Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
Commission file number 001-04192

(Exact name of Registrant as specified in its charter)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
Suite 1620 - 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6
(Address of principal offices)

Michael J. Smith
Suite 1620 - 400 Burrard Street
Vancouver, British Columbia, Canada V6C 3A6
Telephone: +1 604-683-8286
Facsimile: +1 604-683-3205	 	with a copy to:
H.S. Sangra, Sangra Moller LLP
1000 Cathedral Place, 925 West Georgia Street
Vancouver, British Columbia, Canada V6C 3L2
Facsimile: +1 604-669-8803	
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	 	Name of each exchange on which registered	
Common Shares	 	New York Stock Exchange	
Securities registered or to be registered pursuant to Section 12(g) of the Act: None. 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None. 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
There were 62,561,421 common shares, without par value, issued and outstanding as of December 31, 2011.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     ¨   YES     x   NO
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.     ¨   YES     x   NO
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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     ¨   NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   ¨         Accelerated filer   x         Non-accelerated filer   ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.

U.S. GAAP   ¨	 	International Financial Reporting Standards as issued by the International Accounting Standards Board   x	 	Other   ¨	
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.     ¨   Item 17     ¨   Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)     ¨   YES     x   NO

 

Table of Contents

MFC INDUSTRIAL LTD.

 
i
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.
 
OUR BUSINESS 
LOGISTICS AND COMMODITY SERVICES TO OUR CUSTOMERS
 
n 
INTERNATIONAL JUST-IN-TIME DELIVERIES
 
n 
STRATEGIC INVESTMENTS IN RESOURCE ASSETS
 
n 
OFFTAKE AGREEMENTS
 
n 
COMMODITIES FOR SPECIFIC, COMMITTED BUYERS
 
n 
PURCHASING, SELLING, PROCESSING, INSURING, DELIVERING
 
n 
USING OUR FINANCIAL RESOURCES AS LEVERAGE TO HELP
FINANCE ONE OR BOTH SIDES OF A COMMODITY TRANSACTION
 
ENHANCING SHAREHOLDER VALUE 
CASH DIVIDEND POLICY
 
n 
CREATING ADDITIONAL VALUE THROUGH SPIN-OUTS
 
n 
BUILDING VALUE THROUGH ACQUISITIONS AND RESTRUCTURING
 
ii
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.
 
DEAR FELLOW SHAREHOLDERS
I am pleased to present the results of MFC Industrial Ltd. (“MFC” or the “Company”) for the year ended December 31, 2011 and to provide you with an update on our recent corporate developments. (All references to dollar amounts are in United States dollars unless otherwise stated.)
Our results reflect our first full year as a global commodity supply chain company. When we review the year, we find that it was quite a difficult year – especially the fourth quarter. The driver of this obstacle was primarily credit issues and considerable uncertainty on behalf of our customers. This caused lower than anticipated volumes and margins. We have made adjustments accordingly, with the elimination of some product lines, while putting greater energy into achieving higher margin products.
Also we expensed one-time non-cash discretionary items, which primarily included a mark-to-market charge in long-term securities of target companies, share based compensation and other, which equals $21.9 million or $0.35 per diluted share.
One of our major goals is to increase our captive commodities sources to provide us a continuous supply, which we believe will allow us better margins and greater returns. The recently announced acquisition of the Pea Ridge iron ore mine is a very good example of our strategy to increase our captive sources of supply. Upon the successful development of the Pea Ridge project, our commodities group will sell the iron ore by way of offtake agreements and we and our partner will receive a return on the investment. We now have several of these types of projects underway, not just in the ferrous metals sector.

HIGHLIGHTS
 	
¡      We have increased our annual cash dividend by 10% for 2012, representing a yield on our market value of 3.13%, compared to 2.51% last year.	
 	
¡      We increased our potential captive production in ferrous metals with the acquisition of the Pea Ridge Mine.	
 	
¡      Our net earnings for 2011, before the effects of one-time and non-cash discretionary expenses, were $34.1 million, which equals a return on capital (shareholders’ equity) of 6.2%. This is not an acceptable return. We need to be much more efficient in the future.	
 	
¡      We are implementing an odd-lot common share tender offer that will commence on April 9, 2012. Eligible shareholders will be offered the opportunity to sell all of their MFC shares, without incurring any brokerage fees.	
 	
¡      Divestment plans have now been put on hold indefinitely as we cannot predict our capital requirements in the short- and near-term with our existing and pending projects.	
 	
¡      We are considering several new acquisitions. But, we will be cautious not to jeopardize our capital for the sake of short-term growth.	

iii
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.
 
RESULTS FOR THE YEAR ENDED DECEMBER 31, 2011
Revenues for our commodities and resources business were $481.7 million for the year ended December 31, 2011, compared to $76.5 million for the same period in 2010, primarily as a result of the inclusion of the integrated commodities operations of Mass Financial Corp. (“Mass”), which we acquired in the fourth quarter of 2010. Included in our commodities and resources business are the gross revenues generated by our royalty interest, which increased to approximately $30.8 million for the year ended December 31, 2011. The increase in the gross royalty revenues was mainly attributable to a higher royalty rate. However, we were disappointed with the lower than excepted tonnage of pellets shipped. Although we had anticipated shipments in the range of 4.25 million tons, the owner only shipped a total of 3.33 million tons of iron ore pellets during the year. The reduction in pellet shipments experienced during the fourth quarter was directly attributable to equipment breakdowns, which created exceptional operating problems at the mine. We are happy to state that these problems have been corrected by the operator and were not related to quality or demand.
Revenues for our merchant banking business were $22.5 million for the year ended December 31, 2011, compared to $4.8 million for the same period in 2010, primarily as a result of the inclusion of Mass’s results.
Other revenues , which encompass our corporate and other investments, were $16.5 million for the year ended December 31, 2011, compared to $4.1 million for the same period in 2010, primarily as a result of the inclusion of Mass’s results.
Costs of sales increased to $435.4 million during the year ended December 31, 2011 from $51.4 million for the same period in 2010. We incurred an impairment charge of $12.4 million on long-term investments in 2011. Selling, general and administrative expenses increased to $40.4 million for the year ended December 31, 2011 from $18.3 million for the same period in 2010. The increases were primarily linked to the inclusion of Mass’s operations.

 

IRON ORE EXTRACTION IN GOA, INDIA	
 
iv
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.
 
OVERVIEW OF OUR RESULTS FOR THE YEAR 2011
Our total revenues by operating segment and income from continuing operations for the year ended December 31, 2011, as well as each of the three months ended September 30, June 30 and March 31, 2011 are broken out in the tables below:

  REVENUES (2011)
  All amounts in thousands	  
  	
 	 	 	December 31	  	 	 	Sept 30	  	 	 	June 30	  	 	 	March 31	  	
 	 	 	twelve months	  	 	 	three months	  	 	 	three months	  	 	 	three months	  	
  Commodities and resources	 	$	481,677	  	 	$	101,921	  	 	$	138,210	  	 	$	118,745	  	
  Merchant banking	 	 	22,487	  	 	 	6,957	  	 	 	1,110	  	 	 	11,401	  	
  Other	 	 	16,545	  	 	 	4,850	  	 	 	4,365	  	 	 	3,691	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Total revenues	 	$	520,709	  	 	$	113,728	  	 	$	143,685	  	 	$	133,837	  	

 

  INCOME FROM CONTINUING OPERATIONS (2011)
  All amounts in thousands, except per share amounts	  
  	
 	 	 	December 31	  	 	 	Sept 30	  	 	 	June 30	  	 	 	March 31	  	
 	 	 	twelve months	  	 	 	three months	  	 	 	three months	  	 	 	three months	  	
  Commodities and resources	 	$	23,157	  	 	$	7,842	  	 	$	12,453	  	 	$	4,861	  	
  Merchant banking	 	 	8,858	(1)  	 	 	1,452	  	 	 	630	  	 	 	11,980	  	
  Other	 	 	(14,834	) 	 	 	(129	) 	 	 	(1,477	) 	 	 	(12,262	) 	

  Income before income taxes	 	 	17,181	  	 	 	9,165	  	 	 	11,606	  	 	 	4,579	  	
  Income tax recovery (expenses)	 	 	(1,336	) 	 	 	870	  	 	 	(182	) 	 	 	(1,777	) 	
  Resource property revenue tax recovery (expenses)	 	 	(4,647	) 	 	 	(2,536	) 	 	 	502	  	 	 	(1,181	) 	
  Net (income) loss attributable to non-controlling interest	 	 	995	  	 	 	(813	) 	 	 	71	  	 	 	1,299	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Net income from continuing operations to shareholders	 	$	12,193	  	 	$	6,686	  	 	$	11,997	  	 	$	2,920	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Earning per share	 	$	0.19	  	 	$	0.11	  	 	$	0.19	  	 	$	0.05	  	

 
 	(1)	Including a one-time non-cash expense representing a mark-to-market charge in long-term securities of target companies.	 	
 
v
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.
 
ONE-TIME NON-CASH EXPENSES
The following table shows the effects of one-time and non-cash discretionary expenses on 2011 earnings.

  EFFECTS OF ONE-TIME & NON-CASH DISCRETIONARY EXPENSES IN 2011
  All amounts in thousands, except per share amounts	  
  	
 	 	 	December 31	  	 	 	September 30	  	 	 	June 30	  	 	 	March 31	  	
 	 	 	twelve months	  	 	 	three months	  	 	 	three months	  	 	 	three months	  	
  Share-based compensation	 	$	7,291	  	 	$	–	  	 	$	–	  	 	$	7,291	  	
  Impairment of available-for-sale securities, net of taxes	 	 	11,339	(1)  	 	 	–	  	 	 	–	  	 	 	–	  	
  Other	 	 	3,251	  	 	 	–	  	 	 	145	  	 	 	1,472	  	

  Total	 	$	21,881	  	 	$	–	  	 	$	145	  	 	$	8,763	  	

  Per share impact, diluted	 	$	0.35	  	 	$	–	  	 	$	–	  	 	$	0.14	  	

 
 	(1)	A one-time non-cash expense which represents a mark-to-market charge in long-term securities of target companies.	 	
FINANCIAL HIGHLIGHTS
The following table highlights certain selected key numbers and ratios in order to better understand MFC’s financial position.

  FINANCIAL HIGHLIGHTS
  All amounts in thousands, except per share amount and ratio	  
  	
 	 	 	DECEMBER 31, 2011	  	
  Cash and cash equivalents	 	$	        387,052	  	
  Short-term securities	 	 	13,062	  	
  Current assets	 	 	564,191	  	
  Total assets	 	 	858,957	  	
  Current liabilities	 	 	202,968	  	
  Working capital	 	 	361,223	  	
  Current ratio*	 	 	2.78	  	
  Acid test ratio*	 	 	2.27	  	
  Total liabilities	 	 	309,810	  	
  Shareholders’ equity	 	 	546,623	  	
  Equity per common share	 	 	8.74	  	
 
 	*Note:	The current ratio is calculated as current assets divided by current liabilities. The acid test ratio is calculated as cash and cash equivalents plus short-term cash deposits, short-term securities, bills of exchange and receivables divided by total current liabilities.	 	
 
vi
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.
 
LIQUIDITY
As at December 31, 2011, we had cash, short-term deposits and securities of $400.3 million. We monitor our capital on the basis of our debt-to-adjusted capital ratio and long-term debt-to-equity ratio. The debt-to-adjusted capital ratio is calculated as net debt divided by adjusted capital, while net debt is calculated as total debt less cash and cash equivalents. The long-term debt-to-equity ratio is calculated as long-term debt divided by shareholders’ equity.

  LIQUIDITY
  All amounts in thousands	  

 	 	 	December 31,  2011	  	 	 	December 31,  2010	  	
  Total debt	 	$	47,127	  	 	$	52,748	  	
  Less: cash and cash equivalents and cash deposits	 	 	(387,052	) 	 	 	(397,697	) 	

  Net debt (net cash & cash equivalents)	 	 	(339,925	) 	 	 	(344,949	) 	
  Shareholders’ equity	 	 	546,623	  	 	 	547,756	  	

  LONG-TERM DEBT
  All amounts in thousands, except ratios	  

 	 	 	December 31,  2011	  	 	 	December 31,  2010	  	
  Long-term debt, less current portion	 	$	20,150	  	 	$	48,604	  	
  Shareholders’ equity	 	 	546,623	  	 	 	547,756	  	
  Long-term debt-to-equity ratio	 	 	0.04	  	 	 	0.09	  	

 
	
ALUMINUM PLANT IN EUROPE	
 
vii
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.
 
CREDIT FACILITIES
We maintain various types of credit lines and facilities with various banks, and most of these are short-term. These facilities are used for day-to-day business, structured solutions and various other activities in both the commodities and finance areas.
As at December 31, 2011, we had credit facilities aggregating $366.3 million as follows: (i) we had unsecured revolving credit facilities aggregating $169.0 million from banks; (ii) we had revolving credit facilities aggregating $45.4 million from banks for structured solutions, a special financing. The margin is negotiable when the facility is used; (iii) we had a specially structured factoring arrangement with a bank for up to a credit limit of $110.3 million for our commodities activities. Generally, we may factor our commodity receivable accounts upon invoicing at the inter-bank rate plus a margin; and (iv) we had a foreign exchange credit facility of $41.6 million with a bank. All of these facilities are renewable on a yearly basis.
BUSINESS LINE COMMODITIES
Through our commodities activities, we source, supply and deliver the following commodities primarily for our own account and for our customers internationally:

	  	 	 		  	 	 		
 	 	 	 	 	
iron ore
manganese-ore
cobalt
base metals
magnesium
steel products
zinc alloys
aluminum foils
aluminum sheets
ferrous alloys
silicon metals	  	 	 	polystyrene
high density polyethylene
linear low density
polyethylene
low density polyethylene
polyethylene
terephthalate
polypropylene
polyvinyl chloride	  	 	 	wood pellets
saw logs
round logs
sawn timber
plywood
medium density
fiberboard	
INVESTMENT CRITERIA
Many of our shareholders have asked the Company to define our general criteria for investment. This is our absolute method:
 
 	¡ 	 	We seek distressed assets only where there is an opportunity to leverage our financial strengths and experience.	
 	¡ 	 	Such assets must present medium- to long-term production opportunities that add value to our global supply chain business, including our financing activities.	
 	¡ 	 	We underwrite investment risks on a liquidation basis.	
 	¡ 	 	Above all, we strive to take a disciplined and patient approach to our investments.	
 
viii
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.
 
REVENUE BREAKDOWN BY REGION
The following pie chart shows revenue by region for the year ended December 31, 2011

INCREASING OUR CAPTIVE SOURCES OF FERROUS METALS
In December 2011, MFC acquired, together with our partner, Alberici Group, Inc., the troubled Pea Ridge Mine (the “Mine”) located in Sullivan, Missouri, USA. There were numerous contractual disputes and lawsuits with the previous owners of the Mine, which have now been settled. MFC’s investment in 2011 was approximately $12.1 million to acquire its indirect 50% interest in the Mine. Pursuant to the transaction, the previous owners retained a 2.6% net smelter returns royalty on ferrous minerals produced at the Mine.

 
	
IRON ORE MINE IN MISSOURI	
 
ix
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.
 
The Mine includes the historic mine deposit along with a large tonnage of tailings material. Prior infrastructure remains in place at the Mine, including access to underground workings, two vertical mine shafts with hoists and headframes, a plant building and tailings and settling ponds. The Mine’s location is served by highways connecting to the U.S. Interstate highway system, and has a presently unused rail spur line connecting to the Union Pacific railway system.
In the first quarter of 2012, we and our partner commenced initial confirmatory exploration and development work at the Mine, including compiling historic and past production data, conducting a remote video examination of some of the submersed historic mine workings and commissioning Behre Dolbear and Company (USA), Inc. (“Behre Dolbear”) to complete an independent Canadian National Instrument 43-101 (“NI 43-101”) compliant technical report on the Mine property (the “Technical Report”). The Technical Report was completed on March 9, 2012 and filed with the Canadian Securities Administrators on March 30, 2012.
In completing the Technical Report, Behre Dolbear reviewed existing data, including historical exploration, development and production data and historical resource estimates conducted in respect of the Mine. The report cites non-NI 43-101 compliant historical resource estimates prepared by DataGeo Geological Consultants in May 2008, commissioned by the prior owners of the project, which estimated the following in situ (originally present) iron resources in all categories of mineralized material:

  HISTORICAL MINERAL RESOURCE ESTIMATES
  CLASSIFIED EXPANDED IN SITU MINERAL RESOURCE
  All amounts in thousands, except percentages	  

 			 	
  Class	 	 	Short Tons	  	 	 	% Magnetic iron	  	 	 	Total iron % (1)	  	
  Measured	 	 	94,124	  	 	 	50.8	  	 	 	58.0	  	
  Indicated	 	 	94,116	  	 	 	51.9	  	 	 	58.9	  	
  Inferred	 	 	54,000	  	 	 	40.6	  	 	 	55.9	  	
  Previous production (2)	 	 	58,542	  	 	 	–	  	 	 	–	  	
 
 	Notes:	(1) The Company anticipates that future mining operations at the Mine would include beneficiating the resource in a processing plant or mill, similar to past production practices at the Mine. This would involve the removal of the non-iron bearing portion of the resource and generally results in iron-rich concentrates. Historic data for the Mine indicates that beneficiation resulted in iron-rich concentrates that were typically in the range of 66% to 69% iron.	
(2) Approximation based on historical production data for the period between 1963 and 2001. The above historical resource estimates of measured, indicated and inferred resources did not account for past production.
Under applicable guidelines, MEASURED resources are that portion of a mineral resource for which the size and grade have been estimated from sampling at places spaced closely enough that its continuity is essentially confirmed. INDICATED resources consist of that portion of a mineral resource for which the size and grade has been estimated from sampling at places spaced closely enough that its continuity can be reasonably assumed. INFERRED resources consist of that portion of a mineral resource for which the size and grade has been estimated mainly or wholly from limited sampling data, assuming that the mineralized body is continuous based on geological evidence.
The Company has not completed the work necessary to verify the classification of the above mineral resource estimates as current mineral resources under NI 43-101. Accordingly, it is not
 
x
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.
 
treating these historical resource estimates as current defined resources and, therefore, they should not be relied upon. However, the Company is providing these historical results and estimates of remaining iron resources to provide an indication of the potential of the Mine project and believes such information is relevant to its future development plans. The Mine will require further evaluation, which MFC and its partner intend to carry out in due course. Further a NI 43-101 compliant feasibility study has not been completed and there is no certainty that the project will be economically viable.
Behre Dolbear’s Technical Report concluded that substantial mineralization is still available for production at the Mine site although the mine is presently flooded. Further development is dependent on its economic viability.
The Company plans to jointly develop the Mine with its partner with the mandate to re-open the underground mine, including exploiting the site’s existing large tailings accumulation and exploring other areas for ferrous mineral production.
At the present time, the Company and its partner are proceeding with the dewatering of the underground mine workings. High-volume submersible pumps and associated materials have been ordered, and arrangements have been made to secure sufficient electrical power. Pumping from the number one shaft is expected to begin during the second half of 2012. Disposal of the water will be accomplished under permit by pumping it to the existing tailings lake. The Company and its partner will soon evaluate cores and other available physical evidence of mineralization, including chemical re-analysis as appropriate, in order to further assess the underground resources and begin financial analysis of various possible mining and processing scenarios in advance of completion of dewatering and being able to directly examine and re-sample the underground workings. The Company and its partner have begun a program of surface infrastructure preservation and rehabilitation, including existing plant, buildings, head frames and hoists, as appropriate for possible future operations.
PREVIOUSLY ANNOUNCED / DIVESTITURE OF ASSETS
As we stated in our last quarterly report, we had completed a review of our assets and identified some merchant banking and other non-core net assets in the amount of approximately $100 million for potential divestiture. However, the divestment plans have now been put on hold indefinitely as we cannot predict our use of capital requirements in the short and near term with our new existing and pending projects that are underway.
ODD-LOT SHARE REPURCHASE PROGRAM
MFC is commencing an odd-lot share repurchase program pursuant to which it will offer to buy back common shares from registered and beneficial shareholders of MFC who own 99 or fewer common shares. The repurchase program affords eligible shareholders the opportunity to sell all, but not less than all, of their common shares or to continue to maintain their current holdings. The repurchase program begins on April 9, 2012 and will expire at the close of business on May 21, 2012 (the “Period”). MFC may extend the Period for up to an additional six weeks.
Shareholders who elect to participate in the repurchase program will receive an amount equal to the weighted average of the closing prices of the common shares on the New York Stock Exchange during the Period for each common share tendered. Shareholders will not incur any brokerage commissions if they elect to dispose of their common shares pursuant to the program. Information about the repurchase program and participation documents will be mailed to
 
xi
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.
 
shareholders of record as of March 30, 2012. MFC has retained Georgeson Inc. to manage the repurchase program. Questions regarding the repurchase program should be directed to Georgeson Inc. toll free at: 1 (888) 274 5157.
CORPORATE TAXATION
The Company continued to be fiscally responsible and had a reasonable corporate income tax rate during the year 2011. The corporate income tax paid in cash was $987 thousand for the year ended December 31, 2011.
ANNUAL CASH DIVIDEND
On January 17, 2012 we announced a 10% increased 2012 annual cash dividend. The 2012 dividend is $0.22 per common share, which will be paid in quarterly payments, with the initial payment of $0.05 per share having been made in February and the second payment of $0.05 per share announced for April 2012. The dividend is 10% higher than the dividend paid in 2011, and, based on the closing price of $7.01 for the Company’s common shares on December 31, 2011, represents a dividend yield of approximately 3.13%, compared to an annual dividend yield of approximately 2.51% for the NYSE Composite Index.
Respectfully Submitted,

Michael J. Smith
Chairman of the Board
 
xii
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.
 
CORPORATE INFORMATION

OFFICES & SUBSIDIARIES	  	CONTACT INFORMATION	
		
AUSTRIA
 
Millennium Tower, 21st Floor
Handelskai 94-96
1200 Vienna, Austria
Telephone: (43) 1 24025 0
Email: office@mfc-commodities.com
 
HONG KONG
 
8th Floor, Dina House
Ruttonjee Centre, 11 Duddell Street
Hong Kong SAR, China
Telephone: (852) 2840 1230
Email: mfc@mfinancialcorp.hk
 
CANADA
 
1620-400 Burrard Street
Vancouver, BC Canada V6C 3A6
Telephone: 1 (604) 683-8286
Email: rrandall@bmgmt.com
 
CHINA
 
Room 2409, Shanghai Mart Tower
2299 West Yan An Road
Changning District
200336 Shanghai China
Telephone: (86) 21 5155 6688
Email: office@mfc-china.com
 
INDIA
 
B-204, Landscape Shire
Caranzalem, Goa 403 002, India
Telephone: (91) 832 246 3390
Email: office@mfc-india.com	  	CORPORATE CONTACT
 
R. Randall
MFC Industrial Ltd.
Telephone: 1 (604) 683-8286 ex 224
Email: rrandall@bmgmt.com
 
INVESTOR RELATIONS & MEDIA
 
Allen & Caron Inc.
276 Fifth Ave, Suite 604
New York, NY 10001, USA
Telephone: 1 (212) 691-8087
Email: joe@allencaron.com
 
TRANSFER AGENT
 
Computershare
480 Washington Blvd, 27th Floor
Newport Office Center VII
Jersey City, NJ 07310, USA
Telephone: 1 (888) 478-2338
www.computershare.com
 
AUDITORS
 
Deloitte & Touche LLP
PO Box 49279
2800 - 1055 Dunsmuir Street
Vancouver, BC V7X 1P4, Canada
Telephone: 1 (604) 669-4466
www.deloitte.ca
 
WEBSITE
 
www.mfcindustrial.com	

	  		

xiii
LETTER TO SHAREHOLDERS

Table of Contents

MFC INDUSTRIAL LTD.

 
xiv
LETTER TO SHAREHOLDERS

Table of Contents
 MFC INDUSTRIAL LTD.
Form 20-F
TABLE OF CONTENTS

PART I	  	 	1	  	
FORWARD-LOOKING STATEMENTS	  	 	1	  	
CAUTIONARY NOTE ON HISTORICAL RESOURCE ESTIMATES	  	 	3	  	
CURRENCY	  	 	3	  	
PRESENTATION OF FINANCIAL INFORMATION	  	 	3	  	
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	  	 	3	  	
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE	  	 	3	  	
ITEM 3: KEY INFORMATION	  	 	4	  	
A. Selected Financial Data	  	 	4	  	
B. Capitalization and Indebtedness	  	 	4	  	
C. Reasons for the Offer and Use of Proceeds	  	 	4	  	
D. Risk Factors	  	 	4	  	
ITEM 4: INFORMATION ON THE COMPANY	  	 	13	  	
A. History and Development of the Company	  	 	13	  	
B. Business Overview	  	 	16	  	
C. Organizational Structure	  	 	21	  	
D. Property, Plants and Equipment	  	 	21	  	
ITEM 4A: UNRESOLVED STAFF COMMENTS	  	 	21	  	
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS	  	 	22	  	
Presentation of Financial Information/Accounting Treatment	  	 	23	  	
Results of Operation	  	 	23	  	
Liquidity and Capital Resources	  	 	29	  	
Application of Critical Accounting Policies	  	 	32	  	
New Standard Interpretations Not Yet Adopted	  	 	35	  	
Trend Information	  	 	36	  	
Off-Balance Sheet Arrangements	  	 	36	  	
Safe Harbour	  	 	36	  	
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	  	 	36	  	
A. Directors and Senior Management	  	 	36	  	
B. Compensation	  	 	37	  	
C. Board Practices	  	 	39	  	
D. Employees	  	 	40	  	
E. Share Ownership	  	 	40	  	
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	  	 	41	  	
A. Major Shareholders	  	 	41	  	
B. Related Party Transactions	  	 	41	  	
C. Interests of Experts and Counsel	  	 	42	  	
ITEM 8: FINANCIAL INFORMATION	  	 	42	  	
A. Consolidated Statements and Other Financial Information	  	 	42	  	
B. Significant Changes	  	 	43	  	
ITEM 9: THE OFFER AND LISTING	  	 	43	  	
A. Offer and Listing Details	  	 	43	  	
B. Plan of Distribution	  	 	44	  	
C. Markets	  	 	44	  	
D. Selling Shareholders	  	 	44	  	
E. Dilution	  	 	44	  	
F. Expenses of the Issue	  	 	44	  	
ITEM 10: ADDITIONAL INFORMATION	  	 	44	  	
A. Share Capital	  	 	44	  	
B. Memorandum and Articles of Association	  	 	44	  	
C. Material Contracts	  	 	45	  	
D. Exchange Controls	  	 	45	  	
E. Taxation	  	 	46	  	
 
(i)

Table of Contents

F. Dividends and Paying Agents	  	 	49	  	
G. Statement by Experts	  	 	49	  	
H. Documents on Display	  	 	49	  	
I. Subsidiary Information	  	 	49	  	
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	  	 	49	  	
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	  	 	50	  	
PART II	  	 	50	  	
ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	  	 	50	  	
ITEM 14: MATERIAL MODIFICATIONS TO RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	  	 	50	  	
ITEM 15: CONTROLS AND PROCEDURES	  	 	50	  	
ITEM 16: [RESERVED]	  	 	51	  	
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT	  	 	51	  	
ITEM 16B: CODE OF ETHICS	  	 	51	  	
ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES	  	 	52	  	
ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	  	 	53	  	
ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	  	 	53	  	
ITEM 16F: CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	  	 	53	  	
ITEM 16G: CORPORATE GOVERNANCE	  	 	54	  	
ITEM 16H: MINE SAFETY DISCLOSURE	  	 	54	  	
ITEM 17: FINANCIAL STATEMENTS	  	 	54	  	
ITEM 18: FINANCIAL STATEMENTS	  	 	55	  	
ITEM 19:   EXHIBITS	  	 	112	  	
 
(ii)

Table of Contents
 PART I
 FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking information and statements, including statements relating to matters that are not historical facts and statements of our beliefs, intentions and expectations about developments, results and events which will or may occur in the future, which constitute “forward-looking information” within the meaning of applicable Canadian securities legislation and “forward-looking statements” within the meaning of the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995 , collectively referred to as “forward-looking statements”. Forward-looking statements are typically identified by words such as “anticipate”, “could”, “should”, “expect”, “seek”, “may”, “intend”, “likely”, “will”, “plan”, “estimate”, “believe” and similar expressions suggesting future outcomes or statements regarding an outlook.
Forward-looking statements are included throughout this document and include, but are not limited to, statements with respect to: our projected revenues; markets; production, demand and prices for products and services, including iron ore and other minerals; trends; economic conditions; performance; business prospects; results of operations; capital expenditures; foreign exchange rates; derivatives; our ability to expand our business; and other such matters. All such forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. These statements are, however, subject to known and unknown risks and uncertainties and other factors. As a result, actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits will be derived therefrom. These risks, uncertainties and other factors include, among others:
 
 	•	 	our financial results may fluctuate substantially from period to period;	
 
 	•	 	our earnings and, therefore, our profitability, may be affected by commodities price volatility;	
 
 	•	 	a weak global economy can adversely affect our business and financial results and have a material adverse effect on our liquidity and capital resources;	
 
 	•	 	the global commodity supply chain and merchant banking businesses are highly competitive;	
 
 	•	 	the operation of the iron ore mine underlying our royalty interest is generally determined by a third party owner and we have no decision making power as to how the property is operated. In addition, we have no or very limited access to technical or geological data respecting the mine including as to reserves. The owner’s failure to perform or other operating decisions made by the owner, including as to scaling back or ceasing operations, could have a material adverse effect on our revenue, our results of operations and financial condition;	
 
 	•	 	the profitability of our global commodity supply chain operations depends, in part, on the availability of adequate sources of supply;	
 
 	•	 	we may face a lack of suitable acquisition or merger or other proprietary investment candidates, which may limit our future growth;	
 
 	•	 	strategic investments or acquisitions and joint ventures, or our entry into new business areas, may result in additional risks and uncertainties in our business;	
 
 	•	 	the industries in which we operate may be affected by disruptions beyond our control;	
 
 	•	 	our commodities activities are subject to counterparty risks associated with performance of obligations by our counterparties and suppliers;	
 
 	•	 	larger and more frequent capital commitments in our merchant banking business increase the potential for significant losses;	
 
 	•	 	we are subject to transaction risks that may have a material adverse effect on our business, results of operations, financial condition and cash flow;	
 
 	•	 	our risk management strategies leave us exposed to unidentified or unanticipated risks that could impact our risk management strategies in the future and could negatively affect our results of operations and financial condition;	
 
1

Table of Contents

 	•	 	derivative transactions may expose us to unexpected risks and potential losses;	
 
 	•	 	fluctuations in interest rates and foreign currency exchange rates may affect our results of operations and financial condition;	
 
 	•	 	our operations and infrastructure may malfunction or fail;	
 
 	•	 	the exploration and development of mining and resource properties is inherently dangerous and subject to risks beyond our control;	
 
 	•	 	historical resource estimates on our mining properties may not prove to be accurate or reliable;	
 
 	•	 	our global commodity supply chain operations are subject to environmental laws and regulations that may increase the costs of doing business and may restrict such operations;	
 
 	•	 	we or the operators of our current and any future resource interests may not be able to secure required permits and licences;	
 
 	•	 	there can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable, and, as a result, we may have to raise additional capital through the issuance of additional equity, which will result in dilution to our shareholders;	
 
 	•	 	limitations on our access to capital could impair our liquidity and our ability to conduct our business;	
 
 	•	 	we may substantially increase our debt in the future;	
 
 	•	 	as a result of our global operations, we are exposed to political, economic, legal, operational and other risks that could negatively affect our business, our results of operations, financial condition and cash flow;	
 
 	•	 	we are exposed to litigation risks in our business that are often difficult to assess or quantify. We anticipate that we will incur significant legal expenses every year in defending against litigation;	
 
 	•	 	we rely significantly on the skills and experience of our executives and the loss of any of these individuals may harm our business;	
 
 	•	 	we may experience difficulty attracting and retaining qualified management and technical personnel to efficiently operate our business, and the failure to operate our business effectively could have a material and adverse effect on our profitability, financial condition and results of operations;	
 
 	•	 	certain of our directors and officers may, from time to time, serve in similar positions with other public companies, which may put them in a conflict position from time to time;	
 
 	•	 	we conduct business in countries with a history of corruption and transactions with foreign governments, and doing so increases the risks associated with our international activities;	
 
 	•	 	employee misconduct could harm us and is difficult to detect and deter;	
 
 	•	 	we may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks or natural disasters;	
 
 	•	 	investors’ interests may be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities; and	
 
 	•	 	certain factors may inhibit, delay or prevent a takeover of our company, which may adversely affect the price of our common shares.	
Although we believe that the expectations reflected in such forward-looking information and statements are reasonable, we can give no assurance that such expectations will prove to be accurate. Accordingly, readers should not place undue reliance upon any of the forward-looking information and statements set out in this document. All of the forward-looking information and statements contained in this document are expressly qualified, in their entirety, by this cautionary statement. The various risks to which we are exposed are described in additional detail in this document under the section entitled “ Item 3: Key Information — D. Risk Factors ”. The forward-looking information and statements are made as of the date of this document, and we assume no obligation to update or revise them except as required pursuant to applicable securities laws.
As used in this annual report, the terms “we”, “us” and “our” mean MFC Industrial Ltd. and our subsidiaries, unless otherwise indicated.
 
2

Table of Contents
 CAUTIONARY NOTE ON HISTORICAL RESOURCE ESTIMATES
As a reporting issuer in Canada, we are required by Canadian law to provide disclosure in accordance with National Instrument 43-101, referred to as “NI 43-101”. Accordingly, you are cautioned that the information contained in this annual report on Form 20-F may not be comparable to similar information made public by U.S. companies under the United States federal securities laws and the rules and regulations thereunder. In particular, the terms “measured resource”, “indicated resource” and “inferred resource” as may be used herein are not defined in Securities and Exchange Commission, referred to as the “SEC”, Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into mineral reserves with demonstrated economic viability. In addition, the estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. U.S. investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally minable
 CURRENCY
Unless otherwise indicated, all references in this document to “$” and “dollars” are to United States dollars, all references to “C$”, “CDN$” and “Canadian dollars” are to Canadian dollars and all references to “Euro” or “€” are to the European Union Euro. On March 23, 2012, the noon buying rate in New York City for cable transfers as certified by the Federal Reserve Bank of New York for the conversion of Canadian dollars and Euros to United States dollars was C$1.00 =$1.0017 and €1.00 = $1.3263, respectively.
 PRESENTATION OF FINANCIAL INFORMATION
Unless otherwise stated, all financial information presented herein has been prepared in accordance with the English language version of International Financial Reporting Standards as issued by the International Accounting Standards Board, referred to as “IFRS”, which may not be comparable to financial data prepared by many U.S. companies.
In 2010, we disposed of our former industrial plant technology, equipment and service business, referred to as the “Industrial Business”, which resulted in its being accounted for as discontinued operations in our financial statements. See the section of this annual report on Form 20-F entitled “ Item 5: Operating and Financial Review and Prospects — Operating Results — Presentation of Financial Information/Accounting Treatment ” for further information respecting such discontinued operations.
Due to rounding, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
 
 ITEM 1:	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	
Not applicable.
 
 ITEM 2:	OFFER STATISTICS AND EXPECTED TIMETABLE	
Not applicable.
 
3

Table of Contents

 ITEM 3:	KEY INFORMATION	
 A. Selected Financial Data
The following table summarizes selected consolidated financial data prepared in accordance with IFRS, for each of the fiscal years ended December 31, 2011, 2010 and 2009. The information in the table was extracted from the detailed consolidated financial statements and related notes included elsewhere in this annual report on Form 20-F and should be read in conjunction with such financial statements and with the information appearing under the heading “ Item 5: Operating and Financial Review and Prospects ”.
Selected Financial Data
(Stated in United States dollars in accordance with IFRS)
(in thousands, other than per share amounts)

 	  	Fiscal Years Ended December 31,	 	
 	  	2011	 	  	2010 (1)(2)	 	 	2009 (2)	 	
Net sales	  	$	514,797	  	  	$	84,476	  	 	$	14,718	  	
Net income (loss) from continuing operations (3)	  	 	12,193	  	  	 	45,839	  	 	 	(16,320	) 	
Net income (loss) income from discontinued operations (3)	  	 	—	  	  	 	(15,523	) 	 	 	52,992	  	
Basic earnings (loss) per share:	  				  				 				
Continuing operations	  	 	0.19	  	  	 	1.28	  	 	 	(0.54	) 	
Discontinued operations	  	 	—	  	  	 	(0.43	) 	 	 	1.75	  	
Diluted earnings (loss) per share	  				  				 				
Continuing operations	  	 	0.19	  	  	 	1.28	  	 	 	(0.54	) 	
Discontinued operations	  	 	—	  	  	 	(0.43	) 	 	 	1.75	  	
Net income (2)	  	 	12,193	  	  	 	30,316	  	 	 	36,672	  	
Net income per share	  				  				 				
Basic	  	 	0.19	  	  	 	0.85	  	 	 	1.21	  	
Diluted	  	 	0.19	  	  	 	0.85	  	 	 	1.21	  	
Total assets	  	 	858,957	  	  	 	854,256	  	 	 	951,720	  	
Net assets	  	 	549,147	  	  	 	552,440	  	 	 	441,092	  	
Long-term debt, less current portion	  	 	20,150	  	  	 	48,604	  	 	 	—	  	
Shareholders’ equity	  	 	546,623	  	  	 	547,756	  	 	 	435,689	  	
Capital stock, net of treasury stock	  	 	314,172	  	  	 	314,172	  	 	 	58,270	  	
Weighted average number of common stock outstanding, diluted	  	 	62,561	  	  	 	35,859	  	 	 	30,354	  	
Cash dividends paid to our shareholders	  	 	12,512	  	  	 	—	  	 	 	—	  	
 
Notes:
(1)	We consolidated the operations of Mass Financial Corp., referred to as “Mass”, from November 16, 2010.	
 
(2)	In 2010, we deconsolidated our Industrial Business, which resulted in it being accounted for as discontinued operations in our financial statements.	
 
(3)	Net income attributable to our shareholders.	
 B. Capitalization and Indebtedness
Not applicable.
 C. Reasons for the Offer and Use of Proceeds
Not applicable.
 D. Risk Factors
Certain statements in this annual report on Form 20-F are forward-looking statements, which reflect our management’s expectations regarding our future growth, results of operations, performance and business prospects and opportunities. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations, projections or intentions regarding the future. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.
 
4

Table of Contents
Such estimates, projections or other forward-looking statements involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other forward-looking statements.
An investment in our common shares involves a number of risks. You should carefully consider the following risks and uncertainties in addition to other information in this annual report on Form 20-F in evaluating our company and our business before purchasing our common shares. Our business, operations and financial condition could be materially and adversely affected by one or more of the following risks.
Risk Factors Relating to Our Business
Our financial results may fluctuate substantially from period to period.
We expect our business to experience significant periodic variations in its revenues and results of operations in the future. These variations may be attributed in part to the fact that our merchant banking revenues are often earned upon the successful completion of a transaction, the timing of which is uncertain and beyond our control. In many cases, we may receive little or no payment for engagements that do not result in the successful completion of a transaction. Additionally, through our merchant banking business, we seek to acquire undervalued assets where we can use our experience and management to realize upon the value. Often we will hold or build upon these assets over time and the timing of its realization is not predictable. As a result, we are unlikely to achieve steady and predictable earnings, which could in turn adversely affect our financial condition and results of operations.
Our earnings and, therefore, our profitability, may be affected by commodities price volatility.
The majority of our revenue from our global commodity supply chain business is derived from the sale of commodities, including metals, plastics and other materials. As a result, our earnings are directly related to the prices of these commodities. In addition, our revenues from our iron ore interests are directly connected to the price of iron ore. There are many factors influencing the price of metals, plastics and other commodities, including expectations for inflation; global and regional demand and production; political and economic conditions; and production costs in major producing regions. These factors are beyond our control and are impossible for us to predict. Changes in the prices of iron ore, plastics, metals and other commodities may adversely affect our operating results.
A weak global economy can adversely affect our business and financial results and have a material adverse effect on our liquidity and capital resources.
Our business, by its nature, does not produce predictable earnings, and it may be materially affected by conditions in the global financial markets and economic conditions generally.
Global financial markets experienced extreme and unprecedented disruption in the latter part of 2008, including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others. Although financial markets stabilized and signs of a global economic recovery began to emerge in the latter part of 2009 and continued through 2011, the economic environment, particularly in the United States and Europe, continues to be generally weak and we remain exposed to a number of risks associated with weak or adverse economic conditions.
Market deterioration and weakness can result in a material decline in the number and size of the transactions that we execute for our own account and for our clients and to a corresponding decline in our revenues. Market weakness can further result in losses to the extent that we own assets in such market.
The nature of the recovery in the global economy in general remains uncertain, and there can be no assurance that market conditions will continue to improve in the near future.
The global commodity supply chain and merchant banking businesses are highly competitive.
All aspects of the global commodity supply chain and merchant banking businesses are highly competitive, and we expect them to remain so.
Our competitors include merchant and investment banks, brokerage firms, commercial banks, private equity firms, hedge funds, financial advisory firms and natural resource and mineral royalty companies. Many of our
 
5

Table of Contents
competitors have substantially greater capital and resources, including access to commodities supply, than we do. We believe that the principal factors affecting competition in our business include transaction execution, our products and services, client relationships, reputation, innovations, credit worthiness and price. We have experienced price competition in some of our trading business.
The scale of our competitors has increased in recent years as a result of substantial consolidation. These firms have the ability to offer a wider range of products than we do which may enhance their competitive position. They also have the ability to support their business with other financial services such as commercial lending in an effort to gain market share, which has resulted, and could further result, in pricing pressure in our businesses.
If we are unable to compete effectively with our competitors, our business and results of operations will be adversely affected.
The operation of the iron ore mine underlying our royalty interest is generally determined by a third party operator and we have no decision making power as to how the property is operated. In addition, we have no or very limited access to technical or geological data respecting the mine including as to reserves. The operator’s failure to perform or other operating decisions made by the operator, including as to scaling back or ceasing operations, could have a material adverse effect on our revenue, our results of operations and financial condition.
The commodities and resources segment of our business includes our indirect royalty interest in the iron ore mine. The revenue derived from the interest is based on production generated by the mine’s third party operator. The operator generally has the power to determine the manner in which the iron ore is exploited, including decisions to expand, continue or reduce production from the mine, and decisions about the marketing of products extracted from the mine. The interests of the third party operator and our interests may not always be aligned. As an example, it will, in almost all cases, be in our interest to advance production as rapidly as possible in order to maximize near-term cash flow, while the third party operator may, in many cases, take a more cautious approach to development as it is at risk with respect to the cost of development and operations. Our inability to control the operations of the mine can adversely affect our profitability, results of operations and financial condition. Similar adverse effects may result from any other interests we may acquire that are primarily operated by a third party operator.
To the extent that we retain our current indirect royalty interest, we will be dependent to a large extent upon the financial viability and operational effectiveness of owners and operators of our interests. Payments from production generally flow through the operator, and there is a risk of delay and additional expense in receiving such revenues. Payments may be delayed by restrictions imposed by lenders, delays in the sale or delivery of products, accidents, the recovery by operators of expenses incurred in the operation of any royalty properties, the establishment by operators of reserves for such expenses or the insolvency of an operator. Our rights to payment under the royalties will likely have to be enforced by contract. This may inhibit our ability to collect outstanding royalties upon a default. Failure to receive any payments from the owners and operators of mines in which we have or may acquire a royalty interest may result in a material and adverse effect on our profitability, results of operations and financial condition.
To the extent grantors of royalties and other interests do not abide by their contractual obligations, we may be forced to take legal action to enforce our contractual rights. Such litigation may be time consuming and costly and, as with all litigation, there is no guarantee of success. Should any such decision be determined adversely to us, such decision may have a material and adverse effect on our profitability, results of operations and financial condition.
In addition, we have no or very limited access to technical, geological data relating to the mine, including data as to reserves, nor have we received a NI 43-101, compliant technical report in respect of the mine. As such, we cannot independently determine reserve amounts or the estimated life of the mine and are instead wholly dependent on the determination of the reserves by the operator of the mine. We can provide no assurances as to the level of reserves at the mine. If the operator of the mine determines there are insufficient reserves to economically operate the mine, it may scale back or cease operations, which could have a material adverse effect on our profitability, results of operations and financial condition.
 
