operate and projected production of its Goldex mine. The Complaint seeks, among other things, (i) a determination that the action is a proper class action and (ii) an award of unspecified damages, attorneys' fees and expenses. On June 6, 2012, the Company and the other defendants filed a motion, pursuant to the Private Securities Litigation Reform Act and Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the Consolidated Complaint, for failure to state a claim upon which relief could be granted. On January 14, 2013, Judge Oetken granted the Company's motion to dismiss the Complaint and all claims therein and denied the plaintiffs' request for leave to amend the Complaint. On February 12, 2013, the plaintiffs filed a Notice of Appeal to the United States Court of Appeals for the Second Circuit. No date has been set for the appeal.
On March 8, 2012 and April 10, 2012, a Notice of Action and Statement of Claim (collectively, the "Ontario Claim") were issued by William Leslie, AFA Livforsakringsaktiebolag and certain other entities against the Company and certain of its current and former officers and directors. On September 27, 2012, the plaintiffs issued a Fresh as Amended Statement of Claim. The Fresh as Amended Statement of Claim alleges that the Company's public disclosure concerning water flow issues at its Goldex mine was misleading. The Ontario Claim was issued by the plaintiffs on behalf of all persons and entities who acquired securities of the Company during the period March 26, 2010 to October 19, 2011, excluding persons resident or domiciled in the Province of Quebec at the time they purchased or acquired such securities. The plaintiffs seek, among other things, damages of C$250.0 million and to certify the Ontario Claim as a class action. The plaintiffs brought motions for leave to commence an action under s. 138 of the Securities Act (Ontario) (the "OSA") and to certify the action as a class action. On April 17, 2013, the Court issued Orders granting the plaintiffs leave to commence an action under s. 138 of the OSA and certifying the action as a class action on behalf of persons who acquired securities of the Company over the TSX or certain other Canadian alternative exchanges, or in exchange for shares of Comaplex Minerals Corp. by way of a plan of arrangement completed on or around July 6, 2010, and continued to hold some or all of those securities on one or both of July 28, 2011 and October 19, 2011, except for certain defined excluded persons. The Company intends to vigorously defend the Ontario Claim.
On April 12, 2012, two senior officers of the Company were served with a Motion for Leave to Institute a Class Action and for the Appointment of a Representative Plaintiff (the "Quebec Motion"). The action is on behalf of all persons and entities residing or domiciled in Quebec who acquired securities of the Company between March 26, 2010 and October 19, 2011. The proposed class action is for damages of C$100.0 million arising as a result of allegedly misleading disclosure by the Company concerning its operations at the Goldex mine. On October 15, 2012, the plaintiffs served an amended Quebec Motion seeking leave to commence an action under the Securities Act (Quebec) in addition to seeking authorization to institute a class action. No date has been set for the hearing to argue the Quebec Motion. The Company intends to vigorously contest the Quebec Motion and defend the claim.
|
18. COMPARATIVE FIGURES
Certain figures in the comparative interim unaudited consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the 2013 interim unaudited consolidated financial statements.
|
The following table summarizes the Company's financial assets and liabilities measured at fair value as at March 31, 2013 within the fair value hierarchy:
|
Level 1 | Level 2 | Level 3 | Total | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial assets: |
||||||||||||||
Trade receivables(i) |
$ | — | $ | 70,526 | $ | — | $ | 70,526 | ||||||
Available-for-sale securities(ii) |
55,309 | — | — | 55,309 | ||||||||||
Fair value of derivative financial instruments(iii) |
— | 5,308 | — | 5,308 | ||||||||||
|
$ | 55,309 | $ | 75,834 | $ | — | $ | 131,143 | ||||||
Financial liabilities: |
||||||||||||||
Fair value of derivative financial instruments(iii) |
$ | — | $ | 700 | $ | — | $ | 700 | ||||||
The following table details the Company's financial assets and liabilities measured at fair value as at December 31, 2012 within the fair value hierarchy:
|