6

Table of Contents
The profitability of our global commodity supply chain operations depends, in part, on the availability of adequate sources of supply.
Our global commodity supply chain business relies, among other things, on numerous outside sources of supply for our operations. These suppliers generally are not bound by long-term contracts and will have no obligation to provide commodities to us in the future. In periods of low industry prices, suppliers may elect to hold commodities to wait for higher prices or intentionally slow their activities. If a substantial number of suppliers cease selling commodities to us, we will be unable to source and/or execute commodities transactions at desired levels and our results of operations and financial condition could be materially adversely affected.
We may face a lack of suitable acquisition or merger or other proprietary investment candidates, which may limit our growth.
In order to grow our business, we may seek to acquire or merge with or invest in new companies or opportunities. Our failure to make acquisitions or investments may limit our growth. In pursuing acquisition and investment opportunities, we face competition from other companies having similar growth and investment strategies, many of which may have substantially greater resources than us. Competition for these acquisitions or investment targets could result in increased acquisition or investment prices, higher risks and a diminished pool of businesses, services or products available for acquisition or investment.
Strategic investments or acquisitions and joint ventures, or our entry into new business areas, may result in additional risks and uncertainties in our business.
We have grown and intend to continue to grow our business both through internal expansion and through strategic investments, acquisitions or joint ventures. When we make strategic investments or acquisitions or enter into joint ventures, we expect to face numerous risks and uncertainties in combining or integrating the relevant businesses and systems, including the need to combine accounting and data processing systems and management controls and to integrate relationships with customers and business partners.
Acquisitions also frequently result in recording of goodwill and other intangible assets, which are subject to potential impairments in the future that could have a material adverse effect on our operating results. Furthermore, the costs of integrating acquired businesses (including restructuring charges associated with the acquisitions, as well as other acquisition costs, such as accounting fees, legal fees and investment banking fees) could significantly impact our operating results.
Although we perform diligence on the businesses we purchase, in light of the circumstances of each transaction, an unavoidable level of risk remains regarding the actual condition of these businesses. We may not be able to ascertain the value or understand the potential liabilities of the acquired businesses and their operations until we assume operating control of the assets and operations of these businesses.
Furthermore, any future acquisitions of businesses or facilities could entail a number of risks, including:
 
 	•	 	problems with the effective integration of operations;	
 
 	•	 	inability to maintain key pre-acquisition business relationships;	
 
 	•	 	increased operating costs;	
 
 	•	 	exposure to substantial unanticipated liabilities;	
 
 	•	 	difficulties in realizing projected efficiencies, synergies and cost savings;	
 
 	•	 	the risks of entering markets in which we have limited or no prior experience; and	
 
 	•	 	the possibility that we may be unable to recruit additional managers with the necessary skills to supplement the management of the acquired businesses.	
In addition, geographic and other expansions, acquisitions or joint ventures may require significant managerial attention, which may be diverted from our other operations. If we are unsuccessful in overcoming these risks, our business, financial condition or results of operations could be materially and adversely affected.
The industries in which we operate may be affected by disruptions beyond our control.
Our global commodity supply chain operations include direct or indirect investments in assets, such as smelting, refining, mining and processing operations. Transport disruption, weather and natural disasters such as hurricanes and flooding, unexpected maintenance problems, collapse or damage to mines, unexpected geological variations, labour disruptions and changes in laws and regulations relating to occupational safety, health and
 
7

Table of Contents
environmental matters are some of the factors that may adversely affect our financial condition and results of operations. These factors can affect costs at particular industrial assets for varying periods. In addition, smelting, refining, mining and processing operations also rely on key inputs, such as labour, spare parts, fuel and electricity. Disruption to the supply of key inputs, or changes in their pricing, may have a significant adverse impact on our future results.
Our commodities activities are subject to counterparty risks associated with performance of obligations by our counterparties and suppliers.
Our business is subject to commercial risks, which include counterparty risk, such as failure of performance by commodities suppliers and failure of payment by our trading customers. We seek to reduce the risk of supplier non-performance by requiring credit support from creditworthy financial institutions where appropriate. We attempt to reduce the risk of non-payment by purchasers of commodities by imposing limits on open accounts extended to creditworthy customers and imposing credit support requirements for other customers. Nevertheless, we are exposed to the risk that parties owing us or our clients and other financial intermediaries may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. These counterparty obligations may arise, for example, from placing deposits, the extension of credit in trading and investment activities, and participation in payment, securities and commodity trading transactions on our behalf and as an agent on behalf of our clients. If any of these parties defaults on their obligations, our business, results of operations, financial condition and cash flow could be adversely affected.
Larger and more frequent capital commitments in our global supply chain business increase the potential for significant losses.
We may enter into large transactions in which we commit our own capital as part of our global commodity supply chain business to facilitate client trading activities. The number and size of these large transactions may materially affect our results of operations in a given period. Market fluctuations may also cause us to incur significant losses from our trading activities. To the extent that we own assets (i.e., have long positions), a downturn in the value of those assets or in the markets in which those assets are traded could result in losses. Conversely, to the extent that we have sold assets we do not own (i.e., have short positions) in any of those markets, an upturn in those markets could expose us to potentially large losses as we attempt to cover our short positions by acquiring assets in a rising market.
We are subject to transaction risks that may have a material adverse effect on our business, results of operations, financial condition and cash flow.
We manage transaction risks through allocating and monitoring our capital investments in circumstances where the risk to our capital is minimal, carefully screening clients and transactions, and engaging qualified personnel to manage transactions. Nevertheless, transaction risks can arise from, among other things, our trading and merchant banking activities. These risks include market and credit risks associated with our merchant banking operations. We intend to make investments in highly unstructured situations and in companies undergoing severe financial distress. Such investments often involve severe time constraints. These investments may expose us to significant transaction risks. An unsuccessful investment may result in the total loss of such an investment and may have a material adverse effect on our business, results of operations, financial condition and cash flow.
Our risk management strategies leave us exposed to unidentified or unanticipated risks that could impact our risk management strategies in the future and could negatively affect our results of operations and financial condition.
We use a variety of instruments and strategies to manage exposure to various types of risks. For example, we use derivative foreign exchange contracts to manage our exposure and our clients’ exposure to foreign currency exchange rate risks. If any of the variety of instruments and strategies we utilize to manage our exposure to various types of risk are not effective, we may incur losses. Many of our strategies are based on historical trading patterns and correlations. However, these strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk. Unexpected market developments may affect our risk management strategies during this time, and unanticipated developments could impact our risk management strategies in the future.
Derivative transactions may expose us to unexpected risk and potential losses.
We, from time to time, enter into derivative transactions that require us to deliver to the counterparty the underlying security, loan or other obligation in order to receive payment. In a number of cases, we may not hold
 
8

Table of Contents
the underlying security, loan or other obligation and may have difficulty obtaining, or be unable to obtain, the underlying security, loan or other obligation through the physical settlement of other transactions. As a result, we are subject to the risk that we may not be able to obtain the security, loan or other obligation within the required contractual time frame for delivery. This could cause us to forfeit the payments due to us under these contracts or result in settlement delays with the attendant credit and operational risk as well as increased costs to us.
Fluctuations in interest rates and foreign currency exchange rates may affect our results of operations and financial condition.
Fluctuation in interest rates may affect the fair value of our financial instruments sensitive to interest rates. An increase or decrease in market interest rates may result in changes to the fair value of our fixed interest rate financial instrument liabilities, thereby resulting in a reduction in the fair value of our equity. Similarly, fluctuations in foreign currency exchange rates may affect the fair value of our financial instruments sensitive to foreign currency exchange rates.
Our operations and infrastructure may malfunction or fail.
Our business is highly dependent on our ability to process, on a daily basis, a number of transactions across diverse markets, and the transactions we process have become increasingly complex. The inability of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses. If any of these systems do not operate properly or are disabled, or if there are other shortcomings or failures in our internal processes, people or systems, we could suffer impairments, financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage.
The exploration and development of mining and resource properties is inherently dangerous and subject to risk beyond our control.
Companies engaged in resource activities are subject to all of the hazards and risks inherent in exploring for and developing natural resource projects. These risks and uncertainties include, but are not limited to, environmental hazards, industrial accidents, labour disputes, increase in the cost of labour, social unrest, fires, changes in the regulatory environment, impact of non-compliance with laws and regulations, explosions, encountering unusual or unexpected geological formations or other geological or grade problems, unanticipated metallurgical characteristics or less than expected mineral recovery, encountering unanticipated ground or water conditions, cave-ins, pit wall failures, flooding, rock bursts, periodic interruptions due to inclement or hazardous weather conditions, earthquakes, seismic activity, other natural disasters or unfavourable operating conditions and losses. Should any of these risks or hazards affect a company’s exploration or development activities, it may (i) cause the cost of development or production to increase to a point where it would no longer be economic to produce the metal or oil and natural gas from the company’s resources or expected reserves, (ii) result in a write down or write-off of the carrying value of one or more projects, (iii) cause delays or stoppage of mining or processing, (iv) result in the destruction of properties, processing facilities or third party facilities necessary to the company’s operations, (v) cause personal injury or death and related legal liability, or (vi) result in the loss of insurance coverage. The occurrence of any of above mentioned risks or hazards could result in an interruption or suspension of operation of the properties in which we hold an interest or any other properties we may acquire in the future and have a material and adverse effect on our results of operations and financial condition.
Historical resource estimates on our mining properties may not prove to be accurate or reliable.
Our resources estimates in respect of the Pea Ridge Mine are historical estimates only and are based on prior data and reports obtained and prepared by previous operators and their consultants. We have not completed the work necessary to verify the classification of these historical resource estimates as current mineral resources under NI 43-101. Accordingly, the historical estimates provided herein cannot be relied upon. No assurance can be given that any “mineral resources” or “mineral reserves”, as such terms are defined in NI 43-101, will be discovered or that any particular level of minerals will in fact be realized or that any identified reserve or resource will ever qualify as a commercially mineable (or viable) deposit which can legally and economically be exploited.
In addition, there are numerous uncertainties inherent in estimating mineral resources. Such estimates are subjective, and the accuracy of mineral resource estimation is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. These amounts are estimates only and the actual level of recovery of minerals from such deposits may be different. Differences between our assumptions, including economic assumptions such as mineral prices, market conditions and actual events, could have a material adverse effect on our mineral reserve and mineral resource estimates, financial position and results of operation.
 
9

Table of Contents
Our global commodity supply chain operations are subject to environmental laws and regulations that may increase the costs of doing business and may restrict such operations.
All phases of a resource business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of government laws and regulations. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Compliance with such laws and regulations can require significant expenditures and a breach may result in the imposition of fines and penalties, which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. Any breach of environmental legislation by the operator of properties underlying our interests or by us, as an owner or operator of a property, could have a material impact on the viability of the relevant property and impair the revenue derived from the owned property or applicable royalty or other interest, which could have a material adverse effect on our results of operations and financial condition. Further, environmental hazards may exist on the properties on which we hold interests which are unknown to us at present and which have been caused by previous or existing owners or operators of the properties.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in mining operations or in the exploration or development of mineral properties may also be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
Operating cost increases could have a negative effect on the value of, and income from, our mineral resource properties and any royalty interests we may acquire by potentially causing an operator or us to curtail, delay or close operations at a mine site.
We or the operators of our current and any future resource interests may not be able to secure required permits and licences.
Operations underlying our resource interests may require licences and permits from various governmental authorities. There can be no assurance that we or the operator of any given project will be able to obtain all necessary licences and permits that may be required to carry out exploration, development and mining operations.
There can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable, and, as a result, we may have to raise additional capital through the issuance of additional equity, which will result in dilution to our shareholders.
There can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain such additional financing could result in delay or indefinite postponement of further business activities. We may require new capital to grow our business and there are no assurances that capital will be available when needed, if at all. It is likely such additional capital will be raised through the issuance of additional equity which would result in dilution to our shareholders.
Limitations on our access to capital could impair our liquidity and our ability to conduct our businesses.
Liquidity, or ready access to funds, is essential to companies engaged in commodities trading and financing and merchant banking. Failures of financial firms have often been attributable in large part to insufficient liquidity. Liquidity is of particular importance to our commodities and resources business and perceived liquidity issues may affect our clients’ and counterparties’ willingness to engage in transactions with us. Our liquidity could be impaired due to circumstances that we may be unable to control, such as a general market disruption or an operational problem that affects our clients, counterparties, our lenders or us. Further, our ability to sell assets may be impaired if other market participants are seeking to sell similar assets at the same time.
We may substantially increase our debt in the future.
We expect that it may be necessary for us to obtain financing with a bank or financial institution to provide funds for working capital, capital purchases, potential acquisitions and business development. However, because of our cash flow position, we do not expect that we will have any immediate need to obtain additional financing. Interest costs associated with any debt financing may adversely affect our profitability. Further, the terms on
 
10

Table of Contents
which amounts may be borrowed — including standard financial covenants regarding the maintenance of financial ratios, the prohibition against engaging in major corporate transactions or reorganizations and the payment of dividends — may impose additional constraints on our business operations and our financial strength.
As a result of our global operations, we are exposed to political, economic, legal, operational and other risks that could adversely affect our business, our results of operations, financial condition and cash flow.
In conducting our business in major markets around the world, we are subject to political, economic, legal, operational and other risks that are inherent in operating in other countries. These risks range from difficulties in settling transactions in emerging markets to possible nationalization, expropriation, price controls and other restrictive governmental actions, and terrorism. We also face the risk that exchange controls or similar restrictions imposed by foreign governmental authorities may restrict our ability to convert local currency received or held by us in their countries into Swiss francs, Canadian dollars, Euros or other hard currencies, or to take those other currencies out of those countries. If any of these risks become a reality, our business, results of operations, financial condition and cash flow could be negatively impacted.
We are exposed to litigation risks in our business that are often difficult to assess or quantify. We anticipate that we will incur significant legal expenses every year in defending against litigation.
We are exposed to legal risks in our business and the volume and amount of damages claimed in litigation against financial intermediaries are increasing. These risks include potential liability under securities or other laws for materially false or misleading statements made in connection with securities and other transactions, potential liability for advice we provide to participants in corporate transactions, and disputes over the terms and conditions of complex trading arrangements. We also face the possibility that counterparties in complex or risky trading transactions will claim that we improperly failed to tell them of the risks involved or that they were not authorized or permitted to enter into such transactions with us and that their obligations to us are not enforceable. During a prolonged market downturn, we expect these types of claims to increase. We are also exposed to legal risks in our merchant banking activities.
We seek to invest in undervalued businesses or assets often as a result of financial, legal, regulatory or other distress affecting them. Investing in distressed businesses and assets can involve us in complex legal issues relating to priorities, claims and other rights of stakeholders. These risks are often difficult to assess or quantify and their existence and magnitude often remains unknown for substantial periods of time. We may incur significant legal and other expenses in defending against litigation involved with any of these risks and may be required to pay substantial damages for settlements and/or adverse judgments. Substantial legal liability or significant regulatory action against us could have a material adverse effect on our financial condition and results of operations.
We rely significantly on the skills and experience of our executives and the loss of any of these individuals may harm our business.
Our future success depends to a significant degree on the skills, experience and efforts of our executives and the loss of their services may compromise our ability to effectively conduct our business. We do not maintain “key person” insurance in relation to any of our employees.
We may experience difficulty attracting and retaining qualified management and technical personnel to efficiently operate our business, and the failure to operate our business effectively could have a material and adverse effect on our profitability, financial condition and results of operations.
We are dependent upon the continued availability and commitment of our management, whose contributions to immediate and future operations are of significant importance. The loss of any such management could negatively affect our business operations. From time to time, we will also need to identify and retain additional skilled management and specialized technical personnel to efficiently operate our business. The number of persons skilled in the acquisition, exploration and development of royalties and interests in natural resource properties is limited and competition for such persons is intense. Recruiting and retaining qualified personnel is critical to our success and there can be no assurance of our ability to attract and retain such personnel. If we are not successful in attracting and retaining qualified personnel, our ability to execute our business model and growth strategy could be affected, which could have a material and adverse impact on our profitability, results of operations and financial condition.
 
11

Table of Contents
Certain of our directors and officers may, from time to time, serve in similar positions with other public companies, which may put them in a conflict position with us from time to time.
Certain of our directors and officers may, from time to time, serve as directors or officers of other companies involved in similar businesses to us and, to the extent that such other companies may participate in the same ventures in which we may seek to participate, such directors and officers may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. In all cases where our directors and officers have an interest in other companies, such other companies may also compete with us in commodities trading, financing and merchant banking and for the acquisition of royalties, similar interests or resources properties or projects. Such conflicts of our directors and officers may result in a material and adverse effect on our results of operations and financial condition.
We conduct business in countries with a history of corruption and transactions with foreign governments, and doing so increases the risks associated with our international activities.
As we operate internationally, we are subject to the United States  Foreign Corrupt Practices Act , and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by United States and other business entities that have securities registered in the United States for the purpose of obtaining or retaining business. We have operations and agreements with third parties in countries known to experience corruption. Further international expansion may involve more exposure to such practices. Our activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees or consultants that could be in violation of various laws including the Foreign Corrupt Practices Act , even though these parties are not always subject to our control. It is our policy to implement safeguards to discourage these practices by employees. However, our existing safeguards and any future improvements may prove to be less than effective, and our employees or consultants may engage in conduct for which we might be held responsible. Violations of the Foreign Corrupt Practices Act may result in criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.
Employee misconduct could harm us and is difficult to detect and deter.
It is not always possible to detect and deter employee misconduct. The precautions we take to detect and prevent employee misconduct may not be effective in all cases, and we could suffer significant reputational and economic harm for any misconduct by our employees. The potential harm to our reputation and to our business caused by such misconduct is impossible to quantify.
We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks or natural disasters.
The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks or natural disasters, could create economic and financial disruptions, could lead to operational difficulties (including travel limitations) that could impair our ability to manage our business and could expose our insurance subsidiaries to significant losses.
General Risks Faced by Us
Investors’ interests may be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.
Our constating documents authorize the issuance of our common shares, class A common shares and class A preference shares, issuable in series. In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors’ interests in us will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. If we issue any such additional shares, such issuances will also cause a reduction in the proportionate ownership of all other shareholders. Further, any such issuance may result in a change of control of our company.
Certain factors may inhibit, delay or prevent a takeover of our company, which may adversely affect the price of our common shares.
Certain provisions of our charter documents and the corporate legislation which govern us may discourage, delay or prevent a change of control or changes in our management that shareholders may consider favourable. Such provisions include authorizing the issuance by our board of directors of preferred stock in series, providing
 
12

Table of Contents
for a classified board of directors with staggered, three-year terms and limiting the persons who may call special meetings of shareholders. In addition, the Investment Canada Act imposes certain limitations on the rights of non-Canadians to acquire our common shares, although it is highly unlikely that this will apply. If a change of control or change in management is delayed or prevented, the market price of our common shares could decline.
 
 ITEM 4:	INFORMATION ON THE COMPANY	
 A. History and Development of the Company
Corporate Information
We are a corporation organized under the laws of the Province of British Columbia, Canada. We were originally incorporated in June 1951 by letters patent issued pursuant to the Companies Act of 1934 (Canada). We were continued under the Canada Business Corporations Act in March 1980, under the Business Corporations Act (Yukon) in August 1996 and under the Business Corporations Act (British Columbia) in November 2004. Our name was changed from “MFC Bancorp Ltd.” to “KHD Humboldt Wedag International Ltd.” on October 28, 2005, to “Terra Nova Royalty Corporation” on March 30, 2010 in connection with the divestiture of our Industrial Business, and to “MFC Industrial Ltd.” on September 30, 2011 to better reflect our focus on the global commodities supply chain business.
Our principal office is located at Suite 1620 - 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6 and the telephone number is (604) 683-8286. Our registered office is located at Suite 1000 - 925 West Georgia Street, Vancouver, British Columbia, Canada, V6C 3L2.
General
We are a global commodities supply chain company, which sources and delivers commodities and materials to clients, with a special expertise on the financing and risk management aspects of their businesses. Until the first quarter of 2010, we were also active in the Industrial Business through our interest in KHD Humboldt Wedag International (Deutschland) AG, referred to as “KID”. Our former Industrial Business supplied plant systems as well as machinery and equipment worldwide for the manufacture of cement, whether for new plants, redevelopments of existing plants or capacity increases for existing plants. It also designed and provided equipment that produced clinker and cement and offered basic engineering, detail engineering, plant and equipment for complete plants and plant sections. In the fourth quarter of 2009, we considered the merits of dividing our Industrial Business into a separate publicly-traded company. Our board considered the feasibility, benefits and other considerations of dividing the Industrial Business into a separate, stand-alone entity, including implications for our shareholders, potential market reaction and the financial viability after giving effect to such a transaction. Following consideration of such factors, our board subsequently determined that such a separation would be beneficial to our shareholders, and, during the course of 2010, we distributed our shares of KID to our shareholders. Upon the distribution to our shareholders of our Industrial Business, we operated primarily in the royalty and resources business.
In connection with our long-term strategic plans, involving internal growth initiatives, acquisitions or business combinations, we seek out and evaluate strategic acquisition candidates. As a result of the deconsolidation of our Industrial Business, our board reviewed opportunities and strategic alternatives to enhance shareholder value in light of our then focus on the resources business. In the third quarter of 2010, our board of directors gave serious consideration as to whether or not a business combination with Mass could be accomplished on favourable terms. Mass was engaged in the commodities, merchant banking and proprietary investment businesses. In the fourth quarter of 2010, we acquired all of the outstanding shares of Mass and consolidated its results of operations from November 16, 2010.
Recent Developments
The following is a summary of selected key recent developments in our business.
Separation of the Industrial Business
On March 30, 2010, we effected a reorganization and plan of arrangement, referred to as the “Arrangement”, pursuant to which, among other things, we distributed a portion of our interest in KID, which held our Industrial Business, to our shareholders and ceased to consolidate KID as at March 31, 2010.
Pursuant to the terms of the Arrangement, among other things, our shareholders received one share of KID for every three and one-half of our common shares held (calculated after a two-for-one forward split of KID). As a result, we distributed approximately 26% of KID’s outstanding shares (at such time) to our shareholders. In connection with the Arrangement, we entered into a shareholder agreement with another corporate shareholder of
 
13

Table of Contents
KID, referred to as the “Custodian”, dated March 27, 2010, pursuant to which we engaged the Custodian to direct the voting of the remainder of our holdings of the KID shares. As a result, and given that we did not share any common directors or officers with KID, we no longer considered KID a subsidiary and ceased to consolidate it as at March 31, 2010.
In 2010, we distributed the balance of the KID shares held by us to our shareholders as follows:
 
 	•	 	approximately 23% of the total issued shares of KID (at such time) were distributed to our shareholders of record on July 1, 2010 by way of a pro-rata special dividend on the basis of one common share of KID for every four of our common shares held;	
 
 	•	 	approximately 29% of the total issued shares of KID (at such time) were distributed to our shareholders of record on September 23, 2010, by way of a pro-rata return of capital on the basis of one common share of KID for every four of our common shares held; and	
 
 	•	 	approximately 19.3% of the total issued shares of KID (at such time) were distributed to our shareholders of record on December 31, 2010, by way of a pro-rata return of capital on the basis of one share of KID for every ten of our common shares held.	
Acquisition of Mass Financial Corp.
On September 27, 2010, we announced that we had entered into an agreement with Mass and our wholly-owned subsidiary, which provided for our acquisition of Mass by way of a multi-step transaction, including a tender offer for all of the outstanding common shares of Mass, referred to as the “Offer”, and the subsequent amalgamation of Mass with our wholly-owned subsidiary. The Offer was made on October 7, 2010 on the basis of one of our common shares for each common share of Mass. The Offer expired on November 8, 2010 and, pursuant thereto, we acquired approximately 93% of the outstanding common shares of Mass, excluding Mass shares already held by us. We completed our acquisition of Mass by effecting a compulsory acquisition of the Mass shares not tendered under the Offer pursuant to applicable laws and, subsequently, caused the amalgamation of Mass and our wholly-owned subsidiary in December 2010. As a result of the successful Offer, we commenced consolidating Mass’s operations, including its commodities and merchant banking activities from November 16, 2010.
Cash Dividend Policy
On January 10, 2011, we announced that our board of directors had adopted an annual dividend policy, providing for an annual dividend based on the annual dividend yield of the New York Stock Exchange, referred to as the “NYSE”, Composite Index, referred to as the “NYSE Composite Index”, for the preceding year plus 25 basis points. On the same date, we announced an annual cash dividend for 2011 of $0.20 per common share, payable in four quarterly instalments. We made dividend payments of $0.05 per share: (i) on January 31, 2011 to shareholders of record on January 20, 2011; (ii) on April 11, 2011 to shareholders of record on March 31, 2011; (iii) on July 11, 2011 to shareholders of record on June 30, 2011; and (iv) on October 11, 2011 to shareholders of record on September 30, 2011.
On January 17, 2012, we announced that our board of directors had declared an annual cash dividend for 2012 of $0.22 per common share, payable in four quarterly instalments. The 2012 dividend is 10% higher than the dividend paid in 2011, and, based on the closing price of $7.01 for our common shares on December 31, 2011, represents a dividend yield of approximately 3.13%, compared to an annual dividend yield of approximately 2.51% for the NYSE Composite Index in 2011. The first 2012 dividend payment of $0.05 per share was made on February 10, 2012 to shareholders of record on January 27, 2012. On March 20, 2012 we announced that the second dividend payment for 2012, of $0.05 per share, would be made on April 10, 2012 to shareholders of record on March 30, 2012.
Acquisition of Pea Ridge Iron Ore Mine Interest
In December 2011, we acquired, together with our partner in the project, Alberici Group, Inc., referred to as “Alberici”, the Pea Ridge Iron Ore Mine located near Sullivan, Missouri, USA. We previously acquired various secured debt and interests respecting the properties underlying the Pea Ridge Mine, with our investment being approximately $12.1 million in 2011 to acquire our indirect 50% interest in the Pea Ridge Mine. Pursuant to the transaction, the previous owners retained a 2.6% net smelter returns royalty on ferrous minerals produced at the mine. Additionally, the previous owners hold 70% of another entity which has a mineral licence respecting non-ferrous minerals at the mine, with the remaining 30% of such entity indirectly held jointly by us and Alberici.
 
14

Table of Contents
The Pea Ridge Mine is located approximately 70 miles southwest of St. Louis, Missouri and was operated as an underground mine between 1963 and 2001, producing approximately 58.5 million short tons during such period. The mine was originally developed as a partnership between Bethlehem Steel Corporation and St. Joe Minerals Corp., operating as the Meramec Mining Company. From 1981 to 1987 the mine was operated by Fluor Corporation and was subsequently acquired by Woodridge Resources Corporation until its closure in 2001. From 2001 until we acquired our interest in the Pea Ridge Mine, operations at the mine had been limited to reclamation of resource settlement ponds located below the historical production facilities.
The Pea Ridge Mine project includes the historic mine deposit along with a large tonnage of tailings material. Prior infrastructure remains in place at the Pea Ridge Mine, including certain buildings, access to underground workings, two vertical mine shafts with hoists and headframes, a plant building and tailings and settling ponds. The iron ore deposit’s location is served by paved highways connecting to the U.S. Interstate highway system, and in addition has a presently unused rail spur line connecting to the Union Pacific Railroad’s railway system.
In the first quarter of 2012, we and our partner commenced initial confirmatory exploration and development work at the Pea Ridge Mine, including compiling historic and past production data, conducting a remote video examination of some of the submersed historical mine workings and commissioning Behre Dolbear and Company (USA), Inc., referred to as “Behre Dolbear”, to complete an independent NI 43-101 compliant technical report on the Pea Ridge Mine property, referred to as the “Pea Ridge Technical Report”. The Pea Ridge Technical Report was completed on March 9, 2012.
In completing the Pea Ridge Technical Report, Behre Dolbear reviewed existing data, including historical exploration, development and production data and historical resource estimates conducted in respect of the Pea Ridge Mine. The report cites a non-NI 43-101 compliant historical resource estimate prepared in May 2008 and commissioned by the prior owners of the project that estimated the following in situ (originally present) iron resource in all categories of mineralized material, except the breccia pipes located on the property:

Class	  	Short Tons	 	 	Magnetic  Iron
(%)	 	  	Total  Iron (1)
(%)	 	
Measured	  	 	94,124,609	  	 	 	50.8	  	  	 	58.0	  	
Indicated	  	 	94,116,680	  	 	 	51.9	  	  	 	58.9	  	
Inferred	  	 	54,953,242	  	 	 	40.6	  	  	 	55.9	  	
Past Production (2)	  	 	(58,500,000	) 	 				  				
 
Notes:
(1)	We anticipate that any future mining operations at the Pea Ridge Mine would include beneficiating the Pea Ridge resource in a processing plant or mill, similar to past production practices at the Pea Ridge Mine. This would involve the removal of the non-iron bearing portion of the resource and generally results in iron-rich concentrates. Historic data for the mine indicates that previous beneficiation resulted in iron-rich concentrates that were typically in the range of 66% to 69% iron.	
 
(2)	Approximation based on historical production data for the period between 1963 and 2001. The above historical resource estimates of measured, indicated and inferred resources did not account for past production.	
In the Pea Ridge Technical Report, Behre Dolbear concluded that substantial mineralization is still available for production at the Pea Ridge Mine site although the mine is presently in a flooded condition. Any production determination is subject to determining economic viability.
We have not completed the work necessary to verify the classification of the above mineral resource estimates as current mineral resources under NI 43-101. Accordingly, we are not treating the historical resource estimates as current defined resources and, therefore, they should not be relied upon. However, we are providing these historical results and estimates of remaining iron resources to provide an indication of the potential of the Pea Ridge Mine project and believe such information is relevant to our future development plans. The Pea Ridge Mine will require further evaluation, which we and our partner intend to carry out in due course. Further, a NI 43-101 compliant feasibility study has not been completed and there is no certainty that the project will be economically viable.
Under applicable guidelines, measured resources are that portion of a mineral resource for which the size and grade have been estimated from sampling at places spaced closely enough that its continuity is essentially confirmed. Indicated resources consist of that portion of a mineral resource for which the size and grade has been estimated from sampling at places spaced closely enough that its continuity can be reasonably assumed. Inferred
 
15

Table of Contents
resources consist of that portion of a mineral resource for which the size and grade has been estimated mainly or wholly from limited sampling data, assuming that the mineralized body is continuous based on geological evidence.
We plan to jointly develop the Pea Ridge Mine with our partner, including with the mandate to re-open the underground mine, including exploiting the site’s existing large tailings accumulation and exploring other areas for ferrous mineral production.
Further detailed technical information on the Pea Ridge Mine is included in the Pea Ridge Technical Report, a copy of which has been filed with Canadian securities regulators and is available under our profile on www.sedar.com.
 B. Business Overview
We are a global commodities supply chain company, which sources and delivers commodities and materials to clients, with a special expertise on the financing and risk management aspects of the business.
Business Segments
Our business is divided into three reportable segments: (i) commodities and resources, which includes our commodities activities and mineral interests; (ii) merchant banking, which includes structured solutions, logistics and financial services and proprietary investing activities; and (iii) other, which encompasses our corporate and other investments and business interests, including our medical supplies and servicing business.
Commodities and Resources
Our commodity supply chain business is globally focused and includes our integrated commodities operations and our mineral interests. We conduct such operations primarily through our subsidiaries based in Vienna, Austria and supply various commodities, including minerals and metals, chemicals, plastics and wood products to our customers. Such commodities originate either from our directly or indirectly held interests in resource projects or are secured by us from third parties. We also derive production royalty revenue from a mining sub-lease.
Through our global commodity supply chain business, we also provide logistics, supply chain management and other services to producers and consumers of commodities. These activities are supported by strategic direct or indirect investments in natural resource assets operating in our core commodities, including the production of plastics, non-ferrous metals and minerals.
Our commodities operations include sourcing and supplying commodities. To a lesser extent, we also act as an agent for our clients. Our commodities operations often utilize innovative trading strategies and structures. We currently engage in purchases and sales with commodity and other producers who are unable to effectively realize sales due to their specific circumstances.
Generally we purchase or produce the underlying commodity and sell it to an end buyer or transfer it for another commodity, which will subsequently be sold. Further, commodity producers and end customers often work with us to better manage their internal supply chain, distribution risk and currency and capital requirements. In such commodities operations, we try to capture various commodities, financing and currency spreads. Through our operations, we have been able to develop ongoing relationships with commodity producers, end customers and financiers and integrate them into our financial activities.
We generally source commodities from Asia, Africa, Europe, Australia, the United States and the Middle East. Our commodities sales include the European, Middle Eastern, Asian and North and South American markets.
Our commodities operations are supported by our logistics and finance activities in order to provide cost effective and efficient transportation, as well as granting of payment terms for working capital requirements for our customers and partners.
Our commodities and resources business employs over 283 people worldwide. Our main marketing office is located in Vienna, Austria. In addition, we establish relationships with and seek to further market our products through agents located worldwide. Our marketing and investment activities in the commodities and resource sector are supported by a global network of agents and relationships. This network provides us with worldwide sourcing and distribution capabilities.
 
16

Table of Contents
We have entered into agreements, through a subsidiary, with third party leaseholders of iron ore mines in Goa, India, pursuant to which the leaseholders agreed to sell iron ore to our subsidiary at a fixed price per ton based on the extraction costs plus a royalty payment to the owner dependent upon the iron content of the iron ore. Pursuant to the agreements, our subsidiary has also been contracted to extract iron ore on behalf of the leaseholder at a fixed fee per ton. The agreements are presently in force and continue until September 4, 2014 and our subsidiary has been granted the right to renew the agreements for three year terms until September 4, 2020.
We currently indirectly derive production royalty revenue from a mining sub-lease of the lands upon which the Wabush iron ore mine is situated in Newfoundland and Labrador, Canada. This sub-lease commenced in 1956 and expires in 2055. The lessor is Knoll Lake Minerals Ltd., referred to as “Knoll Lake Minerals”, which holds a direct mining lease from the Province of Newfoundland and Labrador. The mine is operated by Cliffs Natural Resources Inc., referred to as “Cliffs”. In August 2011, we reorganized our royalty asset to hold an indirect 99.44% economic interest therein. Iron ore is shipped from the mine to Québec where it is pelletized. In 2011, 2010, 2009 and 2008, 3.3 million, 3.8 million, 3.2 million and 4.0 million tons of iron pellets, respectively, were shipped. Such shipments are subject to seasonal and cyclical fluctuations. The royalty is paid quarterly and is based on the tonnage of iron ore pellets shipped. Pursuant to the terms of the mining sub-lease, the royalty payment is not to be less than C$3.25 million per annum until its expiry. In 1988, the royalty rate was amended to require a base royalty rate of C$1.685 per ton with escalations as defined in the sub-lease. We are indirectly obligated to make royalty payments of C$0.22 per ton on shipments of iron ore pellets from Québec, to Knoll Lake Minerals, which holds the direct lease over the mine property. Cliffs applies a portion of the royalty payments under the sub-lease to make such royalty payments to Knoll Lake Minerals.
Historically, iron-ore benchmark prices were determined in the first quarter of the calendar year through negotiations between the major producers and their most significant customers. These prices were then generally adopted by the other suppliers when published.
This shift in the marketplace has, among other things, made obsolete certain of the world iron ore pellet pricing methodology for calculating the royalty rate due to us contained in our sub-lease for the Wabush iron mine. As a result of these market changes, and as the sub-lease permits us to renegotiate an increase in the royalty rates when the mine achieves certain profitability thresholds, which we believe have been obtained, we served the mine operator with notice of arbitration respecting our entitlement to a new base rate for the royalty. We have also provided the mine operator notice of arbitration seeking recovery for royalty underpayments in 2010. The outcome of such proceedings cannot be determined at this time.
Iron ore is typically sold either as a concentrate, whereby the iron ore is in granular form, or as a pellet, whereby iron ore concentrate has been mixed with a binding agent, formed into a pellet and then fired in a furnace. Iron ore pellets can be charged directly into blast furnaces without further processing and are primarily used to produce pig iron which is subsequently transformed into steel. The ore resources at the mine contain manganese in quantities that make the resulting iron ore concentrates unattractive to steel plant customers. The operator of the mine has announced that it is addressing this by installing mill components that reduce manganese content, with the final plant reconfiguration requiring four to six independent manganese reduction circuits, two of which were installed in 2011. The operator of the mine has stated that this manganese reduction program could extend the mine life by six years.
The iron ore mine is operated by Cliffs. Under the mining sub-lease, Cliffs pays royalties to the holder of the royalty interest based upon the amount of iron ore pellets shipped. One of the major components in the calculation of the royalty rate payable is based on the most recently published prices of a basket of five particular iron ore pellets. Although there can be no assurance as to future production levels, our management believes that since the operator is now also the sole operator of the Wabush iron ore mine, production from the mine may be maintained at relatively consistent levels, subject to market conditions.
 
17

Table of Contents
The following table sets forth historical total iron ore shipments of pellets and royalty payments to us based upon the amounts reported to us by the Wabush mine operator:

Year	  	Tonnage Shipped	 	  	Total
Tonnage
Shipped	 	  	Gross
Royalties
Received (1)	 	 	Gross
Average
Royalty
Rate/Ton
Received	 	
	  	Q1	 	  	Q2	 	  	Q3	 	  	Q4	 	  			  			 			
 	  	(In thousands, other than the Royalty Rate)
(All monetary amounts in Canadian dollars)	 	
2005	  	 	789	  	  	 	1,392	  	  	 	1,299	  	  	 	982	  	  	 	4,462	  	  	$	13,736	  	 	$	3.08	  	
2006	  	 	751	  	  	 	1,296	  	  	 	942	  	  	 	1,289	  	  	 	4,278	  	  	 	16,393	  	 	 	3.83	  	
2007	  	 	472	  	  	 	1,607	  	  	 	1,591	  	  	 	1,339	  	  	 	5,009	  	  	 	22,357	  	 	 	4.46	  	
2008	  	 	694	  	  	 	1,437	  	  	 	1,117	  	  	 	705	  	  	 	3,953	  	  	 	31,288	  	 	 	7.91	  	
2009	  	 	402	  	  	 	386	  	  	 	1,202	  	  	 	1,198	  	  	 	3,188	  	  	 	17,350	  	 	 	5.44	  	
2010	  	 	874	  	  	 	941	  	  	 	832	  	  	 	1,105	  	  	 	3,752	  	  	 	22,915	(2)  	 	 	6.11	  	
2011	  	 	719	  	  	 	796	  	  	 	1,173	  	  	 	646	  	  	 	3,334	  	  	 	30,280	  	 	 	9.08	  	
 
Notes:
(1)	Subject to a 20% resource property revenue tax.	
 
(2)	Does not include the amount of arbitration award.	
We also hold a 50% interest in the Pea Ridge Iron Ore Mine located in Sullivan, Missouri, USA, approximately 70 miles southwest of St. Louis, Missouri, USA. The Pea Ridge Mine operated as an underground mine between 1963 and 2001, and was originally developed as a partnership between Bethlehem Steel Corporation and St. Joe Minerals Corp., operating as the Meramec Mining Company. From 1981 to 1987 the mine was operated by Fluor Corporation and was subsequently acquired by Woodridge Resources Corporation until its closure in 2001. The Pea Ridge Mine project includes the historic mine deposit along with a large tonnage of tailings material. Historic data and records indicate that approximately 58.5 million short tons of iron ore were removed from the mine between 1963 and 2001. For further information about the Pea Ridge Mine, please see the section of this annual report on Form 20-F entitled “ Item 4: Information on the Company — A. History and Development of the Company — Recent Developments ” above.
Merchant Banking
Our merchant banking operations include merchant banking and financial services, specialized banking, third-party financing and other services, proprietary investing and our real property. We seek to invest in many industries, emphasizing those business opportunities where the perceived intrinsic value is not properly recognized.
We use our financial and management expertise to add or unlock value within a relatively short time period. Our merchant banking activity is generally not passive and we seek investments where our financial expertise and management can add or unlock value. Proprietary investments are generated and made as part of our overall merchant banking activities and are realized upon over time, sometimes taking more than one year. In addition, we often seek to acquire interests or establish relationships with commodity producers to realize upon potential synergies. Such interests can be acquired through purchases of, or investments in, commodity producers, or through contractual arrangements with them, including off-take agreements. The investments we make in commodity producers are part of our merchant banking strategy.
Our activities include making proprietary investments through investing our own capital and utilizing our expertise to capture investment opportunities. We seek to invest in businesses or assets whose intrinsic value is not properly reflected in their share or other price. Often such investments are in companies or assets that are under financial, legal or regulatory distress and our services include resolving such distress. Our investing takes many forms and can include acquiring entire businesses or portions thereof, investing in equity, investing in the existing indebtedness (secured and unsecured) of a business or in new equity or debt issues. Our investing is generally not passive and we invest where we believe our expertise in financial restructuring and management and complementary trading and corporate finance capabilities can add or unlock value. Our investing in distressed businesses and/or assets can result in complex and intricate legal issues relating to priorities, claims and other rights of stakeholders. Such issues can result in our being involved in legal and other claims as a result of our overall proprietary investment strategy. Our proprietary investments are often made as a part of, or complementary to our commodity and resources trading activities.
 
18

Table of Contents
We consider investment opportunities where: (i) our existing participation in the marketing and production of commodities provides expert insight; (ii) we can obtain a satisfactory return of future capital investment; and (iii) such investment integrates with our business. Our philosophy is to utilize our financial strength to realize the commercial potential of assets in markets where we have a comprehensive understanding of the drivers of value.
Our merchant banking operations provide innovative finance services for corporate and trade finance transactions. We focus on meeting the financial needs of small to mid-sized companies and other business enterprises primarily in Europe and Asia. We believe that many of these clients are underserviced by the large global investment banks and financial service providers. We specialize in advising and structuring business enterprises involved in unstructured and novel situations where a strong financial partner is needed and traditional, off-the-shelf solutions are not workable.
In addition, we utilize our established relationships with international financial institutions, credit insurance and factoring companies to provide flexible customized financial tools, extensive credit and risk management and structured solutions for our customers. Working closely with our customers, our professional staff arrange support of hedging and trading of materials, financing and risk management solutions.
Our merchant banking activities also include leveraging our trading and financial experience and relationships to provide trading services, such as transportation and logistics, and trade finance services to our trading customers.
Our merchant banking business generates revenues in the form of corporate and trade finance service fees and interest income. We also realize gains from time to time on our proprietary investments, upon their sale, the execution of an equity or debt restructuring, or the completion of other forms of divestment.
Other
Our other segment includes our corporate and other investments, which include financing joint ventures through our Shanghai, China-based subsidiary which provides medical services, equipment and supplies.
Company Strategy
Our primary and over-riding business objective is to enhance value and create wealth for our shareholders. The key elements of our strategy include the following:
 
 	•	 	Investing in Undervalued Opportunities. We seek to invest in businesses or assets whose intrinsic value is not properly reflected in their share price, or where we perceive that our commodities and financial expertise and management can add or unlock value. These include investments in highly unstructured situations and in companies undergoing financial or operational stress. Such investments often involve severe time constraints, and given our liquid resources, we are well positioned to capitalize on such opportunities. Unlike traditional companies in the financial services sector, our investing is generally not passive.	
 
 	•	 	Geographic Scope of Operations. We operate globally so we supply a diversified range of commodities to our customers, develop new relationships with producers and consumers of commodities and selectively target new business and investment opportunities worldwide.	
 
 	•	 	Strategic Investments. Strategic investments in resource assets are an important component of our commodities trading activities and value added services. We pursue selective strategic acquisitions and alliances to support and strengthen our commodities operations as and when opportunities arise. We will continue to apply our investment criteria to our acquisitions, pursuing investments in assets that are of strategic importance to our core businesses. At the same time, we continue to evaluate dispositions of investments or assets, in particular when they are no longer deemed to support our core business or when attractive selling opportunities arise.	
 
 	•	 	Create Shareholder Value. The nature of our business is cyclical and affected by several factors that do not lend themselves to regular evaluation. Therefore, we do not evaluate our performance and do not believe we should be scrutinized in terms of our price-to-earnings multiple. We seek to grow our asset base and net worth and believe these are the best valuation measures for our business.	
 
 	•	 	Financial Profile . We seek to maintain our fiscal profile so we can access necessary financing on competitive terms. In addition, we believe our fiscal approach helps us to manage acquisition risks and maintain a high level of liquidity.	
 
 	•	 	Risk Approach. We have adopted policies intended to mitigate and manage commodity price and counterparty risks associated with our commodities trading activities. For example, a substantial portion	
 
19

Table of Contents

 	of our inventory of commodities is at any time under contract for sale at a pre-determined price. We also reduce the risk of non-payment by customers by imposing limits on open accounts extended to creditworthy customers and imposing credit support requirements for other customers.	
Competitive Strengths
We believe that our competitive strengths include the following:
 
 	•	 	International Capabilities. Unlike other similarly sized companies, we have sought to develop a broad geographic scope rather than focusing on any one particular market. While many of our larger competitors have greater presences in more international markets, including merchant and investment banks, trading firms, brokerage firms, commercial banks and hedge funds, we believe our smaller size and collegiality allow us to work as a team on cross-border transactions better than many of our competitors.	
 
 	•	 	Liquidity. Liquidity is of critical importance to companies in the merchant banking industry and global commodity supply chain business and is key to strategic acquisitions to further expand and support our global commodity supply chain business. We therefore maintain liquidity in order to be able to capitalize on business opportunities in time sensitive transactions, fund our core businesses to continue to generate revenues, and fund a broad range of potential cash outflows in stressed environments, including financing obligations. Our approach to liquidity allows us to meet immediate obligations without needing to sell other assets or depend on additional funding from credit-sensitive markets, and affords us significant flexibility in structuring our affairs and managing through difficult funding environments. Historically, we have funded our businesses with cash generated from our operations.	
 
 	•	 	Independence. We are an independent company managed by our directors and officers, rather than part of a larger, diversified financial services institution. Such financial services companies can develop conflicts with their clients due to the large number of customers they service, their own investment and trading position and the broad range of products and services they offer. We believe that awareness of these potential conflicts has heightened and that such awareness has resulted in increased opportunities for independent firms like us in respect of merger, acquisition, restructuring and similar transactions.	
 
 	•	 	Management. We believe that our management has expertise in the global commodity supply chain business, including critical expertise with respect to our specialized financial services and corporate finance services internationally, including on corporate restructurings and mergers and acquisitions.	
 
 	•	 	Integrated Service Approach. We believe our logistics and financing activities allow us to provide a full-service solution to our commodities trading customers and suppliers. We are able to provide our customers and suppliers assistance with transportation and logistics as well as trading, hedging, financing and risk management services.	
 
 	•	 	Operating Structure Allows Prompt Response to Investment Opportunities. We have a lean operating structure and are therefore able to quickly assess whether a business venture represents an appropriate investment for us, responding promptly to all desirable business opportunities. We carefully select the business opportunities we investigate and do not move forward unless we have a high level of confidence that the opportunities fit within our objectives and core competencies.	
Competitive Conditions
All segments of our business are intensely competitive, and we expect them to remain so.
Our operations are relatively small compared to our competitors. Many of our competitors have far greater financial resources, a broader range of products and services, larger customer bases, greater name recognition and marketing resources, a larger number of senior professionals to serve their clients’ needs, greater global reach and more established relationships with clients than we do. These competitors may be better able to respond to changes in business conditions, to compete for skilled professionals, to finance acquisitions, to fund internal growth and to compete for market share generally. Further many companies are engaged in the acquisition of resource interests. We may also be at a competitive disadvantage in acquiring such properties and interests as many competitors may have greater financial resources and technical staff. Accordingly, there can be no assurance that we will be able to compete successfully against other companies in acquiring additional interests and resource properties.
The scale of our competitors in the merchant banking business has increased in recent years as a result of substantial consolidation among companies, especially in the banking and financial industries. These firms have the ability to offer a wider range of products than we do which may enhance their competitive position. They also
 
20

Table of Contents
have the ability to support their businesses with other services such as commercial lending in an effort to gain market share, which has resulted, and could further result, in pricing pressure in our businesses.
We believe that our experience and operating structure permit us to respond more rapidly to our clients’ needs than many of our larger competitors. These traits are important to small and mid-sized business enterprises, many of which do not have large internal corporate finance departments to handle their capital requirements. We develop a partnership approach to assist clients. This often permits us to develop multiple revenue sources from the same client. For example, we may purchase and sell a client’s products, or commit our own capital to make a proprietary investment in its business or capital structure.
 C. Organizational Structure
The following table describes our direct and indirect significant subsidiaries as at the date hereof, their respective jurisdictions of organization and our beneficial interest in respect of each subsidiary. The table excludes subsidiaries which only hold inter-company assets and liabilities and do not have active businesses or whose results and net assets did not materially impact our consolidated results and net assets.

 	  	Country of
Incorporation	  	Beneficial
Interest (1)	 	
MFC Commodities GmbH	  	Austria	  	 	100	% 	
MFC Trade & Financial Service GmbH	  	Austria	  	 	100	% 	
IC Managementservice GmbH	  	Austria	  	 	100	% 	
Global Bulk Transport GmbH	  	Austria	  	 	100	% 	
International Trade Services GmbH	  	Austria	  	 	100	% 	
MFC Metal Trading GmbH	  	Austria	  	 	100	% 	
Magnum Minerals Private Limited	  	India	  	 	100	% 	
AFM Aluminiumfolie Merseburg GmbH	  	Germany	  	 	55	% 	
MAW Mansfelder Aluminiumwerk GmbH	  	Germany	  	 	55	% 	
MFC (A) Ltd	  	Marshall Islands	  	 	100	% 	
MFC (D) Ltd	  	Marshall Islands	  	 	100	% 	
Brock Metals s.r.o.	  	Slovakia	  	 	100	% 	
M Financial Corp.	  	Barbados	  	 	100	% 	
Mednet (Shanghai) Medical Technical Developing Co., Ltd	  	China	  	 	90	% 	
Hangzhou Zhe-er Optical Co. Ltd	  	China	  	 	46	% 	
MFC Corporate Services AG	  	Switzerland	  	 	100	% 	
 
Note:
(1)	Percentages rounded to nearest whole number.	
 D. Property, Plants and Equipment
Office Space
Our principal office is located at Suite 1620 — 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6. We also maintain offices in Vienna, Austria, Hong Kong and Shanghai, China and Goa, India.
We believe that our existing facilities are adequate for our needs through the end of the year ending December 31, 2012. Should we require additional space at that time, or prior thereto, we believe that such space can be secured on commercially reasonable terms.
Royalty Interest
We participate in a royalty interest which consists of a mining sub-lease of the lands upon which the Wabush iron ore mine is situated. For a discussion of the royalty interest, see “ Item 4: Information on the Company — B. Business Overview — Business Segments — Commodities and Resources ”.
Pea Ridge Mine
We hold a 50% interest in the Pea Ridge Iron Ore Mine located in Sullivan, Missouri USA. For a discussion of the Pea Ridge Iron Ore Mine, see “ Item 4: Information on the Company — B. Business Overview — Business Segments — Commodities and Resources ”.
 
 ITEM 4A:	UNRESOLVED STAFF COMMENTS	
None.
 
21

Table of Contents

 ITEM 5:	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	
The following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31, 2011, 2010 and 2009 should be read in conjunction with our audited consolidated financial statements and related notes included in this annual report on Form 20-F. Our financial statements included in this annual report on Form 20-F were prepared in accordance with IFRS. We adopted IFRS as of January 1, 2010.
General
We are a global commodities supply-chain company which sources and delivers commodities and materials to clients, with a special expertise on the financing and risk management aspects of the business. We also commit our own capital to promising enterprises and invest and otherwise capture investment opportunities for our own account. We seek to invest in businesses or assets whose intrinsic value is not properly reflected in their share price or value. Our investing is generally not passive. We actively seek investments where our financial expertise and management can add or unlock value.
Our results of operations have been and may continue to be affected by many factors of a global nature, including economic and market conditions, the availability of capital, the level and volatility of equity prices and interest rates, currency values, commodity prices and other market indices, technological changes, the availability of credit, inflation and legislative and regulatory developments. Our results of operations may also be materially affected by competitive factors. Our competitors include firms traditionally engaged in merchant banking and financial services such as merchant and investment banks, along with other capital sources such as hedge funds, private equity firms and insurance companies, and other trade companies engaged in commodities activities in Europe, Asia and globally.
Our results of operations for any particular period may also be materially affected by our realization on proprietary investments. These investments are made to maximize total return through long-term appreciation and recognized gains on divestment. We realize on our proprietary investments through a variety of methods including sales, capital restructuring or other forms of divestment.
A majority of our revenues is derived from our global commodity supply chain operations. The remaining portions are generally derived from financial services, sales of properties and net gains on securities.
We view our net book value per share as a key indicator of our overall financial performance. Our net book value as at December 31, 2011, 2010 and 2009 is set forth below:

 	  	December 31,
2011	 	  	December 31,
2010	 	  	December  31,
2009 (1)	 	
 	  	(United States dollars in thousands, except per share amounts)	 	
Net book value	  	$	546,623	  	  	$	547,756	  	  	$	435,689	  	
Net book value per share	  	 	8.74	  	  	 	8.76	  	  	 	14.40	  	
 
Note:
(1)	In 2010, we deconsolidated our Industrial Business, which resulted in it being accounted for as discontinued operations in our financial statements. Please see the section of this Annual Report on Form 20-F entitled “ Item 5: Operating and Financial Review and Prospects – Presentation of Financial Information/Accounting Treatment ”.	
Business Environment
Our financial performance is, and our consolidated results in any period can be, materially affected by global economic conditions and financial markets generally.
Our favourable business environment is characterized by many factors, including a stable geopolitical climate, transparent financial markets, low inflation, low interest rates, availability of credit, low unemployment, strong business profitability and high business and investor confidence. Unfavourable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability or increase in the cost of credit and capital, increases in inflation, interest rates, exchange rate volatility, outbreaks of hostilities or other geopolitical instability, corporate, political or other scandals that reduce investor confidence in the capital markets, or a combination of these or other factors.
Commencing in mid-2008 and continuing through most of 2009, the macro business environment for many of our activities was extremely challenging. During such period, capital and securities markets generally were materially and adversely affected by significant declines in the values of nearly all investment classes and by a
 
22

Table of Contents
serious lack of liquidity. The global markets were characterized by substantially increased volatility and an overall loss of investor confidence, initially in financial institutions, but later in companies in a number of other industries and in the broader markets. The decline in asset values has caused increases in margin calls for investors, requirements that derivatives counterparties post additional collateral and redemptions by mutual and hedge fund investors, all of which have increased the downward pressure on asset values and outflows of funds across the financial services industry. In addition, increased redemptions and unavailability of credit caused hedge funds and other investors to rapidly reduce leverage, which has increased volatility and further contributed to the decline in asset values.
Ongoing global economic conditions, including fears of sovereign debt default and a European banking crisis continued to impact the liquidity in financial and capital markets, restricting access to financing and causing significant volatility in commodity prices in 2011. There can be no assurance as to the stabilization and recovery of economic conditions in the near term.
 Presentation of Financial Information/Accounting Treatment
We completed our acquisition of Mass in November 2010 and caused the amalgamation of Mass and our wholly-owned subsidiary in December 2010. As a result of the successful acquisition, we commenced consolidating Mass’s operations, including its commodities and merchant banking activities from November 16, 2010.
Until March 30, 2010, we also operated in the Industrial Business through KID. As at March 30, 2010, we completed a plan of arrangement pursuant to which, among other things, we distributed approximately 26% of the outstanding shares of our Industrial Business (at such time) to our shareholders and ceased to consolidate it as at March 31, 2010. We distributed the Industrial Business to our shareholders over the course of 2010.
The disposition of our former Industrial Business in 2010 resulted in it being accounted for as discontinued operations. Accordingly, prior period financial statements have been reclassified to reflect this change. Because we are reclassifying prior years’ financial statements for the presentation of discontinued operations, our reported results including, among other things, earnings and earnings per share, may not be consistent with that which was originally presented.
 Results of Operation
Summary of Quarterly Results
The following tables provide selected unaudited financial information for the most recent eight quarters presented in accordance with IFRS:

 	  	  December 31,  
2011	 	 	  September 30,  
2011	 	  	  June 30,  
2011	 	  	  March 31,  
2011	 	
 	  	(United States dollars in thousands, except per share amounts)	 	
Net sales	  	$	128,076	  	 	$	112,107	  	  	$	142,032	  	  	$	132,582	  	
Equity income	  	 	1,383	  	 	 	1,621	  	  	 	1,653	  	  	 	1,255	  	
Total revenues	  	 	129,459	  	 	 	113,728	  	  	 	143,685	  	  	 	133,837	  	
Net income (loss) from continuing operations (1)	  	 	(9,410	) 	 	 	6,686	  	  	 	11,997	  	  	 	2,920	  	
Basic income (loss) from continuing operations, per share	  	 	(0.15	) 	 	 	0.11	  	  	 	0.19	  	  	 	0.05	  	
Diluted income (loss) from continuing operations, per share	  	 	(0.15	) 	 	 	0.11	  	  	 	0.19	  	  	 	0.05	  	
Net income (loss) (1)	  	 	(9,410	) 	 	 	6,686	  	  	 	11,997	  	  	 	2,920	  	
Basic earnings (loss), per share	  	 	(0.15	) 	 	 	0.11	  	  	 	0.19	  	  	 	0.05	  	
Diluted earnings (loss), per share	  	 	(0.15	) 	 	 	0.11	  	  	 	0.19	  	  	 	0.05	  	
 
Note:
(1)	Net income attributable to our shareholders.	
 
23

Table of Contents

 	  	December 31,
2010 (1)	 	  	September 30,
2010	 	  	June 30,
2010	 	 	March 31,
2010	 	
 	  	(United States dollars in thousands, except per share amounts)	 	
Net sales	  	$	57,006	  	  	$	17,622	  	  	$	5,836	  	 	$	4,012	  	
Equity income	  	 	954	  	  	 	—	  	  	 	—	  	 	 	—	  	
Total revenues	  	 	57,960	  	  	 	17,622	  	  	 	5,836	  	 	 	4,012	  	
Net income (loss) from continuing operations (2)	  	 	46,565	  	  	 	71	  	  	 	1,004	  	 	 	(1,801	) 	
Basic earnings (loss) from continuing operations, per share	  	 	0.92	  	  	 	0.00	  	  	 	0.03	  	 	 	(0.06	) 	
Diluted earnings (loss) from continuing operations, per share	  	 	0.92	  	  	 	0.00	  	  	 	0.03	  	 	 	(0.06	) 	
Net income (loss) (2)	  	 	46,374	  	  	 	4,941	  	  	 	(1,721	) 	 	 	(19,278	) 	
Basic earnings (loss), per share	  	 	0.92	  	  	 	0.15	  	  	 	(0.06	) 	 	 	(0.64	) 	
Diluted earnings (loss), per share	  	 	0.92	  	  	 	0.15	  	  	 	(0.06	) 	 	 	(0.64	) 	
 
Notes:
(1)	We consolidated the operations of Mass from November 16, 2010.	
 
(2)	Net income attributable to our shareholders.	
Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010
The following table sets forth, for the periods indicated, certain key audited operating results and other financial information:

 	  	December 31,	 	
 	  	      2011      	 	  	       2010 (1)       	 	
 	  	(United States dollars in
thousands, except
per share amounts)	 	
Net sales	  	$	514,797	  	  	$	84,476	  	
Gross revenues	  	 	520,709	  	  	 	85,430	  	
Costs and expenses	  	 	502,595	  	  	 	70,724	  	
Costs of sales	  	 	435,392	  	  	 	51,362	  	
Impairment of available-for-sale securities	  	 	12,408	  	  	 	—	  	
Selling, general and administrative expense	  	 	40,378	  	  	 	18,316	  	
Share-based compensation expense	  	 	7,219	  	  	 	72	  	
Finance costs	  	 	7,198	  	  	 	974	  	
Net income from continuing operations (2)	  	 	12,193	  	  	 	45,839	  	
Net loss from discontinued operations (2)	  	 	—	  	  	 	(15,523	) 	
Net income (2)	  	 	12,193	  	  	 	30,316	  	
Basic earnings (loss) per share:	  				  				
Continuing operations	  	 	0.19	  	  	 	1.28	  	
Discontinued operations	  	 	—	  	  	 	(0.43	) 	
Diluted earnings (loss) per share:	  				  				
Continuing operations discontinued operations	  	 	0.19	  	  	 	1.28	  	
Discontinued operations	  	 	—	  	  	 	(0.43	) 	
 
Notes:
(1)	We consolidated the operations of Mass from November 16, 2010.	
 
(2)	Net income attributable to our shareholders.	
The following is a breakdown of our total revenues by activity for each of the years ended December 31, 2011 and 2010:

 	  	December 31,	 	
 	  	      2011      	 	  	      2010      	 	
 	  	(United States dollars
in thousands)	 	
Gross Revenues:	  				
Commodities and resources	  	$	481,677	  	  	$	76,478	  	
Merchant banking	  	 	22,487	  	  	 	4,821	  	
Other	  	 	16,545	  	  	 	4,131	  	
	  	 	 	 	  	 	 	 	
	  	$	520,709	  	  	$	85,430	  	

24

Table of Contents
The following charts illustrate our revenues by business segment and geographic distribution in fiscal year ended December 31, 2011:

Based upon the yearly average exchange rates for the year ended December 31, 2011, the United States dollar decreased by approximately 4.7% and 4.0% in value against the Euro and the Canadian dollar, respectively, compared to the average exchange rates in 2010. As at December 31, 2011, the United States dollar had increased by approximately 3.2% against the Euro and 2.3% against the Canadian dollar since December 31, 2010.
Gross revenues for the year ended December 31, 2011 increased to $520.7 million (consisting of net sales of $514.8 million and equity income from medical joint ventures of $5.9 million) from $85.4 million (consisting of net sales of $84.5 million and equity income from medical joint ventures of $1.0 million) in the same period of 2010, primarily as a result of the inclusion of the results of the operations of Mass since November 16, 2010.
Gross revenues for our commodities and resources business were $481.7 million for the year ended December 31, 2011, compared to $76.5 million for the same period in 2010, primarily as a result of the inclusion of the results of operations of Mass since November 16, 2010.
During the fiscal year ended December 31, 2011, gross revenues generated by our royalty marginally decreased to approximately $30.8 million from approximately $31.7 million (including royalty payments respecting prior years of $11.2 million) in the same period in 2010. This decrease in gross royalty revenues was mainly attributable to lower shipments in 2011 and the inclusion of $11.2 million of royalty payments respecting prior years including 2010. A total of 3.3 million tons and 3.8 million tons of iron ore pellets were shipped during the fiscal years ended December 31, 2011 and 2010, respectively.
Gross revenues for our merchant banking business were $22.5 million for the year ended December 31, 2011, compared to $4.8 million for the same period in 2010, primarily as a result of the inclusion of Mass since November 16, 2010.
Gross revenues for our other segment were $16.5 million for the year ended December 31, 2011, compared to $4.1 million for the same period in 2010, primarily as a result of the inclusion of Mass since November 16, 2010.
Costs of sales increased to $435.4 million during the fiscal year ended December 31, 2011 from $51.4 million for the same period in 2010, primarily as a result of the consolidation of Mass’s operations from November 16, 2010. The following is a breakdown of our costs of sales for each of the years ended December 31, 2011 and 2010:

 	  	December 31,	 	
 	  	      2011      	 	 	      2010      	 	
 	  	(United States dollars in thousands)	 	
Commodities and resources	  	$	414,745	  	 	$	45,994	  	
Loss on securities, net	  	 	4,314	  	 	 	834	  	
Credit losses (recovery) on loans and receivables	  	 	(530	) 	 	 	795	  	
Change in fair value of investment property	  	 	56	  	 	 	294	  	
Write-down on real estate held for sale	  	 	—	  	 	 	241	  	
Market value decrease on commodities	  	 	4,422	  	 	 	—	  	
Loss on derivative contracts, net	  	 	—	  	 	 	2,010	  	
Other	  	 	12,385	  	 	 	1,194	  	
	  	 	 	 	 	 	 	 	
Total cost of sales	  	$	435,392	  	 	$	51,362	  	

25

Table of Contents
Impairment of available-for-sale securities was $12.4 million in 2011, compared to $nil in 2010. It represents an other-than-temporary impairment charge on our strategic long-term investments.
Selling, general and administrative expenses, excluding share-based compensation, increased to $40.4 million for the year ended December 31, 2011 from $18.3 million for the same period of 2010. The increase is primarily linked to the inclusion of Mass’s operations since November 16, 2010 and, in particular, employee compensation expenses.
During the year ended December 31, 2011, non-cash and discretionary share-based compensation expense increased to $7.2 million from $0.1 million for the same period in 2010 as a result of granting 2,635,000 options to our directors and employees in January 2011. The options vested immediately, resulting in all share-based compensation expense being fully recognized in the first quarter of 2011. The Company did not grant additional options in 2011 and, accordingly, did not incur or report share-based compensation expense over the remaining life of these options.
During the year ended December 31, 2011, we incurred finance costs of $7.2 million, compared to $1.0 million for the year ended December 31, 2010. Such finance costs increased as a result of increased interest payments on our long term debt and credit facilities and factoring charges as a result of the inclusion of Mass since November 16, 2010.
For the year ended December 31, 2011, we incurred a net foreign currency transaction loss of $0.9 million, compared to $3.6 million for the same period in 2010, in the statement of operations.
We recognized a gain of $41.1 million on negative goodwill during fiscal year ended December 31, 2010 in connection with the acquisition of Mass. The negative goodwill was included in our statements of operations for the year ended December 31, 2010 and arose as the market price of our common shares on the acquisition dates was less than the fair value of the net identifiable assets acquired from Mass.
We recognized a provision for income taxes (other than resource property revenue taxes) of $1.3 million and $0.2 million during the years ended December 31, 2011 and 2010. Our statutory tax rate was 26.5% during the year ended December 31, 2011 compared to 28.5% for the same period in 2010, and our effective tax rates are lower than our statutory tax rates in the current period. The income tax paid in cash during the year ended December 31, 2011 was $1.0 million compared to $3.0 million for the same period in 2010.
We also recognized resource property revenue taxes of $4.6 million during the year ended December 31, 2011, compared to $6.7 million during the same period of 2010. The resource property revenues tax rate was 20% on the gross royalty revenue, deducted at source, which is reduced by 20% of deductible expenses. The lower taxes in 2011 are primarily a result of a tax refund claim.
Overall, we recognized an income tax expense of $6.0 million (income taxes of $1.3 million and resource property revenue taxes of $4.6 million) during the year ended December 31, 2011, compared to $7.0 million (income taxes of $0.2 million and resource property revenue taxes of $6.7 million) during the same period of 2010.
For the year ended December 31, 2011, our income from continuing operations attributable to shareholders was $12.2 million, or $0.19 per share on a basic and diluted basis, compared to $45.8 million, or $1.28 per share on a basic and diluted basis, for the same period in 2010.
 
26

Table of Contents
Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009
The following table sets forth, for the periods indicated, certain key operating results and other financial information:

 	  	December 31	 	
 	  	2010 (1)(2)	 	 	2009 (2)	 	
 	  	(United States dollars in
thousands, except per
share amounts)	 	
Net sales	  	$	84,476	  	 	$	14,718	  	
Gross revenues	  	 	85,430	  	 	 	14,718	  	
Costs and expenses	  	 	70,724	  	 	 	22,763	  	
Costs of sales	  	 	51,362	  	 	 	8,525	  	
Selling, general and administrative expense	  	 	18,316	  	 	 	16,474	  	
Net income (loss) from continuing operations (3)	  	 	45,839	  	 	 	(16,320	) 	
Net income (loss) from discontinued operations (3)	  	 	(15,523	) 	 	 	52,992	  	
Net income (2)	  	 	30,316	  	 	 	36,672	  	
Basic earnings (loss) per share:	  				 				
Continuing operations	  	 	1.28	  	 	 	(0.54	) 	
Discontinued operations	  	 	(0.43	) 	 	 	1.75	  	
Diluted earnings (loss) per share:	  				 				
Continuing operations discontinued operations	  	 	1.28	  	 	 	(0.54	) 	
Discontinued operations	  	 	(0.43	) 	 	 	1.75	  	
 
Notes:
(1)	We consolidated the operations of Mass from November 16, 2010.	
 
(2)	In 2010, we deconsolidated our Industrial Business, which resulted in it being accounted for as discontinued operations in our financial statements.	
 
(3)	Net income attributable to our shareholders.	
The following is a breakdown of our total revenues by activity for each of the fiscal years ended December 31, 2010 and 2009:

 	  	December 31,	 	
 	  	2010 (1)	 	  	2009	 	
 	  	(United States dollars
in thousands)	 	
Gross Revenues:	  				
Commodities and resources	  	$	76,478	  	  	$	13,530	  	
Proprietary investing	  	 	4,821	  	  	 	—	  	
Other	  	 	4,131	  	  	 	1,188	  	
	  	 	 	 	  	 	 	 	
	  	$	85,430	  	  	$	14,718	  	

Note:
(1)	The operations of Mass were consolidated as of November 16, 2010.	
The following charts illustrate geographic distribution of our revenues in 2010 and 2009:

 
27

Table of Contents
Based upon the yearly average exchange rates for the year ended December 31, 2010, the United States dollar increased by approximately 4.7% in value against the Euro and decreased by approximately 9.8% in value against the Canadian dollar, compared to the yearly average exchange rates in 2009. As at December 31, 2010, the United States dollar had increased by approximately 7.0% against the Euro and decreased by 5.0% against the Canadian dollar since December 31, 2009.
Gross revenues for the fiscal year ended December 31, 2010 increased to $85.4 million (consisting of net sales of $84.5 million and equity income from medical joint ventures of $1.0 million) from $14.7 million (consisting wholly of net sales) in 2009, primarily as a result of the consolidation of Mass and its commodities operations from November 16, 2010 and increased shipments from the Wabush iron ore mine and the collection of underpayment of resource property royalties in prior years during 2010.
Gross revenues for our commodities and resources business were $76.5 million for the fiscal year ended December 31, 2010, compared to $13.5 million for the same period in 2009, primarily as a result of the consolidation of Mass and its commodities operations from November 16, 2010, increased shipments from the Wabush iron ore mine and the collection of underpayment of resource property royalties in prior years during 2010.
Gross revenues for our merchant banking business were $4.8 million for the fiscal year ended December 31, 2010, compared to $nil for the same period in 2009, primarily as a result of the consolidation of Mass from November 16, 2010.
Gross revenues for our other segment were $4.1 million for the fiscal year ended December 31, 2010, compared to $1.2 million for the same period in 2009, primarily as a result of the consolidation of Mass’s operations from November 16, 2010.
During 2010, gross revenues generated by our royalty increased to approximately $31.7 million from approximately $13.5 million in 2009. This increase in royalty income was mainly attributable to a higher royalty rate and the collection of underpayment of resource property royalty of $11.2 million in prior years. A total of 3.8 million tons and 3.2 million tons of iron ore pellets were shipped during 2010 and 2009, respectively.
Costs of sales increased to $51.4 million during the fiscal year ended December 31, 2010 from $8.5 million for the same period in 2009, primarily as a result of the consolidation of Mass’s operations from November 16, 2010.
Selling, general and administrative expenses, excluding share-based compensation increased slightly to $18.3 million in 2010 from $16.5 million in 2009. The increase is primarily linked to increases in the professional fees on our projects and activities and the consolidation of Mass’s operations from November 16, 2010.
Share-based compensation expense was $72,000 in the year ended December 31, 2010, compared to $2.7 million recovered during the year ended December 31, 2009. The $72,000 expense in 2010 was due to a subsidiary’s stock option plan.
We incurred no loss or gain from the settlement of investment in preferred shares of former subsidiaries for the fiscal year ended December 31, 2010 compared to a loss of $9.5 million for the same period in 2009.
We recognized a gain of $41.1 million on negative goodwill during fiscal year ended December 31, 2010 in connection with the acquisition of Mass. The negative goodwill was included in our statements of operations for the year ended December 31, 2010 arose as the market price of our common shares on the acquisition dates was less than the fair value of the net identifiable assets acquired from Mass.
We recognized an income tax expense of $7.0 million (provision for income taxes of $0.2 million and provision for resource property taxes of $6.7 million) in 2010, compared to an income tax recovery of $4.5 million (recovery of income taxes of $7.5 million and resource property taxes of $3.0 million) in 2009. Our statutory tax rate was 28.5% in 2010, compared to 29% in 2009, and our effective tax rates are lower than our statutory tax rates. The increase in income tax expense was primarily a result of profitable operations in the current year, partially offset by non-taxable income. We paid $3.0 million cash in income tax (other than resource property revenue tax) in 2010, compared to $nil in 2009. The increase in income tax paid is mainly due to the withholding tax on dividends collected from KID in 2010 which had been reallocated to discontinued operations.
In 2010, our income from continuing operations was $45.8 million, or $1.28 per share on a basic and diluted basis. In 2009, our loss from continuing operations was $16.3 million, or $0.54 per share on a basic and diluted basis.
 
28

Table of Contents
 Liquidity and Capital Resources
General
Liquidity is of importance to companies in our businesses. Insufficient liquidity often results in underperformance and can even result in the failure of such businesses.
Our objectives when managing capital are: (i) to safeguard our ability to continue as a going concern so that we can continue to provide returns for shareholders and benefits for other stakeholders, (ii) to provide an adequate return to our shareholders by pricing products and services commensurately with the level of risk, and (iii) to maintain a flexible capital structure which optimizes the cost of capital at acceptable risk. We set the amount of capital in proportion to risk. We manage our capital structure and make adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, we may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
Consistently with others in our industry, we monitor capital on the basis of our debt-to-adjusted capital ratio and long-term debt-to-equity ratio. The debt-to-adjusted capital ratio is calculated as net debt divided by adjusted capital. Net debt is calculated as total debt less cash and cash equivalents. Adjusted capital comprises all components of equity and some forms of subordinated debt, if any. The long-term debt-to-equity ratio is calculated as long-term debt divided by shareholders’ equity. The computations are based on continuing operations.

 	  	2011	 	 	2010	 	 	2009	 	
 	  	(United States dollars in thousands)	 	
Total debt	  	$	47,127	  	 	$	52,748	  	 	$	—	  	
Less: cash and cash equivalents	  	 	(387,052	) 	 	 	(397,697	) 	 	 	(38,046	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net debt (net cash and cash equivalents)	  	 	(339,925	) 	 	 	(344,949	) 	 	 	(38,046	) 	
Shareholders’ equity	  	 	546,623	  	 	 	547,756	  	 	 	435,689	  	
Debt-to-adjusted capital ratio	  	 	Not applicable	  	 	 	Not applicable	  	 	 	Not applicable	  	
There were no amounts in accumulated other comprehensive income relating to cash flow hedges nor were there any subordinated debt instruments as at December 31, 2011, 2010 and 2009. The debt-to-adjusted capital ratio in 2011, 2010 and 2009 were not applicable as we had a net cash and cash equivalents balance.

 	  	2011	 	  	2010	 	  	2009	 	
 	  	(United States dollars in thousands)	 	
Long-term debt	  	$	20,150	  	  	$	48,604	  	  	$	—	  	
Shareholders’ equity	  	 	546,623	  	  	 	547,756	  	  	 	435,689	  	
Long-term debt-to-equity ratio	  	 	0.04	  	  	 	0.09	  	  	 	Not applicable	  	
During 2011, our strategy, which was unchanged from 2010 and 2009, was to maintain the debt-to-adjusted capital ratio and the long-term debt-to-equity ratio at a low level. We had a net cash and cash equivalent balance after deduction of the total debt. Our long-term debt-to-equity ratio was 0.04, 0.09 and not applicable as at  December 31, 2011, 2010 and 2009, respectively.
Financial Position
The following table sets out our selected financial information as at the dates indicated:

 	  	December 31,	 	
 	  	2011	 	  	2010	 	  	2009	 	
 	  	(United States Dollars in thousands)	 	
Cash and cash equivalents	  	$	387,052	  	  	$	397,697	  	  	$	38,046	  	
Short-term securities	  	 	13,062	  	  	 	27,894	  	  	 	11,212	  	
Total assets	  	 	858,957	  	  	 	854,256	  	  	 	951,720	  	
Working capital	  	 	361,223	  	  	 	411,920	  	  	 	370,821	  	
Long-term debt, less current portion	  	 	20,150	  	  	 	48,604	  	  	 	—	  	
Shareholders’ equity	  	 	546,623	  	  	 	547,756	  	  	 	435,689	  	
We maintain an adequate level of liquidity, with a substantial amount of our assets held in cash and cash equivalents, and securities. The liquid nature of these assets provides us with flexibility in managing and financing our business and the ability to realize upon investment or business opportunities as they arise. We also use this liquidity in client-related services by acting as a financial intermediary for third parties (e.g. by acquiring a position or assets and reselling such position or assets) and for our own proprietary trading and investing activities.
 
29

Table of Contents
As at December 31, 2011, cash and cash equivalents were $387.1 million, compared to $397.7 million and $38.0 million as at December 31, 2010 and 2009, respectively. As at December 31, 2011, short-term securities decreased to $13.1 million from $27.9 million and $11.2 million as at December 31, 2010 and 2009, respectively. The decrease in short-term securities in 2011 was a result of dispositions. As at December 31, 2011, we had a loan receivable of $19.9 million, compared to $5.8 million as at December 31, 2010 and $nil as at December 31, 2009. The increase in loan receivable was a result of drawdowns of a credit facility. Trade receivables and other receivables were $21.2 million and $9.1 million, respectively as at December 31, 2011, compared to $13.1 million and $12.1 million at December 31, 2010 and $nil and $5.7 million at December 31, 2009. The increase in trade receivables was primarily a result of our global commodity supply chain business. As at December 31, 2011, we had bills of exchange of $10.5 million, compared to $nil in each of 2010 and 2009. The value of our inventories increased to $81.2 million as at December 31, 2011, from $67.1 million and $nil as at December 31, 2010 and 2009, respectively. The increased inventories were primarily a result of our global commodity supply chain business. The value of real estate held for sale was $12.0 million as at December 31, 2011, compared to $12.5 million and $nil as at December 31, 2010 and 2009, respectively. The value of deposits, prepaid and other assets was $9.3 million as at December 31, 2011, compared to $20.8 million and $0.8 million as at December 31, 2010 and 2009 respectively. The decrease in the value of deposits, prepaid and other assets was primarily a result of the deliveries of inventories in the normal course of business.
The value of current assets of discontinued operations was $nil as at December 31, 2011 compared to $nil and $681.0 million as at December 31, 2010 and 2009, as a result of the reclassification and disposition of our former Industrial Business.
Short-Term Bank Loans and Facilities
As part of our commodities merchant banking and financial service activities, we establish, utilize and maintain various kinds of credit lines and facilities with banks and insurers. Most of these facilities are short-term. These facilities are used for day-to-day business and structured solutions activities in commodities. The amounts drawn under such facilities fluctuate with the kind and level of transactions being undertaken.
As at December 31, 2011, we had credit facilities aggregating $366.3 million as follows: (i) we had unsecured revolving credit facilities aggregating $169.0 million from banks; (ii) we had revolving credit facilities aggregating $45.4 million from banks for structured solutions, a special trade financing. The margin is negotiable when the facility is used; (iii) we had a specially structured factoring arrangement with a bank for up to a credit limit of $110.3 million for our commodities activities. We may factor our commodity receivable accounts upon invoicing at the inter-bank rate plus a margin; and (iv) we had a foreign exchange credit facility of $41.6 million with a bank. All of these facilities are renewable on  a yearly basis.
Long-Term Debt
Other than lines of credit drawn and as may be outstanding for trade financing and commodities and structured solutions activities, as of December 31, 2011, the maturities of long-term debt were as follows:

Maturity	  	Principal	 	  	Interest (1)  	 	
 	  	(United States dollars in thousands)	 	
2012	  	$	26,977	  	  	$	979	  	
2013	  	 	18,594	  	  	 	579	  	
2014	  	 	1,556	  	  	 	38	  	
	  	 	 	 	  	 	 	 	
	  	$	47,127	  	  	$	1,596	  	

Note:
(1)	Undiscounted.	
We expect our maturing debt to be satisfied primarily through the settlement of underlying commodities transactions, trade financing transactions, including structured solutions transactions, cash on hand and cash flow from operations. Much of our maturing debt may either subsequently be made re-available to us by the applicable financial institution or we may replace such facilities with new facilities depending upon particular capital requirements.
Cash Flows
Due to the type of businesses we engage in, our cash flows are not necessarily reflective of net earnings and net assets for any reporting period. As a result, instead of using a traditional cash flow analysis solely based on cash flows statements, our management believes it is more useful and meaningful to analyze our cash flows by
 
30

Table of Contents
the overall liquidity and credit availability. Please see the discussion on our financial position, short-term bank loans, facilities and long term debt earlier in this section.
The global commodity supply chain business can be cyclical and the cash flows vary accordingly. Our principal operating cash expenditures are for financing trading of securities, commodities for customers, for our own account, and general and administrative expenses.
Working capital levels fluctuate throughout the year and are affected by the level of our commodities operations, the markets and prices for commodities and the timing of receivables and the payment of payables and expenses. Changes in the volume of commodities transactions by customers and for our own account can affect the level of receivables and influence overall working capital levels. We have a high level of cash on hand and credit facility amounts. Our management is of the opinion that we have sufficient cash flow from operations to meet our working capital and other requirements and to meet unexpected cash demands.
Cash Flows from Operating Activities
Operating activities provided cash of $44.7 million in 2011, compared to providing $43.9 million and using cash of $7.6 million in 2010 and 2009, respectively. In 2011, an increase in short-term bank borrowings for day-to-day business requirements provided cash of $49.8 million, compared to a decrease in same using $4.9 million and $nil in the same periods in 2010 and 2009, respectively. An increase in bills of exchange used cash of $10.5 million, $nil and $nil in 2011, 2010 and 2009, respectively. An increase in receivables used cash of $8.3 million in 2011, versus a decrease providing cash of $4.4 million and an increase using cash of $1.0 million in the same periods of 2010 and 2009, respectively. An increase of inventories used cash of $22.8 million in 2011, compared to $4.4 million and $nil in the same periods of 2010 and 2009, respectively. Changes in short-term securities provided cash of $5.3 million during 2011, versus using cash of $0.4 million and $nil in the comparable periods of 2010 and 2009, respectively. An increase in short-term cash deposits used cash of $4.1 million during 2011, compared to $nil for each of the same periods in 2010 and 2009, respectively. A decrease in restricted cash provided $2.9 million for 2011, compared to $0.7 million and $nil in the same periods of 2010 and 2009, respectively. A decrease in deposits, prepaid and other provided cash of $10.8 million in 2011, compared to $7.3 million and $0.4 million in 2010 and 2009. A decrease in accounts payable and accrued expenses used cash of $1.4 million in 2011, compared to an increase in accounts payable providing cash of $1.0 million and a decrease in same using cash of $1.7 million in the same periods of 2010 and 2009, respectively. A decrease in deferred sale liabilities used cash of $22.9 million in the year ended December 31, 2011, compared to an increase providing cash of $22.7 million in 2010 and $nil in 2009.
Cash Flows from Investing Activities
Investing activities used cash of $36.5 million in 2011, compared to providing cash of $224.2 million and $6.2 million in 2010 and 2009, respectively. Purchases of long-term investments used cash of $37.5 million in 2011, compared to $1.3 million and $nil in 2010 and 2009, respectively. Proceeds from sales of long-term investments provided cash of $7.4 million in 2011, compared to $13.5 million and $nil in 2010 and 2009, respectively. During 2011, a net increase in a loan receivable used cash of $14.1 million, compared to $1.7 million and $nil in 2010 and 2009, respectively. Purchases of property, plant and equipment, net of sales, used cash of $1.2 million in 2011, compared to $1.1 million and $6,000 in 2010 and 2009, respectively. Distributions from joint ventures provided net cash of $5.1 million in 2011, compared to $0.9 million in 2010 and $nil in 2009. The acquisition of a subsidiary used cash of $0.1 million in 2011, compared to the acquisition of Mass providing $213.9 million in 2010. Other items provided cash of $3.8 million (primarily consisting of sales of investment property) in 2011, compared to $0.1 million and $nil in 2010 and 2009, respectively.
Cash Flows from Financing Activities
Net cash used by financing activities was $17.4 million 2011, compared to providing cash of $46.2 million and $nil in 2010 and 2009, respectively, primarily as a result of the issuance of shares in 2010 which provided cash of $48.2 million in 2010 and the payment of dividends in 2011. Cash used by financing activities during 2011 consisted primarily of dividends paid to our shareholders and debt repayments, which used cash of $12.5 million and $4.3 million, respectively.
Future Liquidity
We had no material commitments to acquire assets or operating businesses as at December 31, 2011. We anticipate that there will be acquisitions of businesses or commitments to projects in the future. To achieve the long-term goals of expanding our assets and earnings, including through acquisitions, capital resources will be
 
31

Table of Contents
required. Depending on the size of a transaction, the capital resources that will be required can be substantial. The necessary resources will be generated from cash flow from operations, cash on hand, borrowing against our assets, sales of proprietary investments or the issuance of securities.
Foreign Currency
Substantially all of our operations are conducted in international markets and our consolidated financial results are subject to foreign currency exchange rate fluctuations.
Our reporting currency is the United States dollar. For our foreign operations with other functional currencies, we translate assets, liabilities, contingent liabilities and other financial obligations into United States dollars at the rate of exchange on the balance sheet date. Revenues and expenses are translated at exchange rates approximating those at the date of the transactions. As a substantial amount of revenues are received in Euros, Chinese yuans and Canadian dollars, the financial position for any given period, when reported in United States dollars, can be significantly affected by the exchange rates for Euros, Chinese yuans and Canadian dollars prevailing during that period.
In the year ended December 31, 2011, we reported approximately a net $1.4 million currency translation adjustment loss within equity, compared to a $3.9 million loss and a $16.9 million gain in 2010 and 2009, respectively.
Contractual Obligations
The following table sets out our contractual obligations and commitments as at December 31, 2011 in connection with our long-term liabilities.

 	  	Payments Due by Period	 	
 	  	(United States dollars in thousands)	 	
Contractual Obligations (1)(2)	  	Less than
1 Year	 	  	1 – 3 Years	 	  	3 – 5 Years	 	  	More than
5 Years	 	  	Total	 	
Long-term debt obligations	  	$	27,956	  	  	$	20,767	  	  	$	—	  	  	$	—	  	  	$	48,723	  	
Capital lease obligations	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	
Operating lease obligations	  	 	1,710	  	  	 	2,203	  	  	 	898	  	  	 	—	  	  	 	4,811	  	
Purchase obligations	  	 	3,444	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	3,444	  	
Other long–term liabilities, provision	  	 	115	  	  	 	—	  	  	 	    —	  	  	 	    —	  	  	 	115	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	33,225	  	  	$	22,970	  	  	$	898	  	  	$	—	  	  	$	57,093	  	

Notes:
(1)	The table does not include non-financial instrument liabilities and guarantees.	
 
(2)	In addition to the tabular information, we have granted a credit facility up to $20.0 million to a borrower, of which $19.9 million had been drawn and remains outstanding as at December 31, 2011.	
Risk Management
Risk is an inherent part of our business and activities. The extent to which we properly and effectively identify, assess, monitor and manage each of the various types of risk involved in our activities is critical to our financial soundness and profitability. We seek to identify, assess, monitor and manage the following principal risks involved in our business activities: market, credit, liquidity, operational, legal and compliance, new business, reputational and other. Risk management is a multi-faceted process that requires communication, judgment and knowledge of financial products and markets. Our management takes an active role in the risk management process and requires specific administrative and business functions to assist in the identification, assessment and control of various risks. Our risk management policies, procedures and methodologies are fluid in nature and are subject to ongoing review and modification.
 Application of Critical Accounting Policies
The preparation of financial statements in conformity with IFRS requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
 
32

Table of Contents
Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. We have identified certain accounting policies that are the most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in Note 1 to our audited consolidated financial statements included in this annual report on Form 20-F.
The following accounting policies are the most important to our ongoing financial condition and results of operations:
Inventories
Our inventories consist of raw materials, work-in-progress and finished goods.
In general, inventories are recorded at the lower of cost or estimated net realizable value. Commodities acquired in commodity broker-trader activities with the purpose of selling them in the near future and generating a profit from fluctuations in price or margin are measured at fair value less costs to sell. Accordingly, our management must make estimates about their pricing when establishing the appropriate provisions for inventories. For the finished goods and commodity inventories, the estimated net selling price is the most important determining factor. However, our management also considers whether there are any alternatives to enhance the value of the finished goods by various marketing strategies and channels. Actual selling price could differ from the estimated selling price, and such differences could be material.
Receivables
Typically, receivables are financial instruments which are not classified as held for trading or available for sale. They are net of an allowance for credit losses, if any. We perform ongoing credit evaluations of customers and adjust our allowance accounts for specific customer risks and credit factors. Receivables are considered past due on an individual basis based on the terms of the contracts. Our allowance for credit losses is maintained at an amount considered adequate to absorb estimated credit-related losses. Such allowance reflects our management’s best estimate of the losses in our receivables and judgments about economic conditions. As at December 31, 2011, we had recognized receivables (including loans, trade and other) aggregating $50.2 million.
Valuation of Securities
Securities held for trading are carried at current market value. Any unrealized gains or losses on securities held for trading are included in our results of operations.
Available-for-sale securities are also carried at current market value when current market value is available. Any unrealized gains or losses are included in other comprehensive income. When there has been a loss in value of an available-for-sale security that is other than a temporary decline, the security will be written down to recognize the loss in the determination of income. In determining whether the decline in value is other than temporary, quoted market price is not the only deciding factor, particularly for thinly traded securities, large block holdings and restricted shares. We consider, but such consideration is not limited to, the following factors: (i) the trend of the quoted market price and trading volume; (ii) the financial position and results for a period of years; (iii) liquidity or going concern problems of the investee; (iv) changes in or reorganization of the investee and/or its future business plan; (v) outlook of the investee’s industry; (vi) the current fair value of the investment (based upon an appraisal thereof) relative to its carrying value; and (vii) our business plan and strategy to divest the security or to restructure the investee.
Recent market volatility has made it extremely difficult to value certain securities. Subsequent valuations, in light of factors prevailing at such time, may result in significant changes in the values of these securities in future periods. Any of these factors could require us to recognize further impairments in the value of our securities portfolio, which may have an adverse effect on our results of operations in future periods.
 
33

Table of Contents
Impairment of Property, Plant and Equipment and Interests in Resource Properties
We assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, we shall estimate the recoverable amount of the asset. In assessing whether there is any indication that an asset may be impaired, we consider, as a minimum, the following indications:
External sources of information
 
 	(a)	during the period, an asset’s market value has declined significantly more than would be expected as a result of the passage of time or normal use;	
 
 	(b)	significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated;	
 
 	(c)	market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset’s value in use and decrease the asset’s recoverable amount materially;	
 
 	(d)	the carrying amount of the net assets of the entity is more than its market capitalization;	
Internal sources of information
 
 	(e)	evidence is available of obsolescence or physical damage of an asset;	
 
 	(f)	significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite; and	
 
 	(g)	evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.	
Income Taxes
Management believes that it has adequately provided for income taxes based on all of the information that is currently available. The calculation of income taxes in many cases, however, requires significant judgment in interpreting tax rules and regulations, which are constantly changing.
Our tax filings are also subject to audits, which could materially change the amount of current and future income tax assets and liabilities. Any change would be recorded as a charge or a credit to income tax expense. Any cash payment or receipt would be included in cash from operating activities.
We currently have deferred tax assets which are comprised primarily of tax loss carry-forwards and deductible temporary differences, both of which will reduce taxable income in the future. The amounts recorded for deferred tax are based upon various judgments, assumptions and estimates. We assess the realization of these deferred tax assets on a periodic basis to determine to what extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized. We determine whether it is probable that all or a portion of the deferred tax assets will be realized, based on currently available information, including, but not limited to, the following:
 
 	•	 	the history of the tax loss carry-forwards and their expiry dates;	
 
 	•	 	future reversals of temporary differences;	
 
 	•	 	our projected earnings; and	
 
 	•	 	tax planning opportunities.	
On the reporting date, we also reassess unrecognized deferred tax assets. We recognized a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
We provide for future liabilities in respect of uncertain tax positions where additional tax may become payable in future periods and such provisions are based on our management’s assessment of exposures. We did not recognize the full deferred tax liability on taxable temporary differences associated with investments in subsidiaries, joint ventures and associates where we are able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. We may change our investment decision in the normal course of our business, thus resulting in additional tax liability.
 
34

Table of Contents
 New Standards and Interpretations Not Yet Adopted
Certain pronouncements were issued by the IASB that are mandatory for accounting periods beginning after January 1, 2012 or later periods. The following new accounting standards and amendments are expected to have significant effects on our accounting policies, financial position, results of operations and/or financial statement presentation and disclosure.
IFRS 9, Financial Instruments , replaces International Accounting Standard, referred to as “IAS”, 39, Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value. The approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in IAS 39. Pursuant to IFRS 9, an entity choosing to measure a liability at fair value will present the portion of the change in its fair value due to changes in the entity’s own credit risk in other comprehensive income, rather than in the profit or loss. New requirements for the derecognition of financial instruments, impairment and hedge accounting are expected to be added to IFRS 9. In December 2011, the IASB issued amendments to IFRS 9 that defer the mandatory effective date from January 1, 2013 to January 1, 2015. The deferral will make it possible for all phases of the project to have the same mandatory effective date. The amendments also provide relief from the requirement to restate comparative financial statements for the effect of applying IFRS 9. This relief was originally only available to companies that chose to apply IFRS 9 prior to 2012. Instead, additional transition disclosures will be required to help investors understand the effect that the initial application of IFRS 9 has on the classification and measurement of financial instruments. Early application of IFRS 9 is still permitted.
IFRS 10, Consolidated Financial Statements, establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 supersedes IAS 27 (Revised), Consolidated and Separate Financial Statements, and Standard Interpretations Committee, referred to as “SIC”, 12, and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
IFRS 11, Joint Arrangements establishes principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (i.e. joint arrangements). IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities — Non-Monetary Contributions by Venturers, and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
IFRS 12, Disclosure of Interests in Other Entities, applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. The objective of this IFRS is to require an entity to disclose information that enables users of its financial statements to evaluate: (a) the nature of, and risks associated with, its interests in other entities; and (b) the effects of those interests on its financial position, financial performance and cash flows. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
IAS 27, Separate Financial Statements, has been amended for the issuance of IFRS 10 but retains the current guidance for separate financial statements. IAS 28, Investments in Associates and Joint Ventures, has been amended for conforming changes based on the issuance of IFRS 10 and IFRS 11.
All of the “package of five” new and amended standards (IFRS 10, IFRS 11, IFSR 12, IAS 27 and IAS 28) must be applied at the same time.
IFRS 13, Fair Value Measurement, (a) defines fair value; (b) sets out in a single IFRS a framework for measuring fair value; and (c) requires disclosures about fair value measurements. IFRS 13 is to be applied for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
Amendments, set out in Disclosures — Transfers of Financial Assets, were issued to amend IFRS 7, Financial Instruments, so as to enhance the disclosure requirements for transfers of financial assets that result in derecognition. These amendments respond, in part, to the recent financial crisis. Entities will be required to provide more extensive quantitative and qualitative disclosures about: (i) risk exposures relating to transfers of financial assets that are: (a) not derecognized in their entirety; or (b) derecognized in their entirety, but with which the entity continues to have some continuing involvement; and (ii) the effect of those risks on an entity’s financial position. The amendments are effective for annual periods beginning on or after July 1, 2011. Earlier application is permitted.
Amendments, set out in Deferred Tax: Recovery of Underlying Assets, were issued to amend IAS 12, Income Taxes. IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether
 
35

Table of Contents
the entity expects to recover the carrying amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40, Investment Property . The amendment provides a practical solution to the problem by introducing a presumption that recovery of the carrying amount will, normally, be through sale. The amendments are effective for annual periods beginning on or after January 1, 2012.
Amendments, set out in Presentation of Items of Other Comprehensive Income¸ were issued to amend IAS 1, Presentation of Financial Statements. The amendments require the grouping of items of other comprehensive income into items that might be reclassified to profit or loss in subsequent periods and items that will not be reclassified to profit or loss in subsequent periods. The amendments are effective for annual periods beginning on or after July 1, 2012 with full retrospective application.
IFRIC Interpretation 20, Stripping Costs in the Production Phase of a Surface Mine, applies to waste removal costs that are incurred in surface mining activity during the production phase of the mine (‘production stripping costs’) and addresses the following issues: (a) recognition of production stripping costs as an asset; (b) initial measurement of the stripping activity asset; and (c) subsequent measurement of the stripping activity asset. An entity shall apply this Interpretation for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
We are currently evaluating the impacts that these new standards will have on our consolidated financial statements.
 Trend Information
For a discussion of trends relating to revenues derived from our royalty interest, please see “Item 4: Information on the Company — B. Business Overview — Business Segments — Commodities and Resources”.
 Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
We have outstanding issued guarantees held by our trading and financial partners in connection with our commodities activities, and as of December 31, 2011, we had outstanding issued guarantees of up to a maximum of $27.9 million. As of December 31, 2011, $13.8 million have been used and outstanding and have not been recorded as liabilities in the consolidated balance sheet. There has been no claim against the guarantees.
 Safe Harbour
Not Applicable.
 
 ITEM 6:	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	
 A. Directors and Senior Management
We have no arrangement or understanding with major shareholders, customers, suppliers or others pursuant to which any of our directors or officers was selected as a director of officer. The following table sets forth the names of each of our directors and officers, as at the date hereof:

Name (Age)	  	Present Position	  	Date of
Commencement
of Office
with our Company	 	  	Expiration of
Term of Office
with our Company	 	
Michael J. Smith (63)	  	Chairman, Chief Executive Officer, Interim Chief Financial Officer and Director	  	 	1986	  	  	 	2014	  	
Dr. Shuming Zhao (59) (1)(2)(3)	  	Director	  	 	2004	  	  	 	2013	  	
Robert Ian Rigg (68) (1)(2)(3)	  	Director	  	 	2010	  	  	 	2014	  	
Indrajit Chatterjee (66) (1)(2)(3)	  	Director	  	 	2005	  	  	 	2012	  	
Ravin Prakash (67)	  	Director and Executive Chairman of Magnum Minerals Private Limited	  	 	2011	  	  	 	2013	  	
 
Notes:
(1)	Member of our audit committee.	
 
(2)	Member of our compensation committee.	
 
(3)	Member of our nominating and corporate governance committee.	
 
36

Table of Contents
Michael J. Smith — Chairman, Chief Executive Officer and Director
Mr. Smith has been our Chairman since 2003 and a director of our company since 1986. Mr. Smith was appointed our Chief Executive Officer in March 2010. He was our Chief Financial Officer from 2003 until October 16, 2007, is currently our interim Chief Financial Officer and was our Secretary until March 1, 2008. Mr. Smith was also our Chief Executive Officer between 1996 and 2006. Mr. Smith was also previously the President, Chief Executive Officer, Secretary and a director of Mass and served as a director and officer of various public companies. Mr. Smith has experience in corporate finance, restructuring and taxation planning.
Dr. Shuming Zhao — Director
Dr. Zhao has been a director of our company since 2004. Dr. Zhao is Chair Professor and Honorary Dean of the School of Business, Nanjing University, the People’s Republic of China. He serves as President of the International Association of Chinese Management Research (IACMR, Third Term), Vice President of Chinese Society of Management Modernization, President for Jiangsu Provincial Association of Human Resource Management, and Vice President of Jiangsu Provincial Association of Business Management and Entrepreneurs. Since 1994, Dr. Zhao has acted as management consultant for several Chinese and international firms. Dr. Zhao is also a director of Little Swan Company, Ltd. (China) and Daqo New Energy Corp. (China). Dr. Zhao has successfully organized and held seven international symposia on multinational business management in 1992, 1996, 1999, 2002, 2005, 2008 and 2011. Since 1997, Dr. Zhao has been a visiting professor at Marshall School of Business, University of Southern California and the College of Business, University of Missouri-St. Louis. Dr. Zhao has lectured in countries including the United States, Canada, Japan, Singapore, South Korea, the United Kingdom, Germany, the Netherlands, Portugal, and Australia.
Robert Ian Rigg — Director
Mr. Rigg has been a director of our company since 2010. Mr. Rigg is a retired accountant and holds a commerce degree in economics and accounting from the University of Melbourne and was a member of the Institute of Chartered Accountants in Canada. Mr. Rigg has experience as both a director and chief financial officer of several public companies.
Indrajit Chatterjee — Director
Mr. Chatterjee has been a director of our company since 2005. Mr. Chatterjee is a retired businessman who was formerly responsible for marketing with the Transportation Systems Division of General Electric for India. Mr. Chatterjee is experienced in dealing with Indian governmental issues.
Ravin Prakash — Director
Mr. Prakash has been a director of our company since 2011. Mr. Prakash is the Executive Chairman of Magnum Minerals Private Limited. He has over 35 years of corporate banking and financial management experience, specialized in recovery and restructuring of doubtful assets, the raising of project and trade finance and risk assessment.
Family Relationships
There are no family relationships between any of our director and executive officers.
 B. Compensation
During fiscal year ended December 31, 2011, we paid an aggregate of approximately $1.6 million in cash compensation to our directors and officers, excluding directors’ fees. No other funds were set aside or accrued by our company during the fiscal year ended December 31, 2011 to provide pension, retirement or similar benefits for our directors or officers pursuant to any existing plan provided or contributed to by us.
 
37

Table of Contents
Executive Officers
The following table provides a summary of compensation paid by us during the fiscal year ended December 31, 2011 to the senior management of our company:

Name and Principal Position	 	Salary
($)	 	 	Share-
based
awards
($)	 	 	Option-
based
awards
($) (1)	 	 	Non-equity incentive
compensation plan
compensation
($)	 	 	Pension
value
($)	 	 	All Other
Compensation
($)	 	 	Total
Compensation
($)	 	
	 			 			 			 	Annual
incentive
plans	 	 	Long-
term
incentive
plans	 	 			 			 			
Michael J. Smith
Chairman and Chief Executive Officer	 	 	301,538	  	 	 	—	  	 	 	1,079,130	(2)  	 	 	133,794	  	 	 	—	  	 	 	—	  	 	 	179,555	(3)  	 	 	1,694,017	  	
									
Ravin Prakash
Director and Executive Chairman of Magnum Minerals Private Limited	 	 	179,693	  	 	 	—	  	 	 	553,400	(4)  	 	 	228,795	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	961,888	  	
									
Prashant Sahu
Executive Director of Magnum Minerals Private Limited	 	 	89,224	  	 	 	—	  	 	 	—	  	 	 	230,020	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	319,244	  	
									
Roland Schulien
Senior Vice President Finance, Europe	 	 	207,731	  	 	 	—	  	 	 	—	  	 	 	5,568	  	 	 	—	  	 	 	—	  	 	 	32,328	(5)  	 	 	245,627	  	
 
Notes:
(1)	Fair value of stock options is calculated pursuant to the Black-Scholes-Merton model. Please refer to note 24 to our audited consolidated financial statements included in this annual report on Form 20-F.	
 
(2)	Represents options to purchase up to 390,000 of our common shares, which are exercisable at a price of $7.81 per common share and expire on January 1, 2016.	
 
(3)	Consists of housing allowances and medical benefits.	
 
(4)	Represents options to purchase up to 200,000 of our common shares, which are exercisable at a price of $7.81 per common share and expire on January 1, 2016.	
 