Level 1 | Level 2 | Level 3 | Total | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial assets: |
||||||||||||||
Trade receivables(i) |
$ | — | $ | 67,750 | $ | — | $ | 67,750 | ||||||
Available-for-sale securities(ii) |
44,719 | — | — | 44,719 | ||||||||||
Fair value of derivative financial instruments(iii) |
— | 2,112 | — | 2,112 | ||||||||||
|
$ | 44,719 | $ | 69,862 | $ | — | $ | 114,581 | ||||||
Financial liabilities: |
||||||||||||||
Fair value of derivative financial instruments(iii) |
$ | — | $ | 277 | $ | — | $ | 277 | ||||||
|
|
As at March 31, 2013 | As at December 31, 2012 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Cost | Accumulated Amortization |
Net Book Value |
Cost | Accumulated Amortization |
Net Book Value |
||||||||||||||
Mining properties |
$ | 1,356,797 | $ | 106,852 | $ | 1,249,945 | $ | 1,356,227 | $ | 86,839 | $ | 1,269,388 | ||||||||
Plant and equipment |
2,552,940 | 663,985 | 1,888,955 | 2,538,328 | 617,826 | 1,920,502 | ||||||||||||||
Mine development costs |
956,226 | 233,988 | 722,238 | 918,482 | 237,967 | 680,515 | ||||||||||||||
Construction in Progress: |
||||||||||||||||||||
Meliadine project |
146,436 | — | 146,436 | 133,840 | — | 133,840 | ||||||||||||||
La India project |
75,691 | — | 75,691 | 32,553 | — | 32,553 | ||||||||||||||
Goldex mine M and E zones |
45,872 | — | 45,872 | 30,658 | — | 30,658 | ||||||||||||||
|
$ | 5,133,962 | $ | 1,004,825 | $ | 4,129,137 | $ | 5,010,088 | $ | 942,632 | $ | 4,067,456 | ||||||||
|
Common shares outstanding at March 31, 2013 |
172,376,107 | ||||
Employee stock options |
11,726,491 | ||||
Warrants |
8,600,000 | ||||
RSU plan |
491,417 | ||||
|
193,194,015 | ||||
|
Three Months Ended March 31, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | ||||||
Net income for the period |
$ | 23,859 | $ | 78,548 | ||||
Weighted average number of common shares outstanding — basic (in thousands) |
172,280 | 170,837 | ||||||
Add: Dilutive impact of employee stock options |
— | — | ||||||
Dilutive impact of warrants |
— | — | ||||||
Dilutive impact of shares related to RSU plan |
343 | 180 | ||||||
Weighted average number of common shares outstanding — diluted (in thousands) |
172,623 | 171,017 | ||||||
Net income per share — basic |
$ | 0.14 | $ | 0.46 | ||||
Net income per share — diluted |
$ | 0.14 | $ | 0.46 | ||||
|
Cumulative Translation Adjustment |
Available-for-sale Securities |
Derivative Financial Instruments |
Pension Benefits |
Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance December 31, 2012 |
$ | (16,206 | ) | $ | (7,680 | ) | $ | 137 | $ | (3,562 | ) | $ | (27,311 | ) | |||
Other comprehensive (loss) income before reclassifications |
— | (173 | ) | 81 | — | (92 | ) | ||||||||||
Tax expense |
— | — | (19 | ) | — | (19 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive loss |
— | 10,995 | 10 | 131 | 11,136 | ||||||||||||
Tax expense |
— | — | (3 | ) | (34 | ) | (37 | ) | |||||||||
Net current-period other comprehensive income |
— | 10,822 | 69 | 97 | 10,988 | ||||||||||||
Balance March 31, 2013 |
$ | (16,206 | ) | $ | 3,142 | $ | 206 | $ | (3,465 | ) | $ | (16,323 | ) | ||||
|
|
Three Months Ended March 31, 2013 |
Three Months Ended March 31, 2012 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of Employee Stock Options | Weighted Average Exercise Price |
Number of Employee Stock Options | Weighted Average Exercise Price |
||||||||||
Outstanding, beginning of period |
10,587,126 | C$56.60 | 8,959,051 | C$62.88 | ||||||||||
Granted |
2,803,000 | 52.13 | 3,228,000 | 36.96 | ||||||||||
Exercised |
(212,500 | ) | 37.06 | — | — | |||||||||
Forfeited |
(156,500 | ) | 61.88 | 90,000 | 60.30 | |||||||||
Expired |
(1,294,635 | ) | 54.44 | 449,150 | 48.09 | |||||||||
Outstanding, end of period |
11,726,491 | C$56.05 | 11,647,901 | C$56.29 | ||||||||||
Exercisable, end of period |
7,505,295 | C$59.41 | 7,246,739 | C$59.09 | ||||||||||
|
Three Months Ended March 31, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | ||||||
Risk-free interest rate |
1.49% | 1.23% | ||||||
Expected life of employee stock options (in years) |
2.7 | 2.7 | ||||||
Expected volatility of Agnico Eagle's share price |
35.0% | 37.5% | ||||||
Expected dividend yield |
1.73% | 2.17% |
|
|
As at March 31, 2013 |
As at December 31, 2012 |
||||||
---|---|---|---|---|---|---|---|---|
Available-for-sale securities in an unrealized gain position: |
||||||||
Cost (net of impairments) |
$ | 38,387 | $ | 4,352 | ||||
Unrealized gains in accumulated other comprehensive loss |
4,753 | 1,902 | ||||||
Estimated fair value |