(5)	Consists of auto benefits.	
Directors’ Compensation
The following table provides a summary of compensation paid by us during the fiscal year ended December 31, 2011 to the directors of our company.
DIRECTOR COMPENSATION TABLE

Name	  	Fees
Earned
($)	 	  	Share-
based
awards
($)	 	  	Option-
based
awards
($)	 	  	Non-equity
incentive
plan
compensation
($)	 	  	Pension
value
($)	 	  	All other
compensation
($)	 	  	Total
($)	 	
Michael J. Smith (1)	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	
Dr. Shuming Zhao	  	 	39,000	  	  	 	—	  	  	 	152,185	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	191,185	  	
Ian Rigg	  	 	39,000	  	  	 	—	  	  	 	152,185	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	191,185	  	
Indrajit Chatterjee	  	 	96,500	  	  	 	—	  	  	 	152,185	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	248,685	  	
Ravin Prakash (2)	  	 	26,250	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	26,250	  	
 
Notes:
(1)	Compensation provided to our Chairman, Michael Smith, in his capacity as an executive office is disclosed in the table above under the heading “ Executive Officers ”.	
 
(2)	Ravin Prakash was appointed as director of our company April 2011. Compensation provided to Ravin Prakash in his capacity as an executive officer is disclosed in the table above under the heading “Executive Officers”.	
 
38

Table of Contents
A total of $0.7 million was paid to our directors for services rendered as directors, or for committee participation or assignments, during our most recently completed financial year. Our directors are each paid an annual fee of $30,000 and $750 for each director’s meeting attended as well as additional fees, as applicable, for their respective participation on our Audit and Compensation Committees. We also reimburse our directors and officers for expenses incurred in connection with their services as directors and officers.
Termination and Change of Control Benefits
Effective March 1, 2008, we entered into an independent consulting agreement with Michael Smith, our Chairman and Chief Executive Officer, pursuant to which he provides consulting services to us. In the event that the agreement is terminated by us or in the event of a change of control, Mr. Smith is entitled to receive a termination payment equal to the sum of three times the aggregate consulting fee paid to Mr. Smith in the previous twelve months plus the higher of his current bonus or the highest bonus received by him in the previous five years prior to such termination. In addition, all unvested rights in any stock options or other equity awards made to Mr. Smith will vest in full in the event of a change of control. Mr. Smith will also be entitled, for a period of 365 days following the earlier of the date of the termination of the agreement and the date of the change of control, to require us to purchase all or any part of our common shares held by Mr. Smith on the date of termination or date of change of control, at a price equal to the average closing market price of our common shares on the NYSE for the ten preceding trading days. Assuming a discontinuance of Mr. Smith’s services as a result of termination or a change of control effective December 31, 2011, we would have been required to make a maximum payment to Mr. Smith in the aggregate amount of $2,843,795 pursuant to the terms of his consulting arrangement.
Pension Plan Benefits
As of December 31, 2011, we did not have any defined benefit, defined contribution or deferred compensation plans for any of our senior officers or directors.
 C. Board Practices
Our Articles provide for three classes of directors with staggered terms. Each director holds office until the expiry of his or her term or until his or her successor is elected or appointed, unless such office is earlier vacated in accordance with our Articles or with the provisions of the British Columbia Business Corporations Act . At each annual meeting of our company, a class of directors is elected to hold office for a three-year term. Successors to the class of directors whose terms expire are identified as being of the same class as the directors they succeed and are elected to hold office for a term expiring at the third succeeding annual meeting of shareholders. A director appointed or elected to fill a vacancy on the board of directors holds office for the unexpired term of his predecessor. The following table sets forth the date of expiration of the current term of office of each of our directors, as well as the period during which that person has served as a director:

Name of Director	  	Director Since	 	  	Expiration of
Current  Term	 	
Michael J. Smith	  	 	1986	  	  	 	2014	  	
Ian Rigg	  	 	2010	  	  	 	2014	  	
Indrajit Chatterjee	  	 	2005	  	  	 	2012	  	
Dr. Shuming Zhao	  	 	2004	  	  	 	2013	  	
Ravin Prakash	  	 	2011	  	  	 	2013	  	
Other than as discussed elsewhere herein, there are no service contracts between our company and any of our directors providing for benefits upon termination of employment.
Our board of directors has established an audit committee. Our audit committee currently consists of Dr. Shuming Zhao, Ian Rigg and Indrajit Chatterjee. The audit committee operates pursuant to a charter adopted by the board of directors. A copy of our audit committee charter is attached as Exhibit 99.1 to our annual report filed with the SEC on April 3, 2006. The audit committee is appointed and generally acts on behalf of the board of directors. The audit committee is responsible primarily for monitoring: (i) the integrity of our financial statements; (ii) compliance with legal and regulatory requirements; and (iii) the independence and performance of our internal and external auditors. The audit committee also oversees our company’s financial reporting process and internal controls and consults with management and our independent auditors on matters related to our annual audit and internal controls, published financial statements, accounting principles and auditing procedures being applied.
Our board of directors has established a compensation committee. Our compensation committee currently consists of Dr. Shuming Zhao, Ian Rigg and Indrajit Chatterjee. The compensation committee operates pursuant to a compensation committee charter adopted by the board of directors. A copy of our compensation committee
 
39

Table of Contents
charter is attached as exhibit 99.2 to our annual report filed with the SEC on April 3, 2007. The compensation committee is appointed and generally acts on behalf of the board of directors. The compensation committee is responsible for reviewing and approving annual salaries, bonuses and other forms and items of compensation for the senior officers and employees of our company. Except for plans that are, in accordance with their terms or as required by law, administered by our board of directors or another particularly designated group, the compensation committee also administers and implements all of our stock option and other stock-based and equity-based benefit plans (including performance-based plans), recommends changes or additions to those plans and reports to our board of directors on compensation matters. Our Chief Executive Officer does not vote upon or participate in the deliberations regarding his compensation.
Effective July 15, 2005, we formed a nominating and corporate governance committee. The nominating and corporate governance committee currently consists of Ian Rigg, Dr. Shuming Zhao and Indrajit Chatterjee. The nominating and corporate governance committee operates pursuant to a charter adopted by our board of directors. A copy of our nominating and corporate governance charter is attached as Exhibit 99.3 to our annual report filed with the SEC on April 3, 2007. The primary function of the nominating and corporate governance committee is to assist our board of directors in developing our approach to corporate governance issues and monitoring performance against the defined approach. The nominating and corporate governance committee is also responsible for the nomination of directors by identifying and reporting on candidates to be nominated to our board of directors.
 D. Employees
At December 31, 2011, 2010 and 2009, we employed approximately 616, 678 and 780 people, respectively.
 E. Share Ownership
There were 62,561,421 common shares, 2,635,000 stock options and no share purchase warrants issued and outstanding as of March 29, 2012. Of the shares issued and outstanding on that date, our directors and officers, who served in such positions at any time during the fiscal year ended December 31, 2011, owned the following common shares:

Name and Principal Position	  	Common Shares
Beneficially Owned
(#)	 	  	Percentage of Total Common
Shares Outstanding
(%)	 	  	Stock  Options
Held
(#)	 	
Michael J. Smith	  	 	272,727	  	  	 	0.4	  	  	 	390,000	  	
Chairman, Chief Executive Officer and Director	  				  				  				
				
Dr. Shuming Zhao	  	 	—	  	  	 	—	  	  	 	55,000	  	
Director	  				  				  				
				
Ian Rigg	  	 	7,230	  	  	 	—	  	  	 	55,000	  	
Director	  				  				  				
				
Indrajit Chatterjee	  	 	—	  	  	 	—	  	  	 	55,000	  	
Director	  				  				  				
				
Ravin Prakash	  	 	—	  	  	 	—	  	  	 	200,000	  	
Director and Executive Chairman of Magnum Minerals Private Limited	  				  				  				
Stock Option Plan
We have an incentive stock option plan that provides for the grant of incentive stock options to purchase our common shares to our directors, officers and key employees and other persons providing ongoing services to us. Our stock option plan is administered by our board of directors. The maximum number of our common shares which may be reserved and set aside for issuance under our stock option plan is 5,524,000. Each option upon its exercise entitles the grantee to purchase one common share. The exercise price of an option may not be less than the closing market price of our common shares on the NYSE, on the day prior to the date of grant of the option. In the event our common shares are not traded on such day, the exercise price may not be less than the average of the closing bid and ask prices of our common shares on the NYSE, for the ten trading days immediately prior to the date the option is granted. Options may be granted under our stock option plan for an exercise period of up to ten years from the date of grant of the option. An aggregate 1,720,000 options were granted during the year ended December 31, 2011. There were 1,720,000 options outstanding as at December 31, 2011. There were 12,344 options available for grant under the stock option plan as at December 31, 2011.
 
40

Table of Contents
Incentive Plan
At our annual and special meeting of our shareholders held in September 2008, our shareholders passed a resolution approving an equity incentive plan, referred to as the “Incentive Plan”, to further align the interests of employees and directors with those of our shareholders by providing incentive compensation opportunities tied to the performance of our common shares and by promoting increased ownership of our common stock by such individuals.
Pursuant to the terms of the Incentive Plan, our board of directors, our compensation committee or such other committee as is appointed by our board of directors to administer the Incentive Plan, may grant Awards (as hereinafter defined) under the Incentive Plan, establish the terms and conditions for those Awards, construe and interpret the Incentive Plan and establish the rules for the Incentive Plan’s administration. Such committee may grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, stock unit awards, stock awards, performance stock awards and tax bonus awards, each referred to as an “Award”, under the Incentive Plan. Awards may be granted to employees, directors, officers or consultants of ours or any affiliate or any person to whom an offer of employment with us or any affiliate is extended. Such committee has the authority to determine which employees, directors, officers, consultants and prospective employees should receive Awards. Non-employee directors and consultants may not receive incentive stock options.
The maximum number of our common shares that may be issuable pursuant to all Awards granted under the Incentive Plan is 1,500,000 common shares. Forfeited, cancelled, returned and lapsed Awards are not counted against the 1,500,000 common shares. Any Awards, or portions thereof, that are settled in cash and not by issuance of our common shares are not counted against the 1,500,000 common shares. As of the date of this annual report on Form 20-F, 915,000 Awards have been issued pursuant to the Incentive Plan and 585,000 Awards are available for issuance.
 
 ITEM 7:	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	
 A. Major Shareholders
There were 62,561,421 common shares issued and outstanding as of March 29, 2012. The following table sets forth, as of March 29, 2012, persons known to us to be the beneficial owner of more than five percent (5%) of our common shares:

Name	  	Amount Owned	 	 	Percent of  Class (1)	 	
Peter Kellogg	  	 	13,820,910	(2)  	 	 	22.1	% 	
 
Notes:
(1)	Based on 62,561,421 common shares issued and outstanding on March 29, 2012.	
 
(2)	In his public filings, Mr. Kellogg disclaims beneficial ownership of 10,097,211 of the shares, or approximately 16.1% of the issued and outstanding common shares.	
The voting rights of our major shareholders do not differ from the voting rights of holders of our company’s shares who are not major shareholders.
As of March 28, 2012, there were 62,561,421 common shares issued and outstanding held by 586 registered shareholders. Of those common shares issued and outstanding, 62,387,126 common shares were registered in the United States (522 registered shareholders).
To the best of our knowledge, we are not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person.
There are no arrangements known to us, the operation of which may at a subsequent date result in a change in the control of our company.
 B. Related Party Transactions
Other than as disclosed herein, to the best of our knowledge, since January 1, 2011, there have been no material transactions or loans between our company and: (a) enterprises that directly or indirectly through one or more intermediaries control or are controlled by, or are under common control with, our company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of our company that gives them significant influence over our company, and close members of any such individual’s family; (d) key management personnel of our company, including directors and senior management of our company and close members of such individuals’ families; and (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence.
 
41

Table of Contents
In the normal course of operations, we enter into transactions with related parties which include, among others, affiliates whereby we have a significant equity interest (10% or more) in the affiliates or have the ability to influence the affiliates’ or our operating and financing policies through significant shareholding, representation on the board of directors, corporate charter and/or bylaws. The affiliates also include certain of our directors, our President, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and their close family members. These related party transactions are measured at the exchange value, which represents the amount of consideration established and agreed to by all the parties. In addition to transactions disclosed elsewhere in our financial statements for the year ended December 31, 2011 and in this annual report on Form 20-F, we had the following transactions with affiliates during the year ended December 31, 2011:
Continuing operations

 	  	2011	 	
 	  	(United States dollars
in thousands)	 	
Dividend income on common shares*	  	$	181	  	
Royalty expense paid and payable*	  	 	(773	) 	
Sales of goods	  	 	455	  	
Fee income	  	 	32	  	
Purchases of goods	  	 	(3,476	) 	
Director’s salary from a subsidiary to a close family member of a director	  	 	(21	) 	
Interest income	  	 	296	  	

*	included in income from an interest in resource property	
In addition to the transactions above, in 2011, in the normal course of business, we purchased long-term available-for-sale securities with a fair value of $1.4 million for cash from an entity which was a related party until June 2011.
Transactions with related parties are made in arm’s length transactions at normal market prices and on normal commercial terms.
 C. Interests of Experts and Counsel
Not applicable.
 
 ITEM 8:	FINANCIAL INFORMATION	
 A. Consolidated Statements and Other Financial Information
Effective January 1, 2010, we adopted IFRS following approval from the Canadian Securities Administrators under National Instrument 52-107, Acceptable Accounting Principles, Auditing Standards and Reporting Currency . The consolidated financial statements have been  prepared in compliance with IFRS. See “ Item 18: Financial Statements ”.
Legal Proceedings
We are not involved in any material legal proceedings, nor are we aware of any proceedings that are contemplated that we believe would have a material adverse effect upon our financial condition or results of operations. We are subject to routine litigation incidental to our business and are named from time to time as a defendant in various legal actions arising in connection with our activities, certain of which may include large claims for punitive damages.
Dividend Distributions
On January 10, 2011, we announced that our board of directors had adopted an annual dividend policy, providing for an annual dividend based on the annual dividend yield of the NYSE Composite Index for the preceding year plus 25 basis points. On the same date, we announced an annual cash dividend for 2011 of $0.20 per common share, payable in four quarterly installments. The dividend payments of $0.05 per share were made: (i) on January 31, 2011 to shareholders of record on January 20, 2011; (ii) on April 11, 2011 to shareholders of
 
42

Table of Contents
record on March 31, 2011; (iii) on July 11, 2011 to shareholders of record on June 30, 2011; and (iv) on October 11, 2011 to shareholders of record on September 30, 2011.
On January 17, 2012, we announced that our board of directors had declared an annual cash dividend for 2012 of $0.22 per common share, payable in four quarterly instalments. The 2012 dividend is 10% higher than the dividend paid in 2011, and, based on the closing price of $7.01 for our common shares on December 31, 2011, represents a dividend yield of approximately 3.13%, compared to an annual dividend yield of approximately 2.51% for the NYSE Composite Index in 2011. The first dividend payment of $0.05 per common share was made on February 10, 2012 to shareholders of record on January 27, 2012 and a second payment of $0.05 per common share will be made on April 10, 2012 to shareholders of record on March 30, 2012.
The actual timing, payment and amount of dividends paid on our common shares is determined by our board of directors, based upon things such as our cash flow, results of operations and financial condition, the need for funds to finance ongoing operations and such other business consideration as our board of directors considers relevant.
 B. Significant Changes
Please refer to “ Item 4: Information on the Company — A. History and Development of the Company —  Recent Developments ” and Note 34 of our annual financial statements included herewith for a discussion of significant events that have occurred after December 31, 2011.
 
 ITEM 9:	THE OFFER AND LISTING	
 A. Offer and Listing Details
Since June 18, 2007, our common shares have been quoted on the NYSE, currently under the symbol “MIL”. Previously, our common shares were traded on the NASDAQ Global Select Market under the symbol “KHDH”. We voluntarily terminated our listing on the NASDAQ Global Select Market, and the last day of trading of our common shares on the Nasdaq Global Select Market was June 15, 2007. The following table sets forth the high and low sales of prices of our common shares on the NYSE and the NASDAQ Global Select Market for the periods indicated.

 	  	Exchange (1)	 	
 	  	High  ($) (2)	 	  	Low  ($) (2)	 	
Annual Highs and Lows	  				  				
2007	  	 	45.74	  	  	 	18.00	  	
2008	  	 	35.79	  	  	 	6.50	  	
2009	  	 	14.20	  	  	 	6.65	  	
2010	  	 	16.10	  	  	 	6.60	  	
2011	  	 	9.00	  	  	 	6.17	  	
			
Quarterly Highs and Lows
2010	  				  				
First Quarter	  	 	16.10	  	  	 	11.82	  	
Second Quarter	  	 	14.94	  	  	 	7.00	  	
Third Quarter	  	 	8.94	  	  	 	6.60	  	
Fourth Quarter	  	 	8.79	  	  	 	7.46	  	
			
2011	  				  				
First Quarter	  	 	9.00	  	  	 	7.15	  	
Second Quarter	  	 	8.59	  	  	 	7.41	  	
Third Quarter	  	 	7.88	  	  	 	6.66	  	
Fourth Quarter	  	 	7.36	  	  	 	6.17	  	
			
Monthly Highs and Lows	  				  				
September 2011	  	 	7.59	  	  	 	6.66	  	
October 2011	  	 	7.25	  	  	 	6.50	  	
November 2011	  	 	7.36	  	  	 	6.46	  	
December 2011	  	 	7.03	  	  	 	6.17	  	
January 2012	  	 	7.87	  	  	 	7.03	  	
February 2012	  	 	8.16	  	  	 	7.58	  	
March 2012 (3)	  	 	8.08	  	  	 	7.35	  	
 
43

Table of Contents
 
Notes:
(1)	Shares were traded on the Nasdaq Global Select Market up to and including June 15, 2007 and then on the NYSE on and after June 18, 2007.	
 
(2)	All numbers have been adjusted to reflect the two (2) for one (1) stock split effective September 10, 2007.	
 
(3)	For the period from March 1 until March 29, 2012.	
The transfer of our common shares is managed by our transfer agent, Computershare Shareholder Services, 480 Washington Boulevard, Jersey City, NJ 07310 (Tel: 201-680-5258; Fax: 201-680-4604).
 B. Plan of Distribution
Not applicable.
 C. Markets
Our common shares are quoted on the NYSE under the symbol “MIL”.
 D. Selling Shareholders
Not applicable.
 E. Dilution
Not applicable.
 F. Expenses of the Issue
Not applicable.
 
 ITEM 10:	ADDITIONAL INFORMATION	
 A. Share Capital
Not Applicable.
 B. Memorandum and Articles of Association
We are organized under the laws of the Province of British Columbia, Canada and have been assigned the number BC0778539.
Our Articles do not contain a description of our objects and purposes.
Our Articles do not restrict a director’s power to vote on a proposal, arrangement or contract in which the director is materially interested, vote compensation to themselves or any other members of their body in the absence of an independent quorum or exercise borrowing powers. There is no mandatory retirement age for our directors and our directors are not required to own securities of our company in order to serve as directors.
Our authorized capital consists of an unlimited number of common shares without par value and an unlimited number of Class A preferred shares without par value. Our Class A preferred shares may be issued in one or more series and our directors may fix the number of shares which is to comprise each series and designate the rights, privileges, restrictions and conditions attaching to each series.
Holders of our common shares are entitled to vote at all meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote, receive any dividend declared by us and, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares, receive the remaining property of our company upon dissolution.
Our Class A preferred shares of each series rank on a parity with our Class A preferred shares of any other series and are entitled to a preference over our common shares with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding-up of our company.
The provisions in our Articles attaching to our common shares and Class A preferred shares may be altered, amended, repealed, suspended or changed by the affirmative vote of the holders of not less than two-thirds of the common shares and two-thirds of the Class A preferred shares, respectively, present in person or by proxy at any such meeting of holders.
 
44

Table of Contents
Our Articles provide for three classes of directors with staggered terms. Each director holds office until the expiry of his term or until his successor is elected or appointed, unless his office is earlier vacated in accordance with our Articles or with the provisions of the British Columbia Business Corporations Act . At each annual meeting of our company, a class of directors is elected to hold office for a three-year term. Successors to the class of directors whose terms expire are identified as being of the same class as the directors they succeed and are elected to hold office for a term expiring at the third succeeding annual meeting of shareholders. A director appointed or elected to fill a vacancy on the board of directors holds office for the unexpired term of his predecessor.
An annual meeting of shareholders must be held at such time in each year that is not later than fifteen months after the last preceding annual meeting and at such place as our board of directors, or failing it, our Chairman, Managing Director or President, may from time to time determine. The holders of not less than five percent of our issued shares that carry the right to vote at a meeting may requisition our directors to call a meeting of shareholders for the purposes stated in the requisition. The quorum for the transaction of business at any meeting of shareholders is two persons who are entitled to vote at the meeting in person or by proxy. Only persons entitled to vote, our directors and auditors and others who, although not entitled to vote, are otherwise entitled or required to be present, are entitled to be present at a meeting of shareholders.
Except as provided in the Investment Canada Act , there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws of Canada or British Columbia, or in our charter documents. See the section of this annual report on Form 20-F entitled “ Exchange Controls ” below for a discussion of the principal features of the Investment Canada Act for non-Canadian residents proposing to acquire our common shares.
As set forth above, our Articles contain certain provisions that would have an effect of delaying, deferring or preventing a change in control of our company, including authorizing the issuance by our board of directors of preferred stock in series, providing for a classified board of directors with staggered, three-year terms and limiting the persons who may call special meetings of shareholders. Our Articles do not contain any provisions that would operate only with respect to a merger, acquisition or corporate restructuring of our company.
Our Articles do not contain any provisions governing the ownership threshold above which shareholder ownership must be disclosed.
Our Articles are not significantly different from the requirements of the Business Corporations Act (British Columbia), and the conditions imposed by our Articles governing changes in capital are not more stringent than what is required by the Business Corporations Act (British Columbia).
 C. Material Contracts
The following summary of certain material provisions of the agreements referenced below is not complete and these provisions are qualified in their entirety by reference to the full text of such agreements.
In September 2010, we entered into an agreement with Mass and our wholly-owned subsidiary, which provided for our acquisition of Mass by way of a multi-step transaction, including the offer to purchase all of the outstanding class A common shares of Mass and the subsequent amalgamation of Mass with our wholly-owned subsidiary. For further information, please see the section of this annual report on Form 20-F entitled “ Item 4: Information on the Company — A. History and Development of the Company ”.
In February 2010, we entered into an Arrangement Agreement with KID whereby we agreed, subject to receipt of shareholder approval and the satisfaction of other conditions as set forth in the agreement, to distribute to our shareholders all of the shares of KID currently held by us in several distributions. Pursuant to the Arrangement Agreement, we made distributions of the KID shares held by us to our shareholders on March 30, 2010, July 1, 2010, September 23, 2010 and December 31, 2010. For further information, please see the section of this annual report on Form 20-F entitled “ Item 4: Information on the Company — A. History and Development of the Company ”.
 D. Exchange Controls
There are presently no governmental laws, decrees or regulations in Canada which restrict the export or import of capital, or which impose foreign exchange controls or affect the remittance of interest, dividends or other payments to non-resident holders of our common shares. However, any remittances of dividends to shareholders not resident in Canada are subject to withholding tax in Canada. See “ Item 10: Additional Information — E. Taxation ”.
 
45

Table of Contents
Except as provided in the Investment Canada Act , there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws of Canada or British Columbia or in our charter documents. The following summarizes the principal features of the Investment Canada Act for non-Canadian residents proposing to acquire our common shares.
This summary is of a general nature only and is not intended to be, and should not be construed to be, legal advice to any holder or prospective holder of our common shares, and no opinion or representation to any holder or prospective holder of our common shares is hereby made. Accordingly, holders and prospective holders of our common shares should consult with their own legal advisors with respect to the consequences of purchasing and owning our common shares.
The Investment Canada Act governs the direct or indirect acquisition of control of an existing Canadian business by non-Canadians. Under the Investment Canada Act , non-Canadian persons or entities acquiring “control” (as defined in the Investment Canada Act ) of a corporation carrying on business in Canada are required to either notify, or file an application for review with, Industry Canada, unless a specific exemption, as set out in the Investment Canada Act , applies. Industry Canada may review any transaction which results in the direct or indirect acquisition of control of a Canadian business, where the gross value of corporate assets exceeds certain threshold levels (which are higher for investors from members of the World Trade Organization, including United States residents, or World Trade Organization member-controlled companies) or where the activity of the business is related to Canada’s cultural heritage or national identity. No change of voting control will be deemed to have occurred, for purposes of the Investment Canada Act , if less than one-third of the voting control of a Canadian corporation is acquired by an investor. In addition, the Investment Canada Act permits the Canadian government to review any investment where the responsible Minister has reasonable grounds to believe that an investment by a non-Canadian could be injurious to national security. No financial threshold applies to a national security review. The Minister may deny the investment, ask for undertakings, provide terms or conditions for the investment or, where the investment has already been made, require divestment. Review can occur before or after closing and may apply to corporate re-organizations where there is no change in ultimate control.
If an investment is reviewable under the Investment Canada Act , an application for review in the form prescribed is normally required to be filed with Industry Canada prior to the investment taking place, and the investment may not be implemented until the review has been completed and the Minister responsible for the Investment Canada Act is satisfied that the investment is likely to be of net benefit to Canada. If the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the non-Canadian applicant must not implement the investment, or if the investment has been implemented, may be required to divest itself of control of the Canadian business that is the subject of the investment. The Minister is required to provide reasons for a decision that an investment is not of net benefit to Canada.
Certain transactions relating to our common shares will generally be exempt from the Investment Canada Act , subject to the Minister’s prerogative to conduct a national security review, including:
 
 	(a)	the acquisition of our common shares by a person in the ordinary course of that person’s business as a trader or dealer in securities;	
 
 	(b)	the acquisition of control of our company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Canada Act ; and	
 
 	(c)	the acquisition of control of our company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of our company, through ownership of our common shares, remains unchanged.	
 E. Taxation
Material Canadian Federal Income Tax Consequences
We consider that the following general summary fairly describes the principal Canadian Federal income tax consequences applicable to a holder of our common shares who is a resident of the United States, who is not, will not be and will not be deemed to be, a resident of Canada for purposes of the Income Tax Act (Canada) and any applicable tax treaty and who does not use or hold, and is not deemed to use or hold, his common shares in the capital of our company in connection with carrying on a business in Canada, referred to as a “non-resident holder”.
This summary is based upon the current provisions of the Income Tax Act , the regulations thereunder, referred to as the “Regulations”, the current publicly announced administrative and assessing policies of the Canada Revenue Agency and the Canada-United States Tax Convention (1980), as amended, referred to as the
 
46

Table of Contents
“Treaty”. This summary also takes into account the amendments to the Income Tax Act and the Regulations publicly announced by the Minister of Finance (Canada) prior to the date hereof, referred to as the “Tax Proposals”, and assumes that all such Tax Proposals will be enacted in their present form. However, no assurances can be given that the Tax Proposals will be enacted in the form proposed, or at all. This summary is not exhaustive of all possible Canadian Federal income tax consequences applicable to a holder of our common shares and, except for the foregoing, this summary does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian Federal income tax consequences described herein.
This summary is of a general nature only and is not intended to be, and should not be construed to be, legal, business or tax advice to any particular holder or prospective holder of our common shares, and no opinion or representation with respect to the tax consequences to any holder or prospective holder of our common shares is made. Accordingly, holders and prospective holders of our common shares should consult their own tax advisors with respect to the income tax consequences of purchasing, owning and disposing of our common shares in their particular circumstances.
Dividends
Dividends paid on our common shares to a non-resident holder will be subject under the Income Tax Act to withholding tax which tax is deducted at source by our company. The withholding tax rate for dividends prescribed by the Income Tax Act is 25% but this rate may be reduced under the provisions of an applicable tax treaty. Under the Treaty, the withholding tax rate is reduced to 15% on dividends paid by our company to residents of the United States and is further reduced to 5% where the beneficial owner of the dividends is a corporation resident in the United States that owns at least 10% of the voting shares of our company.
Capital Gains
A non-resident holder is not subject to tax under the Income Tax Act in respect of a capital gain realized upon the disposition of a common share of our company unless such share is “taxable Canadian property” (as defined in the Income Tax Act ) of the non-resident holder. Our common shares generally will not be taxable Canadian property of a non-resident holder unless the non-resident holder alone or together with non-arm’s length persons owned, or had an interest in an option in respect of, not less than 25% of the issued shares of any class of our capital stock at any time during the 60-month period immediately preceding the disposition of the shares. In the case of a non-resident holder resident in the United States for whom shares of our company are taxable Canadian property, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason of the Treaty unless the value of such shares is derived principally from real property situated in Canada.
Material United States Federal Income Tax Consequences
The following is a general discussion of certain possible United States Federal foreign income tax matters under current law, generally applicable to a U.S. Holder (as defined below) of our common shares who holds such shares as capital assets. This discussion does not address all aspects of United States Federal income tax matters and does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences. See “ Material Canadian Federal Income Tax Consequences ” above.
The following discussion is based upon the Internal Revenue Code of 1986 , as amended, referred to as the “Code”, Treasury Regulations, published by the Internal Revenue Service, referred to as “IRS”, rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. No assurance can be given that the IRS will agree with such statements and conclusions, or will not take, or a court will not adopt, a position contrary to any position taken herein.
 
47

Table of Contents
The following discussion is for general information only and is not intended to be, nor should it be construed to be, legal, business or tax advice to any holder or prospective holder of our common shares, and no opinion or representation with respect to the United States Federal income tax consequences to any such holder or prospective holder is made. Accordingly, holders and prospective holders of common shares are urged to consult their own tax advisors with respect to Federal, state, local and foreign tax consequences of purchasing, owning and disposing of our common shares.
U.S. Holders
As used herein, a “U.S. Holder” includes a holder of less than 10% of our common shares who is a citizen or resident of the United States, a corporation created or organized in or under the laws of the United States or of any political subdivision thereof, any entity which is taxable as a corporation for United States tax purposes and any other person or entity whose ownership of our common shares is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of our common shares is not effectively connected with the conduct of a trade or business in the United States and shareholders who acquired their shares through the exercise of employee stock options or otherwise as compensation.
Distributions
The gross amount of a distribution paid to a U.S. Holder will generally be taxable as dividend income to the U.S. Holder for United States Federal income tax purposes to the extent paid out of our current or accumulated earnings and profits, as determined under United States Federal income tax principles. Distributions which are taxable dividends and which meet certain requirements will be “qualified dividend income” and taxed to U.S. Holders at a maximum United States Federal rate of 15%. Distributions in excess of our current and accumulated earnings and profits will be treated first as a tax-free return of capital to the extent the U.S. Holder’s tax basis in the common shares and, to the extent in excess of such tax basis, will be treated as a gain from a sale or exchange of such shares.
Capital Gains
In general, upon a sale, exchange or other disposition of common shares, a U.S. Holder will generally recognize a capital gain or loss for United States Federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other distribution and the U.S. Holder’s adjusted tax basis in such shares. Such gain or loss will be a United States source gain or loss and will be treated as a long-term capital gain or loss if the U.S. Holder’s holding period of the shares exceeds one year. If the U.S. Holder is an individual, any capital gain will generally be subject to United States Federal income tax at preferential rates if specified minimum holding periods are met. The deductibility of capital losses is subject to significant limitations.
Foreign Tax Credit
A U.S. Holder who pays (or has had withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and generally applies to all foreign income taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the tax credit, among which is an ownership period requirement and the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its worldwide taxable income. In determining the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. The availability of the foreign tax credit and the application of these complex limitations on the tax credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.
Passive Foreign Investment Corporation
We do not believe that we are a passive foreign investment corporation, referred to as a “PFIC”. However, since PFIC status depends upon the composition of a company’s income and assets and the market value of its
 
48

Table of Contents
assets and shares from time to time, there is no assurance that we will not be considered a PFIC for any taxable year. If we were treated as a PFIC for any taxable year during which a U.S. Holder held shares, certain adverse tax consequences could apply to the U.S. Holder.
If we are treated as a PFIC for any taxable year, gains recognized by such U.S. Holder on a sale or other disposition of shares would be allocated ratably over the U.S. Holder’s holding period for the shares. The amount allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as applicable, and an interest charge would be imposed on the amount allocated to such taxable year. Further, any distribution in respect of shares in excess of 125% of the average of the annual distributions on shares received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation as described above. Certain elections may be available to U.S. Holders that may mitigate some of the adverse consequences resulting from PFIC status. However, regardless of whether such elections are made, dividends paid by a PFIC will not be “qualified dividend income” and will generally be taxed at the higher rates applicable to other items of ordinary income.
U.S. Holders and prospective holders should consult their own tax advisors regarding the potential application of the PFIC rules to their ownership of our common shares.
 F. Dividends and Paying Agents
Not applicable.
 G. Statement by Experts
Not applicable.
 H. Documents on Display
Documents and agreements concerning our company may be inspected at the offices of Sangra Moller LLP, 1000 Cathedral Place, 925 West Georgia Street, Vancouver, British Columbia, Canada.
 I. Subsidiary Information
For a list of our significant wholly-owned direct and indirect subsidiaries and significant non-wholly-owned subsidiaries, see “ Item 4: Information on the Company — C. Organizational Structure ”.
 
 ITEM 11:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	
We are exposed to various market risks from changes in interest rates, foreign currency exchange rates and other prices which may affect our results of operations and financial condition and, consequently, our fair value. Generally, our management believes that our current financial assets and financial liabilities, due to their short-term nature, do not pose significant financial risks. We use various financial instruments to manage our exposure to various financial risks. The policies for controlling the risks associated with financial instruments include, but are not limited to, standardized company procedures and policies on matters such as hedging of risk exposures, avoidance of undue concentration of risk and requirements for collateral (including letters of credit) to mitigate credit risk. We have risk managers to perform audits and checking functions to ensure that company procedures and policies are complied with.
We use derivative instruments to manage certain exposures to currency exchange rate risks. The use of derivative instruments depends on our management’s perception of future economic events and developments. These types of derivative instruments are generally highly speculative in nature. They are also very volatile as they are highly leveraged given that margin requirements are relatively low in proportion to notional amounts.
Many of our strategies, including the use of derivative instruments and the types of derivative instruments selected by us, are based on historical trading patterns and correlations and our management’s expectations of future events. However, these strategies may not be fully effective in all market environments or against all types of risks. Unexpected market developments may affect our risk management strategies during this time, and unanticipated developments could impact our risk management strategies in the future. If any of the variety of instruments and strategies we utilize is not effective, we may incur losses.
Please refer to Note 32 of our annual consolidated financial statements for the years ended December 31, 2011 and 2010 for a qualitative and quantitative discussion of our exposure to market risks and the sensitivity analysis of interest rate, currency and other price risks at December 31, 2011.
 
49

Table of Contents

 ITEM 12:	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	
Not applicable.
 PART II
 
 ITEM 13:	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	
None.
 
 ITEM 14:	MATERIAL MODIFICATIONS TO RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	
None.
 
 ITEM 15:	CONTROLS AND PROCEDURES	
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company’s reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Securities Exchange Act of 1934 , we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 20-F, being December 31, 2011. This evaluation was carried out by our Chief Executive Officer (being our principal executive officer) and Chief Financial Officer (being our principal financial officer). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our company’s disclosure controls and procedures are effective.
Report of Management on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 13d-15(f) under the Securities Exchange Act of 1934 , as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS. Our internal control over financial reporting includes those policies and procedures that:
 
 	1.	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets and our consolidated entities;	
 
 	2.	provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with IFRS, and that receipts and expenditures of our company are being made only in accordance with authorizations of management and our directors; and	
 
 	3.	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.	
Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2011. In conducting this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework .
Based on this evaluation, management concluded that, as of December 31, 2011, our company’s internal control over financial reporting was effective.
The effectiveness of our company’s internal control over financial reporting as of December 31, 2011 has been audited by our independent registered chartered accountants, Deloitte & Touche LLP, who also audited our consolidated financial statements for the year ended December 31, 2011. Deloitte & Touche LLP have expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2011. Their report is included in this annual report on Form 20-F.
 
50

Table of Contents
Changes in Internal Control over Financial Reporting
We maintain internal controls over financial reporting which have been designed to provide reasonable assurance of the reliability of external financial reporting in accordance with IFRS as required by National Instrument 52-109.
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
 
 ITEM 16:	[RESERVED]	
 
 ITEM 16A:	AUDIT COMMITTEE FINANCIAL EXPERT	
Our board of directors has determined that Dr. Shuming Zhao, a member of our audit committee, qualifies as an “audit committee financial expert” and is “independent” as such terms are used in Section 303A.02 of the NYSE Listed Company Manual.
Dr. Shuming Zhao is an Honorary Dean and Chair Professor at the School of Business, Nanjing University. He received his B. A. (English Language and Literature) from Nanjing University and his M. A. (Education) and Ph.D. in Higher Education Administration and Human Resource Management from Claremont Graduate School, U.S.A. He is one of the leading business educators in China. Under his leadership, Nanjing University has been selected as a National Key Program in Business Administration. He is a member, Science and Technology Academic Committee of the Ministry of Education; Vice Chairman, Advisory Committee for Business Programs, Ministry of Education; member, Review Committee for Management Sciences, National Natural Science Foundation of China; member, National MBA Advisory Committee; and member, Human Resource Development Committee of Macau Special Administration Region Government. He serves as President of the International Association of Chinese Management Research (IACMR, Third Term), Vice President of Chinese Society of Management Modernization, President for Jiangsu Provincial Association of Human Resource Management, and Vice President of Jiangsu Provincial Association of Business Management and Entrepreneurs. Since 1994, Dr. Zhao has acted as management consultant for several Chinese and international firms. Dr. Zhao is also a director of Little Swan Company, Ltd. (China) and Daqo New Energy Corp. (China). Dr. Zhao has successfully organized and held seven international symposia on multinational business management in 1992, 1996, 1999, 2002, 2005, 2008 and 2011. Since 1997, Dr. Zhao has been a visiting professor at Marshall School of Business, University of Southern California and the College of Business, University of Missouri-St. Louis. Dr. Zhao has lectured in the countries including the United States, Canada, Japan, Singapore, South Korea, the United Kingdom, Germany, the Netherlands, Portugal, and Australia.
 
 ITEM 16B:	CODE OF ETHICS	
Code of Ethics and Code of Conduct
Our board of directors encourages and promotes a culture of ethical business conduct through the adoption and monitoring of our codes of ethics and conduct, the insider trading policy and such other policies as may be adopted from time to time.
Our Audit Committee adopted a Code of Ethics for the Senior Executive Officers and Senior Financial Officers on November 9, 2006. Since that date, our board of directors has conducted an assessment of its performance, including the extent to which the board and each director comply with the Code of Ethics. It is intended that such assessment will be conducted annually. The Code of Ethics applies to our Chief Executive Officer, President, Chief Financial Officer, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, Controller, persons performing similar functions, and other officers or employees of our company with prominent positions with respect to the filing of reports with securities regulators.
 
51

Table of Contents
The purpose of the Code of Ethics is to promote: honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; full, fair, accurate and timely disclosure in all reports and documents filed with securities regulators; compliance with applicable governmental laws, rules and regulations; the prompt internal reporting of violations of the Code of Ethics; and accountability for adherence to the Code of Ethics.
There has been no conduct of any director or officer that would constitute a departure from the Code of Ethics, and therefore, no material change reports have been filed in this regard.
In addition, our Audit Committee has adopted a written Code of Conduct, which sets out the standards of ethical behaviour required for all employees and officers of our company and our subsidiaries. Our board of directors conducts regular reviews with management for compliance with such policies. The basic principles of the Code of Conduct include: providing customers with the best quality products and services at competitive prices; providing employees with a fair, polite and respectful work environment; keeping company information confidential; keeping client and business partner information confidential; being fair and honest to all parties having business relationships with our company; not doing business with any third parties who are likely to harm our company’s reputation; refraining from any form of discrimination or harassment; and being mindful of the interest of the public and the environment. The Code of Conduct emphasizes that all employees of our company, regardless of their position or status, are accountable for complying with all applicable legal requirements, the general provisions stipulated by the Code of Conduct, and our other business policies.
We will provide a copy of the Code of Ethics or the Code of Conduct to any person without charge, upon request. Requests can be sent by mail to: MFC Industrial Ltd., Suite 1620 - 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6.
 
 ITEM 16C:	PRINCIPAL ACCOUNTANT FEES AND SERVICES	
Audit Fees
The aggregate fees for audit services rendered for the audit of our annual financial statements for the fiscal years ended December 31, 2011 by Deloitte & Touche LLP and December 31, 2010 by a member of NEXIA International, Davidson & Company LLP were C$1,055,000 and C$1,220,000, respectively (including all fees related to the audit of our annual financial statements for the fiscal years ended December 31, 2011 and 2010).
Audit Related Fees
For the fiscal year ended December 31, 2010, Deloitte & Touche LLP and a member of NEXIA International, Davidson & Company LLP, respectively, performed assurance or related services relating to the performance of the audit or review of our financial statements which are not reported under the caption “Audit Fees” above, for aggregate fees totalling C$68,803 and C$123,000, respectively. For the fiscal year ended December 31, 2011, Deloitte & Touche LLP performed assurance or related services relating to the performance of the audit or review of our financial statements which are not reported under the caption “Audit Fees” above, for aggregate fees totalling C$30,700.
Tax Fees
For the fiscal years ended December 31, 2011 and 2010, the aggregate fees billed for tax compliance, tax advice and tax planning by Deloitte & Touche LLP and a member of NEXIA International, Davidson & Company LLP, respectively, were C$nil and C$96,100, respectively.
All Other Fees
For the fiscal years ended December 31, 2011 and 2010, the aggregate fees billed by Deloitte & Touche LLP and a member of NEXIA International, Davidson & Company LLP, for non-audit professional services was C$nil and C$82,875, respectively, in connection with non-management support services and reimbursement of disbursements.
Audit Committee Pre-approval Policies and Procedures
The audit committee pre-approves all services provided by our independent auditors. All of the services and fees described under the categories of “Audit Fees”, “Audit Related Fees”, “Tax Fees” and “All Other Fees” were reviewed and approved by the audit committee before the respective services were rendered and none of such services were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
 
52

Table of Contents
The audit committee has considered the nature and amount of the fees billed for the fiscal year ended December 31, 2011 by Deloitte & Touche LLP and December 31, 2010 by a member of NEXIA International, Davidson & Company LLP, and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining the independence of Deloitte & Touche LLP and a member of NEXIA International, Davidson & Company LLP, respectively.
 
 ITEM 16D:	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	
Not applicable.
 
 ITEM 16E:	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	
In 2011, neither we nor any affiliated purchaser (as defined in the Securities Exchange Act of 1934 ) purchased any of our common shares.
 
 ITEM 16F:	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	
During the year ended December 31, 2011, one independent accountant who was previously engaged as the principal accountant to audit our financial statements, a member of NEXIA International, Davidson & Company LLP, resigned.
Resignation of a Member of NEXIA International, Davidson & Company LLP
Upon mutual agreement, a member of NEXIA International, Davidson & Company LLP, resigned as our principal accountant effective November 14, 2011 and we appointed Deloitte & Touch LLP as our independent registered public accounting firm for the year ended December 31, 2011. Our Audit Committee and board of directors considered and approved the decision to change accountants.
The audit report of a member of NEXIA International, Davidson & Company LLP on our financial statements for the fiscal years ended December 31, 2010 prepared in accordance with IFRS did not contain an adverse opinion, a disclaimer of opinion, a modification or a qualification.
During our most recent fiscal year and any subsequent interim period preceding such resignation, there were no disagreements with a member of NEXIA International, Davidson & Company LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of a member of NEXIA International, Davidson & Company LLP, would have caused it to make reference to the subject matter of the disagreements in connection with its report.
None of the following events occurred within our two most recent fiscal years and any subsequent interim period preceding a member of NEXIA International, Davidson & Company LLP’s resignation:
 
 	(A)	a member of NEXIA International, Davidson & Company LLP advised us that the internal controls necessary for us to develop reliable financial statements did not exist;	
 
 	(B)	a member of NEXIA International, Davidson & Company LLP advised us that information came to a member of NEXIA International, Davidson & Company LLP’s attention that has led it to no longer be able to rely on our management’s representations, or that had made it unwilling to be associated with the financial statements prepared by our management;	
 
 	(C)	a member of NEXIA International, Davidson & Company LLP advised us of the need to expand significantly the scope of its audit, or that information came to a member of NEXIA International, Davidson & Company LLP’s attention during our two most recent fiscal years and any subsequent interim period, that if further investigated may:	
 
 	(i)	materially impact the fairness or reliability of either: a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report (including information that may prevent it from rendering an unqualified audit report on those financial statements); or	
 
 	(ii)	cause it to be unwilling to rely on our management’s representations or be associated with our financial statements; and	
 
53

Table of Contents
due to a member of NEXIA International, Davidson & Company LLP’s resignation (due to audit scope limitations or otherwise), or for any other reason, a member of NEXIA International, Davidson & Company LLP, did not so expand the scope of its audit or conduct such further investigation; or
 
 	(D)	a member of NEXIA International, Davidson & Company LLP, advised us that information came to a member of NEXIA International, Davidson & Company LLP’s attention that it had concluded materially impacts the fairness or reliability of either:	
 
 	(i)	a previously issued audit report or the underlying financial statements, or	
 
 	(ii)	the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report (including information that, unless resolved to a member of NEXIA International, Davidson & Company LLP’s satisfaction, would prevent it from rendering an unqualified audit report on those financial statements); and	
due to a member of NEXIA International, Davidson & Company LLP’s resignation (due to audit scope limitations or otherwise), or for any other reason, the issue had not been resolved to a member of NEXIA International, Davidson & Company LLP’s satisfaction prior to its resignation.
Appointment of Deloitte & Touche LLP
Our board of directors appointed Deloitte & Touche LLP to be our principal accountant effective November 14, 2011. Deloitte & Touche LLP were previously our auditors and had resigned as such in November 2010.
Except as they may have advised us in their position as the auditors of our Company, during our two most recent fiscal years and any subsequent interim period prior to engaging Deloitte & Touche LLP, we did not consult them regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or (ii) any matter that was either the subject of a disagreement or a reportable event as described in Item 16F(a)(1)(v) of Form 20-F.
Disclosure Provided to Former Accountants
We have provided a member of NEXIA International, Davidson & Company LLP and Deloitte & Touche LLP with a copy of our disclosure under Item 16F of this annual report on Form 20-F. We have requested that a member of NEXIA International, Davidson & Company LLP and provided the opportunity to Deloitte & Touche LLP, to furnish us with a letter addressed to the SEC stating whether it agrees with the statements made by us in response to this Item 16F(a) and if not, stating the respects in which it does not agree. We have filed the letter from a member of NEXIA International, Davidson & Company LLP as Exhibit 15.1 to this annual report on Form 20-F.
 
 ITEM 16G:	CORPORATE GOVERNANCE	
Shares of our common stock are listed on the NYSE. Summarized below are the significant differences between our corporate governance rules and the corporate governance rules applicable to U.S. domestic issuers under the listing standards of the NYSE:
 
 	•	 	Section 303A.03 of the NYSE’s Listed Company Manual requires the non-management directors of a listed company to meet at regularly scheduled executive sessions without management.	
 
 	•	 	Since January 1, 2006, our independent directors (all of whom are non-management directors) have not held any meetings at which non-independent directors and members of management were not in attendance.	
 
 	•	 	Section 303A.08 of the NYSE’s Listed Company Manual requires shareholder approval of all equity compensation plans and material revisions to such plans.	
Our current stock option plan requires shareholder approval of the plan, but not shareholder approval of material revisions to the plan.
 
 ITEM 16H:	MINE SAFETY DISCLOSURE	
None.
 
 ITEM 17:	FINANCIAL STATEMENTS	
Not applicable. See “ Item 18: Financial Statements ”.
 
54

Table of Contents

 ITEM 18:	FINANCIAL STATEMENTS	
The following attached financial statements are incorporated herein:

1.	  	Report of Independent Chartered Accountants, Deloitte & Touche LLP, dated March  30, 2012 on the consolidated financial statements of our company for the year ended December 31, 2011	  	 	56	  	
			
2.	  	Report of Independent Registered Chartered Accountants, Deloitte & Touche LLP, on the effectiveness of internal controls over financial reporting	  	 	57	  	
			
3.	  	Report of Independent Registered Chartered Accountants, a member of NEXIA International, Davidson & Company LLP, dated March 31, 2011 on the consolidated financial statements of our company for the years ended December 31, 2010 and 2009	  	 	58	  	
			
4.	  	Consolidated statements of financial position as of December 31, 2011 and 2010	  	 	59	  	
			
5.	  	Consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009.	  	 	60	  	
			
6.	  	Consolidated statements of comprehensive income for the years ended December 31, 2011, 2010 and 2009	  	 	61	  	
			
7.	  	Consolidated statements of changes in equity for the years ended December 31, 2011, 2010 and 2009	  	 	62	  	
			
8.	  	Consolidated statements of cash flows for the years ended December 31, 2011, 2010 and 2009.	  	 	63	  	
			
9.	  	Notes to consolidated financial statements as of December 31, 2011	  	 	64	  	
 
55

Table of Contents

	  	Deloitte & Touche LLP

2800 - 1055 Dunsmuir Street
4 Bentall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
 
Tel: 604-669-4466
Fax: 604-685-0395
www.deloitte.ca	
 Report of Independent Registered Chartered Accountants
To the Board of Directors and Shareholders of
MFC Industrial Ltd. (formerly Terra Nova Royalty Corporation)
We have audited the accompanying consolidated financial statements of MFC Industrial Ltd. (formerly Terra Nova Royalty Corporation) and subsidiaries (collectively the “Company”), which comprise the consolidated statements of financial position as at December 31, 2011, and the consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of MFC Industrial Ltd. (formerly Terra Nova Royalty Corporation) and subsidiaries as at December 31, 2011, and their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Other Matters
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 30, 2012, expressed an unqualified opinion on the Company’s internal control over financial reporting.
The consolidated statements of financial position as at December 31, 2010, and the consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the years ended December 31, 2010 and 2009, were audited by another auditor who issued an unmodified opinion on March 31, 2011.
/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants
March 30, 2012
 
56

Table of Contents

	  	Deloitte & Touche LLP

2800 - 1055 Dunsmuir Street
4 Bentall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
 
Tel: 604-669-4466
Fax: 604-685-0395
www.deloitte.ca	
 Report of Independent Registered Chartered Accountants
To the Board of Directors and Shareholders of
MFC Industrial Ltd. (formerly Terra Nova Royalty Corporation)
We have audited the internal control over financial reporting of MFC Industrial Ltd. (formerly Terra Nova Royalty Corporation) and subsidiaries (collectively the “Company”) as of December 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2011, of the Company and our report dated March 30, 2012 expressed an unqualified opinion on those consolidated financial statements.
/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants
March 30, 2012
 
57

Table of Contents

 REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
To the Board of Directors and Shareholders of
MFC Industrial Ltd.
(formerly Terra Nova Royalty Corporation)
We have audited the accompanying consolidated statement of financial position of MFC Industrial Ltd. (formerly Terry Nova Royalty Corporation) and subsidiaries (the “Company”) as at December 31, 2010, and the related consolidated statement of operations, comprehensive income, changes in equity and cash flows for the years ended December 31, 2010 and 2009. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2010, and the results of its operations and cash flows for the years ended December 31, 2010 and 2009 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
The consolidated statements of operations, comprehensive income, equity and cash flows for the year ended December 31, 2009, prepared in accordance with Canadian generally accepted accounting principles (not presented separately herein) were audited by other auditors who expressed an opinion without reservation on those statements in their report dated March 26, 2010.

	  	 	“DAVIDSON & COMPANY LLP”	  	
		
Vancouver, Canada	  	 	Chartered Accountants	  	
		
March 31, 2011	  				

1200 - 609 Granville Street, P.O. Box 10372, Pacific Centre, Vancouver, B.C., Canada V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172
 
58

Table of Contents
 MFC INDUSTRIAL LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(United States Dollars in Thousands)

 	  	Notes	  	December 31,
2011	 	 	December 31,
2010	 	
ASSETS	  		  				 				
Current Assets	  		  				 				
Cash and cash equivalents	  		  	$	387,052	  	 	$	397,697	  	
Short-term deposits	  		  	 	163	  	 	 	—	  	
Securities	  	6	  	 	13,062	  	 	 	27,894	  	
Restricted cash	  	7	  	 	623	  	 	 	3,464	  	
Loan receivable	  	8	  	 	19,869	  	 	 	5,792	  	
Bills of exchange	  	9	  	 	10,545	  	 	 	—	  	
Trade receivables	  	9	  	 	21,154	  	 	 	13,088	  	
Other receivables	  	10	  	 	9,144	  	 	 	12,107	  	
Inventories	  	11	  	 	81,223	  	 	 	67,102	  	
Real estate held for sale	  		  	 	12,012	  	 	 	12,480	  	
Deposits, prepaid and other	  	12	  	 	9,344	  	 	 	20,847	  	
	  		  	 	 	 	 	 	 	 	
Total current assets	  		  	 	564,191	  	 	 	560,471	  	
Non-current Assets	  		  				 				
Securities	  	13	  	 	11,606	  	 	 	7,262	  	
Equity method investments	  	14	  	 	18,726	  	 	 	5,713	  	
Investment property	  	15	  	 	33,585	  	 	 	38,584	  	
Property, plant and equipment	  	16	  	 	3,743	  	 	 	4,202	  	
Interests in resource properties	  	17	  	 	219,582	  	 	 	231,297	  	
Deferred income tax assets	  	18	  	 	7,524	  	 	 	6,727	  	
	  		  	 	 	 	 	 	 	 	
Total non-current assets	  		  	 	294,766	  	 	 	293,785	  	
	  		  	 	 	 	 	 	 	 	
	  		  	$	858,957	  	 	$	854,256	  	
	  		  	 	 	 	 	 	 	 	
LIABILITIES AND EQUITY	  		  				 				
Current Liabilities	  		  				 				
Short-term bank borrowings	  	19	  	$	114,239	  	 	$	69,979	  	
Debt, current portion	  	20	  	 	26,977	  	 	 	4,144	  	
Accounts payables and accrued expenses	  	21	  	 	42,226	  	 	 	47,130	  	
Provisions	  	22	  	 	115	  	 	 	362	  	
Income tax liabilities	  		  	 	4,453	  	 	 	3,803	  	
Deferred sale liabilities	  	11	  	 	14,958	  	 	 	23,133	  	
	  		  	 	 	 	 	 	 	 	
Total current liabilities	  		  	 	202,968	  	 	 	148,551	  	
Long-term Liabilities
Debt, less current portion	  	20	  	 	20,150	  	 	 	48,604	  	
Deferred income tax liabilities	  	18	  	 	61,045	  	 	 	64,436	  	
Provisions	  	22	  	 	—	  	 	 	232	  	
Deferred sale liabilities	  	11	  	 	25,647	  	 	 	39,993	  	
	  		  	 	 	 	 	 	 	 	
Total long-term liabilities	  		  	 	106,842	  	 	 	153,265	  	
	  		  	 	 	 	 	 	 	 	
Total liabilities	  		  	 	309,810	  	 	 	301,816	  	
Equity	  		  				 				
Capital stock	  	23	  	 	382,289	  	 	 	381,673	  	
Treasury stock	  	23	  	 	(68,117	) 	 	 	(67,501	) 	
Contributed surplus	  		  	 	13,028	  	 	 	5,775	  	
Retained earnings	  		  	 	213,200	  	 	 	213,519	  	
Accumulated other comprehensive income	  		  	 	6,223	  	 	 	14,290	  	
	  		  	 	 	 	 	 	 	 	
Shareholders’ equity	  		  	 	546,623	  	 	 	547,756	  	
Non-controlling interests	  		  	 	2,524	  	 	 	4,684	  	
	  		  	 	 	 	 	 	 	 	
Total equity	  		  	 	549,147	  	 	 	552,440	  	
	  		  	 	 	 	 	 	 	 	
	  		  	$	858,957	  	 	$	854,256	  	
	  		  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these consolidated financial statements.
 
59

Table of Contents
 MFC INDUSTRIAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2011, 2010 and 2009
(United States Dollars in Thousands, Except per Share Amounts)

 	 	Notes	 	2011	 	 	2010	 	 	2009	 	
Net sales	 	5&25	 	$	514,797	  	 	$	84,476	  	 	$	14,718	  	
Equity income	 	5&25	 	 	5,912	  	 	 	954	  	 	 	—	  	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
Gross revenues	 		 	 	520,709	  	 	 	85,430	  	 	 	14,718	  	
					
Costs and Expenses:	 		 				 				 				
Costs of sales	 	25	 	 	435,392	  	 	 	51,362	  	 	 	8,525	  	
Impairment of available-for-sale securities	 		 	 	12,408	  	 	 	—	  	 	 	—	  	
Selling, general and administrative	 		 	 	40,378	  	 	 	18,316	  	 	 	16,474	  	
Share-based compensation (recovery) — selling, general and administrative	 	24	 	 	7,219	  	 	 	72	  	 	 	(2,713	) 	
Finance costs	 		 	 	7,198	  	 	 	974	  	 	 	477	  	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
	 		 	 	502,595	  	 	 	70,724	  	 	 	22,763	  	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from operations	 		 	 	18,114	  	 	 	14,706	  	 	 	(8,045	) 	
					
Other items:	 		 				 				 				
Exchange differences on foreign currency transactions	 		 	 	(933	) 	 	 	(3,608	) 	 	 	(3,208	) 	
Negative goodwill	 	3	 	 	—	  	 	 	41,058	  	 	 	—	  	
Loss on settlement of investment in preferred shares of former subsidiaries	 		 	 	—	  	 	 	—	  	 	 	(9,538	) 	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	 		 	 	17,181	  	 	 	52,156	  	 	 	(20,791	) 	
Income tax (expense) recovery:	 		 				 				 				
Income taxes	 	26	 	 	(1,336	) 	 	 	(231	) 	 	 	7,510	  	
Resource property revenue taxes	 	26	 	 	(4,647	) 	 	 	(6,744	) 	 	 	(3,039	) 	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
	 		 	 	(5,983	) 	 	 	(6,975	) 	 	 	4,471	  	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from continuing operations	 		 	 	11,198	  	 	 	45,181	  	 	 	(16,320	) 	
Income (loss) from discontinued operations	 		 	 	—	  	 	 	(15,449	) 	 	 	54,042	  	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
Net income for the year	 		 	 	11,198	  	 	 	29,732	  	 	 	37,722	  	
Less: Net (income) loss attributable to non-controlling interests	 		 	 	995	  	 	 	584	  	 	 	(1,050	) 	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to owners of the parent company	 		 	$	12,193	  	 	$	30,316	  	 	$	36,672	  	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
Consisting of:  Continuing operations	 		 	$	12,193	  	 	$	45,839	  	 	$	(16,320	) 	
                 Discontinued operations	 		 	 	—	  	 	 	(15,523	) 	 	 	52,992	  	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
	 		 	$	12,193	  	 	$	30,316	  	 	$	36,672	  	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
Basic earnings (loss) per share: Continuing operations	 		 	$	0.19	  	 	$	1.28	  	 	$	(0.54	) 	
   Discontinued operations	 		 	 	—	  	 	 	(0.43	) 	 	 	1.75	  	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
	 		 	$	0.19	  	 	$	0.85	  	 	$	1.21	  	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings (loss) per share: Continuing operations	 		 	$	0.19	  	 	$	1.28	  	 	$	(0.54	) 	
      Discontinued operations	 		 	 	—	  	 	 	(0.43	) 	 	 	1.75	  	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
	 		 	$	0.19	  	 	$	0.85	  	 	$	1.21	  	
	 		 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average number of common shares outstanding	 		 				 				 				
— basic	 	27	 	 	62,561,421	  	 	 	35,857,873	  	 	 	30,354,207	  	
— diluted	 	27	 	 	62,561,421	  	 	 	35,858,911	  	 	 	30,354,207	  	
The accompanying notes are an integral part of these consolidated financial statements.
 
60

Table of Contents
 MFC INDUSTRIAL LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2011, 2010 and 2009
(United States Dollars in Thousands)

 	  	2011	 	 	2010	 	 	2009	 	
Net income for the year	  	$	11,198	  	 	$	29,732	  	 	$	37,722	  	
				
Other comprehensive income (loss), net of tax	  				 				 				
Exchange differences arising from translating financial statements of foreign operations and U.S. dollar reporting	  	 	(1,359	) 	 	 	(7,810	) 	 	 	16,916	  	
Reclassification adjustment for exchange differences to statements of operations for subsidiaries deconsolidated	  	 	—	  	 	 	3,928	  	 	 	—	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net exchange differences	  	 	(1,359	) 	 	 	(3,882	) 	 	 	16,916	  	
				
Fair value gain (loss) on available-for-sale securities	  	 	(14,615	) 	 	 	10,313	  	 	 	—	  	
Reclassification of fair value loss (gain) on available-for-sale securities to statements of operations for securities disposed of or impaired	  	 	7,860	  	 	 	(8,322	) 	 	 	—	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net fair value gain (loss) on available-for-sale securities	  	 	(6,755	) 	 	 	1,991	  	 	 	—	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Other comprehensive income (loss)	  	 	(8,114	) 	 	 	(1,891	) 	 	 	16,916	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income for the year	  	 	3,084	  	 	 	27,841	  	 	 	54,638	  	
Comprehensive (income) loss attributable to non-controlling interests	  	 	1,042	  	 	 	912	  	 	 	(2,113	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Comprehensive income attributable to owners of the parent company	  	$	4,126	  	 	$	28,753	  	 	$	52,525	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Consisting of: Continuing operations	  	$	4,126	  	 	$	52,069	  	 	$	(2,288	) 	
    Discontinued operations	  	 	—	  	 	 	(23,316	) 	 	 	54,813	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
	  	$	4,126	  	 	$	28,753	  	 	$	52,525	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these consolidated financial statements.
 
61

Table of Contents
 MFC INDUSTRIAL LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Years Ended December 31, 2011, 2010 and 2009
(United States Dollars in Thousands)

 	 	Capital Stock	 	 	Treasury Stock	 	 	 	 	 	 	 	 	Accumulated Other
Comprehensive Income	 	 	 	 	 	 	 	 	 	 	
 	 	Number
of Shares	 	 	Amount	 	 	Number
of Shares	 	 	Amount	 	 	Contributed
Surplus,
share-
based
Compen-
sation	 	 	Retained
Earnings	 	 	Available-
for-sale
securities	 	 	Currency
Translation
Adjustment	 	 	Shareholders’
Equity	 	 	Non-
controlling
Interests	 	 	Total
Equity	 	
Balance at January 1, 2009	 	 	36,135,528	  	 	$	143,826	  	 	 	(5,612,883	) 	 	$	(93,793	) 	 	$	7,623	  	 	$	328,264	  	 	$	—	  	 	$	—	  	 	$	385,920	  	 	$	3,709	  	 	$	389,629	  	
Net income	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	36,672	  	 	 	—	  	 	 	—	  	 	 	36,672	  	 	 	1,050	  	 	 	37,722	  	
Settlement with an affiliate	 	 	—	  	 	 	—	  	 	 	(262,734	) 	 	 	(2,365	) 	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(2,365	) 	 	 	—	  	 	 	(2,365	) 	
Cancellation of treasury stock	 	 	(558,373	) 	 	 	(2,222	) 	 	 	558,373	  	 	 	12,824	  	 	 	—	  	 	 	(10,602	) 	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Purchase of shares in a subsidiary	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(419	) 	 	 	(419	) 	
Share-based compensation	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(391	) 	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(391	) 	 	 	—	  	 	 	(391	) 	
Translation adjustment	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	15,853	  	 	 	15,853	  	 	 	1,063	  	 	 	16,916	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2009	 	 	35,577,155	  	 	 	141,604	  	 	 	(5,317,244	) 	 	 	(83,334	) 	 	 	7,232	  	 	 	354,334	  	 	 	—	  	 	 	15,853	  	 	 	435,689	  	 	 	5,403	  	 	 	441,092	  	
Net income	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	30,316	  	 	 	—	  	 	 	—	  	 	 	30,316	  	 	 	(584	) 	 	 	29,732	  	
Dividends paid	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(1,212	) 	 	 	(1,212	) 	
Cancellation of treasury stock	 	 	(2,174,988	) 	 	 	(8,676	) 	 	 	2,174,988	  	 	 	18,459	  	 	 	—	  	 	 	(9,783	) 	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Purchase of shares in a company	 	 	41,400	  	 	 	303	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	303	  	 	 	—	  	 	 	303	  	
Purchase of shares in a subsidiary	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(12	) 	 	 	(12	) 	
Distribution of shares in a former subsidiary	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(161,348	) 	 	 	—	  	 	 	—	  	 	 	(161,348	) 	 	 	(3,930	) 	 	 	(165,278	) 	
Rights offering	 	 	7,571,227	  	 	 	49,549	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	49,549	  	 	 	—	  	 	 	49,549	  	
Acquisition of Mass Financial Corp.	 	 	24,992,122	  	 	 	198,487	  	 	 	(328,239	) 	 	 	(2,626	) 	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	195,861	  	 	 	5,313	  	 	 	201,174	  	
Exercise of stock options	 	 	25,000	  	 	 	406	  	 	 	—	  	 	 	—	  	 	 	(80	) 	 	 	—	  	 	 	—	  	 	 	—	  	 	 	326	  	 	 	—	  	 	 	326	  	
Share-based compensation	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(1,377	) 	 	 	—	  	 				 	 	—	  	 	 	(1,377	) 	 	 	34	  	 	 	(1,343	) 	
Net change in available-for-sale securities	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	1,991	  	 	 	—	  	 	 	1,991	  	 	 	—	  	 	 	1,991	  	
Translation adjustment	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(3,554	) 	 	 	(3,554	) 	 	 	(328	) 	 	 	(3,882	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2010	 	 	66,031,916	  	 	 	381,673	  	 	 	(3,470,495	) 	 	 	(67,501	) 	 	 	5,775	  	 	 	213,519	  	 	 	1,991	  	 	 	12,299	  	 	 	547,756	  	 	 	4,684	  	 	 	552,440	  	
Net income	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	12,193	  	 	 	—	  	 	 	—	  	 	 	12,193	  	 	 	(995	) 	 	 	11,198	  	
Dividends paid	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(12,512	) 	 	 	—	  	 	 	—	  	 	 	(12,512	) 	 	 	(586	) 	 	 	(13,098	) 	
Transfer of an interest in resource property	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	1,172	  	 	 	1,172	  	
Derecognition of a subsidiary	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(1,670	) 	 	 	(1,670	) 	
Issuance of preferred shares	 	 	616,380	  	 	 	616	  	 	 	(616,380	) 	 	 	(616	) 	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Share-based compensation	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	7,253	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	7,253	  	 	 	(34	) 	 	 	7,219	  	
Net change in available-for-sale securities	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(6,750	) 	 	 	—	  	 	 	(6,750	) 	 	 	(5	) 	 	 	(6,755	) 	
Translation adjustment	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(1,317	) 	 	 	(1,317	) 	 	 	(42	) 	 	 	(1,359	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2011	 	 	66,648,296	  	 	$	382,289	  	 	 	(4,086,875	) 	 	$	(68,117	) 	 	$	13,028	  	 	$	213,200	  	 	$	(4,759	) 	 	$	10,982	  	 	$	546,623	  	 	$	2,524	  	 	$	549,147	  	

Total Comprehensive
Income (Loss) for the Year	 	Owners of
the  Parent
Company	 	 	Non-
Controlling
Interests	 	 	Total	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2009	 	 	52,525	  	 	 	2,113	  	 	 	54,638	  	 				 				 				 				 				 				 				 				
2010	 	 	28,753	  	 	 	(912	) 	 	 	27,841	  	 				 				 				 				 				 				 				 				
2011	 	 	4,126	  	 	 	(1,042	) 	 	 	3,084	  	 				 				 				 				 				 				 				 				
								
 	 	Common Shares	 	 	Class A Common
Shares*	 	 	Preferred Shares*	 	 	Total Capital Stock	 	 	 	 	 	 	 	 	 	 	
Components of Capital Stock	 	Number
of Shares	 	 	Amount	 	 	Number
of Shares	 	 	Amount	 	 	Number
of Shares	 	 	Amount	 	 	Number
of Shares	 	 	Amount	 	 	 	 	 	 	 	 	 	 	
Balance at January 1, 2009	 	 	36,135,528	  	 	$	143,826	  	 	 	—	  	 	$	—	  	 	 	—	  	 	$	—	  	 	 	36,135,528	  	 	$	143,826	  	 				 				 				
Cancellation of treasury stock	 	 	(558,373	) 	 	 	(2,222	) 	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(558,373	) 	 	 	(2,222	) 	 				 				 				
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				 				 				
Balance at December 31, 2009	 	 	35,577,155	  	 	 	141,604	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	35,577,155	  	 	 	141,604	  	 				 				 				
Cancellation and re-issuance	 	 	(5,317,244	) 	 	 	(21,210	) 	 	 	2,174,988	  	 	 	8,676	  	 	 	3,142,256	  	 	 	12,534	  	 	 	—	  	 	 	—	  	 				 				 				
Cancellation of treasury stock	 	 	—	  	 	 	—	  	 	 	(2,174,988	) 	 	 	(8,676	) 	 	 	—	  	 	 	—	  	 	 	(2,174,988	) 	 	 	(8,676	) 	 				 				 				
Purchase of shares in subsidiaries	 	 	41,400	  	 	 	303	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	41,400	  	 	 	303	  	 				 				 				
Rights offering	 	 	7,571,227	  	 	 	49,549	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	7,571,227	  	 	 	49,549	  	 				 				 				
Acquisition of Mass Financial Corp.	 	 	24,992,122	  	 	 	198,487	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	24,992,122	  	 	 	198,487	  	 				 				 				
Exercise of stock options	 	 	25,000	  	 	 	406	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	25,000	  	 	 	406	  	 				 				 				
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				 				 				
Balance at December 31, 2010	 	 	62,889,660	  	 	 	369,139	  	 	 	—	  	 	 	—	  	 	 	3,142,256	  	 	 	12,534	  	 	 	66,031,916	  	 	 	381,673	  	 				 				 				
Issuance of preferred shares	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	616,380	  	 	 	616	  	 	 	616,380	  	 	 	616	  	 				 				 				
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				 				 				
Balance at December 31, 2011	 	 	62,889,660	  	 	$	369,139	  	 	 	—	  	 	$	—	  	 	 	3,758,636	  	 	$	13,150	  	 	 	66,648,296	  	 	$	382,289	  	 				 				 				

*	All the Class A Common Shares and Preferred Shares were and are held by the Group as treasury stock.	
The accompanying notes are an integral part of these consolidated financial statements.
 
62

Table of Contents
 MFC INDUSTRIAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2011, 2010 and 2009
(United States Dollars in Thousands)

 	  	2011	 	 	2010	 	 	2009	 	
Cash flows from continuing operating activities:	  				 				 				
Income (loss) from continuing operations	  	$	11,198	  	 	$	45,181	  	 	$	(16,320	) 	
Adjustments for:	  				 				 				
Amortization, depreciation and depletion	  	 	13,204	  	 	 	11,766	  	 	 	8,563	  	
Exchange differences on foreign currency transactions	  	 	933	  	 	 	3,608	  	 	 	3,208	  	
(Gain) loss on short-term securities	  	 	6,507	  	 	 	171	  	 	 	(324	) 	
Gain on available-for-sale securities	  	 	(1,721	) 	 	 	—	  	 	 	—	  	
Impairment of available-for-sale securities	  	 	12,408	  	 	 	—	  	 	 	—	  	
Stock-based compensation (recovery)	  	 	7,219	  	 	 	72	  	 	 	(2,713	) 	
Deferred income taxes	  	 	(2,533	) 	 	 	(1,447	) 	 	 	(7,598	) 	
Equity income	  	 	(5,912	) 	 	 	(954	) 	 	 	—	  	
Market value decrease (increment) on commodity inventories	  	 	4,422	  	 	 	(1,982	) 	 	 	—	  	
Negative goodwill	  	 	—	  	 	 	(41,058	) 	 	 	—	  	
Loss on settlement of investment in preferred shares of former subsidiaries	  	 	—	  	 	 	—	  	 	 	9,538	  	
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions	  				 				 				
Short-term cash deposits	  	 	(4,148	) 	 	 	—	  	 	 	—	  	
Short-term securities	  	 	5,263	  	 	 	(395	) 	 	 	—	  	
Restricted cash	  	 	2,862	  	 	 	723	  	 	 	—	  	
Bills of exchange	  	 	(10,545	) 	 	 	—	  	 	 	—	  	
Receivables	  	 	(8,261	) 	 	 	4,380	  	 	 	(958	) 	
Inventories	  	 	(22,816	) 	 	 	(4,403	) 	 	 	—	  	
Deposits, prepaid and other	  	 	10,829	  	 	 	7,334	  	 	 	371	  	
Short-term bank borrowings	  	 	49,836	  	 	 	(4,893	) 	 	 	—	  	
Accounts payable and accrued expenses	  	 	(1,363	) 	 	 	1,016	  	 	 	(1,692	) 	
Deferred sale liabilities	  	 	(22,912	) 	 	 	22,739	  	 	 	—	  	
Income tax liabilities	  	 	783	  	 	 	318	  	 	 	129	  	
Provisions	  	 	(95	) 	 	 	(73	) 	 	 	—	  	
Other	  	 	(426	) 	 	 	1,795	  	 	 	175	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Cash flows (used in) provided by continuing operating activities	  	 	44,732	  	 	 	43,898	  	 	 	(7,621	) 	
Cash flows from continuing investing activities:	  				 				 				
Purchases of property, plant and equipment, net	  	 	(1,168	) 	 	 	(1,111	) 	 	 	(6	) 	
Purchases of long-term investments	  	 	(37,520	) 	 	 	(1,338	) 	 	 	—	  	
Proceeds from sales of long-term investments	  	 	7,413	  	 	 	13,519	  	 	 	—	  	
Settlement of investment in preferred shares of former subsidiaries	  	 	—	  	 	 	—	  	 	 	6,195	  	
Increase in loan receivables	  	 	(21,821	) 	 	 	(9,715	) 	 	 	—	  	
Decrease in loan receivables	  	 	7,744	  	 	 	8,000	  	 	 	—	  	
Distributions from joint ventures, net	  	 	5,072	  	 	 	867	  	 	 	—	  	
Acquisition of a subsidiary (net of cash acquired)	  	 	(95	) 	 	 	213,850	  	 	 	—	  	
Other	  	 	3,847	  	 	 	114	  	 	 	—	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Cash flows (used in) provided by continuing investing activities	  	 	(36,528	) 	 	 	224,186	  	 	 	6,189	  	
Cash flows from continuing financing activities:	  				 				 				
Debt repayment	  	 	(4,309	) 	 	 	(813	) 	 	 	—	  	
Issuance of shares	  	 	—	  	 	 	48,224	  	 	 	—	  	
Dividends paid to shareholders	  	 	(12,512	) 	 	 	—	  	 	 	—	  	
Dividends paid to non-controlling interests	  	 	(586	) 	 	 	(1,212	) 	 	 	—	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Cash flows (used in) provided by continuing financing activities:	  	 	(17,407	) 	 	 	46,199	  	 	 	—	  	
Cash flows used in discontinued operating activities	  	 	—	  	 	 	(15,671	) 	 	 	(2,227	) 	
Cash flows (used in) provided by discontinued investing activities	  	 	—	  	 	 	(286,375	) 	 	 	1,095	  	
Cash flows used in discontinued financing activities	  	 	—	  	 	 	(10,329	) 	 	 	—	  	
Exchange rate effect on cash and cash equivalents	  	 	(1,442	) 	 	 	(24,762	) 	 	 	14,028	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
(Decrease) increase in cash and cash equivalents	  	 	(10,645	) 	 	 	(22,854	) 	 	 	11,464	  	
Cash and cash equivalents, beginning of year	  	 	397,697	  	 	 	420,551	  	 	 	409,087	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents, end of year	  	$	387,052	  	 	$	397,697	  	 	$	420,551	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents at end of year consisted of:	  				 				 				
Cash	  	$	286,877	  	 	$	219,109	  	 	$	406,219	  	
Money market and highly liquid funds	  	 	100,175	  	 	 	178,588	  	 	 	14,332	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
	  	$	387,052	  	 	$	397,697	  	 	$	420,551	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	  	$	387,052	  	 	$	397,697	  	 	$	38,046	  	
Discontinued operations	  	 	—	  	 	 	—	  	 	 	382,505	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
	  	$	387,052	  	 	$	397,697	  	 	$	420,551	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Supplemental cash flows disclosure (see Note 30).	  				 				 				
Interest received	  	$	9,846	  	 	$	2,277	  	 	$	126	  	
Dividends received	  	 	504	  	 	 	466	  	 	 	281	  	
Interest paid	  	 	(6,267	) 	 	 	(463	) 	 	 	(478	) 	
Income taxes paid (including resource property revenue taxes)	  	 	(7,620	) 	 	 	(9,647	) 	 	 	(3,039	) 	
The accompanying notes are an integral part of these consolidated financial statements.
 
63

Table of Contents
 MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011
Note 1.    Nature of Business and Summary of Significant Accounting Policies
MFC Industrial Ltd. (“MFC Industrial” or the “Company”, formerly Terra Nova Royalty Corporation) is incorporated under the laws of British Columbia, Canada. MFC Industrial is a global commodities supply chain company.
In November and December 2010, MFC Industrial, through a share exchange, acquired all of the issued and outstanding shares of Mass Financial Corp. (“Mass”) (see Note 3). Mass and its subsidiaries (collectively, “Mass Group”) are primarily in the commodities and resources business, and merchant banking. The Group consolidated the results of the operations of Mass Group since November 16, 2010.
Until the end of March 2010, MFC Industrial also operated in the industrial plant technology, equipment and service business for the cement and mining industries through its former subsidiary KHD Humboldt Wedag International AG in Germany and its subsidiaries and affiliates (collectively “KID”). MFC Industrial ceased to consolidate KID from March 31, 2010 and completed the spin-off of KID by December 31, 2010 (see Note 4). As a result, the results of operations of KID have been presented as discontinued operations. Accordingly, prior period financial statements, including business segment information as disclosed in Note 5, have been reclassified to reflect this change.
A. Basis of Presentation
Basis of Accounting
These consolidated financial statements have been prepared in accordance with the English language version of International Financial Reporting Standards (“IFRS”) which include International Accounting Standards (“IAS”) and Interpretations (“IFRIC” and “SIC”) as issued by the International Accounting Standards Board (the “IASB”).
These consolidated financial statements were prepared on going concern and accrual bases (except for cash flow information), under the historical cost convention, as modified by the revaluation of investment property and certain financial assets and financial liabilities at fair value through profit or loss.
The presentation currency of these consolidated financial statements is the United States of America (the “US”) dollar ($), as rounded to the nearest thousand (except per share amounts).
Principles of Consolidation
These consolidated financial statements include the accounts of MFC Industrial and entities it controls (collectively, the “Group” in these consolidated financial statements). Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is achieved through direct and indirect ownership of voting rights; currently exercisable or convertible potential voting rights; or by way of contractual agreement. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All intercompany balances and transactions, including unrealized profits arising from intragroup transactions, have been eliminated in full. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. On the acquisition date, non-controlling interest is measured at either its fair value or its proportionate share in the recognized amounts of the subsidiary’s identifiable net assets, on a transaction-by-transaction basis. Subsequently, non-controlling interest increases or decreases for its share of changes in equity since the acquisition date.
Interests in special interest entities —  A special interest entity (“SPE”) is usually created to accomplish a narrow and well-defined objective. The Group consolidates SPEs because the substance of the relationship between the SPEs and the Group indicates that the SPEs are controlled by the Group pursuant to SIC-12, Consolidation — Special Purpose Entities.
Interests in joint ventures —  A joint venture is a contractual arrangement whereby two or more parties (venturers) undertake an economic activity that is subject to joint control. Joint control exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the venturers. A jointly controlled entity is a joint venture that involves the establishment of a company, partnership or other entity to engage in economic activity that the group jointly controls with its fellow venturers.
 
64

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
The results, assets and liabilities of a jointly controlled entity are incorporated in these financial statements using the equity method of accounting. Under the equity method, the investment in a jointly controlled entity is carried in the statement of financial position at cost, plus post-acquisition changes in the Group’s share of net assets of the jointly controlled entity, less distributions received and less any impairment in value of the investment. Loans advanced to jointly controlled entities are also included in the investment balance on the consolidated statement of financial position. The consolidated statement of operations reflects the Group’s share of the results after tax of the jointly controlled entities.
Unrealized gains on transactions between the Group and its jointly controlled entities are eliminated to the extent of the Group’s interest in the jointly controlled entities. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The Group ceases to use the equity method of accounting from the date on which it no longer has joint control or significant influence over the joint venture, or when the interest becomes held for sale.
Interests in associates  — An associate is an entity over which the Group is in a position to exercise significant influence through participation in the financial and operating policy decisions of the investee, but which is not a subsidiary or a joint venture. The results, assets and liabilities of an associate are incorporated in these financial statements using the equity method of accounting as described above for jointly controlled entities.
The financial statements of MFC Industrial and its subsidiaries, SPEs, joint ventures and associates used in the preparation of the consolidated financial statements are prepared as of the same date, using uniform accounting policies for like transactions and other events in similar circumstances.
Foreign Currency Translation
The presentation currency of the Group’s consolidated financial statements is the US dollar. The Group chose to use US dollar as its presentation currency because the majority of MFC Industrial’s shareholders are from the US.
MFC Industrial conducts its business throughout the world through its foreign operations. Foreign operations are entities that are subsidiaries, associates, joint ventures or branches, the activities of which are based or conducted in countries or currencies other than those of MFC Industrial. Functional currency is the currency of the primary economic environment in which an entity operates and is normally the currency in which the entity primarily generates and expends cash. Foreign currency is a currency other than the functional currency of the entity.
Reporting foreign currency transactions in the functional currency
A foreign currency transaction is recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period: (a) foreign currency monetary items are translated using the closing rate; (b) non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction; and (c) non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation which are initially in other comprehensive income in the consolidated financial statements and reclassified from equity to profit or loss on disposal of the net investment.
When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.
 
65

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Use of a presentation currency other than the functional currency
The results and financial position of an entity whose functional currency is not the currency of a hyperinflationary economy are translated into a different presentation currency using the following procedures: (a) assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position; (b) income and expenses for each statement of comprehensive income or separate income statement presented are translated at the average exchange rates for the periods (which approximate the exchange rates at the dates of the transactions); and (c) all resulting exchange differences are recognized in other comprehensive income.
The Group does not have any entities in a hyperinflationary economy.
The following table sets out exchange rates for the translation of Canadian dollars (CDN$), Euros (EUR or €) and Chinese yuans (Renminbi or RMB), which represented the major trading currencies of the Group, into US dollars:

 	  	CDN$	 	  	EUR	 	  	RMB	 	
Closing rate at December 31, 2011	  	 	0.9833	  	  	 	1.2972	  	  	 	0.1589	  	
Average rate for the year 2011	  	 	1.0110	  	  	 	1.3918	  	  	 	0.1548	  	
Closing rate at December 31, 2010	  	 	1.0054	  	  	 	1.3390	  	  	 	0.1517	  	
Average rate for the year 2010	  	 	0.9710	  	  	 	1.3264	  	  	 	0.1477	  	
Closing rate at December 31, 2009	  	 	0.9555	  	  	 	1.4332	  	  	 	0.1465	  	
Average rate for the year 2009	  	 	0.8757	  	  	 	1.3884	  	  	 	0.1464	  	
Use of Estimates and Assumptions and Measurement Uncertainty
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s best estimates are based on the facts and circumstances available at the time estimates are made, historical experience, general economic conditions and trends, and management’s assessment of probable future outcomes of these matters. Actual results could differ from these estimates, and such differences could be material. For major sources of estimation uncertainty, see Note 1C.
Reclassifications
Certain 2010 and 2009 amounts have been reclassified to conform to the 2011 presentation.
B. Significant Accounting Policies
(i) Financial Instruments
All financial assets and financial liabilities are classified by characteristic and/or management intent. Except for certain financial instruments which are excluded from the scope, all financial assets are classified into one of four categories: at fair value through profit or loss, held-to-maturity, loans and receivables, and available-for-sale; and all financial liabilities are classified into one of two categories: at fair value through profit or loss and at amortized cost.
Generally, a financial asset or financial liability at fair value through profit or loss is a financial asset or financial liability that meets either of the conditions: (a) it is classified as held for trading if it is (i) acquired or incurred principally for the purpose of selling or repurchasing it in the near term; (ii) part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking; or (iii) a derivative, except for a derivative that is a designated and effective hedging instrument; or (b) it is designated by the Group upon initial recognition as at fair value through profit or loss when certain conditions are met. Generally, a financial instrument cannot be reclassified into or out of the fair value through profit or loss category while it is held or issued. Only if a financial asset is no longer held for the purpose of selling it in the near term or in the rare circumstances that a reliable measure of fair value is no longer available, the Group reclassifies the financial asset at its fair value on the date of reclassification.
Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale, or that are not classified as loans and receivables, held-to-maturity investments, or fair value through profit or loss.
 
66

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Non-derivative financial liabilities are classified as financial liabilities measured at amortized cost.
When a financial asset or financial liability is recognized initially, the Group measures it at its fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs related to the acquisition of a financial asset or financial liability at fair value through profit or loss are expensed as incurred. The subsequent measurement of a financial instrument and the recognition of associated gains and losses is determined by the financial instrument classification category.
After initial recognition, the Group measures financial assets, including derivatives that are assets, at their fair values, without any deduction for transaction costs it may incur on sale or other disposal, except for the following financial assets: (a) held-to-maturity investments which are measured at amortized cost using the effective interest method; (b) loans and receivables which are measured at amortized cost using the effective interest method; (c) investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost. All financial assets except those measured at fair value through profit or loss are subject to review for impairment.
After initial recognition, the Group measures all financial liabilities at amortized cost using the effective interest method, except for financial liabilities that are classified as at fair value through profit or loss (including derivatives that are liabilities) which are measured at their fair values (except for derivative liabilities that are linked to and must be settled by delivery of an unquoted equity instrument whose fair value cannot be reliably measured, which should be measured at cost).
A gain or loss on a financial asset or financial liability classified as at fair value through profit or loss is recognized in the statement of operations for the period in which it arises. A gain or loss on an available-for-sale financial asset is recognized directly in other comprehensive income, except for impairment losses, until the financial asset is derecognized, at which time the cumulative gain or loss previously recognized in accumulated other comprehensive income is recognized in profit or loss for the period. For financial assets and financial liabilities carried at amortized cost, a gain or loss is recognized in the statement of operations when the financial asset or financial liability is derecognized or impaired, and through the amortization process.
Whenever quoted market prices are available, bid prices are used for the measurement of fair value of financial assets while ask prices are used for financial liabilities. When the market for a financial instrument is not active, the Group establishes fair value by using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis; option pricing models and other valuation techniques commonly used by market participants to price the instrument.
An entity classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
 
 	(a)	quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);	
 
 	(b)	inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices) (Level 2); and	
 
 	(c)	inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).	
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.
(ii) Cash and Cash Equivalents
Cash and cash equivalents are measured at fair value through profit or loss and include cash on hand, cash at banks and highly liquid investments (e.g. money market funds) readily convertible to a known amount of cash and subject to an insignificant risk of change in value. They have original maturities of three months or less and are generally interest bearing.
 
67

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
(iii) Restricted Cash
Restricted cash, whose use is restricted pursuant to the terms of a contract or an agreement, is measured at fair value through profit or loss.
(iv) Securities
Securities are classified as at fair value through profit or loss (i.e. held for trading), or short-term or long-term available-for-sale securities.
Publicly-traded securities (debt and equity) which are acquired principally for the purpose of selling in the near term are classified as held for trading. Securities held for trading are marked to their bid prices on the reporting date and unrealized gains and losses are included in the statement of operations.
Available-for-sale securities consist of publicly-traded securities and unlisted equity securities which are not held for trading and not held to maturity. Long-term available-for-sale securities are purchased with the intention to hold until market conditions render alternative investments more attractive. The available-for-sale securities are stated at bid price whenever quoted market prices are available. When the market for the available-for-sale security is not active, the Group establishes fair value by using a valuation technique. Unrealized gains and losses are recorded in other comprehensive income, net of income taxes.
When a decline in the fair value of an available-for-sale security has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the security has not been derecognized.
Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available for sale shall not be reversed through profit or loss.
If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss.
Gains and losses on sales of securities are recognized on the average cost basis.
(v) Receivables
Typically, receivables are financial instruments which are not classified as at fair value through profit or loss or available-for-sale. They are classified as loans and receivables and are measured at amortized cost without regard to the Group’s intention to hold them to maturity.
Receivables are net of an allowance for credit losses, if any. The Group performs ongoing credit evaluation of customers and adjusts the allowance accounts for specific customer risks and credit factors. Receivables are considered past due on an individual basis based on the terms of the contracts.
(vi) Allowance for Credit Losses
The Group applies credit risk assessment and valuation methods to its loan, trade and other receivables. The Group’s allowance for credit losses is maintained at an amount considered adequate to absorb estimated credit-related losses. Such allowance reflects management’s best estimate of the losses in the Group’s receivables and judgments about economic conditions. Estimates and judgments could change in the near-term, and could result in a significant change to a recognized allowance. Credit losses arise primarily from receivables but may also relate to other credit instruments issued by or on behalf of the Group, such as guarantees and letters of credit. An allowance for credit losses may be increased by provisions which are charged to income and reduced by write-offs net of any recoveries.
Specific provisions are established on an individual basis. A country risk provision may be made based on exposures in less developed countries and on management’s overall assessment of the underlying economic conditions in those countries. Write-offs are generally recorded after all reasonable restructuring or collection activities have taken place and there is no realistic prospect of recovery.
 
68

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
(vii) Derivative Financial Instruments
Derivative financial instruments are financial contracts whose value is derived from interest rates, foreign exchange rates or other financial or commodity indices. These instruments are either exchange-traded or negotiated. Derivatives are included in the consolidated statement of financial position and are measured at fair value. The recognition and measurement of derivative financial instruments are covered by IAS 39, Financial Instruments: Recognition and Measurement, which does not apply to contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the entity’s expected purchase, sale or usage requirements.
The Group uses derivative financial instruments to manage interest rate risk and to hedge exposures to fluctuations in foreign currencies and commodity prices in accordance with its risk management policy. The Group does not use derivative financial instruments for speculative purposes. A description of the Group’s objectives, policies and strategies with regard to derivatives and other financial instruments is set out in Note 32.
Derivatives are initially recognized in the statement of financial position at fair value on the date the derivative transaction is entered into and are subsequently remeasured at their fair values. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in the statement of operations together with any changes in the fair value of the hedged item that are attributable to the hedged risk.
Changes in the fair value of the effective portion of derivatives that are designated and qualify as cash flow hedges are recognized in equity through other comprehensive income. Changes in the fair value of the ineffective portion of cash flow hedges are recognized in the statement of operations. Amounts accumulated in equity are transferred to the statement of operations when the underlying transaction occurs or, if the transaction results in a non-financial asset or liability, are included in the initial cost of that asset or liability.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognized in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to the statement of operations.
The Group does not hedge its net investment in foreign operations.
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognized in the statement of operations as they arise.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives and recorded in the statement of financial position at fair value when their risks and characteristics are not closely related to those of the host contract. Changes in the fair value of those embedded derivatives recognized in the statement of financial position are recognized in the statement of operations as they arise.
Where the Group has both the legal right and intent to settle derivative assets and liabilities simultaneously with a counterparty, the net fair value of the derivative positions is reported as an asset or liability, as appropriate.
(viii) Inventories
Inventories consist of raw materials, work-in-progress, and finished goods. Inventories are recorded at the lower of cost or estimated net realizable value. Cost, where appropriate, includes an allocation of manufacturing overheads incurred in bringing inventories to their present location and condition. Net realizable value represents the estimated selling price less all estimated costs of completion and cost to be incurred in marketing, selling and distribution. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of a reversal of a write-down of inventories arising from an increase in net realizable value is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.
Commodities acquired in commodity broker-trader activities with the purpose of selling in the near future and generating a profit from fluctuations in price or broker-traders’ margin are measured at fair value less costs to sell.
 
69

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
(ix) Real Estate Held for Sale
Real estate held for sale are real estate intended for sale in the ordinary course of business or in the process of construction or development for such sale.
Real estate held for sale are accounted for as inventories at the lower of cost (on a specific item basis) and net realizable value. Net realizable value is determined by reference to sale proceeds of properties sold in the ordinary course of business less all estimated selling expenses around the reporting date, or by management estimates based on prevailing market conditions. The amount of any write-down of properties to net realizable value is recognized as an expense in the period the write-down occurs. The amount of a reversal of a write-down arising from an increase in net realizable value is recognized in the period in which the reversal occurs.
(x) Investment Property
Investment property is property that is held for generating rental income or for capital appreciation or both. The Group’s investment property comprises freehold land and buildings. Investment property is initially recognized at historical cost including related transaction costs. After initial recognition, investment property is measured at fair value, with changes in fair value recognized in the Group’s profit or loss for the period in which it arises.
The fair value of investment property is the price at which the property could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Fair value specifically excludes an estimated price inflated or deflated by special terms or circumstances, special considerations or concessions granted by anyone associated with the sale. An entity determines fair value without any deduction for transaction costs it may incur on sale or other disposal. Fair value on the Group’s investment property is based on valuations prepared annually by external evaluators in accordance with guidance issued by the International Valuation Standard Committee and reviewed by the Group in accordance with guidance on fair value in IAS 40, Investment Property .
(xi) Property, Plant and Equipment
Property, plant and equipment are carried at cost, net of accumulated depreciation and, if any, accumulated impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of any decommissioning obligation, if any, and, for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Where an asset or part of an asset that was separately depreciated is replaced and it is probable that future economic benefits associated with the item will flow to the Group, the expenditure is capitalized and the carrying amount of the replaced asset is derecognized. Inspection costs associated with major maintenance programs are capitalized and amortized over the period to the next inspection.
Property, plant, and equipment are depreciated according to the following estimated lives and methods:

 	  	Lives	 	  	Method	 	
Buildings (including leasehold improvements)	  	 	up to 20 years	  	  	 	straight-line	  	
Processing plant equipment	  	 	5 to 20 years	  	  	 	straight-line	  	
Office equipment	  	 	3 to 10 years	  	  	 	straight-line	  	
The depreciation expense is included in either costs of sales or selling, general and administrative expense, whichever is appropriate.
The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors . The depreciation method applied to an asset shall be reviewed at least at each financial year-end and, if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the method shall be changed to reflect the changed pattern. Such a change shall be accounted for as a change in an accounting estimate in accordance with IAS 8. The carrying value of property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
 
70

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of operations in the period in which the item is derecognized.
Maintenance costs are expensed as incurred.
(xii) Interests in Resource Properties
Interests in resource properties are stated at cost, net of accumulated depletion and, if any, accumulated impairment losses. Depletion expense is provided on the unit of production basis. The estimate of the reserve of iron ore is reviewed whenever significant new information about the reserve is available, or at least at each financial year-end. The resource properties are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable and an impairment loss is measured and included in the statement of operations. No such losses have been recorded in these consolidated financial statements.
(xiii) Impairment of Property, Plant and Equipment
The Group assesses assets or groups of assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If any indication of impairment exists, the Group makes an estimate of the asset’s recoverable amount. Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. An asset group’s recoverable amount is the higher of its fair value less costs to sell and its value in use. Where the carrying amount of an asset group exceeds its recoverable amount, the asset group is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future pre-tax cash flows are adjusted for the risks specific to the asset group and are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money.
An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of operations. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its estimated remaining useful life.
(xiv) Decommissioning
Liabilities for decommissioning costs are recognized when the Group has an obligation to dismantle and remove a facility or an item of plant and to restore the site on which it is located, and when a reliable estimate of that liability can be made. Where an obligation exists for a new facility, this will be on construction or installation. An obligation for decommissioning may also crystallize during the period of operation of a facility through a change in legislation or through a decision to terminate operations. The amount recognized is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. A corresponding item of property, plant and equipment of an amount equivalent to the provision is also recognized. This is subsequently amortized as part of the asset. Other than the unwinding discount on the provision, any change in the present value of the estimated expenditure is reflected as an adjustment to the provision and the corresponding item of property, plant and equipment. Such changes include foreign exchange gains and losses arising on the retranslation of the liability into the functional currency of an entity, when it is known that the liability will be settled in a foreign currency. At both December 31, 2011 and 2010, the provision for decommissioning was $nil.
 
71

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
(xv) Provisions and Contingencies
Provisions are recognized when the Group has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date. Where appropriate, the future cash flow estimates are adjusted to reflect risks specific to the liability. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money. Where discounting is used, the increase in the provision due to the passage of time is recognized within interest expenses.
Contingent liabilities are possible obligations whose existence will only be confirmed by future events not wholly within the control of the Group. Contingent liabilities, other than those assumed in connection with business combinations which are measured at fair value at the acquisition date, are not recognized in the financial statements but are disclosed unless the possibility of an outflow of economic resources is considered remote. Legal costs in connection with a loss contingency are recognized when incurred.
(xvi) Own Equity Instruments
The Group’s holdings of its own equity instruments, including common stock and preferred stock, are classified as “treasury stock”, and are deducted from shareholders’ equity at cost and in the determination of the number of equity shares outstanding. No gain or loss is recognized in the statement of operations on the purchase, sale, re-issue or cancellation of equity shares.
(xvii) Revenue Recognition
Revenues include proceeds from sales of commodities and resources, real estate properties, medical instruments and supplies, fees from provisions of financial and other services, rental income from and fair value gains on investment property, royalty income and net gains on securities.
Revenue from the sale of goods is recognized when: (a) the Group has transferred to the buyer the significant risks and rewards of ownership of the goods (which generally coincides with the time when the goods are delivered to customers and title has passed); (b) the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; (c) the amount of revenue can be measured reliably; (d) it is probable that the economic benefits associated with the transaction will flow to the Group; and (e) the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue from rendering of services is recognized when: (a) the amount of revenue can be measured reliably; (b) it is probable that the economic benefits associated with the transaction will flow to the Group; (c) the stage of completion of the transaction at the reporting date can be measured reliably; and (d) the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal course of business, net of discounts, customs duties and sales taxes. When the Group charges shipping and handling fees to customers, such fees are included in the sale revenue. Where the Group acts as an agent on behalf of a third party to procure or market goods, any associated fee income is recognized but no purchase or sale is recorded.
For interest, royalty and dividend income, recognition is warranted when it is probable that economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is recognized on a time proportion basis, taking into account the effective yield on the asset. Royalty income is recognized on an accrual basis, in accordance with the terms of the underlying agreement and is reported net of royalties paid and government levy. Dividend income is recognized when the Group’s right as a shareholder to receive payment has been established.
 