43,140 | 6,254 | ||||||
Available-for-sale securities in an unrealized loss position: |
||||||||
Cost (net of impairments) |
13,654 | 48,047 | ||||||
Unrealized losses in accumulated other comprehensive loss |
(1,485 | ) | (9,582 | ) | ||||
Estimated fair value |
12,169 | 38,465 | ||||||
Total estimated fair value of available-for-sale securities |
$ | 55,309 | $ | 44,719 | ||||
|
|
Principal | Interest Rate | Maturity Date | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Series A |
$ | 100,000 | 4.87% | 7/23/2022 | |||||||
Series B |
100,000 | 5.02% | 7/23/2024 | ||||||||
|
$ | 200,000 | |||||||||
|
Principal | Interest Rate | Maturity Date | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Series A |
$ | 115,000 | 6.13% | 7/4/2017 | |||||||
Series B |
360,000 | 6.67% | 7/4/2020 | ||||||||
Series C |
125,000 | 6.77% | 7/4/2022 | ||||||||
|
$ | 600,000 | |||||||||
|
|
Three Months Ended March 31, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | ||||||
Accumulated other comprehensive loss, beginning of period |
$ | (260 | ) | $ | (4,404 | ) | ||
Other comprehensive gain — foreign exchange derivative financial instruments |
81 | 7,274 | ||||||
Reclassification to the interim unaudited consolidated statements of income |
10 | (510 | ) | |||||
Accumulated other comprehensive income, end of period |
$ | (169 | ) | $ | 2,360 | |||
|
Three Months Ended March 31, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | ||||||
Premiums realized on written foreign exchange call options |
$ | 684 | $ | 419 | ||||
Mark-to-market gain on derivative equity contracts |
2,298 | — | ||||||
Realized gain on zinc derivative financial instruments |
— | 476 | ||||||
Gain on derivative financial instruments |
$ | 2,982 | $ | 895 | ||||
|
Three Months Ended March 31, 2013 |
Revenues from Mining Operations |
Production Costs |
Exploration and Corporate Development |
Amortization of Property, Plant and Mine Development |
Foreign Currency Translation Gain (Loss) |
Segment Income (Loss) |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Canada |
$ | 259,688 | $ | (168,102 | ) | $ | — | $ | (51,516 | ) | $ | 1,352 | $ | 41,422 | ||||||
Latin America |
88,596 | (34,769 | ) | — | (9,965 | ) | (17,344 | ) | 26,518 | |||||||||||
Europe |
72,138 | (27,182 | ) | — | (8,590 | ) | 11,120 | 47,486 | ||||||||||||
Exploration |
— | — | (8,571 | ) | — | 1,214 | (7,357 | ) | ||||||||||||
|
$ | 420,422 | $ | (230,053 | ) | $ | (8,571 | ) | $ | (70,071 | ) | $ | (3,658 | ) | $ | 108,069 | ||||
Segment income |
$ | 108,069 | ||||||||||||||||||
Corporate and other: |
||||||||||||||||||||
Interest and sundry expense |
(212 | ) | ||||||||||||||||||
Impairment loss on available-for-sale securities |
(10,995 | ) | ||||||||||||||||||
Gain on derivative financial instruments |
2,982 | |||||||||||||||||||
General and administrative |
(37,320 | ) | ||||||||||||||||||
Interest expense |
(13,916 | ) | ||||||||||||||||||
Income before income and mining taxes |
$ | 48,608 | ||||||||||||||||||
Three Months Ended March 31, 2012 |
Revenues from Mining Operations |
Production Costs |
Exploration and Corporate Development |
Amortization of Property, Plant and Mine Development |
Foreign Currency Translation Loss |
Segment Income (Loss) |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Canada |
$ | 293,559 | $ | (153,844 | ) | $ | (11,713 | ) | $ | (47,105 | ) | $ | (8,613 | ) | $ | 72,284 | ||||
Latin America |
104,296 | (35,161 | ) | — | (10,053 | ) | (5,744 | ) | 53,338 | |||||||||||
Europe |
75,079 | (26,030 | ) | — | (7,395 | ) | (1,064 | ) | 40,590 | |||||||||||
Exploration |
— | — | (11,395 | ) | — | (96 | ) | (11,491 | ) | |||||||||||
|
$ | 472,934 | $ | (215,035 | ) | $ | (23,108 | ) | $ | (64,553 | ) | $ | (15,517 | ) | $ | 154,721 | ||||
Segment income |
$ | 154,721 | ||||||||||||||||||
Corporate and other: |
||||||||||||||||||||
Interest and sundry income |
269 | |||||||||||||||||||
Gain on derivative financial instruments |
895 | |||||||||||||||||||
General and administrative |
(33,928 | ) | ||||||||||||||||||
Interest expense |
(14,447 | ) | ||||||||||||||||||
Income before income and mining taxes |
$ | 107,510 | ||||||||||||||||||
|
Total Assets as at | |||||||
---|---|---|---|---|---|---|---|---|
|
March 31, 2013 | December 31, 2012 | ||||||
Canada |
$ | 3,234,265 | $ | 3,280,158 | ||||
Latin America |
1,113,157 | 1,069,379 | ||||||
Europe |
839,500 | 846,941 | ||||||
Exploration |
63,898 | 59,641 | ||||||
|
$ | 5,250,820 | $ | 5,256,119 | ||||
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