72

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
(xviii) Costs of Sales
Costs of sales include the cost of goods (commodities and resources, real estate properties, medical instruments and supplies) sold. The cost of goods sold includes both the direct cost of materials and indirect costs, freight charges, purchasing and receiving costs, inspection costs, distribution costs, as well as provision for warranty when applicable.
The costs of sales also include the write-downs of inventories and available-for-sale securities, credit losses on loans and receivables, fair value losses on investment property and net losses on securities.
The reversal of write-downs of inventories and allowance for credit losses reduce the costs of sales.
(xix) Employee Benefits
Wages, salaries, bonuses, social security contributions, paid annual leave and sick leave are accrued in the period in which the associated services are rendered by employees of the Group. The employee benefits are included in either costs of sales or selling, general and administrative expense, as applicable.
(xx) Share-Based Compensation
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which equity instruments are granted and is recognized as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined by using an appropriate valuation model. No expense is recognized for awards that do not ultimately vest. At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s best estimate of the achievement or otherwise of non-market conditions and the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognized in the statement of operations, with a corresponding entry in equity.
When the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognized over the original vesting period. In addition, an expense is recognized over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognized if this difference is negative. When an equity-settled award is cancelled other than by forfeiture when the vesting conditions are not satisfied, it is treated as if it had vested on the date of cancellation and any cost not yet recognized in the statement of operations for the award is expensed immediately.
The share-based compensation expenses are classified as selling, general and administrative expenses. When the options are exercised, the exercise price proceeds together with the amount initially recorded in the contributed surplus account are credited to capital stock.
(xxi) Research
Research costs are expensed as incurred and included in selling, general and administrative expenses.
(xxii) Leases
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. The Group does not have any finance leases. Lease payments under an operating lease are recognized as an expense on a straight-line basis over the lease term.
(xxiii) Finance Costs
Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other finance costs are recognized in the statement of operations in the period in which they are incurred.
 
73

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Share capital and debt are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs for debt, are charged to income on an accrual basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Finance costs include interest expense which in turn includes discount on factoring trade receivables. Finance costs also include charges and fees relating to factoring transactions.
(xxiv) Income Taxes
Tax expense (tax recovery) comprises current tax expense (current tax recovery) and deferred tax expense (deferred tax recovery) and includes all domestic and foreign taxes which are based on taxable profits. The tax currently payable is based on the taxable profits for the period. Taxable profit differs from net profit as reported in the statement of operations because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences:
 
 	•	 	except where the deferred tax liability arises on goodwill that is not tax deductible or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.	
 
 	•	 	in respect of taxable temporary differences associated with investments in subsidiaries, joint ventures and associates, except where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.	
Deferred tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized:
 
 	•	 	except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.	
 
 	•	 	in respect of deductible temporary differences associated with investments in subsidiaries, joint ventures and associates, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.	
On the reporting date, management reviews the Group’s deferred tax assets to determine whether it is probable that the benefits associated with these assets will be realized. The Group also reassesses unrecognized deferred tax assets. This review and assessment involve evaluating both positive and negative evidence. The Group recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in the statement of operations.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, and when they relate to income tax levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Resource property revenue taxes and withholding taxes (which include withholding taxes payable by a subsidiary, associate or joint venture on distributions to the Group) are treated as income taxes when they have the characteristics of an income tax. This is considered to be the case when they are imposed under government authority and the amount payable is calculated by reference to revenue derived.
 
74

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
The Group includes interest charges and penalties on current tax liabilities as a component of interest expense.
(xxv) Earnings Per Share
Basic earnings per share is determined by dividing net income applicable to common shares by the weighted average number of common shares outstanding for the year, net of treasury stock.
Diluted earnings per share is determined using the same method as basic earnings per share except that the weighted average number of common shares outstanding includes the potential dilutive effect of stock options. For the purpose of calculating diluted earnings per share, the Group assumes the exercise of its dilutive options with the assumed proceeds from these instruments regarded as having been received from the issue of common shares at the average market price of common shares during the period. The difference between the number of common shares issued and the number of common shares that would have been issued at the average market price of common shares during the period is treated as an issue of common shares for no consideration. The amount of the dilution is the average market price of common shares during the period minus the issue price and the issue price includes the fair value of services to be supplied to the Group in the future under the share-based payment arrangement.
If the share-based payments were granted during the period, the shares issuable are weighted to reflect the portion of the period during which the payments were outstanding. The shares issuable are also weighted to reflect forfeitures occurring during the period. When options are exercised during the period, shares issuable are weighted to reflect the portion of the period prior to the exercise date and shares issued are included in the weighted average number of shares outstanding from the exercise date.
(xxvi) Business Combinations
The Group adopted IFRS 3, Business Combinations (Revised), and accounts for each business combination by applying the acquisition method. Pursuant to the acquisition method, the Group, when a business combination occurs, identifies the acquirer (which obtains control of the acquiree), determines the acquisition date (on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree), recognize and measures the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree, and recognize and measure goodwill or a gain from a bargain purchase (i.e. negative goodwill). The identifiable assets acquired and the liabilities assumed are measured at their acquisition-date fair values. Non-controlling interest is measured at either its fair value or its proportionate share in the recognized amounts of the subsidiary’s identifiable net assets, on a transaction-by-transaction basis.
The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the Group to former owners of the acquiree and the equity interests issued by the Group.
In a business combination achieved in stages, the Group remeasures its previously held equity interest in the acquiree at its acquisition-date fair value and recognizes the resulting gain or loss, if any, in profit or loss.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the Group retrospectively adjusts the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date. During the measurement period, the Group also recognizes additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends as soon as the Group receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. However, the measurement period does not exceed one year from the acquisition date.
Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder’s fees; advisory, legal, accounting, valuation and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of
 
75

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
registering and issuing debt and equity securities. The Group accounts for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, except for the costs to issue debt or equity securities (see Significant Accounting Policy Item (xxiii)  above).
C. Major Sources of Estimation Uncertainty
The major assumptions and other sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. These items require management’s most difficult, subjective or complex judgments.
(i) Recoverable Value of Receivables
The Group had recognized receivables (including loans, trade and other) aggregating $50,167 at December 31, 2011. The recoverability of the receivables is regularly reviewed and specific provisions are recognized for balances considered to be irrecoverable. The irrecoverable amounts are estimated based on reviewing the macro-economic environment and available micro-economic information specific to each receivable.
(ii) Provision for Inventories
The Group had recorded inventories of $81,223 at December 31, 2011. The provision for the inventories is regularly reviewed and general and specific provisions are recognized for balances considered to be irrecoverable. The irrecoverable amounts are estimated based on reviewing the macro-economic environment and available micro-economic information specific to the product categories.
(iii) Impairment of Property, Plant and Equipment and Resource Properties
The Group had property, plant and equipment and interests in resource properties aggregating $223,325 at December 31, 2011. Determining whether these tangible assets are impaired requires an estimation of the recoverable amounts which in turn requires an estimation of the timing and amount of future cash flows arising from the property, a suitable discount rate, outcome of recent transactions for similar assets within the same industry and other factors (e.g. illiquidity) in order to calculate the present value.
(iv) Impairment of Equity Method Investments
The Group had investments in joint ventures accounted for by the equity method aggregating $18,726 at December 31, 2011. Investments in joint ventures are reviewed for impairment at the reporting date. Determining whether an investment balance is impaired requires an estimation of the value in use of the joint venture. The value in use calculation requires an estimate to be made of the timing and amount of future cash flows expected to arise from the joint venture and the application of a suitable discount rate in order to calculate the present value.
(v) Taxation
The Group is subject to tax in a number of jurisdictions and judgment is required in determining the worldwide provision for income taxes. Deferred tax is accounted for on temporary differences using the liability method, with deferred tax liabilities generally being provided for in full (except for taxable temporary differences associated with investments in subsidiaries, joint ventures and associates where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future) and deferred tax assets being recognized to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized.
The operations and organization structures of the Group are complex, and related tax interpretations, regulations and legislation are continually changing. As a result, there are usually some tax matters in question that result in uncertain tax positions. The Group only recognizes the income tax benefit of an uncertain tax position when it is probable that the ultimate determination of the tax treatment of the position will result in that benefit being realized.
 
76

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
The Group recognized deferred tax assets of $7,524 at December 31, 2011. In assessing the realizability of deferred tax assets, management considers whether it is probable that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible or before the tax loss carry-forwards expire. Management considers the future reversals of existing taxable temporary differences, projected future taxable income, taxable income in prior years and tax planning strategies in making this assessment.
The Group provides for future liabilities in respect of uncertain tax positions where additional tax may become payable in future periods and such provisions are based on management’s assessment of exposures. The Group did not recognize the full deferred tax liability on taxable temporary differences associated with investments in subsidiaries, joint ventures and associates where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. The Group may change its investment decision in its normal course of business, thus resulting in additional tax liability.
(vi) Provisions (Liability Recognition)
Pursuant to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, the Group does not recognize a contingent liability. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the financial statements of the period in which the change in probability occurs. The Group had recorded provisions of $115 at December 31, 2011. The recognition of provisions is subject to a reliable estimate of the amount of the obligation. Provisions and contingent liabilities may develop in a way not initially expected. Therefore, they are assessed continually to determine whether an outflow of resources embodying economic benefits has become probable.
D. Recent Accounting Standards and Amendments not yet Adopted
Certain pronouncements were issued by the IASB that are mandatory for accounting periods beginning after January 1, 2012 or later periods. The following new accounting standards and amendments are expected to have significant effects on the Group’s accounting policies, financial position, results of operations and/or financial statement presentation and disclosure.
IFRS 9, Financial Instruments , replaces IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value. The approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in IAS 39. Pursuant to IFRS 9, an entity choosing to measure a liability at fair value will present the portion of the change in its fair value due to changes in the entity’s own credit risk in other comprehensive income, rather than in the profit or loss. New requirements for the derecognition of financial instruments, impairment and hedge accounting are expected to be added to IFRS 9. In December 2011, the IASB issued amendments to IFRS 9 that defer the mandatory effective date from January 1, 2013 to January 1, 2015. The deferral will make it possible for all phases of the project to have the same mandatory effective date. The amendments also provide relief from the requirement to restate comparative financial statements for the effect of applying IFRS 9. This relief was originally only available to companies that chose to apply IFRS 9 prior to 2012. Instead, additional transition disclosures will be required to help investors understand the effect that the initial application of IFRS 9 has on the classification and measurement of financial instruments. Early application of IFRS 9 is still permitted.
IFRS 10, Consolidated Financial Statements, establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 supersedes IAS 27 (Revised), Consolidated and Separate Financial Statements, and SIC-12, and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
IFRS 11, Joint Arrangements establishes principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (i.e. joint arrangements). IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities — Non-Monetary Contributions by Venturers, and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
 
77

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
IFRS 12, Disclosure of Interests in Other Entities, applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. The objective of this IFRS is to require an entity to disclose information that enables users of its financial statements to evaluate: (a) the nature of, and risks associated with, its interests in other entities; and (b) the effects of those interests on its financial position, financial performance and cash flows. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
IAS 27, Separate Financial Statements, has been amended for the issuance of IFRS 10 but retains the current guidance for separate financial statements. IAS 28, Investments in Associates and Joint Ventures, has been amended for conforming changes based on the issuance of IFRS 10 and IFRS 11.
All of the “package of five” new and amended standards (IFRS 10, IFRS 11, IFSR 12, IAS 27 and IAS 28) must be applied at the same time.
IFRS 13, Fair Value Measurement, (a) defines fair value; (b) sets out in a single IFRS a framework for measuring fair value; and (c) requires disclosures about fair value measurements. IFRS 13 is to be applied for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
Amendments, set out in Disclosures — Transfers of Financial Assets, were issued to amend IFRS 7, Financial Instruments, so as to enhance the disclosure requirements for transfers of financial assets that result in derecognition. These amendments respond, in part, to the recent financial crisis. Entities will be required to provide more extensive quantitative and qualitative disclosures about: (i) risk exposures relating to transfers of financial assets that are: (a) not derecognized in their entirety; or (b) derecognized in their entirety, but with which the entity continues to have some continuing involvement; and (ii) the effect of those risks on an entity’s financial position. The amendments are effective for annual periods beginning on or after July 1, 2011. Earlier application is permitted.
Amendments, set out in Deferred Tax: Recovery of Underlying Assets, were issued to amend IAS 12, Income Taxes. IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40, Investment Property . The amendment provides a practical solution to the problem by introducing a presumption that recovery of the carrying amount will, normally, be through sale. The amendments are effective for annual periods beginning on or after January 1, 2012.
Amendments, set out in Presentation of Items of Other Comprehensive Income¸ were issued to amend IAS 1, Presentation of Financial Statements. The amendments require the grouping of items of other comprehensive income into items that might be reclassified to profit or loss in subsequent periods and items that will not be reclassified to profit or loss in subsequent periods. The amendments are effective for annual periods beginning on or after July 1, 2012 with full retrospective application.
IFRIC Interpretation 20, Stripping Costs in the Production Phase of a Surface Mine, applies to waste removal costs that are incurred in surface mining activity during the production phase of the mine (‘production stripping costs’) and addresses the following issues: (a) recognition of production stripping costs as an asset; (b) initial measurement of the stripping activity asset; and (c) subsequent measurement of the stripping activity asset. An entity shall apply this Interpretation for annual periods beginning on or after January 1, 2013. Earlier application is permitted.
Note 2.    Capital Disclosure on the Group’s Objectives, Policies and Processes for Managing Its Capital Structure
The Group’s objectives when managing capital are: (i) to safeguard the entity’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders, (ii) to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk, and (iii) to maintain a flexible capital structure which optimizes the cost of capital at acceptable risk.
The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
 
78

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Consistently with others in the industry, the Group monitors capital on the basis of the debt-to-adjusted capital ratio and long-term debt-to-equity ratio. The debt-to-adjusted capital ratio is calculated as net debt divided by adjusted capital. Net debt is calculated as total debt less cash and cash equivalents. Adjusted capital comprises all components of shareholders’ equity and some forms of subordinated debt, if any. The long-term debt-to-equity ratio is calculated as long-term debt divided by shareholders’ equity. The computations are based on continuing operations.

 	  	2011	 	 	2010	 	
Total debt	  	$	47,127	  	 	$	52,748	  	
Less: cash and cash equivalents	  	 	(387,052	) 	 	 	(397,697	) 	
	  	 	 	 	 	 	 	 	
Net debt (net cash and cash equivalents)	  	$	(339,925	) 	 	$	(344,949	) 	
Shareholders’ equity	  	$	546,623	  	 	$	547,756	  	
Debt-to-adjusted capital ratio	  	 	Not applicable	  	 	 	Not applicable	  	
There were no amounts in accumulated other comprehensive income relating to cash flow hedges nor were there any subordinated debt instruments as at December 31, 2011 and 2010. The debt-to-adjusted capital ratio in 2011 and 2010 were not applicable since the Group had a net cash and cash equivalents balance.

 	  	2011	 	  	2010	 	
Long-term debt	  	$	20,150	  	  	$	48,604	  	
Shareholders’ equity	  	$	546,623	  	  	$	547,756	  	
Long-term debt-to-equity ratio	  	 	0.04	  	  	 	0.09	  	
During 2011, the Group’s strategy, which was unchanged from 2010, was to maintain the debt-to-adjusted capital ratio and the long-term debt-to-equity ratio at a low level. The Group had a net cash and cash equivalent balance after deduction of the total debt. The Group’s long-term debt-to-equity ratio was 0.04 and 0.09 as at December 31, 2011 and 2010, respectively.
Note 3.    Acquisitions of Consolidated Entities
Year 2011
In August 2011, MFC Industrial reorganized its indirect royalty interest by transferring it to 0915988 B.C. Ltd. (“091 BC”) in exchange for voting interest of 40.1% (including 9.9% purchased in June 2011 for $128 in cash) and non-voting interest of 100%, or an aggregate economic interest of 99.44%, in 091 BC. This exchange transaction was accounted for as a purchase other than business combination and 091 BC has been consolidated into the Group since August 2011 pursuant to SIC-12 . Immediately prior to the initial consolidation into MFC Industrial, 091 BC had total assets of $95 and total liabilities of $430; and did not recognize a deferred tax asset with respect to its non-capital tax loss carryforwards. Non-controlling interest of $1,172 was initially recognized upon consolidation of 091 BC.
Year 2010
On September 27, 2010, MFC Industrial announced that it entered into an agreement with Mass for MFC Industrial to acquire all of the issued and outstanding common shares of Mass by way of a take-over bid (the “Offer”). The Offer was one common share of MFC Industrial for each common share of Mass. The Offer was based upon the adjusted book value of each company on a diluted basis and valued MFC Industrial’s common shares at $8.91 per share.
Mass’s business encompasses a broad spectrum of activities related to the integrated combination of commodities and resources and merchant banking, which include trading, commercial trade, proprietary investing and financial services. The board of directors of MFC Industrial considered a number of factors, including, among other things, strategic growth through acquisition, adjusted book value valuation, increased scope, complementary businesses, management team, fairness opinion, meaningful cost savings and other synergies and facilitate the Mass acquisition. MFC Industrial received authorization from the New York Stock Exchange in October 2010 to list the shares to be issued pursuant to the Offer and over 99% of its shareholders voting at its special meeting on October 29, 2010 approved the same.
 
79

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
The Offer was completed and closed on November 15, 2010 and 23,317,912 common shares of Mass were submitted for exchange. As a result, 23,317,912 MFC Industrial common shares were issued. In December 2010, MFC Industrial acquired the common shares held by the non-controlling interests of Mass by mandatory acquisition by issuing 1,674,210 MFC Industrial common shares. The aggregate fair value of shares issued was $200,139, before deducting the costs of issuing shares totalling $1,652.
Prior to the acquisition date, the Group held approximately a 4.6% equity interest in Mass with a fair value of $9,388 on the acquisition date. The Group recognized a loss of $1,806 which was included in the net gains on securities in the consolidated statement of operations.
The Offer was a part of a multi-step transaction, which included the subsequent merger of Mass and a subsidiary of MFC Industrial, designed to effect a combination.
The acquisition was accounted for as a business combination pursuant to IFRS 3 (Revised). The aggregated cost of the acquisition totalled $209,527. The fair value of the assets acquired and liabilities assumed at the acquisition date was allocated as follows:

Cash	  	$	213,850	  	
Receivables, net	  	 	23,040	  	
Other current assets	  	 	131,371	  	
Property, plant and equipment	  	 	3,840	  	
Interest in resource property	  	 	51,000	  	
Treasury stock	  	 	2,626	  	
Other non-current assets	  	 	67,362	  	
Current liabilities	  	 	(128,444	) 	
Non-current liabilities	  	 	(108,747	) 	
Non-controlling interests	  	 	(5,313	) 	
	  	 	 	 	
Total identifiable net assets acquired	  	$	250,585	  	
	  	 	 	 	
Total consideration transferred	  	$	209,527	  	
Negative goodwill	  	 	41,058	  	
	  	 	 	 	
	  	$	250,585	  	
	  	 	 	 	
The negative goodwill arose as the share market prices of MFC Industrial on the acquisition dates were less than the fair values of the net identifiable assets acquired from Mass. Non-controlling interests were measured at their proportionate share in the recognized amounts of Mass’s identifiable net assets.
At the acquisition date, the gross contractual amounts of receivables acquired was $23,591 and the best estimate of the contractual cash flows not expected to be collected was $551, resulting in a fair value of $23,040.
The amounts of revenue and net income of Mass since the acquisition date (i.e. from November 16 to December 31, 2010) included in the consolidated statement of comprehensive income for 2010 was $53,276 and $5,652, respectively.
Year 2009
There was no business combination transaction in 2009.
Note 4.    Discontinued Operations
Year 2011
There were no operations discontinued in 2011.
Year 2010 — KID
Until the end of March 2010, the Group, through its former subsidiary KID, focused on the industrial plant technology, equipment and service business for the cement and mining industries and on maintaining leadership in supplying technologies, equipment and engineering services for the cement and mining sectors, as well as
 
80

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
designing and building plants that produce clinker and cement and process coal and other minerals, such as copper, gold and diamonds. In the fourth quarter of 2009, the Group divested its interest in its coal and minerals customer group, such that the business of the Group was then focused on the cement industry.
On January 6, 2010, MFC Industrial announced that it intended to restructure its assets and operations by dividing into two independent publicly traded companies; one company to focus on the industrial engineering business and the other company on MFC Industrial’s resource-focused business. To effect this division, MFC Industrial, among other things, effected a reorganization whereby substantially all of its subsidiaries engaged in the industrial engineering business were transferred to KID.
MFC Industrial entered into an Arrangement Agreement with KID on February 26, 2010 to effect an arrangement (the “Arrangement”) under Section 288 of the British Columbia Business Corporations Act, which was approved by MFC Industrial’s shareholders on March 29, 2010 and was subsequently approved by the British Columbia Supreme Court.
Pursuant to the Arrangement, among other things, approximately 26% of the issued and outstanding common shares of KID were distributed, on a pro rata basis, one common share of KID for every three and one-half of MFC Industrial common shares held, to the non-subsidiary shareholders of MFC Industrial as a return of capital. The carrying amount of these common shares of KID was within the fair value range obtained from a valuation. For financial statement presentation purposes, the distribution of common shares of KID was accounted for as a dividend in kind and the carrying amount was charged against retained earnings. This was a non-cash transaction.
As a result of the Arrangement and related amendment to MFC Industrial’s articles, two publicly traded companies were created. As well in connection with the Arrangement, MFC Industrial entered into a shareholders agreement (the “Shareholders Agreement”) with another corporate shareholder of KID (the “Custodian”) whereby MFC Industrial engaged the Custodian to direct the voting of the common shares of KID that MFC Industrial continues to hold after consummation of the Arrangement. As a result of the execution of the Shareholders Agreement, MFC Industrial ceased to hold its continuing power to determine the strategic operating, investing and financing policies of KID. There have been no common directors and officers between the two entities. Accordingly, MFC Industrial no longer considered KID as its subsidiary since March 31, 2010. Pursuant to SIC-12 , management of the Group analyzed its continuing interests in KID and concluded that KID was not a SPE of the Group because the substance of the relationship between the Group and KID did not indicate that KID was controlled by the Group. Management of the Group believed that KID’s total equity investment at risk was sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any parties, including the Group, and the facts that the guarantees then provided by the Group would expire in the ordinary course pursuant to their terms and KID would get credit facilities on its own. (Pursuant to a subsequent amendment to the bonding agreement, all guarantees previously provided by the Group expired on December 31, 2010.) Accordingly, the Group ceased to consolidate KID from March 31, 2010. At March 31, 2010, the carrying amount of the Group’s investment in KID common shares approximated its fair value and there was no gain or loss recognized in connection with the cessation of the consolidation of KID. Effective March 31, 2010, the Group classified its investment in these common shares of KID as available for sale. The shares are measured at their fair value, net of income tax, with changes in fair value recorded in other comprehensive income until they are disposed of.
As at March 31, 2010, assets and liabilities of the industrial engineering business ceased to be consolidated were as follows:

Cash	  	$	285,739	  	
Other assets	  	 	237,561	  	
Liabilities	  	 	(356,720	) 	
Non-controlling interests	  	 	(3,930	) 	
	  	 	 	 	
Net identifiable assets	  	$	162,650	  	
	  	 	 	 	
In June 2010, MFC Industrial declared a special dividend whereby it distributed approximately 23% of the total issued and outstanding common shares of KID to MFC Industrial’s shareholders of record on July 1, 2010, on a pro rata basis, one common share of KID for every four of MFC Industrial common shares held. The special
 
81

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
dividend was recorded at its carrying amount (which approximated its fair value) in the consolidated financial statements for the quarter ended June 30, 2010.
In September 2010, MFC Industrial distributed, as a return of capital, approximately 29% of the total issued and outstanding common shares of KID to MFC Industrial’s shareholders of record on September 23, 2010, on a pro rata basis, one common share of KID for every four of MFC Industrial common shares held. The carrying amount of these common shares of KID was within the fair value range obtained from a valuation. For financial statement presentation purposes, the distribution of common shares of KID was accounted for as a dividend in kind and the carrying amount was charged against retained earnings. This was a non-cash transaction.
In December 2010, MFC Industrial distributed, as a return of capital, approximately 19% of the total issued and outstanding common shares of KID to MFC Industrial’s shareholders of record on December 31, 2010, on a pro rata basis, one common share of KID for every 10 of MFC Industrial common shares held. The carrying amount of these common shares of KID was within the fair value range obtained from a valuation. This was the fourth and final distribution of KID shares. For financial statement presentation purposes, the distribution of common shares of KID was accounted for as a dividend in kind and the carrying amount was charged against retained earnings. This was a non-cash transaction.
Management is of the opinion that the KID common shares were not quoted in an active market until December 31, 2010 when the fourth distribution of KID commons shares was made and, accordingly, the KID common shares had been measured using Level 3 of the fair value hierarchy. The valuation was based on the earnings forecast of the operations of industrial plant technology, equipment and service business, as well as the expected earning multiple and discount rate. Upon the final distribution of KID common shares on December 31, 2010, the Group held approximately 2.9% of the then outstanding KID shares and reclassified its investment at its carrying amount from Level 3 to Level 1 of the fair value hierarchy. The investment in KID common shares is the only item in Level 3 of the fair value hierarchy during 2010 and no gain or loss was recognized while it stayed in Level 3. The reason for the reclassification of the investment in KID common shares from Level 3 to Level 1 was that, after four distributions of KID common shares by December 31, 2010, an active market for KID common shares had been created.
Income taxes included capital gain taxes of $5,974 on the disposition and the outside basis difference of the KID common shares and a withholding tax of $2,514 deducted at source on the cash dividend paid by KID to the Group. The capital gain taxes were offset by MFC Industrial’s non-capital loss carry-forwards and, accordingly, did not involve cash payments.
Year 2009 — Workshop and Coal and Minerals Customer Groups (part of KID)
Effective September 30, 2009, management, as duly authorized by the board of directors, committed to a plan to sell the workshop in Cologne and the Group’s coal and minerals customer group, each in their respective present conditions, to a third party. The sale was completed and executed in early October, 2009 and there were no significant changes to the sale plan prior to closing.
Pursuant to the sale agreement, the Group received cash of $7,500 and might receive contingent payments based on unutilized severance payments for the workshop’s employees and certain other contingencies. The Group also agreed to grant the buyer the right to continue to manufacture the roller press for the Group for a period of three years from the closing date, provided this was done on normal commercial terms. Further, for a period of three years, the Group would offer the Cologne workshop contracts to manufacture equipment required for the Group’s cement business that had traditionally been manufactured at the workshop and the buyer had agreed to undertake such orders on a priority basis. The buyer had also agreed to assume certain liabilities, including pension obligations, from the Group. The disposal group had been reported in the industrial plant technology, equipment and service business segment.
A gain of $5,254 was recognized on the sale of the workshop and coal and minerals customer groups in the Group’s consolidated statement of operations.
 
82

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
For reporting purposes, the results of operations of KID, including workshop and coal and mineral customer groups, have been presented as discontinued operations. Following is the summary of operating results for the discontinued operations. There were no operations discontinued in 2011.

 	  	2010	 	 	2009	 	
Net sales	  	$	101,585	  	 	$	576,408	  	
Other revenues	  	 	1,765	  	 	 	10,895	  	
Expenses	  	 	(101,435	) 	 	 	(510,448	) 	
Gain on sale (included in income before income taxes)	  	 	—	  	 	 	5,254	  	
	  	 	 	 	 	 	 	 	
Income before income taxes	  	 	1,915	  	 	 	82,109	  	
Less: Income taxes	  	 	(17,364	) 	 	 	(28,067	) 	
	  	 	 	 	 	 	 	 	
Net income (loss)	  	 	(15,449	) 	 	 	54,042	  	
Non-controlling interests	  	 	(74	) 	 	 	(1,050	) 	
	  	 	 	 	 	 	 	 	
Net income (loss) attributable to equity shareholders	  	$	(15,523	) 	 	$	52,992	  	
	  	 	 	 	 	 	 	 	
Note 5.    Business Segment Information
The Group is primarily in global commodities supply chain business.
In reporting to management, the Group’s operating results are categorized into the following operating segments: commodities and resources, merchant banking and all other segments.
Until the end of March 2010, the Group, through its former subsidiary, focused on the industrial plant technology, equipment and service business for the cement and mining industries. MFC Industrial started to spin off the former subsidiary on March 31, 2010, which was completed on December 31, 2010. Accordingly, the spin-off of the industrial plant technology, equipment and service business in 2010 resulted in reclassification of prior years’ financial information including segment information.
Basis of Presentation
In reporting segments, certain of the Group’s business lines have been aggregated where they have similar economic characteristics and are similar in each of the following areas: (i) the nature of the products and services; (ii) the methods of distribution, and (iii) the types or classes of customers/clients for the products and services.
Commodities and resources segment includes trading of commodities and resources, as well as the related producing, processing and extracting activities. It also includes the royalty income from the Group’s interests in resource properties.
Merchant banking segment includes proprietary investing and provision of financial services. The Group seeks investments in many industries, emphasizing those business opportunities where the perceived intrinsic value is not properly recognized. The Group uses its financial and management expertise to add or unlock value within a relative short time period. The merchant banking business also provides supply chain structured solutions.
All other segment includes the Group’s corporate and operating segments whose quantitative amounts do not exceed 10% of any of the Group’s (a) reported revenue, (b) net income or (c) combined assets. The Group’s other operating segments primarily include business activities in medical equipment, instruments, supplies and services.
The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The chief operating decision maker evaluates performance on the basis of income or loss from operations before tax expense and does not consider acquisition accounting adjustments in assessing the performance of reporting units. The segment information presented in this Note 5 is prepared according to the following methodologies: (a) revenues and expenses directly associated with each segment are included in determining pre-tax earnings; (b) intersegment sales and transfers are accounted for as if the sales or transfers were to third parties at current market prices; (c) certain general and administrative expenses paid by corporate,
 
83

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
particularly incentive compensation and share-based compensation, are not re-allocated to reporting units; (d) all intercompany investments, receivables and payables are eliminated in the determination of the segment’s assets and liabilities; and (e) deferred tax assets and liabilities are not reallocated further.
Products and Services
The Group’s total revenues comprised the following for the years ended December 31, 2011, 2010 and 2009, respectively:

 	  	2011	 	  	2010	 	  	2009	 	
Commodities and resources	  	$	470,242	  	  	$	74,608	  	  	$	13,530	  	
Fees	  	 	6,670	  	  	 	2,602	  	  	 	—	  	
Gains on securities	  	 	—	  	  	 	402	  	  	 	324	  	
Interest	  	 	10,701	  	  	 	2,792	  	  	 	435	  	
Dividend	  	 	338	  	  	 	467	  	  	 	1	  	
Derivative instrument gains, net	  	 	6,805	  	  	 	—	  	  	 	—	  	
Equity income	  	 	5,912	  	  	 	954	  	  	 	—	  	
Other	  	 	20,041	  	  	 	3,605	  	  	 	428	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Total revenues	  	$	520,709	  	  	$	85,430	  	  	$	14,718	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
The Group’s revenues for 2010 consolidated the revenues of Mass and its subsidiaries  from November 16, 2010.
Segment Operating Results

 	  	Year ended December 31, 2011	 	
 	  	Commodities
and  resources	 	  	Merchant
Banking	 	  	All other	 	 	Total	 	
Revenues from external customers	  	$	481,677	  	  	$	22,487	  	  	$	16,545	  	 	$	520,709	  	
Intersegment sale	  	 	2	  	  	 	14,651	  	  	 	456	  	 	 	15,109	  	
Interest expense	  	 	6,588	  	  	 	56	  	  	 	42	  	 	 	6,686	  	
Income (loss) from continuing operations before income taxes	  	 	23,157	  	  	 	8,858	  	  	 	(14,834	) 	 	 	17,181	  	

 	  	Year ended December 31, 2010	 	
 	  	Commodities
and  resources	 	  	Merchant
Banking	 	  	All other	 	 	Total	 	
Revenues from external customers	  	$	76,478	  	  	$	4,821	  	  	$	4,131	  	 	$	85,430	  	
Intersegment sale	  	 	37	  	  	 	978	  	  	 	—	  	 	 	1,015	  	
Interest expense	  	 	909	  	  	 	9	  	  	 	56	  	 	 	974	  	
Income (loss) from continuing operations before income taxes	  	 	23,901	  	  	 	44,206	  	  	 	(15,951	) 	 	 	52,156	  	

 	  	Year ended December 31, 2009	 	
 	  	Commodities
and resources	 	  	Merchant
Banking	 	  	All other	 	 	Total	 	
Revenues from external customers	  	$	13,530	  	  	$	—	  	  	$	1,188	  	 	$	14,718	  	
Interest expense	  	 	—	  	  	 	—	  	  	 	477	  	 	 	477	  	
Income (loss) from continuing operations before income taxes	  	 	3,148	  	  	 	—	  	  	 	(23,939	) 	 	 	(20,791	) 	

 	  	As at December 31, 2011	 	
 	  	Commodities
and resources	 	  	Merchant
Banking	 	  	All other	 	  	Total	 	
Segment assets	  	$	456,223	  	  	$	332,890	  	  	$	69,844	  	  	$	858,957	  	
Equity method investments (included in segment assets)	  	 	12,064	  	  	 	—	  	  	 	6,662	  	  	 	18,726	  	
 
84

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011

 	  	As at December 31, 2010	 	
 	  	Commodities
and resources	 	  	Merchant
Banking	 	  	All other	 	  	Total	 	
Segment assets	  	$	409,146	  	  	$	418,490	  	  	$	26,620	  	  	$	854,256	  	
Equity method investments (included in segment assets)	  	 	—	  	  	 	—	  	  	 	5,713	  	  	 	5,713	  	

 	  	As at December 31, 2011	 	
 	  	Commodities
and resources	 	  	Merchant
Banking	 	  	All other	 	  	Total	 	
Segment liabilities	  	$	250,334	 	  	$	43,279	  	  	$	16,197	  	  	$	309,810	  	

 	  	As at December 31, 2010	 	
 	  	Commodities
and resources	 	  	Merchant
Banking	 	  	All other	 	  	Total	 	
Segment liabilities	  	$	252,897	  	  	$	44,082	  	  	$	4,837	  	  	$	301,816	  	
Geographic Information
Due to the highly integrated nature of international commodities, resources and merchant banking activities and markets, and a significant portion of the Group’s activities require cross-border coordination in order to serve the Group’s customers and clients, the methodology for allocating the Group’s profitability to geographic regions is dependent on estimates and management judgment.
Geographic results are generally allocated as follows:

Segment	  	Basis for attributing revenues	
Commodities and resources	  	Locations of external customers	
Merchant banking	  	Locations of clients, assets or the reporting units, whichever is appropriate	
All other segments	  	Locations of the reporting units	
Due to the nature of cross-border business, the Group presents its geographic information by geographic regions, instead of by countries. The following table presents revenues from external customers attributed to MFC Industrial’s country of domicile (i.e. Canada) and all foreign geographic regions from which the Group derives revenues:

 	  	2011	 	  	2010	 	  	2009	 	
Canada	  	$	37,410	  	  	$	33,303	  	  	$	13,567	  	
Africa	  	 	7,914	  	  	 	1,508	  	  	 	—	  	
Americas	  	 	49,887	  	  	 	6,277	  	  	 	407	  	
Asia	  	 	87,208	  	  	 	7,735	  	  	 	617	  	
Europe	  	 	338,290	  	  	 	36,607	  	  	 	127	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	520,709	  	  	$	85,430	  	  	$	14,718	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Income from an interest in resource property is earned from a third party entity operating in Canada and amounted to $30,782, $31,715 and $13,530, respectively, in 2011, 2010 and 2009.
Except for the geographic concentrations as indicated in the above table, there were no revenue concentrations in 2011, 2010 and 2009.
The following table presents non-current assets from continuing operations other than financial instruments and deferred tax assets by geographic area based upon the location of the assets.

 	  	2011	 	  	2010	 	
Canada	  	$	173,771	  	  	$	182,192	  	
Africa	  	 	27	  	  	 	—	  	
Asia	  	 	47,117	  	  	 	50,879	  	
Europe	  	 	35,995	  	  	 	41,012	  	
	  	 	 	 	  	 	 	 	
	  	$	256,910	  	  	$	274,083	  	

85

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
The non-current assets located in Canada comprised primarily the  Group’s interest in resource property (see Note 17).
Note 6.    Securities
Short-term securities

 	  	2011	 	  	2010	 	
Trading securities:	  				  				
Common shares, at fair value	  	$	12,766	  	  	$	25,145	  	
Available-for-sale securities:	  				  				
Common shares, at fair value	  	 	296	  	  	 	2,733	  	
Investment in a private company, at cost	  	 	—	  	  	 	16	  	
	  	 	 	 	  	 	 	 	
	  	$	13,062	  	  	$	27,894	  	
	  	 	 	 	  	 	 	 	
At December 31, 2011, investments in publicly-listed common shares trading securities comprised 11 companies (of which four companies represented 75%). The available-for-sale common shares trading securities comprised one company which was a former subsidiary (see Note 32).
At December 31, 2010, investments in publicly-listed common shares trading securities comprised 12 companies (of  which four companies represented 71%). The available-for-sale common shares securities comprised one company only.
Note 7.    Restricted Cash

 	  	2011	 	  	2010	 	
Cash pledged with a bank in connection with sales of securities	  	$	86	  	  	$	125	  	
Cash deposit with a bank in connection with currency derivative contracts	  	 	—	  	  	 	2,822	  	
Bank accounts temporarily restricted pursuant to court orders	  	 	453	  	  	 	431	  	
Other	  	 	84	  	  	 	86	  	
	  	 	 	 	  	 	 	 	
	  	$	623	  	  	$	3,464	  	
	  	 	 	 	  	 	 	 	
Cash pledged with a bank in connection with sales of publicly-traded equity securities  will be released whenever the securities are bought back.
Note 8.    Loan Receivable

 	  	2011	 	  	2010	 	
Loans to a corporation under a credit facility of $20,000, interest at London Inter-Bank Offered Rate (“LIBOR”) plus 4.06% per annum (4.375% at December 31, 2011) and payable monthly, collateralized by a charge on all the borrower’s undertaking, goodwill and other assets and property, ranking only behind the charges created in favor of the purchaser under a forward sales agreement. The credit facility is to expire in May 2012. The borrower was related to the Group until June 2011	  	$	19,869	  	  	$	5,792	  	
	  	 	 	 	  	 	 	 	
Total — current	  	$	19,869	  	  	$	5,792	  	
	  	 	 	 	  	 	 	 	
As at December 31, 2011, none of the loan receivable was past due or impaired.
Note 9.    Bills of Exchange and Trade Receivables
Bills of Exchange

 	  	2011	 	  	2010	 	
Bills of exchange	  	$	10,545	  	  	$	        —	  	
	  	 	 	 	  	 	 	 	
A bill of exchange (which is also known as a draft) is a negotiable instrument which is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time; and is frequently used in international trade. In its normal course of commodity supply chain business, the Group may request
 
86

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
customers to accept bills of exchange (with underlying trade receivables guaranteed by a top-rated Austrian bank or credit-insured) as a means of payment and the Group usually discounts the bills of exchange with banks so as to improve its liquidity.
The Group discounted $10,545 in the bills of exchange  with a bank at December 31, 2011 and the proceeds were received in January 2012.
Trade Receivables

 	  	2011	 	 	2010	 	
Trade receivables, gross amount	  	$	21,873	  	 	$	13,789	  	
Less: Allowance for credit losses	  	 	(719	) 	 	 	(701	) 	
	  	 	 	 	 	 	 	 	
Trade receivables, net amount	  	$	21,154	  	 	$	13,088	  	
	  	 	 	 	 	 	 	 	
Trade receivables primarily arise from commodity activities. The terms with affiliates in the normal course of the Group’s activities are no different from third party customers.
The Group has a specially structured factoring arrangement with a bank for the Group’s trade receivables (see Note 19).
As at December 31, 2011, trade receivables of $1,817 (2010: $2,445) were past due but not impaired. The aging analysis of these trade receivables as at December 31, 2011 and 2010 is as follows:

Past-due	  	2011	 	  	2010	 	
Below 30 days	  	$	1,638	  	  	$	1,170	  	
Between 31 and 60 days	  	 	55	  	  	 	537	  	
Between 61 and 90 days	  	 	97	  	  	 	354	  	
Between 91 and 365 days	  	 	27	  	  	 	131	  	
Over 365 days	  	 	—	  	  	 	253	  	
	  	 	 	 	  	 	 	 	
	  	$	1,817	  	  	$	2,445	  	
	  	 	 	 	  	 	 	 	
As at December 31, 2011, trade receivables of $1,030 (2010: $1,501) were impaired and an allowance for credit losses of $719 (2010: $701) has been provided. Not all past-due account balances are uncollectible as some of the accounts are covered by credit insurance or other collection procedures. Credit risk from trade account receivables is mitigated since they are credit insured, covered by letters of credit, bank guarantees and/or other credit enhancements (see Note 32). The aging analysis of these trade receivables as at December 31, 2011 and 2010 is as follows:

Past-due	  	2011	 	  	2010	 	
Below 30 days	  	$	—	  	  	$	3	  	
Between 31 and 60 days	  	 	—	  	  	 	8	  	
Between 61 and 90 days	  	 	—	  	  	 	4	  	
Between 91 and 365 days	  	 	6	  	  	 	48	  	
Over 365 days	  	 	1,024	  	  	 	1,438	  	
	  	 	 	 	  	 	 	 	
	  	$	1,030	  	  	$	1,501	  	
	  	 	 	 	  	 	 	 	
The movement of the allowance for credit losses during the current period under review is as follows:

 	  	2011	 	 	2010	 	
Balance, beginning of the year	  	$	701	  	 	$	—	  	
Additions	  	 	58	  	 	 	698	  	
Reversals	  	 	(17	) 	 	 	—	  	
Write-offs	  	 	—	  	 	 	—	  	
Cumulative translation adjustment	  	 	(23	) 	 	 	3	  	
	  	 	 	 	 	 	 	 	
Balance, end of the year	  	$	     719	  	 	$	     701	  	

87

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
As at December 31, 2011 and 2010, there was no trade receivable  which would otherwise be past due or impaired if the terms had not been renegotiated.
Note 10.    Other Receivables

 	  	2011	 	  	2010	 	
Investment income	  	$	463	  	  	$	827	  	
Government taxes (primarily value-added and goods-and-services taxes)	  	 	2,036	  	  	 	2,997	  	
Due from affiliates	  	 	—	  	  	 	8	  	
Royalty income from an interest in resource property	  	 	4,710	  	  	 	5,650	  	
Employees travel advances	  	 	2	  	  	 	25	  	
Derivative assets	  	 	66	  	  	 	12	  	
Other	  	 	1,867	  	  	 	2,588	  	
	  	 	 	 	  	 	 	 	
	  	$	9,144	  	  	$	12,107	  	
	  	 	 	 	  	 	 	 	
The receivables primarily arise in the normal course of business and are expected to be collected within one year from the year end.
As at December 31, 2011 and 2010, there was no other  receivable which would otherwise be past due or impaired if the terms had not been renegotiated.
Note 11.    Inventories

 	  	2011	 	  	2010	 	
Raw materials	  	$	4,741	  	  	$	6,467	  	
Work-in-progress	  	 	6,021	  	  	 	10,842	  	
Finished goods	  	 	6,846	  	  	 	4,968	  	
Commodity inventories (including goods-in-transit of $42,130 and $30,603 at December 31, 2011 and 2010, respectively)	  	 	63,615	  	  	 	44,825	  	
	  	 	 	 	  	 	 	 	
	  	$	81,223	  	  	$	67,102	  	
	  	 	 	 	  	 	 	 	
The Group entered into sale and repurchase agreements with other commodity broker-traders pursuant to which the Group sold an agreed quantity of commodities at agreed prices and undertakes to buy back the same quantity of the same commodities at the same agreed prices in future periods. These sale and repurchase transactions are accounted for as financing arrangements. The cash received is discounted at the market interest rate and shown as deferred sale liabilities in the consolidated statement of financial position. When the commodities are delivered by the Group to the counterparties, sales transactions are completed and recognized with debits to the deferred sale liabilities. As at December 31, 2011, the Group recognized current and long-term deferred sale liabilities of $14,958 and $25,647, respectively. The long-term deferred liability is due on various dates in 2013. As at December 31, 2010, the Group recognized current and long-term deferred sale liabilities of $23,133 and $39,993, respectively.
As at December 31, 2011 and 2010, there was no inventory pledged as security for liabilities.
Note 12.    Deposits, Prepaid and Other

 	  	2011	 	  	2010	 	
Prepayments and deposits for inventories (of which $16,942 at December 31, 2010 was prepaid to an affiliate)	  	$	8,003	  	  	$	18,657	  	
Taxes on inventories	  	 	303	  	  	 	325	  	
Prepaid, deposits and other	  	 	1,038	  	  	 	1,865	  	
	  	 	 	 	  	 	 	 	
	  	$	9,344	  	  	$	20,847	  	

88

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Note 13.    Long-term securities

 	  	2011	 	  	2010	 	
Available-for-sale securities:	  				  				
Publicly-traded	  	$	11,606	  	  	$	7,235	  	
Unlisted	  	 	—	  	  	 	27	  	
	  	 	 	 	  	 	 	 	
	  	$	11,606	  	  	$	7,262	  	
	  	 	 	 	  	 	 	 	
At December 31, 2011, available-for-sale securities comprised 12 publicly-traded equity securities and investment funds (of which the largest company represented 47%). At December 31, 2010, available-for-sale securities comprised six publicly-traded equity securities and investment funds (of which the largest company represented 43%). In addition, included in available-for-sale securities was an investment in a corporation in which the Group has approximately a 9.9% equity interest and which was related to the Group until June 2011. The carrying amount of such  investment was $446 and $1,233, respectively, as at December 31, 2011 and 2010.
Note 14.    Equity method investments

 	  	2011	 	  	2010	 	
Joint ventures — China	  	$	6,662	  	  	$	5,534	  	
Joint ventures — USA	  	 	12,064	  	  	 	—	  	
Other	  	 	—	  	  	 	179	  	
	  	 	 	 	  	 	 	 	
	  	$	18,726	  	  	$	5,713	  	
	  	 	 	 	  	 	 	 	
All of the investees in China were acquired in 2010 through the business combination of Mass and provide eye care business. In December 2011, the Group, through joint venture entities, acquired a 50% interest in an iron ore mine in the USA. The aggregate consideration paid was $12,064. The Group will jointly develop the iron ore mine, including working towards completing a feasibility study on the project, with the mandate to re-open the underground mine, including exploiting the site’s existing large tailings accumulation and exploring other areas for ferrous mineral production.
The following table shows the Group’s joint ventures as at December 31, 2011:

 	  	Proportion of
Ownership
Interest	 	
Zhejiang University No. 2 Hospital Hangzhou Eye Center	  	 	55	% 	
Chongqing Lasernet Guangji Eye Hospital (incorporated)	  	 	58	% 	
Chongqing Fuling Lasernet Eye Center	  	 	65	% 	
Sichuan Suining Lasernet Eye Center	  	 	40	% 	
Thayer Land Development Company, LLC	  	 	50	% 	
TTTT Mining, LLC	  	 	50	% 	
Upland Wings, Inc.	  	 	50	% 	
Wings Enterprises, Inc.	  	 	50	% 	
Consensus is required on the significant and strategic decisions of these entities.
Joint ventures — China
The following table presents the book values of the assets and liabilities related to the Group’s interests in the joint ventures as of December 31, 2011 and 2010:

 	  	2011	 	 	2010	 	
Current assets	  	$	3,724	  	 	$	3,901	  	
Long-term assets	  	 	5,431	  	 	 	3,795	  	
	  	 	 	 	 	 	 	 	
	  	 	9,155	  	 	 	7,696	  	
Liabilities	  	 	(2,493	) 	 	 	(2,162	) 	
	  	 	 	 	 	 	 	 	
Net	  	$	6,662	  	 	$	5,534	  	
	  	 	 	 	 	 	 	 	
The assets held by the joint ventures primarily consist of medical equipment and are financed from their own working capital and equity.
 
89

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
As at December 31, 2011, the Group has not incurred any contingent liabilities or capital commitments in relation to its interests in joint ventures, by the Group itself, or through the joint venturers or the joint venture.
The following table presents the aggregated amounts of income and expenses (including income taxes) related to the Group’s interest in the joint ventures for the years ended December 31, 2011 and 2010:

 	  	2011	 	 	2010	 	
Income	  	$	17,999	  	 	$	1,918	  	
Expenses	  	 	(12,087	) 	 	 	(964	) 	
	  	 	 	 	 	 	 	 	
Net	  	$	5,912	  	 	$	954	  	
	  	 	 	 	 	 	 	 	
The Group did not receive any fees to manage the joint ventures in 2011 and 2010.
Joint ventures — USA
The following table presents provisional accounting of the assets and liabilities related to the Group’s interest in the joint ventures as of December 31, 2011:

 	  	2011	 	
Current assets	  	$	58	  	
Long-term assets	  	 	18,382	  	
	  	 	 	 	
	  	 	18,440	  	
Liabilities	  	 	(6,376	) 	
	  	 	 	 	
Net	  	$	12,064	  	
	  	 	 	 	
The assets held by the joint ventures primarily consist of an interest in an iron ore mine. The Group did not record income and expenses related to these joint ventures as the acquisition was completed in late December 2011 and the income and expenses amounts were nominal.
As at December 31, 2011, the Group has not incurred any contingent liabilities or capital commitments in relation to  its interests in joint ventures, by the Group itself, or through the joint venturers or the joint venture.
Note 15.    Investment property
All of the investment property was acquired in 2010 through acquisition of Mass. Accordingly, there was no comparable data for 2009.

 	  	2011	 	 	2010	 	
Balance at beginning of the year	  	$	38,584	  	 	$	—	  	
Acquired through business combination	  	 	—	  	 	 	39,405	  	
Disposals	  	 	(4,044	) 	 	 	—	  	
Change of fair value during the year	  	 	(56	) 	 	 	(294	) 	
Cumulative translation adjustment	  	 	(899	) 	 	 	(527	) 	
	  	 	 	 	 	 	 	 	
Balance at end of the year	  	$	33,585	  	 	$	38,584	  	
	  	 	 	 	 	 	 	 	
The change of fair value of the investment property is included in the costs of sales in the statement of operations.
The amounts recognized in the statement of operations in relation to the investment property during 2011 and 2010 are as follows:

 	  	2011	 	  	2010	 	
Rental income	  	$	1,766	  	  	$	194	  	
Direct operating expenses (including repairs and maintenance) from investment property that generated rental income during the period	  	 	760	  	  	 	109	  	
There were no restrictions on the realizability of investment property or the remittance of income and proceeds or disposal.
As at December 31, 2011, contractual obligations to purchase, construct or develop the investment property or for repairs, maintenance or enhancements were $nil.
 
90

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Note 16.    Property, Plant and Equipment
The following changes in property, plant and equipment were recorded in 2011:

Historical costs	  	Opening
balance	 	  	Additions	 	  	Divestiture	 	 	Cumulative
translation
adjustments	 	 	Ending
balance	 	
Land and building	  	$	440	  	  	$	153	  	  	$	(5	) 	 	$	(106	) 	 	$	482	  	
Processing plant and equipment	  	 	2,555	  	  	 	509	  	  	 	(1	) 	 	 	(178	) 	 	 	2,885	  	
Office equipment	  	 	2,194	  	  	 	531	  	  	 	(34	) 	 	 	(144	) 	 	 	2,547	  	
	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
	  	$	5,189	  	  	$	1,193	  	  	$	(40	) 	 	$	(428	) 	 	$	5,914	  	

Accumulated depreciation	  	Opening
balance	 	  	Additions	 	  	Divestiture	 	 	Cumulative
translation
adjustments	 	 	Ending
balance	 	
Land and building	  	$	19	  	  	$	232	  	  	$	—	  	 	$	(44	) 	 	$	207	  	
Processing plant and equipment	  	 	79	  	  	 	768	  	  	 	(1	) 	 	 	(127	) 	 	 	719	  	
Office equipment	  	 	889	  	  	 	480	  	  	 	(14	) 	 	 	(110	) 	 	 	1,245	  	
	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
	  	$	987	  	  	$	1,480	  	  	$	(15	) 	 	$	(281	) 	 	$	2,171	  	
	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Carrying amount	  	$	4,202	  	  				  				 				 	$	3,743	  	
	  	 	 	 	  				  				 				 	 	 	 	
The following changes in property, plant and equipment were recorded in 2010:

Historical costs	  	Opening
balance	 	  	Acquisition
through
consolidation	 	  	Additions	 	  	Divestiture	 	 	Cumulative
translation
adjustments	 	 	Ending
balance	 	
Land and building	  	$	—	  	  	$	384	  	  	$	50	  	  	$	—	  	 	$	6	  	 	$	440	  	
Processing plant and equipment	  	 	—	  	  	 	2,457	  	  	 	164	  	  	 	—	  	 	 	(66	) 	 	 	2,555	  	
Office equipment	  	 	964	  	  	 	999	  	  	 	303	  	  	 	(110	) 	 	 	38	  	 	 	2,194	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
	  	$	964	  	  	$	3,840	  	  	$	517	  	  	$	(110	) 	 	$	(22	) 	 	$	5,189	  	

Accumulated depreciation	  	Opening
balance	 	  	Acquisition
through
consolidation	 	  	Additions	 	  	Divestiture	 	 	Cumulative
translation
adjustments	 	 	Ending
balance	 	
Land and building	  	$	—	  	  	$	—	  	  	$	17	  	  	$	—	  	 	$	2	  	 	$	19	  	
Processing plant and equipment	  	 	—	  	  	 	—	  	  	 	121	  	  	 	—	  	 	 	(42	) 	 	 	79	  	
Office equipment	  	 	812	  	  	 	—	  	  	 	128	  	  	 	(82	) 	 	 	31	  	 	 	889	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
	  	$	812	  	  	$	—	  	  	$	266	  	  	$	(82	) 	 	$	(9	) 	 	$	987	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Carrying amount	  	$	152	  	  				  				  				 				 	$	4,202	  	
	  	 	 	 	  				  				  				 				 	 	 	 	
Note 17.    Interests in Resource Properties
The Group’s interests in resource properties comprised the following:

 	  	2011	 	  	2010	 	
Interest in an iron ore mine in Canada	  	$	173,483	  	  	$	181,772	  	
Interest in an iron ore extracting facilities in India	  	 	46,072	  	  	 	49,525	  	
Other	  	 	27	  	  	 	—	  	
	  	 	 	 	  	 	 	 	
Total	  	$	219,582	  	  	$	231,297	  	
	  	 	 	 	  	 	 	 	
Canada
The lease of the Canadian iron ore mine is to expire in 2055. The iron ore deposit is currently leased to a third party entity under certain lease agreements which will expire in 2055. The Group collects royalty payments directly from the entity based on a pre-determined formula, with a minimum payment not to be less than CDN$3,250 per year.
 
91

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
India
An Indian subsidiary has entered into contracts with Leaseholders (the “LH”) for extraction of iron ore from certain mines on behalf of the LH for which the Indian subsidiary receives an extraction fee per ton and gives the Indian subsidiary the right to extract, crush, screen and store the iron ore at the LH’s site on its behalf. All requisite licences in compliance with all mining laws and regulations and legal requirements have been obtained by the LH. Surface rights for the mines have also been secured by the LH. The contracts are presently in force and continue until September 4, 2014 with an option for the Indian subsidiary to extend the same for a further period of three years therefrom until September 4, 2017 and again further extend the same for a final term up to September 4, 2020.
The Indian subsidiary is a registered exporter of iron ore and also has the option to purchase the iron ore extracted from the LH’s mines.
The following changes in interests in resource properties were recorded in 2011:

 	  	Opening
balance	 	 	Additions	 	 	Cumulative
translation
adjustments	 	 	Ending
balance	 	
Historical costs	  	$	251,330	  	 	$	27	  	 	$	(162	) 	 	$	251,195	  	
Accumulated depletion	  	 	(20,033	) 	 	 	(11,724	) 	 	 	144	  	 	 	(31,613	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Carrying amount	  	$	231,297	  	 				 				 	$	219,582	  	
	  	 	 	 	 				 				 	 	 	 	
The following changes in interests in resource properties were recorded in 2010:

 	  	Opening
balance	 	 	Acquisition
through
consolidation	 	  	Additions	 	 	Cumulative
translation
adjustments	 	 	Ending
balance	 	
Historical costs	  	$	200,000	  	 	$	51,001	  	  	$	303	  	 	$	26	  	 	$	251,330	  	
Accumulated depletion	  	 	(8,512	) 	 	 	—	  	  	 	(11,500	) 	 	 	(21	) 	 	 	(20,033	) 	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Carrying amount	  	$	191,488	  	 				  				 				 	$	231,297	  	
	  	 	 	 	 				  				 				 	 	 	 	
Note 18.    Deferred Income Tax Assets and Liabilities
The tax effect of temporary differences and tax loss carry-forwards that give rise to significant components of deferred tax assets and liabilities are as follows:

 	  	2011	 	 	2010	 	
Non-capital tax loss carry-forwards	  	$	3,497	  	 	$	5,639	  	
Interest in resource property	  	 	(58,246	) 	 	 	(62,531	) 	
Other assets	  	 	4,067	  	 	 	1,512	  	
Other liabilities	  	 	(2,839	) 	 	 	(2,329	) 	
	  	 	 	 	 	 	 	 	
	  	$	(53,521	) 	 	$	(57,709	) 	
	  	 	 	 	 	 	 	 	
Deferred income tax assets and liabilities are included in the consolidated statement of financial position as follows:	  				 				
Deferred income tax assets	  	$	7,524	  	 	$	6,727	  	
Deferred income tax liabilities	  	 	(61,045	) 	 	 	(64,436	) 	
	  	 	 	 	 	 	 	 	
Net	  	$	(53,521	) 	 	$	(57,709	) 	

92

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
At December 31, 2011, the Group had estimated accumulated non-capital losses which expire in the following countries as follows. Management is of the opinion that not all of these non-capital losses are probable to be utilized in the future.

Country	  	Gross amount	 	  	Amount for which
no deferred asset is
recognized	 	  	Expiration dates	 	
Canada	  	$	54,050	  	  	$	52,083	  	  	 	2021-2030	  	
Germany	  	 	3,884	  	  	 	3,884	  	  	 	Indefinite	  	
Switzerland	  	 	1,859	  	  	 	1,859	  	  	 	2014-2017	  	
US	  	 	20,602	  	  	 	20,602	  	  	 	2012-2030	  	
Austria	  	 	12,004	  	  	 	—	  	  	 	Indefinite	  	
Slovakia	  	 	2,734	  	  	 	2,734	  	  	 	2012-2018	  	
At December 31, 2011, MFC Industrial had an aggregate amount of $259,101 of temporary differences associated with its investments in subsidiaries, associates and interests in joint ventures, for which deferred tax liabilities have not been recognized because the Group is in a position to control the timing of the reversal of such temporary differences and it is probable that such differences will not reverse in the foreseeable future.
Note 19.    Short-term Bank Borrowings
Short-term bank borrowings are repayable within a year.

 	  	2011	 	  	2010	 	
Credit facilities from banks	  	$	114,239	  	  	$	69,979	  	
	  	 	 	 	  	 	 	 	
As at December 31, 2011, the Group had credit facilities aggregating $366,280 as follows: (i) the Group had unsecured revolving credit facilities aggregating $169,041 from banks. The banks generally charge an interest rate at inter-bank rate plus an interest margin; (ii) the Group also has revolving credit facilities aggregating $45,402 from banks for structured solutions, a special trade financing. The margin is negotiable when the facility is used; (iii) the Group has a specially structured factoring arrangement with a bank up to a credit limit of $110,262 for the Group’s commodities activities. Generally, the Group factors its trade receivable accounts upon invoicing, at inter-bank rate plus a margin; and (iv) the Group also had a foreign exchange credit facility of $41,575 with a bank. All these facilities are renewable on a yearly basis.
 
93

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Note 20.    Debt

 	  	2011	 	  	2010	 	
Due to a bank, €14,350 at both December 31, 2011 and 2010, interest fixed at Austria’s Oesterreichische Kontrollbank Aktiengesellschaft (“OeKB”) financing rate of 3.7% per annum and payable quarterly, secured by a guarantee of the Republic of Austria and due in January 2012	  	$	18,615	  	  	$	19,215	  	
Due to a bank, Swiss francs 1,423 and Swiss francs 1,467 at December 31, 2011 and 2010, respectively, interest at 2.35% per annum at December 31, 2011 and payable quarterly, secured by a charge on land and due in quarterly payments with a balloon final payment in March 2013	  	 	1,518	  	  	 	1,569	  	
Due to a bank, €2,210 and €4,070 at December 31, 2011 and 2010, respectively, interest at interbank rate plus an interest margin (3.03% at December 31, 2011) and payable quarterly and due in 2012	  	 	2,867	  	  	 	5,450	  	
Due to a bank, €3,000 at both December 31, 2011 and 2010, interest at interbank rate plus an interest margin (2.51% at December 31, 2011) and payable monthly and due in December 2012	  	 	3,892	  	  	 	4,017	  	
Due to a bank, €3,600 and €4,800 at December 31, 2011 and 2010, respectively, interest at Austria’s OeKB financing rate plus an interest margin (3.19% at December 31, 2011) and payable quarterly, secured by a guarantee of the Republic of Austria and due in 2012 to 2014 in equal instalments.	  	 	4,670	  	  	 	6,428	  	
Due to a bank, €12,000 at both December 31, 2011 and 2010, interest fixed at OeKB’s financing rates between 4.6% and 4.85% per annum and payable quarterly, secured by a guarantee of the Republic of Austria and due in 2013.	  	 	15,565	  	  	 	16,069	  	
	  	 	 	 	  	 	 	 	
	  	$	47,127	  	  	$	52,748	  	
	  	 	 	 	  	 	 	 	
Current portion	  	$	26,977	  	  	$	4,144	  	
Long-term portion	  	 	20,150	  	  	 	48,604	  	
	  	 	 	 	  	 	 	 	
	  	$	47,127	  	  	$	52,748	  	
	  	 	 	 	  	 	 	 	
As of December 31, 2011, the maturities of debt are as follows:

Maturity	  	Principal	 	  	Interest	 	  	Total	 	
2012	  	$	26,977	  	  	$	979	  	  	$	27,956	  	
2013	  	 	18,594	  	  	 	579	  	  	 	19,173	  	
2014	  	 	1,556	  	  	 	38	  	  	 	1,594	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	47,127	  	  	$	1,596	  	  	$	48,723	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
No interest expense was capitalized in the years ended December 31, 2011, 2010 and  2009.
Note 21.    Accounts Payable and Accrued Expenses

 	  	2011	 	  	2010	 	
Trade and accounts payables	  	$	37,462	  	  	$	35,536	  	
Value-added, goods-and-sales and other taxes (other than income taxes)	  	 	2,017	  	  	 	3,023	  	
Affiliates	  	 	—	  	  	 	524	  	
Compensation	  	 	1,539	  	  	 	2,060	  	
Interest	  	 	—	  	  	 	42	  	
Derivative liabilities	  	 	887	  	  	 	5,821	  	
Short-sale of securities	  	 	86	  	  	 	124	  	
Deferred revenues	  	 	235	  	  	 	—	  	
	  	 	 	 	  	 	 	 	
	  	$	42,226	  	  	$	47,130	  	

94

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
The trade payables arise from the Group’s day-to-day trading activities. The terms with affiliates in the normal course of the Group’s activities are no different from third parties. The Group’s expenses for services and other operational expenses are included in other payables. Generally, these  payable and accrual accounts do not bear interest and they have a maturity of less than a year.
Note 22.    Provisions

 	  	Termination
of office  lease	 	 	Warranty	 	 	Total	 	
Balance, December 31, 2010	  	$	479	  	 	$	115	  	 	$	594	  	
Additions	  	 	—	  	 	 	124	  	 	 	124	  	
Paid	  	 	(102	) 	 	 	(102	) 	 	 	(204	) 	
Reversal	  	 	—	  	 	 	(15	) 	 	 	(15	) 	
Deconsolidation of a subsidiary	  	 	(377	) 	 	 	—	  	 	 	(377	) 	
Cumulative translation adjustment	  	 	—	  	 	 	(7	) 	 	 	(7	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Balance, December 31, 2011	  	$	—	  	 	$	115	  	 	$	115	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Current portion	  				 				 	$	115	  	
Long-term portion	  				 				 	 	—	  	
	  				 				 	 	 	 	
	  				 				 	$	115	  	

													
 	  	Termination
of office lease	 	 	Warranty	 	 	Total	 	
Acquisitions through business combination	  	$	500	  	 	$	144	  	 	$	644	  	
Additions	  	 	—	  	 	 	—	  	 	 	—	  	
Paid	  	 	(21	) 	 	 	—	  	 	 	(21	) 	
Reversal	  	 	—	  	 	 	(31	) 	 	 	(31	) 	
Cumulative translation adjustment	  	 	—	  	 	 	2	  	 	 	2	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Balance, December 31, 2010	  	$	479	  	 	$	115	  	 	$	594	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Current portion	  				 				 	$	362	  	
Long-term portion	  				 				 	 	232	  	
	  				 				 	 	 	 	
	  				 				 	$	594	  	
	  				 				 	 	 	 	
Note 23.    Shareholders’ Equity
Capital Stock
The authorized share capital of MFC Industrial consists of an unlimited number of common shares without par value and without special rights or restrictions and an unlimited number of Class A Preference shares without par value and with special rights and restrictions.
Holders of common shares may receive dividends when, as and if declared by the board, subject to the preferential dividend rights of any other classes or series of preferred shares issued and outstanding. In no event may a dividend be declared or paid on the common shares if payment of the dividend would cause the realizable value of the assets of the Company to be less than the aggregate of its liabilities. Holders of common shares are entitled to one vote per share at any meeting of shareholders of any class of common shares, and in general and subject to applicable law, all matters will be determined by a majority of votes cast other than fundamental changes with respect to the Company. The common shareholders shall be entitled, in the event of a distribution of assets of the Company on the liquidation, dissolution or winding-up of the Company (a “Liquidation Distribution”), to receive, before any Liquidation Distribution is made to the holders of the common shares or any other shares of the Company ranking junior to the common shares, but after any prior rights of any preferred shares, the stated capital with respect to each common share held by them, together with all declared and unpaid dividends (if any and if preferential) thereon, up to the date of such Liquidation Distribution, and thereafter the common shares shall rank pari passu with all other classes of common shares in connection with the Liquidation Distribution.
 
95

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
The Class A Preference shares may include one or more series and the directors may alter the special rights and restrictions to such series, or alter such rights or restrictions. Except as may be set out in the rights and restrictions, the holders of the Class A Preference shares are not entitled to vote at or attend shareholder meetings. Holders of Class A Preference shares are entitled to receive repayment of capital on the liquidation or dissolution of MFC Industrial before distribution is made to holders of common shares.
Treasury Stock
All treasury stock is held by wholly-owned subsidiaries.
Note 24.    Share-Based Compensation
MFC Industrial has a 1997 Stock Option Plan and a 2008 Equity Incentive Plan.
1997 Stock Option Plan (Amended)
MFC Industrial has a stock option plan which enables certain employees and directors to acquire common shares and the options may be granted under the plan exercisable over a period not exceeding ten years. MFC Industrial is authorized to issue up to 5,524,000 shares under this plan.
2008 Equity Incentive Plan
Subject to the terms of the 2008 Equity Incentive Plan, a committee, as appointed by the board of directors, may grant awards under the plan, establish the terms and conditions for those awards, construe and interpret the plan and establish the rules for the plan’s administration. The committee may grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, stock unit awards, stock awards, performance stock awards and tax bonus awards under the plan. The maximum number of common shares of MFC Industrial that are issuable under all awards granted under the plan is 1,500,000 common shares.
Following is a summary of the status of the plans:

 	  	2008 Plan	 	  	2008 Plan	 	  	1997 Plan	 	 	1997 Plan	 	
 	  	Number of
Awards	 	  	Weighted
Average
Exercise Price
Per Share	 	  	Number of
Options	 	 	Weighted
Average
Exercise Price
Per Share	 	
Outstanding at December 31, 2008	  	 	—	  	  	$	—	  	  	 	1,579,720	  	 	$	24.96	  	
Cancelled by agreements	  	 	—	  	  	 	—	  	  	 	(72,500	) 	 	 	31.16	  	
Forfeited	  	 	—	  	  	 	—	  	  	 	(1,065,556	) 	 	 	23.74	  	
	  	 	 	 	  				  	 	 	 	 				
Outstanding at December 31, 2009	  	 	—	  	  	 	—	  	  	 	441,664	  	 	 	26.89	  	
Exercised	  	 	—	  	  	 	—	  	  	 	(25,000	) 	 	 	13.06	  	
Forfeited	  	 	—	  	  	 	—	  	  	 	(416,664	) 	 	 	27.72	  	
	  	 	 	 	  				  	 	 	 	 				
Outstanding at December 31, 2010	  	 	—	  	  	 	—	  	  	 	—	  	 	 	—	  	
Granted	  	 	915,000	  	  	 	7.81	  	  	 	1,720,000	  	 	 	7.81	  	
	  	 	 	 	  				  	 	 	 	 				
Outstanding at December 31, 2011	  	 	915,000	  	  	 	7.81	  	  	 	1,720,000	  	 	 	7.81	  	
	  	 	 	 	  				  	 	 	 	 				
As at December 31, 2011:	  				  				  				 				
Options exercisable (with four years’ remaining contractual life)	  	 	915,000	  	  	 	7.81	  	  	 	1,720,000	  	 	 	7.81	  	
	  	 	 	 	  				  	 	 	 	 				
Options granted and exercised	  	 	—	  	  				  	 	3,791,656	  	 				
	  	 	 	 	  				  	 	 	 	 				
Options available for granting in the future periods	  	 	585,000	  	  				  	 	12,344	  	 				
	  	 	 	 	  				  	 	 	 	 				
No stock options expired or were granted in 2010 and 2009.
 
96

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
The following tables summarize the stock-based compensation expenses recognized by the Group:

 	  	2011	 	 	2010	 	 	2009	 	
Stock-based compensation recovery (expenses) arising from options granted by:	  				 				 				
MFC Industrial	  	$	(7,291	) 	 	$	1,415	  	 	$	391	  	
A Canadian non-wholly owned subsidiary	  	 	72	  	 	 	(72	) 	 	 	—	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total	  	$	(7,219	) 	 	$	1,343	  	 	$	391	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
As allocated to:	  				 				 				
Continuing operations	  	$	(7,219	) 	 	$	(72	) 	 	$	2,713	  	
Discontinued operations	  	 	—	  	 	 	1,415	  	 	 	(2,322	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total	  	$	(7,219	) 	 	$	1,343	  	 	$	391	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
On January 1, 2011, options to purchase 2,635,000 common shares of MFC Industrial were granted to directors and certain employees of the Group. The information on the stock options granted on January 1, 2011 is as follows. The Group used Black-Scholes-Merton formula to compute the share-based compensation for the stock options.

Number of options granted	  	 	2,635,000	  	
Vesting requirements	  	 	Immediately	  	
Contractual life	  	 	5 years	  	
Method of settlement	  	 	In equity	  	
Exercise price per share	  	 	$7.81	  	
Market price per share on grant date	  	 	$7.81	  	
Expected volatility	  	 	60.09	% 	
Expected option life	  	 	3 years	  	
Expected dividends	  	 	2.58	% 	
Risk-free interest rate	  	 	0.97	% 	
Fair value of option per unit	  	 	$2.767	  	
The expected volatility was determined based on the historical price movement over the expected option life, with adjustments for underlying businesses. The award holders are not entitled to dividends or dividend equivalents until the options are exercised.
The stock-based compensation expense is not tax deductible under the Canadian income tax act and, therefore, the Group did not recognize any tax benefit from granting stock options.
Note 25.    Consolidated Statements of Operations
Revenues

 	  	2011	 	  	2010	 	  	2009	 	
Gross revenues as reported	  	$	520,709	  	  	$	85,430	  	  	$	14,718	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
For the components of the Group’s total revenues, please see Note 5.
The Group’s revenues included the following items:

 	  	2011	 	  	2010	 	  	2009	 	
Realized gain on available-for-sale securities	  	$	—	  	  	$	568	  	  	$	—	  	
Holding gains on advance sales of securities	  	 	—	  	  	 	4	  	  	 	—	  	
Collection of underpayment of resource property royalty from prior years	  	 	—	  	  	 	11,219	  	  	 	—	  	
Interest income arising from an arbitration (included in other revenues)	  	 	1,236	  	  	 	—	  	  	 	—	  	
Market value increment on commodities	  	 	—	  	  	 	1,982	  	  	 	—	  	
Gain on derivative contracts, net	  	 	6,805	  	  	 	—	  	  	 	—	  	
 
97

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Expenses
The Group’s costs of sales comprised:

 	  	2011	 	 	2010	 	  	2009	 	
Commodities and resources	  	$	414,745	  	 	$	45,994	  	  	$	8,512	  	
Loss on securities, net	  	 	4,314	  	 	 	834	  	  	 	—	  	
Credit losses (recovery) on loans and receivables	  	 	(530	) 	 	 	795	  	  	 	—	  	
Change in fair value of investment property	  	 	56	  	 	 	294	  	  	 	—	  	
Write-down on real estate held for sale	  	 	—	  	 	 	241	  	  	 	—	  	
Market value decrease on commodities	  	 	4,422	  	 	 	—	  	  	 	—	  	
Loss on derivative contracts, net	  	 	—	  	 	 	2,010	  	  	 	—	  	
Other	  	 	12,385	  	 	 	1,194	  	  	 	13	  	
	  	 	 	 	 	 	 	 	  	 	 	 	
Total cost of sales	  	$	435,392	  	 	$	51,362	  	  	$	8,525	  	
	  	 	 	 	 	 	 	 	  	 	 	 	
The Group’s net loss on securities comprised:

 	  	2011	 	 	2010	 	  	2009	 	
Trading securities	  	$	6,507	  	 	$	—	  	  	$	—	  	
Available-for-sale securities	  	 	(1,721	) 	 	 	—	  	  	 	—	  	
Subsidiaries	  	 	(405	) 	 	 	834	  	  	 	—	  	
Short-sale	  	 	(67	) 	 	 	—	  	  	 	—	  	
	  	 	 	 	 	 	 	 	  	 	 	 	
Total cost of sales	  	$	4,314	  	 	$	834	  	  	$	—	  	
	  	 	 	 	 	 	 	 	  	 	 	 	
The Group included the following items in its costs of sales:

 	  	2011	 	 	2010	 	  	2009	 	
Inventories as costs of goods sold (including depreciation, amortization and depletion expenses allocated to costs of goods sold)	  	$	373,048	  	 	$	46,147	  	  	$	8,512	  	
(Recovery of) write-down of inventories	  	 	(29	) 	 	 	88	  	  	 	—	  	
The Group collected a reimbursement of legal costs from an arbitration of $1,503, $nil and $nil in 2011, 2010 and 2009, respectively. The aforesaid reimbursement was shown as a reduction in the selling, general and administrative expenses.
Additional information on the nature of expenses

 	  	2011	 	  	2010	 	  	2009	 	
Depreciation, amortization and depletion	  	$	13,204	  	  	$	11,766	  	  	$	8,563	  	
Employee benefits expenses	  	 	19,687	  	  	 	3,758	  	  	 	2,759	  	
 
98

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Note 26.    Income Taxes
MFC Industrial’s statutory tax rate was 26.5%, 28.5% and 29.0% in 2011, 2010 and 2009, respectively.
A reconciliation of the provision for income taxes calculated at applicable statutory rates in Canada to the provision in the consolidated statements of operations is as follows:

 	  	2011	 	 	2010	 	 	2009	 	
Income (loss) before income taxes from continuing operations	  	$	17,181	  	 	$	52,156	  	 	$	(20,791	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Computed recovery of (provision for) income taxes at MFC Industrial’s statutory rates	  	$	(4,553	) 	 	$	(14,865	) 	 	$	6,030	  	
(Increase) decrease in taxes resulting from:	  				 				 				
Foreign tax rate differences	  	 	(143	) 	 	 	374	  	 	 	(155	) 	
Non-taxable negative goodwill	  	 	—	  	 	 	11,702	  	 	 	—	  	
Benefit of purchased income tax reductions	  	 	4,655	  	 	 	—	  	 	 	—	  	
Other non-taxable income	  	 	2,724	  	 	 	926	  	 	 	7	  	
Stock-based compensation	  	 	(1,932	) 	 	 	(19	) 	 	 	807	  	
Net tax reductions unrecognized in prior years	  	 	—	  	 	 	1,352	  	 	 	3,112	  	
Taxable capital gains or losses, net	  	 	(1,833	) 	 	 	—	  	 	 	—	  	
Resource property revenue taxes	  	 	(3,414	) 	 	 	(6,744	) 	 	 	(3,039	) 	
Unrecognized losses in current year	  	 	(1,160	) 	 	 	(363	) 	 	 	—	  	
Permanent differences	  	 	—	  	 	 	135	  	 	 	487	  	
Reduction in future tax rate	  	 	906	  	 	 	34	  	 	 	(330	) 	
Transfer of an interest in resource property	  	 	(1,634	) 	 	 	—	  	 	 	—	  	
Loss on investment in preferred shares of former subsidiaries	  	 	—	  	 	 	—	  	 	 	(2,828	) 	
Other, net	  	 	401	  	 	 	493	  	 	 	380	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Recovery of (provision for) income taxes	  	$	(5,983	) 	 	$	(6,975	) 	 	$	4,471	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Consisting of:	  				 				 				
Resource property revenue taxes	  	$	(4,647	) 	 	$	(6,744	) 	 	$	(3,039	) 	
Other income taxes	  	 	(1,336	) 	 	 	(231	) 	 	 	7,510	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
	  	$	(5,983	) 	 	$	(6,975	) 	 	$	4,471	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
In addition, the aggregate current and deferred tax relating to items that are charged to equity was $324 (recovery), $256 and $nil, respectively, in 2011, 2010 and 2009,
The Group’s tax expense above does not include any amounts for joint ventures and associates or discontinued operations whose results are included in the statement of operations net of taxes.
In general, dividend payable by MFC Industrial to its shareholders is subject to customary Canadian withholding tax for non-resident shareholders. Pursuant to applicable tax treaties the withholding rate for eligible US resident shareholders is 15%. The dividend is an eligible dividend under the Income Tax Act (Canada).
Note 27.    Earnings (Loss) Per Share
Earnings (loss) per share data for the years ended December 31 from operations is summarized as follows:

 	  	2011	 	  	2010	 	  	2009	 	
Basic earnings (loss) from continuing operations available to holders of common shares	  	$	12,193	  	  	$	45,839	  	  	$	(16,320	) 	
Effect of dilutive securities	  	 	—	  	  	 	—	  	  	 	—	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Diluted earnings (loss) from continuing operations	  	$	12,193	  	  	$	45,839	  	  	$	(16,320	) 	

99

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011

 	  	Number of Shares	 	
 	  	2011	 	  	2010	 	  	2009	 	
Weighted average number of common shares outstanding — basic	  	 	62,561,421	  	  	 	35,857,873	  	  	 	30,354,207	  	
Effect of dilutive securities:	  				  				  				
Options	  	 	—	  	  	 	1,038	  	  	 	—	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Weighted average number of common shares outstanding — diluted	  	 	62,561,421	  	  	 	35,858,911	  	  	 	30,354,207	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
As at December 31, 2011 and 2009, there were 2,635,000 and 441,664 stock options, respectively, outstanding that could potentially dilute basic earnings per share in the future, but were not included in the calculation of diluted earnings per share because they were antidilutive for 2011 and 2009. There were no stock options outstanding as at December 31, 2010.
Note 28.    Dividends paid
On January 10, 2011, MFC Industrial announced it had declared an annual cash dividend and established an annual dividend policy as follows:
 
 	•	 	The annual dividend will be based on the annual dividend yield of the New York Stock Exchange Composite Index (the “NYSE Composite Index”) for the preceding year plus 25 basis points.	
 
 	•	 	For 2011, an aggregate cash dividend of $0.20 per common share, representing a dividend yield of 2.58 percent, was paid in quarterly installments.	
 
 	•	 	The first 2011 dividend payment of $0.05 per common share was paid on January 31, 2011 to shareholders of record on January 20, 2011. The second dividend of $0.05 per share shares was paid on April 11, 2011 to shareholders of record on March 31, 2011. The third dividend of $0.05 per share was paid on July 11, 2011 to shareholders of record on June 30, 2011. The fourth dividend of $0.05 per share was paid on October 11, 2011 to shareholders of record on September 30, 2011.	
Note 29.    Commitments and Contingencies
Leases as lessors
The Group leases out land and buildings, primarily classified under investment property, under non-cancellable operating lease agreements. The leases have varying terms, subject to the customary practices in the particular regions.
Future minimum commitments under long-term non-cancellable operating leases are as follows:

Year	  	Amount	 	
2012	  	$	1,978	  	
2013	  	 	911	  	
2014	  	 	402	  	
2015	  	 	348	  	
2016	  	 	311	  	
Thereafter	  	 	311	  	
	  	 	 	 	
	  	$	4,261	  	
	  	 	 	 	
The leases have varying terms, subject to the customary practices in the local regions. The Group recognized rental income of $2,935 (including subleases of $84), $330 and $nil for the years ended December 31, 2011, 2010 and 2009, respectively.
 
100

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Leases as lessees
Future minimum commitments under long-term non-cancellable operating leases are as follows:

Year	  	Amount	 	
2012	  	$	1,710	  	
2013	  	 	1,350	  	
2014	  	 	853	  	
2015	  	 	779	  	
2016	  	 	119	  	
Thereafter	  	 	—	  	
	  	 	 	 	
	  	$	4,811	  	
	  	 	 	 	
The leases have varying terms, subject to the customary practices in the local regions. Minimum lease payments recognized as expenses were $2,803 (including contingent rents of $76), $800 and $281 for the years ended December 31, 2011, 2010 and 2009, respectively.
Litigation
The Group is subject to litigation in the normal course of business. Management considers the aggregate liability which may result from such litigation not material at December 31, 2011 or the possibility of any outflow in settlement remote.
Guarantees
Guarantees are treated as contingent liabilities unless it becomes probable that the Group will be required to make payment under the guarantee.
As at December 31, 2011, the Group had issued guarantees up to a maximum of $27,856 to its trading and financing partners in the normal course of its commodities activities, of which $13,791 has been used and outstanding and has not been recorded as liabilities in the consolidated statement of financial position. There has been no claim against the guarantees.
Loan Commitment
The Group has granted a credit facility up to $20,000 to a former affiliate, of which $19,869 had been drawn and outstanding as at December 31, 2011 (see Note 8). The credit facility is to expire in May 2012.
Purchase Obligations
As at December 31, 2011, the Group had open purchase contracts aggregating $3,444 with respect to its commodities activities, due in 2012. None of these had been recognized in the consolidated statement of financial position as at December 31, 2011.
Note 30.    Consolidated Statements of Cash Flows — Supplemental Disclosure
Interest paid and received, dividends received and income taxes paid are classified as operating activities. Dividends paid are classified as financing activities.
There are no circumstances in which cash and cash equivalents held by an entity are not available for use by the Group.
The Group had the following non-cash transactions:
Non-cash transactions in 2011: (1) the Company derecognized a non-wholly-owned subsidiary as a result of loss of control and reclassified it as an available-for-sale security which was eventually written off (see Note 32); and (2) the Company reorganized its indirect royalty interest by transferring it to another entity in exchange for an aggregate economic interest of 99.44% in the entity (see Note 3).
 
101

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Non-cash transactions in 2010: (1) the offsetting of a promissory note of CDN$1,750 plus accrued interest thereon against payable due to the affiliate; (2) the Company acquired all of the issued and outstanding common shares of Mass by issuing its own shares (see Note 3); (3) the Company acquired shares in a former special purpose entity by issuing 41,400 common shares of MFC Industrial, valued at $303; and (4) the Group exchanged a publicly-traded security with a carrying value of $799 for other publicly-traded securities with aggregate fair value of $1,457 from an affiliate, resulting in a gain of $658.
Non-cash transactions in 2009: (1) the settlement of the investment in the preferred shares of former subsidiaries and accrued dividend thereon for promissory notes; and (2) the conversion of a promissory note of CDN$11,346 into common shares of a former subsidiary.
Note 31.    Related Party Transactions
In the normal course of operations, the Group enters into transactions with related parties which include affiliates which the Group has a significant equity interest (10% or more) in the affiliates or has the ability to influence the affiliates’ or the Group’s operating and financing policies through significant shareholding, representation on the board of directors, corporate charter and/or bylaws. The affiliates also include MFC Industrial’s directors, President, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and their close family members. These related party transactions are measured at the exchange value, which represents the amount of consideration established and agreed to by the parties. In addition to transactions disclosed elsewhere in these financial statements, the Group had the following transactions with affiliates.
Continuing operations

 	  	2011	 	 	2010	 	 	2009	 	
Dividend income on common shares*	  	$	181	  	 	$	193	  	 	$	280	  	
Royalty expense paid and payable*	  	 	(773	) 	 	 	(800	) 	 	 	(614	) 	
Sales of goods	  	 	455	  	 	 	—	  	 	 	—	  	
Fee income	  	 	32	  	 	 	3	  	 	 	—	  	
Purchases of goods	  	 	(3,476	) 	 	 	(1,856	) 	 	 	—	  	
Fee expense for managing resource property	  	 	—	  	 	 	(1,575	) 	 	 	(839	) 	
Fee expense for management services, including expense reimbursements	  	 	—	  	 	 	(333	) 	 	 	(3,069	) 	
Director’s salary from a subsidiary to a close family member of a director	  	 	(21	) 	 	 	—	  	 	 	—	  	
Loss on settlement of investment in preferred shares of former subsidiaries	  	 	—	  	 	 	—	  	 	 	(9,538	) 	
Interest income	  	 	296	  	 	 	44	  	 	 	309	  	
Interest expense	  	 	—	  	 	 	—	  	 	 	(447	) 	

*	included in income from an interest in resource property	
Discontinued Operations

 	  	2011	 	  	2010	 	 	2009	 	
Fee income	  	$	—	  	  	$	—	  	 	$	494	  	
Fee expense for management services, including expense reimbursements	  	 	—	  	  	 	(127	) 	 	 	(990	) 	
Transactions with related parties are made in arm’s length transactions at normal market prices and on normal commercial terms.
In addition to the transactions above, the Group had the following transactions with related parties:
In 2011, the Group, in the normal course of business, purchased long-term available-for-sale securities with a fair value of $1,415 for cash from an entity which was a related party until June 2011.
In 2010, the Group entered into an agreement with its former wholly-owned subsidiary whereby the Group agreed to offset its payables to the former subsidiary against its note receivable (CAD$1,750) from the former
 
102

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
subsidiary plus accrued interest thereon. Furthermore, the Group obtained bridge financing of $8,000 from the affiliate for three days. The Company did not pay any interest and fees to this affiliate in relation to such bridge financing.
Key management personnel
The remuneration of key management personnel of the Group was as follows:

Year ended December 31	  	2011	 	  	2010	 	  	2009	 	
Short-term employee benefits	  	$	1,023	  	  	$	1,277	  	  	$	2,247	  	
Post-employment benefits	  	 	—	  	  	 	—	  	  	 	44	  	
Other long term benefits	  	 	—	  	  	 	—	  	  	 	—	  	
Termination benefits	  	 	—	  	  	 	784	  	  	 	—	  	
Share-based payments*	  	 	2,089	  	  	 	—	  	  	 	—	  	
Directors’ fees	  	 	201	  	  	 	203	  	  	 	451	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	3,313	  	  	$	2,264	  	  	$	2,742	  	

*	The share-based payments were computed by the reference to the fair value of options measured by Black-Scholes-Merton formula on the grant date (see Note 24).	
Key management personnel comprises the members of the Board of Directors, President, Chief Executive Officer, Chief Financial Officer and Chief Operating Officer of MFC Industrial. The short-term employee benefits in 2009 included management fee expenses paid to a corporation which was associated with a former Chief Executive Officer.
The termination benefits in 2010 represented amounts paid to the former Chief Operating Officer.
In addition, in 2010, the Group paid $1,026 (comprising $998 in cash and $28 (net book value at the time of settlement) in a used vehicle) in aggregate to its former chief executive officer as a termination benefit which was not included in the above remuneration table. The termination occurred in 2009 and the termination benefit was not recorded in 2009 until settled in 2010 and was included in the discontinued operations.
 
103

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Note 32.    Financial Instruments
The fair value of financial instruments at December 31 is summarized as follows:

 	  	2011	 	  	2010	 	
 	  	Carrying
Amount	 	  	Fair
Value	 	  	Carrying
Amount	 	  	Fair
Value	 	
Financial Assets:	  				  				  				  				
Fair value through profit or loss:	  				  				  				  				
Cash and cash equivalents, short-term cash deposits and restricted cash	  	$	387,838	  	  	$	387,838	  	  	$	401,161	  	  	$	401,161	  	
Short-term securities	  	 	12,766	  	  	 	12,766	  	  	 	25,145	  	  	 	25,145	  	
Derivative assets	  	 	66	  	  	 	66	  	  	 	12	  	  	 	12	  	
					
Loans and receivables:	  				  				  				  				
Receivables*	  	 	48,065	  	  	 	48,065	  	  	 	27,978	  	  	 	27,978	  	
Bills of exchange	  	 	10,545	  	  	 	10,545	  	  	 	—	  	  	 	—	  	
					
Available-for-sale instruments:	  				  				  				  				
Securities, at market value	  	 	11,902	  	  	 	11,902	  	  	 	9,968	  	  	 	9,968	  	
					
Available-for-sale instruments that do not have a quoted market price in an active market:	  				  				  				  				
Securities, unlisted	  	 	—	  	  	 	—	  	  	 	43	  	  	 	43	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	471,182	  	  	$	471,182	  	  	$	464,307	  	  	$	464,307	  	

Financial Liabilities:	  				  				  				  				
Financial liabilities measured at amortized cost:	  				  				  				  				
Short-term borrowings	  	$	114,239	  	  	$	114,239	  	  	$	69,979	  	  	$	69,979	  	
Accounts payable and accrued expenses and provisions*	  	 	39,322	  	  	 	39,322	  	  	 	38,765	  	  	 	38,765	  	
Debt	  	 	47,127	  	  	 	47,088	  	  	 	52,748	  	  	 	53,399	  	
					
Held for trading:	  				  				  				  				
Derivative liabilities	  	 	887	  	  	 	887	  	  	 	5,821	  	  	 	5,821	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	201,575	  	  	$	201,536	  	  	$	167,313	  	  	$	167,964	  	

*	Not including derivative financial instruments	
Fair value of a financial instrument can be characterized as the amount at which a financial instrument could be bought or sold in a current transaction between willing parties under no compulsion to act (that is, other than in a forced transaction, involuntary liquidation or distressed sale). The best evidence of fair value is published price quotations in an active market. When the market for a financial asset or financial liability is not active, an entity establishes fair value by using a valuation technique. The chosen valuation technique makes maximum use of inputs observed from markets, and relies as little as possible on inputs generated by the entity. Entity-generated inputs take into account factors that market participants would consider when pricing the financial instruments, such as liquidity and credit risks. Use of judgment is significantly involved in estimating fair value of financial instruments in inactive markets and actual results could materially differ from the estimates.
The fair value of cash and cash equivalents, restricted cash and term deposits is based on reported market value. The fair value of short-term trading securities is based on quoted market prices (Level 1 fair value hierarchy). The fair value of unlisted securities is based on their estimated net realizable values. The fair value of available-for-sale securities is based on quoted market prices, except for those which are not quoted in an active market which are measured by an appropriate valuation method (Level 3 fair value hierarchy). The fair values of bills of exchange, short-term receivables, short-term borrowings and accounts payable and accrued expenses, due to their short-term nature and normal trade credit terms, approximate their carrying value. The fair values of long-term debt and other long-term liabilities were determined using discounted cash flows at prevailing market rates of interest for a similar instrument with a similar credit rating. The fair values of the foreign currency derivative financial instruments are based on the quotes from foreign exchange dealers and/or brokers and are reviewed and confirmed by management of the Group using readily observable market input, such as forward exchange rates (Level 2 fair value hierarchy).
 
104

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
The following tables present the financial instruments measured at fair value classified by the fair value hierarchy as at December 31, 2011 and 2010:

As at December 31, 2011	  	Level 1	 	  	Level 2	 	  	Level 3	 	  	Total	 	
Financial Assets :	  				  				  				  				
Held for trading:	  				  				  				  				
Short-term securities	  	$	12,766	  	  	$	—	  	  	$	—	  	  	$	12,766	  	
Derivative assets	  	 	—	  	  	 	66	  	  	 	—	  	  	 	66	  	
Available-for-sale securities	  	 	11,902	  	  	 	—	  	  	 	—	  	  	 	11,902	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	24,668	  	  	$	66	  	  	$	—	  	  	$	24,734	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Financial Liabilities :	  				  				  				  				
Held for trading:	  				  				  				  				
Derivative liabilities	  	$	—	  	  	$	887	  	  	$	—	  	  	$	887	  	

																	
As at December 31, 2010	  	Level 1	 	  	Level 2	 	  	Level 3	 	  	Total	 	
Financial Assets :	  				  				  				  				
Held for trading:	  				  				  				  				
Short-term securities	  	$	25,145	  	  	$	—	  	  	$	—	  	  	$	25,145	  	
Derivative assets	  	 	—	  	  	 	12	  	  	 	—	  	  	 	12	  	
Available-for-sale securities	  	 	9,968	  	  	 	—	  	  	 	—	  	  	 	9,968	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	35,113	  	  	$	12	  	  	$	—	  	  	$	35,125	  	

Financial Liabilities :	  				  				  				  				
Held for trading:	  				  				  				  				
Derivative liabilities	  	$	—	  	  	$	5,821	  	  	$	—	  	  	$	5,821	  	

									
 	  	2011	 	 	2010	 	
Movement of Level 3 of fair value hierarchy:	  				 				
Opening balance	  	$	—	  	 	$	—	  	
Addition (see Note 4)	  	 	—	  	 	 	162,958	  	
Addition as a result of derecognition of a subsidiary	  	 	1,909	  	 	 	—	  	
Distributions to shareholders (see Note 4)	  	 	—	  	 	 	(161,348	) 	
Write-off	  	 	(1,909	) 	 	 	—	  	
Reclassification to Level 1 of fair value hierarchy (see Notes 4 and 6)	  	 	—	  	 	 	(1,610	) 	
	  	 	 	 	 	 	 	 	
Ending balance	  	$	—	  	 	$	—	  	
	  	 	 	 	 	 	 	 	
Generally, management of the Group believes that the current financial assets and financial liabilities, due to their short-term nature, do not pose significant financial risks. The Group uses various financial instruments to manage its exposure to various financial risks. The policies for controlling the risks associated with financial instruments include, but are not limited to, standardized company procedures and policies on matters such as hedging of risk exposures, avoidance of undue concentration of risk and requirements for collateral (including letters of credit) to mitigate credit risk. The Group has risk managers and other personnel to perform checking functions and risk assessments to ensure that Group’s procedures and policies are complied with.
Many of the Group’s strategies, including the use of derivative instruments and the types of derivative instruments selected by the Group, are based on historical trading patterns and correlations and the Group’s management’s expectations of future events. However, these strategies may not be fully effective in all market environments or against all types of risks. Unexpected market developments may affect the Group’s risk management strategies during the period, and unanticipated developments could impact the Group’s risk management strategies in the future. If any of the variety of instruments and strategies the Group utilizes is not effective, the Group may incur losses.
The Group does not trade in financial instruments, including derivative financial instruments, for speculative purposes.
 
105

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
The nature of the risk that the Group’s financial instruments are subject to is set out in the following table:

 	  	Risks	 	
 	  	 	 	  	 	 	  	Market risks	 	
Financial instrument	  	Credit	 	  	Liquidity	 	  	Currency	 	  	Interest rate	 	  	Other price	 	
Cash and cash equivalents, short-term cash deposits and restricted cash	  	 	X	  	  				  	 	X	  	  	 	X	  	  				
Short-term securities	  				  				  	 	X	  	  				  	 	X	  	
Long-term securities	  				  				  	 	X	  	  				  	 	X	  	
Derivative assets and liabilities	  	 	X	  	  	 	X	  	  	 	X	  	  				  	 	X	  	
Bills of exchange	  	 	X	  	  				  	 	X	  	  				  				
Receivables	  	 	X	  	  				  	 	X	  	  				  				
Short-term bank borrowings	  				  	 	X	  	  	 	X	  	  	 	X	  	  				
Accounts payable and accrued expenses	  				  	 	X	  	  	 	X	  	  				  				
Provisions	  				  				  				  	 	X	  	  				
Long-term debt	  				  	 	X	  	  				  	 	X	  	  				
A sensitivity analysis for each type of market risk to which the Group is exposed at the end of the reporting period is provided, showing how profit or loss and equity would have been affected by changes in the relevant risk variable that were reasonably possible at that date. These ranges of parameters are estimated by management, which are based on the facts and circumstances available at the time estimates are made, and an assumption of stable socio-economic and geopolitical states. No unusual and exceptional events, for example, natural disasters or human-made crises and calamities, are taken into consideration when the sensitivity analysis is prepared. Actual occurrence could differ from these assumptions and such differences could be material.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Short-term financial assets and financial liabilities are generally not exposed to interest rate risk, because of their short-term nature. The Group’s long-term debt is not exposed to significant interest rate cash flow risk as the interest rates have been fixed for two-thirds of the Group’s long-term debt.
Sensitivity analysis:
At December 31, 2011, if benchmark interest rates (such as LIBOR or prime rates) at that date had been 100 basis points (1.00%) per annum lower with all other variables held constant, income from continuing operations for the year 2011 would have been $479 higher, arising mainly as a result of lower net interest expense. Conversely, if benchmark interest rates at that date had been 100 basis points (1.00%) per annum higher with all other variables held constant, income from continuing operations for the year 2011 would have been $473 lower, arising mainly as a result of higher net interest expense. There would have been no impact on the Group’s other comprehensive loss.
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments which potentially subject the Group to credit risk consist of cash and cash equivalents, restricted cash, term deposits and derivative and credit exposures to customers, including outstanding receivables and committed transactions. The Group has deposited the cash and cash equivalents, restricted cash, term deposits and conducted derivative financial instruments with reputable financial institutions with high credit ratings, from which management believes the risk of loss to be remote. The Group has receivables from various entities including customers and affiliates. Management does not believe that any single customer or geographic region represents significant credit risk. Credit risk concentration with respect to trade receivables is limited due to the Group’s large and diversified customer base. Credit risk from trade account receivables is mitigated since they are credit insured, covered by letters of credit, bank guarantees and/or other credit enhancements. The credit analysis is performed by the Group internally. The Group also uses
 
106

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
factoring and credit insurances to manage the credit risk. The Group held bills of exchange at December 31, 2011 and proceeds of which were collected in January 2012. The Group does not have exposure to Eurozone sovereign debt for which the issuing states (Greece, Spain and Portugal) have experienced credit downgrades or other indicators of financial difficulties, and customers of these Eurozone states.
The average contractual credit period for trade receivables is about 60-90 days. However, due to the use of the factoring facilities, the average life time of trade receivables are reduced to about 10 days. For the aging analysis of the past-due receivables, see Notes (8), (9) and (10).
The maximum credit risk exposure as at December 31, 2011 is as follows:
Amounts recognized on the consolidated statement of financial position:

Cash and cash equivalents, short-term cash deposits and restricted cash	  	$	387,838	  	
Derivative assets	  	 	66	  	
Bills of exchange	  	 	10,545	  	
Loans and receivables	  	 	48,065	  	
	  	 	 	 	
	  	 	446,514	  	
Amount of credit facility committed but not drawn (see Note 29)	  	 	131	  	
Guarantees (see Note 29)	  	 	27,856	  	
	  	 	 	 	
Maximum credit risk exposure	  	$	474,501	  	
	  	 	 	 	
As at December 31, 2011, the Group had issued guarantees up to a maximum of $27,856 to its trading and financing partners in the normal course of its commodities activities. As of December 31, 2011, $13,791 has been used and outstanding and has not been recorded as liabilities in the consolidated statement of financial position. In the past five years, no claim has been made against the guarantees issued by the Group. Typically, these guarantees are issued on behalf of the Group’s trading and financing partners and, in case of non-performance by a trading or financing partner and a claim is made against the Group, the Group can make the claim against the defaulting trading or financing partner to recover the loss.
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk does not arise from financial instruments that are non-monetary items or from financial instruments denominated in the functional currency. The Group operates internationally and is exposed to risks from changes in foreign currency rates, particularly Euros and the United States dollars. Currency risk arises principally from future trading transactions, and recognized assets and liabilities. In order to reduce the Group’s exposure to foreign currency risk on material contracts denominated in foreign currencies (other than the functional currencies of the subsidiaries), the Group may use foreign currency forward contracts and options to protect its financial positions. As at December 31, 2011 and 2010, the Group had derivative financial instruments (foreign currency forward contracts and options) with aggregate notional amounts of $nil and $236,015, respectively, and a net unrealized fair value loss of $nil and $5,078, respectively. As at December 31, 2011, the Group did not adopt hedge accounting.
Sensitivity analysis:
At December 31, 2011, if the US dollar had weakened 10% against the local functional currencies with all other variables held constant, income from continuing operations for the year 2011 would have been $1,992 lower. Conversely, if the US dollar had strengthened 10% against the local functional currencies with all other variables held constant, income from continuing operations would have been $1,992 higher. The reason for such change is mainly due to certain US dollar-denominated financial assets (net of liabilities) held by entities whose functional currency is not the US dollar. There would have been no material impact arising from financial instruments on other comprehensive income in either case.
At December 31, 2011, if the Euro had weakened 10% against the local functional currencies with all other variables held constant, income from continuing operations for the year 2011 would have been $173 lower. Conversely, if the Euro had strengthened 10% against the local functional currencies with all other variables held
 
107

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
constant, income from continuing operations would have been $173 higher. The reason for such change is mainly due to certain Euro-denominated financial assets (net of liabilities) held by entities whose functional currency is not the Euro. There would have been no impact arising from financial instruments on other comprehensive income in either case.
Other price risk
Other price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market. The Group’s other price risk includes equity price risk whereby the Group’s investments in equities of other entities held for trading or as available for sale are subject to market price fluctuation. The Group did not hold any asset-backed securities.
Sensitivity analysis:
At December 31, 2011, if the equity price in general had weakened 10% with all other variables held constant, income and comprehensive income from continuing operations for the year 2011 would have been $691 and $1,163, respectively, lower. Conversely, if the equity price in general had strengthened 10% with all other variables held constant, income and comprehensive income from continuing operations would have been $691 and $1,163, respectively, higher.
The Group buys and sells commodities future contracts on the London Metal Exchange and enters into financial derivative contracts (e.g. futures and swaps) with banks, customers and commodities brokers. Management uses the derivative contracts to manage the price fluctuation for its own account or for customers. As at December 31, 2011, the Group had outstanding commodity derivative financial instruments with aggregate notional amounts of $36,256 primarily to hedge against the long position in inventories, which resulted in a net unrealized fair value loss of $821.
Sensitivity analysis:
At December 31, 2011, if the commodity price in the financial instrument contracts in general had weakened 10% with all other variables held constant, income from continuing operations for the year 2011 would have been $3,080 higher. Conversely, if the commodity price in the financial instrument contracts in general had strengthened 10% with all other variables held constant, income from continuing operations would have been $3,080 lower. There would have been no impact on other comprehensive income in either case.
The Group executes contracts with third parties for the sale and physical delivery of commodities so as to intend to achieve a targeted price. Contracts for such are not typically financial instruments and therefore excluded from the fair value disclosure and sensitivity analysis.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. The Group’s approach to managing liquidity is to ensure, as far as possible, that it always has sufficient liquidity to meet its liabilities when they fall due, under normal and stress conditions, without incurring unacceptable losses. The Group is not subject to material liquidity risk because of its strong cash position. The Group also maintains adequate banking facilities, including the factoring arrangements. It is the Group’s policy to invest cash in highly liquid, diversified money market funds or bank deposits for a period of less than three months. The Group may also invest in cash deposits with an original maturity date of more than three months so as to earn a higher interest income.
The Group also maintains an acid test ratio greater than one, which indicates that the Group has strong short-term assets to cover its immediate liabilities without selling inventory.
Generally, trade payables are due within 90 days and other payables and accrued expenses are due within one year. All derivative financial liabilities are to be settled within one year. Please also refer to Note 20 for debt maturity schedule.
 
108

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
Concentration risk
Management determines the concentration risk threshold amount as any single financial asset (or liability) exceeding 10% of the aggregate financial assets (or liabilities) in the Group’s consolidated statement of financial position.
The Group regularly maintains cash balances in financial institutions in excess of insured limits. The Group has deposited the cash and cash equivalents, restricted cash and term deposits with reputable financial institutions with high credit rating, and management believes the risk of loss to be remote. As at December 31, 2011, the Group had cash and cash equivalents aggregating $209,420 with and an investment of $130 in a banking group in Austria. The Group also owed $62,965 in aggregate short-term banking borrowings and debt to the Austria banking group.
Additional disclosure
In addition to information disclosed elsewhere in these consolidated financial statements, the Group had significant items of income, expense, and gains and losses resulting from financial assets and financial liabilities which were included in the statement of operations in 2011, 2010 and 2009 as follows:

 	  	2011	 	 	2010	 	 	2009	 	
Interest income on financial assets not at fair value through profit or loss	  	$	2,935	  	 	$	2,044	  	 	$	309	  	
Interest income on financial assets classified at fair value through profit or loss	  	 	7,766	  	 	 	748	  	 	 	126	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	  	$	10,701	  	 	$	2,792	  	 	$	435	  	
	  	 	 	 	 	 	 	 	 	 	 	 	
Interest expense on financial liabilities not at fair value through profit or loss	  	$	(2,381	) 	 	$	(397	) 	 	$	(473	) 	
Interest expense on financial liabilities classified at fair value through profit or loss	  	 	(4,305	) 	 	 	(577	) 	 	 	(4	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total interest expense	  	$	(6,686	) 	 	$	(974	) 	 	$	(477	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Dividends income on financial assets at fair value through profit or loss	  	$	250	  	 	$	467	  	 	$	1	  	
Dividends income on financial assets classified as available for sale, resource property related*	  	 	181	  	 	 	193	  	 	 	280	  	
Dividends income on financial assets classified as available for sale, other	  	 	88	  	 	 	—	  	 	 	—	  	
Net gain (loss) on financial assets at fair value through profit or loss	  	 	298	  	 	 	(170	) 	 	 	324	  	
Credit losses (recovery)	  	 	(530	) 	 	 	795	  	 	 	—	  	

*	included in income from an interest in resource property	
Note 33.    MFC Industrial and its Significant Subsidiaries
MFC Industrial has its principal executive office at Suite 1620 — 400 Burrard Street, Vancouver, British Columbia, Canada.
 
109

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
The following table shows the direct and indirect significant subsidiaries as at December 31, 2011. The table excludes subsidiaries which only hold intercompany assets and liabilities and do not have an active business as well as subsidiaries whose results and net assets did not materially impact on the consolidated results and net assets of the Group.

Subsidiaries	  	Country of
Incorporation	  	Proportion  of
Voting
Interest	 	 	Proportion of
Beneficial
Interest	 	
MFC Commodities GmbH	  	Austria	  	 	100	% 	 	 	100	% 	
MFC Trade & Financial Services GmbH	  	Austria	  	 	100	% 	 	 	100	% 	
IC Managementservice GmbH	  	Austria	  	 	100	% 	 	 	100	% 	
Global Bulk Transport GmbH	  	Austria	  	 	100	% 	 	 	100	% 	
International Trade Services GmbH	  	Austria	  	 	100	% 	 	 	100	% 	
MFC Metal Trading GmbH	  	Austria	  	 	100	% 	 	 	100	% 	
Magnum Minerals Private Limited	  	India	  	 	100	% 	 	 	100	% 	
AFM Aluminiumfolie Merseburg GmbH	  	Germany	  	 	55	% 	 	 	55	% 	
MAW Mansfelder Aluminiumwerk GmbH	  	Germany	  	 	55	% 	 	 	55	% 	
MFC (A) Ltd.	  	Marshall Islands	  	 	100	% 	 	 	100	% 	
MFC (D) Ltd.	  	Marshall Islands	  	 	100	% 	 	 	100	% 	
Brock Metals s.r.o.	  	Slovakia	  	 	100	% 	 	 	100	% 	
M Financial Corp.	  	Barbados	  	 	100	% 	 	 	100	% 	
Mednet (Shanghai) Medical Technical Developing Co., Ltd.	  	China	  	 	90	% 	 	 	90	% 	
Hangzhou Zhe-er Optical Co. Ltd.	  	China	  	 	51	% 	 	 	46	% 	
MFC Corporate Services AG	  	Switzerland	  	 	100	% 	 	 	100	% 	
As at December 31, 2011, there were no significant restrictions (including protective rights of non-controlling interests) which could significantly restrict MFC Industrial’s ability to access or use the assets and settle the liabilities of the Group.
Note 34.    Subsequent Events
Dividend
On January 17, 2012, MIL announced its annual cash dividend for 2012 as follows:
 
 	•	 	The 2012 annual cash dividend will be $0.22 per common share in total, paid in quarterly installments.	
 
 	•	 	The first payment of $0.05 per common share will be paid on February 10, 2012 to shareholders of record on January 27, 2012.	
 
 	•	 	The remaining quarterly dividend payments per common share in 2012 are expected to be made as follows:	
 
 	•	 	March — $0.05;	
 
 	•	 	June — $0.06; and	
 
 	•	 	September — $0.06.	
 
 	•	 	The dividend is subject to customary Canadian withholding tax for non-resident shareholders. Pursuant to applicable tax treaties the withholding rate for eligible U.S. resident shareholders is 15%. The dividend is an eligible dividend under the Income Tax Act (Canada). 	
Business combination
On March 16, 2012, a subsidiary of MFC Industrial (the “Purchaser”) purchased a 75% equity interest and a shareholder loan interest in a corporation,for a total purchase price of $28,000 which was paid out on March 19, 2012. The corporation has a mineral refinery plant and power plant and the Group acquired the corporation for the synergy it will produce to the Group’s commodities and resource segment. The acquisition of the 75% equity and the shareholder loan interests together will effectively transfer 100% economic interest in the corporation to
 
110

Table of Contents
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
DECEMBER 31, 2011
 
the Purchaser and, therefore, there will be no non-controlling interest to be recognized in connection with the acquisition of this corporation. There were no identifiable intangible assets and goodwill expected to be acquired. The amount of acquisition-related costs was nominal.
This business combination is not considered as material. The initial accounting for this acquisition is incomplete at the time these financial statements are authorized for issue because of the time constraint.
Note 35.    Approval of Consolidated Financial Statements
These consolidated financial statements were approved by the Board of Directors and authorized for issue on March 30, 2012.
 
111

Table of Contents

 ITEM 19:	EXHIBITS	
Exhibits Required by Form 20-F

Exhibit
Number	  	Description	
		
1.1	  	Amended and Restated Articles of MFC Industrial Ltd.	
		
1.2	  	Notice of Articles dated October 11, 2011 of MFC Industrial Ltd.	
		
1.3	  	Certificate of Change of Name dated September 30, 2011 of MFC Industrial Ltd.	
		
4.1	  	Amendment to Mining Lease Agreement dated January 1, 1987 between MFC Industrial Ltd. and Wabush Iron Co. Limited, Stelco Inc. and Dofasco Inc. Incorporated by reference from our Form 10-K for the year ended December 31, 1989.	
		
4.2	  	Memorandum of Agreement dated November 24, 1987 between MFC Industrial Ltd. and Wabush Iron Co. Limited, Stelco Inc. and Dofasco Inc. Incorporated by reference from our Form 10-K for the year ended December 31, 1989.	
		
4.3	  	First Amendment to the Memorandum of Agreement between MFC Industrial Ltd. and Wabush Iron Co. Limited, Stelco Inc. and Dofasco Inc. Incorporated by reference from our Form 10-K for the year ended December 31, 1989.	
		
4.4	  	Amended 1997 Stock Option Plan. Incorporated by reference from our Form S-8 dated May 23, 2007.	
		
4.5	  	Arrangement Agreement dated February 26, 2010 between MFC Industrial Ltd. and KHD Humboldt International (Deutschland) AG. Incorporated by reference from our Form 6-K dated March 3, 2010.	
		
4.6	  	Agreement dated September 24, 2010 between MFC Industrial Ltd. and Mass Financial Corp. Incorporated by reference from our Form 6-K dated September 30, 2010.	
		
4.7	  	2008 Equity Incentive Plan. Incorporated by reference from our Form F-4 dated October 7, 2010.	
		
8.1	  	List of significant subsidiaries of our company as at March 30, 2012.	
		
11.1	  	Code of Ethics. Incorporated by reference from our Form 6-K dated October 5, 2009.	
		
12.1	  	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
		
12.2	  	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
		
13.1	  	Certification of Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
		
13.2	  	Certification of Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
		
15.1	  	Letter dated March 30, 2012 of a member of NEXIA International, Davidson & Company LLP as required by Item 16F of Form 20-F.	
		
15.2	  	Consent dated March 30, 2012 of Deloitte & Touche LLP.	
		
15.3	  	Consent dated March 30, 2012 of a member of NEXIA International, Davidson & Company LLP.	
 
112

Table of Contents
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: March 30, 2012

MFC INDUSTRIAL LTD.	
	
/s/    Michael J. Smith	
Michael J. Smith
Chairman, Chief Executive Officer and President	
 
113

EXHIBIT 1.1
Company No. BC0778539 
BUSINESS CORPORATIONS ACT
AMENDED AND RESTATED ARTICLES
OF
MFC INDUSTRIAL LTD.
(Formerly Terra Nova Royalty Corporation)
Table of Contents

Part 1 – Interpretation	  	 	1	  	
		
Part 2 – Shares and Share certificates	  	 	1	  	
		
Part 3 – Issue of Shares	  	 	2	  	
		
Part 4 – Share Transfers	  	 	2	  	
		
Part 5 – Acquisition of Shares	  	 	3	  	
		
Part 6 – Borrowing Powers	  	 	3	  	
		
Part 7 – General Meetings	  	 	4	  	
		
Part 8 – Proceedings at Meetings of Shareholders	  	 	5	  	
		
Part 9 – Votes of Shareholders	  	 	8	  	
		
Part 10 – Directors	  	 	9	  	
		
Part 11 – Election and Removal of Directors	  	 	10	  	
		
Part 12 – Proceedings of Directors	  	 	12	  	
		
Part 13 – Committees of Directors	  	 	13	  	
		
Part 14 – Officers	  	 	14	  	
		
Part 15 – Certain Permitted Activities of Directors	  	 	15	  	
		
Part 16 – Indemnification	  	 	15	  	
		
Part 17 – Auditor	  	 	15	  	
		
Part 18 – Dividends	  	 	15	  	
		
Part 19 – Accounting Records	  	 	16	  	
		
Part 20 – Execution of Instruments Under Seal	  	 	16	  	
		
Part 21 – Notices	  	 	17	  	
		
Part 22 – Special Rights and Restrictions	  	 	18	  	
		
Part 23 – Alteration to Articles	  	 	19	  	
		
Part 24 – Section 137 of Business Corporations Act	  	 	20	  	

Company No. BC0778539 
BUSINESS CORPORATIONS ACT
AMENDED AND RESTATED ARTICLES
OF
MFC INDUSTRIAL LTD.
(formerly Terra Nova Royalty Corporation)
(the “Company”)
PART 1 – INTERPRETATION
 
1.1	Definitions	
Without limiting Article 1.2, in these Articles, unless the context requires otherwise, the following words shall have the following meanings:
 
 	(a)	“adjourned meeting” means the meeting to which a meeting is adjourned under Article 8.7 or 8.11;	
 
 	(b)	“board” and “directors” mean the directors or sole director of the Company for the time being;	
 
 	(c)	“ Business Corporations Act ” means the Business Corporations Act , S.B.C. 2002, c.57, and includes its regulations;	
 
 	(d)	“ Interpretation Act ” means the Interpretation Act , R.S.B.C. 1996, c. 238;	
 
 	(e)	“trustee”, in relation to a shareholder, means the personal or other legal representative of the shareholder, and includes a trustee in bankruptcy of the shareholder.	
 
1.2	Business Corporations Act definitions apply	
The definitions in the Business Corporations Act apply to these Articles.
 
1.3	Interpretation Act applies	
The Interpretation Act applies to the interpretation of these Articles as if these Articles were an enactment.
 
1.4	Conflict in definitions	
If there is a conflict between a definition in the Business Corporations Act and a definition or rule in the Interpretation Act relating to a term used in these Articles, the definition in the Business Corporations Act will prevail in relation to the use of the term in these Articles.
 
1.5	Conflict between Articles and legislation	
If there is a conflict between these Articles and the Business Corporations Act , the Business Corporations Act will prevail.
PART 2 – SHARES AND SHARE CERTIFICATES
 
2.1	Form of share certificate	
Each share certificate issued by the Company must comply with, and be signed as required by, the Business Corporations Act .

2.2	Right to share certificate	
Each shareholder is entitled, without charge, to one certificate representing the share or shares of each class or series of shares held by the shareholder.
 
2.3	Sending of share certificate	
Any share certificate to which a shareholder is entitled may be sent to the shareholder by mail and neither the Company nor any agent is liable for any loss to the shareholder because the certificate sent is lost in the mail or stolen.
 
2.4	Replacement of worn out or defaced certificate	
If the directors are satisfied that a share certificate is worn out or defaced, they must, on production to them of the certificate and on such other terms, if any, as they think fit:
 
 	(a)	order the certificate to be cancelled; and	
 
 	(b)	issue a replacement share certificate.	
 
2.5	Replacement of lost, stolen or destroyed certificate	
If a share certificate is lost, stolen or destroyed, a replacement share certificate must be issued to the person entitled to that certificate if the directors receive:
 
 	(a)	proof satisfactory to them that the certificate is lost, stolen or destroyed; and	
 
 	(b)	any indemnity the directors consider adequate.	
 
2.6	Splitting share certificates	
If a shareholder surrenders a share certificate to the Company with a written request that the Company issue in the shareholder’s name two or more certificates, each representing a specified number of shares and in the aggregate representing the same number of shares as the certificate, so surrendered, the Company must cancel the surrendered certificate and issue replacement share certificates in accordance with that request. The shareholder will pay the cost of issuing such share certificates.
PART 3 – ISSUE OF SHARES
 
3.1	Directors authorized to issue shares	
The directors may, subject to the rights of the holders of the issued shares of the Company, issue, allot, sell, grant options on or otherwise dispose of the unissued shares, and issued shares held by the Company, at the times, to the persons, including directors, in the manner, on the terms and conditions and for the issue prices that the directors, in their absolute discretion, may determine.
 
3.2	Company need not recognize unregistered interests	
Except as required by law or these Articles, the Company need not recognize or provide for any person’s interests in or rights to a share unless that person is the shareholder of the share.
PART 4 – SHARE TRANSFERS
 
4.1	Recording or registering transfer	
A transfer of a share of the Company must not be recorded or registered:
 
 	(a)	unless a duly signed instrument of transfer in respect of the share has been received by the Company and the certificate representing the share to be transferred has been surrendered and cancelled; or	
 
 	(b)	if no certificate has been issued by the Company in respect of the share, unless a duly signed instrument of transfer in respect of the share has been received by the Company.	
 
- 2 -

4.2	Form of instrument of transfer	
The instrument of transfer in respect of any share of the Company must be either in the form, if any, on the back of the Company’s share certificates or in any other form that may be approved by the directors from time to time.
 
4.3	Signing of instrument of transfer	
If a shareholder, or his or her duty authorized attorney, signs an instrument of transfer in respect of shares registered in the name of the shareholder, the signed instrument of transfer constitutes a complete and sufficient authority to the Company and its directors, officers and agents to register the number of shares specified in the instrument of transfer, or, if no number is specified, all the shares represented by share certificates deposited with the instrument of transfer:
 
 	(a)	in the name of the person named as transferee in that instrument of transfer; or	
 
 	(b)	if no person is named as transferee in that instrument of transfer, in the name of the person on whose behalf the share certificate is deposited for the purpose of having the transfer registered.	
 
4.4	Enquiry as to title not required	
Neither the Company nor any director, officer or agent of the Company is bound to inquire into the title of the person named in the instrument of transfer as transferee or, if no person is named as transferee in the instrument of transfer, of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered or is liable for any claim related to registering the transfer by the shareholder or by any intermediate owner or holder of the shares, of any interest in the shares, of any share certificate representing such shares or of any written acknowledgment of a right to obtain a share certificate for such shares.
 
4.5	Transfer fee	
There must be paid to the Company, in relation to the registration of any transfer, the amount determined by the directors.
PART 5 – ACQUISITION OF SHARES
 
5.1	Company authorized to redeem or purchase shares	
Subject to the special rights and restrictions attached to any class or series of shares, the Company may, if it is authorized to do so by the directors, redeem, purchase or otherwise acquire any of its shares.
 
5.2	Company authorized to accept surrender of shares	
The Company may, if it is authorized to do so by the directors, accept a surrender of any of its shares by way of gift or for cancellation.
 
5.3	Company authorized to convert fractional shares into whole shares	
The Company may, if it is authorized to do so by the directors, convert any of its fractional shares into whole shares in accordance with, and subject to the limitations contained in, the Business Corporations Act .
PART 6 – BORROWING POWERS
 
6.1	Powers of directors	
The directors may from time to time on behalf of the Company:
 
 	(a)	borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;	
 
 	(b)	issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person;	
 
- 3 -

 	(c)	guarantee the repayment of money by any other person or the performance of any obligation of any other person; and	
 
 	(d)	mortgage or charge, whether by way of specific or floating charge, or give other security on the whole or any part of the present and future undertaking of the Company.	
PART 7 – GENERAL MEETINGS
 
7.1	Annual general meetings	
Unless an annual general meeting is deferred or waived in accordance with section 182(2)(a) or (c) of the Business Corporations Act , the Company must hold its first annual general meeting within 18 months after the date on which it was incorporated or otherwise recognized, and after that must hold an annual general meeting at least once in each calendar year and not more than 15 months after the last annual general meeting.
 
7.2	Location of annual general and other shareholder meetings	
An annual general meeting or other meeting of the Company’s shareholders may be held at any of the following locations or at such other location inside or outside British Columbia as may from time to time be fixed by a resolution of the directors:

Vancouver, British Columbia	  	Vienna, Austria	
Hong Kong	  	Hamilton, Bermuda	
Munich, Germany	  	Frankfurt, Germany	
Shanghai, China	  	Bridgetown, Barbados	
Zurich, Switzerland	  	Toronto, Ontario	
 
7.3	When annual general meeting is deemed to have been held	
If all of the shareholders who are entitled to vote at an annual general meeting consent by a unanimous resolution under the Business Corporations Act to all of the business that is required to be transacted at that annual general meeting, the annual general meeting is deemed to have been held on the date of the unanimous resolution. The shareholders must, in any unanimous resolution passed under this Article 7.3, select as the Company’s annual reference date a date that would be appropriate for the holding of the applicable annual general meeting.
 
7.4	Calling of shareholder meetings	
The directors may, whenever they think fit, call a meeting of shareholders.
 
7.5	Notice for meetings of shareholders	
The Company must send notice of the date, time and location of any meeting of shareholders, in the manner provided in these Articles, or in such other manner, if any, as may be prescribed by ordinary resolution (whether previous notice of the resolution has been given or not), to each shareholder entitled to attend the meeting, to each director and to the auditor of the Company, unless these Articles otherwise provide, at least the following number of days before the meeting:
 
 	(a)	if and for so long as the Company is a public company, 21 days; or	
 
 	(b)	otherwise, 10 days.	
 
7.6	Record date for notice	
The directors may set a date as the record date for the purpose of determining shareholders entitled to notice of any meeting of shareholders. The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Business Corporations Act , by more than four months. The record date must not precede the date on which the meeting is held by fewer than:
 
- 4 -

 	(a)	if and for so long as the Company is a public company, 21 days; or	
 
 	(b)	otherwise, 10 days.	
If no record date is set, the record date is 5:00 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.
 
7.7	Record date for voting	
The directors may set a date as the record date for the purpose of determining shareholders entitled to vote at any meeting of shareholders. The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Business Corporations Act , by more than four months. If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.
 
7.8	Failure to give notice and waiver of notice	
The accidental omission to send notice of any meeting to, or the non-receipt of any notice by, any of the persons entitled to notice does not invalidate any proceedings at that meeting. Any person entitled to notice of a meeting of shareholders may, in writing or otherwise, waive or reduce the period of notice of such meeting.
 
7.9	Notice of special business at meetings of shareholders	
If a meeting of shareholders is to consider special business within the meaning of Article 8.1, the notice of meeting must:
 
 	(a)	state the general nature of the special business; and	
 
 	(b)	if the special business includes considering, approving, ratifying, adopting or authorizing any document or the signing of or giving of effect to any document, have attached to it a copy of the document or state that a copy of the document will be available for inspection by shareholders:	
 
 	(i)	at the Company’s records office, or at such other reasonably accessible location in British Columbia as is specified in the notice, and	
 
 	(ii)	during statutory business hours on any one or more specified days before the day set for the holding of the meeting.	
PART 8 – PROCEEDINGS AT MEETINGS OF SHAREHOLDERS
 
8.1	Special business	
At a meeting of shareholders, the following business is special business:
 
 	(a)	at a meeting of shareholders that is not an annual general meeting, all business is special business except business relating to the conduct of or voting at the meeting;	
 
 	(b)	at an annual general meeting, all business is special business except for the following:	
 
 	(i)	business relating to the conduct of or voting at the meeting,	
 
 	(ii)	consideration of any financial statements of the Company presented to the meeting,	
 
 	(iii)	consideration of any reports of the directors or auditor,	
 
 	(iv)	the setting or changing of the number of directors,	
 
 	(v)	the election or appointment of directors,	
 
 	(vi)	the appointment of an auditor,	
 
 	(vii)	the setting of the remuneration of an auditor,	
 
 	(viii)	business arising out of a report of the directors not requiring the passing of a special resolution or an exceptional resolution, and	
 
- 5 -

 	(ix)	any other business which, under these Articles or the Business Corporations Act , may be transacted at a meeting of shareholders without prior notice of the business being given to the shareholders.	
 
8.2	Special majority	
The majority of votes required for the Company to pass a special resolution at a meeting of shareholders is two-thirds of the votes cast on the resolution.
 
8.3	Quorum	
Subject to the special rights and restrictions attached to the shares of any class or series of shares, the quorum for the transaction of business at a meeting of shareholders is two persons who are entitled to vote at the meeting in person or by proxy.
 
8.4	One shareholder may constitute quorum	
If there is only one shareholder entitled to vote at a meeting of shareholders:
 
 	(a)	the quorum is one person who is, or who represents by proxy, that shareholder; and	
 
 	(b)	that shareholder, present in person or by proxy, may constitute the meeting.	
 
8.5	Other persons may attend	
The directors, the president, if any, the secretary, if any, and any lawyer or auditor for the Company are entitled to attend any meeting of shareholders, but if any of those persons do attend a meeting of shareholders, that person is not to be counted in the quorum, and is not entitled to vote at the meeting, unless that person is a shareholder or proxy holder entitled to vote at the meeting.
 
8.6	Requirement of quorum	
No business, other than the election of a chair of the meeting and the adjournment of the meeting, may be transacted at any meeting of shareholders unless a quorum of shareholders entitled to vote at the meeting is present at the commencement of the meeting.
 
8.7	Lack of quorum	
If, within 1/2 hour from the time set for the holding of a meeting of shareholders, a quorum is not present:
 
 	(a)	in the case of a general meeting convened by requisition of shareholders, the meeting is dissolved; and	
 
 	(b)	in the case of any other meeting of shareholders, the meeting stands adjourned to the same day in the next week at the same time and place.	
 
8.8	Lack of quorum at succeeding meeting	
If, at the meeting to which the first meeting referred to in Article 8.7 was adjourned, a quorum is not present within 1/2 hour from the time set for the holding of the meeting, the persons present and who are, or who represent by proxy, shareholders entitled to attend and vote at the meeting constitute a quorum.
 
8.9	Chair	
The following individual is entitled to preside as chair at a meeting of shareholders:
 
 	(a)	the chair of the board, if any;	
 
 	(b)	if the chair of the board is absent or unwilling to act as chair of the meeting, the president, if any.	
 
8.10	Alternate chair	
At any meeting of shareholders, the directors present must choose one of their number to be chair of the meeting if: (a) there is no chair of the board or president present within 15 minutes after the time set for holding the meeting; (b) the chair of the board and the president are unwilling to act as chair of the meeting; or (c) if the chair of the board and the president have advised the secretary, if any, or any director present at the meeting, that they will not be present at the meeting. If, in any of the foregoing
 
- 6 -

circumstances, all of the directors present decline to accept the position of chair or fail to choose one of their number to be chair of the meeting, or if no director is present, the shareholders present in person or by proxy must choose any person present at the meeting to chair the meeting.
 
8.11	Adjournments	
The chair of a meeting of shareholders may, and if so directed by the meeting must, adjourn the meeting from time to time and from place to place, but no business may be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.
 
8.12	Notice of adjourned meeting	
It is not necessary to give any notice of an adjourned meeting or of the business to be transacted at an adjourned meeting of shareholders except that, when a meeting is adjourned for 30 days or more, notice of the adjourned meeting must be given as in the case of the original meeting.
 
8.13	Motion need not be seconded	
No motion proposed at a meeting of shareholders need be seconded unless the chair of the meeting rules otherwise, and the chair of any meeting of shareholders is entitled to propose or second a motion.
 
8.14	Manner of taking a poll	
Subject to Article 8.15, if a poll is duly demanded at a meeting of shareholders:
 
 	(a)	the poll must be taken	
 
 	(i)	at the meeting, or within seven days after the date of the meeting, as the chair of the meeting directs, and	
 
 	(ii)	in the manner, at the time and at the place that the chair of the meeting directs;	
 
 	(b)	the result of the poll is deemed to be a resolution of, and passed at, the meeting at which the poll is demanded; and	
 
 	(c)	the demand for the poll may be withdrawn.	
 
8.15	Demand for a poll on adjournment	
A poll demanded at a meeting of shareholders on a question of adjournment must be taken immediately at the meeting,
 
8.16	Demand for a poll not to prevent continuation of meeting	
The demand for a poll at a meeting of shareholders does not, unless the chair of the meeting so rules, prevent the continuation of a meeting for the transaction of any business other than the question on which a poll has been demanded.
 
8.17	Poll not available in respect of election of chair	
No poll may be demanded in respect of the vote by which a chair of a meeting of shareholders is elected.
 
8.18	Casting of votes on poll	
On a poll, a shareholder entitled to more than one vote need not cast all the votes in the same way.
 
8.19	Chair must resolve dispute	
In the case of any dispute as to the admission or rejection of a vote given on a poll, the chair of the meeting must determine the same, and his or her determination made in good faith is final and conclusive.
 
8.20	Chair has second vote	
In case of an equality of votes, the chair of a meeting of shareholders will, either on a show of hands or on a poll, have a casting or second vote in addition to the vote or votes to which the chair may be entitled as a shareholder.
 
- 7 -

8.21	Declaration of result	
The chair of a meeting of shareholders must declare to the meeting the decision on every question in accordance with the result of the show of hands or the poll, as the case may be, and that decision must be entered in the minutes of the meeting.
 
8.22	Meetings by telephone or other communications medium	
A shareholder or proxy holder who is entitled to participate in a meeting of shareholders may do so in person, or by telephone or other communications medium, if all shareholders and proxy holders participating in the meeting are able to communicate with each other; provided, however, that nothing in this Section shall obligate the Company to take any action or provide any facility to permit or facilitate the use of any communications medium at a meeting of shareholders. If one or more shareholders or proxy holders participate in a meeting a shareholders in a manner contemplated by this Article;
 
 	(a)	each such shareholder or proxy holder shall be deemed to be present at the meeting; and	
 
 	(b)	the meeting shall be deemed to be held at the location specified in the notice of the meeting.	
PART 9 – VOTES OF SHAREHOLDERS
 
9.1	Voting rights	
Subject to any special rights or restrictions attached to any shares and to the restrictions imposed on joint registered holders of shares under Article 9.3:
 
 	(a)	on a vote by show of hands, every person present who is a shareholder or proxy holder and entitled to vote at the meeting has one vote; and	
 
 	(b)	on a poll, every shareholder entitled to vote has one vote in respect of each share held by that shareholder that carries the right to vote on that poll and may exercise that vote either in person or by proxy.	
 
9.2	Trustee of shareholder may vote	
A person who is not a shareholder may vote on a resolution at a meeting of shareholders, whether on a show of hands or on a poll, and may appoint a proxy holder to act at the meeting in relation to that resolution, if, before doing so, the person satisfies the chair of the meeting at which the resolution is to be considered, or satisfies all of the directors present at the meeting, that the person is a trustee for a shareholder who is entitled to vote on the resolution.
 
9.3	Votes by joint shareholders	
If there are joint shareholders registered in respect of any share:
 
 	(a)	any one of the joint shareholders, but not both or all, may vote at any meeting, either personally or by proxy, in respect of the share as if that joint shareholder were solely entitled to it; or	
 
 	(b)	if more than one of the joint shareholders is present at any meeting, personally or by proxy, the joint shareholder present whose name stands first on the central securities register in respect of the share is alone entitled to vote in respect of that share.	
 
9.4	Trustees as joint shareholders	
Two or more trustees of a shareholder in whose sole name any share is registered are, for the purposes of Article 9.3, deemed to be joint shareholders.
 
9.5	Representative of a corporate shareholder	
If a corporation that is not a subsidiary of the Company is a shareholder, that corporation may appoint a person to act as its representative at any meeting of shareholders of the Company, and:
 
 	(a)	for that purpose, the instrument appointing a representative must	
 
- 8 -

 	(i)	be received at the registered office of the Company or at any other place specified, in the notice calling the meeting, for the receipt of proxies, at least two business days before the day set for the holding of the meeting, or	
 
 	(ii)	be provided, at the meeting, to the chair of the meeting, and	
 
 	(b)	if a representative is appointed under this Article 9.5:	
 
 	(i)	the representative is entitled to exercise in respect of and at that meeting the same rights on behalf of the corporation that the representative represents as that corporation could exercise if it were a shareholder who is an individual, including, without limitation, the right to appoint a proxy holder, and	
 
 	(ii)	the representative, if present at the meeting, is to be counted for the purpose of forming a quorum and is deemed to be a shareholder present in person at the meeting.	
 
9.6	Validity of proxy votes	
A vote given in accordance with the terms of a proxy is valid despite the death or incapacity of the shareholder giving the proxy and despite the revocation of the proxy or the revocation of the authority under which the proxy is given, unless notice in writing of that death, incapacity or revocation is received:
 
 	(a)	at the registered office of the Company, at any time up to and including the last business day before the day set for the holding of the meeting at which the proxy is to be used; or	
 
 	(b)	by the chair of the meeting, before the vote is taken.	
 
9.7	Production of evidence of authority to vote	
The chair of any meeting of shareholders may, but need not, inquire into the authority of any person to vote at the meeting and may, but need not, demand from that person production of evidence as to the existence of the authority to vote.
PART 10 – DIRECTORS
 
10.1	Number of directors	
The number of directors, excluding additional directors appointed under Article 11.8, is set at:
 
 	(a)	if the Company is a public company, the greater of three and the number most recently established:	
 
 	(i)	by ordinary resolution (whether or not previous notice of the resolution was given), and	
 
 	(ii)	under Article 11.4; or	
 
 	(b)	if the Company is not a public company, the number most recently established:	
 
 	(i)	by ordinary resolution (whether or not previous notice of the resolution was given), and	
 
 	(ii)	under Article 11.4.	
 
10.2	Change in number of directors	
If the number of directors is set under Articles 10.1(a)(i) or 10.1(b)(i):
 
 	(a)	the shareholders may elect or appoint the directors needed to fill any vacancies in the board of directors up to that number; and	
 
 	(b)	if, contemporaneously with setting that number, the shareholders do not elect or appoint the directors needed to fill vacancies in the board of directors up to that number, then the directors may appoint, or the shareholders may elect or appoint, directors to fill those vacancies.	
 
10.3	Directors’ acts valid despite vacancy	
An act or proceeding of the directors is not invalid merely because fewer directors have been appointed or elected than the number of directors set or otherwise required under these Articles.
 
- 9 -

10.4	Qualifications of directors	
A director is not required to hold a share in the capital of the Company as qualification for his or her office but must be qualified as required by the Business Corporations Act to become, act or continue to act as a director.
 
10.5	Remuneration of directors	
The directors are entitled to the remuneration, if any, for acting as directors as the directors may from time to time determine. If the directors so decide, the remuneration of the directors will be determined by the shareholders. That remuneration may be in addition to any salary or other remuneration paid to a director in such director’s capacity as an officer or employee of the Company.
 
10.6	Reimbursement of expenses of directors	
The Company must reimburse each director for the reasonable expenses that he or she may incur in and about the business of the Company.
 
10.7	Special remuneration for directors	
If any director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director, or if any director is otherwise specially occupied in or about the Company’s business, he or she may be paid remuneration fixed by the directors and such remuneration may be either in addition to, or in substitution for, any other remuneration that he or she may be entitled to receive.
 
10.8	Gratuity, pension or allowance on retirement of director	
Unless otherwise determined by ordinary resolution, the directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any director who has held any salaried office or place of profit with the Company or to his or her spouse or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.
PART 11 – ELECTION AND REMOVAL OF DIRECTORS
 
11.1	Election and term of directors	
The directors shall be divided into three classes: Class I, Class II and Class III, as equal in number as possible. At the first annual general meeting of the Company under the Business Corporations Act , Class III directors shall be elected to hold office for a three year term. At the second annual general meeting of the Company under the Business Corporations Act , Class I directors shall be elected to hold office for a three year term. At the third annual general meeting of the Company under the Business Corporations Act , Class II directors shall be elected to hold office for a three year term. At each annual general meeting, the successors to the class of directors whose terms then expire shall be identified as being of the same class of directors they succeed and shall be elected to hold office for a three year term expiring at the third succeeding annual general meeting. A successor director who replaces a director who resigned before the expiration of his or her term shall be appointed or elected for the remaining term of such resigned director. When the number of directors has changed, any newly created directorship or any decrease in directorships shall be apportioned among the classes by the directors as to make all classes as equal in number as possible.
 
11.2	Consent to be a director	
No election, appointment or designation of an individual as a director is valid unless:
 
 	(a)	that individual consents to be a director in the manner provided for in the Business Corporations Act ; or	
 
 	(b)	that individual is elected or appointed at a meeting at which the individual is present and the individual does not refuse, at the meeting, to be a director.	
 
- 10 -

11.3	Failure to elect or appoint directors	
If:
 
 	(a)	the Company fails to hold an annual general meeting, and all the shareholders who are entitled to vote at an annual general meeting fail to pass the unanimous resolution contemplated by Article 7.3, on or before the date by which the annual general meeting is required to be held under the Business Corporations Act ; or	
 
 	(b)	the shareholders fail, at the annual general meeting or in the unanimous resolution contemplated by Article 7.3, to elect or appoint any directors;	
 
 	then	each director in office at such time continues to hold office until the earlier of:	
 
 	(c)	the date on which his or her successor is elected or appointed; and	
 
 	(d)	the date on which he or she otherwise ceases to hold office under the Business Corporations Act or these Articles.	
 
11.4	Places of retiring directors not filled	
If, at any meeting of shareholders at which there should be an election of directors, the places of any of the retiring directors are not filled by that election, those retiring directors who are not re-elected and who are asked by the newly elected directors to continue in office will, if willing to do so, continue in office to fill the vacancies in the number of directors set pursuant to these Articles until further new directors are elected at a meeting of shareholders convened for that purpose. If any such election or continuance of directors does not result in the election or continuance of the number of directors set pursuant to these Articles, the number of directors of the Company is deemed to be set at the number of directors actually elected or continued in office.
 
11.5	Directors may fill casual vacancies	
Any casual vacancy occurring in the board of directors may be filled by the directors.
 
11.6	Remaining directors’ power to act	
The directors may act notwithstanding any vacancy in the board of directors, but if the Company has fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the directors may only act for the purpose of appointing directors up to that number or for the purpose of summoning a meeting of shareholders to fill any vacancies on the board of directors or for any other purpose permitted by the Business Corporations Act .
 
11.7	Shareholders may fill vacancies	
If the Company has no directors or fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the shareholders may elect or appoint directors to fill any vacancies on the board of directors.
 
11.8	Additional directors	
Notwithstanding Articles 10.1 and 10.2, between annual general meetings or unanimous resolutions contemplated by Article 7.3, the directors may, subject to compliance with Article 11.1 appoint one or more additional directors, but the number of additional directors appointed under this Article 11.8 must not at any time exceed:
 
 	(a)	one-third of the number of first directors, if, at the time of the appointments, one or more of the first directors have not yet completed their first term of office; or	
 
 	(b)	in any other case, one-third of the number of the current directors who were elected or appointed as directors other than under this Article 11.8.	
 
11.9	Ceasing to be a director	
A director ceases to be a director when:
 
 	(a)	the term of office of the director expires;	
 
- 11 -

 	(b)	the director dies;	
 
 	(c)	the director resigns as a director by notice in writing provided to the Company or a lawyer for the Company; or	
 
 	(d)	the director is removed from office pursuant to Articles 11.10 or 11.11.	
 
11.10	Removal of director by shareholders	
The shareholders may, by special resolution, remove any director before the expiration of his or her term of office, and may, by ordinary resolution, elect or appoint a director to fill the resulting vacancy. If the shareholders do not contemporaneously elect or appoint a director to fill the vacancy created by the removal of a director, then the directors may appoint, or the shareholders may elect or appoint by ordinary resolution, a director to fill that vacancy.
 
11.11	Removal of director by directors	
The directors may remove any director before the expiration of his or her term of office if the director is convicted of an indictable offence, or if the director ceases to be qualified to act as a director of a company and does not promptly resign, and the directors may appoint a director to fill the resulting vacancy.
PART 12 – PROCEEDINGS OF DIRECTORS
 
12.1	Meetings of directors	
The directors may meet together for the conduct of business, adjourn and otherwise regulate their meetings as they think fit, and meetings of the board held at regular intervals may be held at the place, at the time and on the notice, if any, that the board may by resolution from time to time determine.
 
12.2	Chair of meetings	
Meetings of directors are to be chaired by:
 
 	(a)	the chair of the board, if any;	
 
 	(b)	in the absence of the chair of the board, the president, if any, if the president is a director; or	
 
 	(c)	any other director chosen by the directors if:	
 
 	(i)	neither the chair of the board nor the president, if a director, is present at the meeting within 15 minutes after the time set for holding the meeting,	
 
 	(ii)	neither the chair of the board nor the president, if a director, is willing to chair the meeting, or	
 
 	(iii)	the chair of the board and the president, if a director, have advised the secretary, if any, or any other director, that they will not be present at the meeting.	
 
12.3	Voting at meetings	
Questions arising at any meeting of directors are to be decided by a majority of votes and, in the case of an equality of votes, the chair of the meeting shall have a second or casting vote in addition to the vote to which he may be entitled as a director
 
12.4	Meetings by telephone or other communications medium	
A director may participate in a meeting of the directors or of any committee of the directors in person, or by telephone or other communications medium, if all directors participating in the meeting are able to communicate with each other. A director may participate in a meeting of the directors or of any committee of the directors by a communications medium other than telephone if all directors participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other and if all directors who wish to participate in the meeting agree to such participation. A director who participates in a meeting in a manner contemplated by this Article 12.4 is deemed for all purposes of the Business Corporations Act and these Articles to be present at the meeting and to have agreed to participate in that manner.
 
- 12 -

12.5	Who may call extraordinary meetings	
A director may call a meeting of the board at any time. The secretary, if any, must on request of a director , call a meeting of the board.
 
12.6	Notice of extraordinary meetings	
Subject to Articles 12.7 and 12.8, if a meeting of the board is called under Article 12.4, reasonable notice of that meeting, specifying the place, date and time of that meeting, must be given to each of the directors:
 
 	(a)	by mail addressed to the director’s address as it appears on the books of the Company or to any other address provided to the Company by the director for this purpose;	
 
 	(b)	by leaving it at the director’s prescribed address or at any other address provided to the Company by the director for this purpose; or	
 
 	(c)	orally, by delivery of written notice or by telephone, voice mail, e-mail, fax or any other method of legibly transmitting messages.	
 
12.7	When notice not required	
It is not necessary to give notice of a meeting of the directors to a director if:
 
 	(a)	the meeting is to be held immediately following a meeting of shareholders at which that director was elected or appointed or is the meeting of the directors at which that director is appointed; or	
 
 	(b)	the director has filed a waiver under Article 12.9.	
 
12.8	Meeting valid despite failure to give notice	
The accidental omission to give notice of any meeting of directors to any director, or the non-receipt of any notice by any director, does not invalidate any proceedings at that meeting.
 
12.9	Waiver of notice of meetings	
Any director may file with the Company a document signed by the director waiving notice of any past, present or future meeting of the directors and may at any time withdraw that waiver with respect to meetings of the directors held after that withdrawal.
 
12.10	Effect of waiver	
After a director files a waiver under Article 12.9 with respect to future meetings of the directors, and until that waiver is withdrawn, notice of any meeting of the directors need not be given to that director unless the director otherwise requires in writing to the Company.
 
12.11	Quorum	
The quorum necessary for the transaction of the business of the directors may be set by the directors and, if not so set, is a majority of the directors.
 
12.12	If only one director	
If there is only one director, the quorum necessary for the transaction of the business of the directors is one director, and that director may constitute a meeting.
PART 13 – COMMITTEES OF DIRECTORS
 
13.1	Appointment of committees	
The directors may, by resolution:
 
 	(a)	appoint one or more committees consisting of the director or directors that they consider appropriate;	
 
 	(b)	delegate to a committee appointed under paragraph (a) any of the directors’ powers, except:	
 
 	(i)	the power to fill vacancies in the board,	
 
- 13 -

 	(ii)	the power to change the membership of, or fill vacancies in, any committee of the board, and	
 
 	(iii)	the power to appoint or remove officers appointed by the board, and	
 
 	(c)	make any delegation referred to in paragraph (b) subject to the conditions set out in the resolution.	
 
13.2	Obligations of committee	
Any committee formed under Article 13.1, in the exercise of the powers delegated to it, must:
 
 	(a)	conform to any rules that may from time to time be imposed on it by the directors; and	
 
 	(b)	report every act or thing done in exercise of those powers to the earliest meeting of the directors to be held after the act or thing has been done.	
 
13.3	Powers of board	
The board may, at any time:
 
 	(a)	revoke the authority given to a committee, or override a decision made by a committee, except as to acts done before such revocation or overriding;	
 
 	(b)	terminate the appointment of, or change the membership of, a committee; and	
 
 	(c)	fill vacancies in a committee.	
 
13.4	Committee meetings	
Subject to Article 13.2(a):
 
 	(a)	the members of a directors’ committee may meet and adjourn as they think proper;	
 
 	(b)	a directors’ committee may elect a chair of its meetings but, if no chair of the meeting is elected, or if at any meeting the chair of the meeting is not present within 15 minutes after the time set for holding the meeting, the directors present who are members of the committee may choose one of their number to chair the meeting;	
 
 	(c)	a majority of the members of a directors’ committee constitutes a quorum of the committee; and	
 
 	(d)	questions arising at any meeting of a directors’ committee are determined by a majority of votes of the members present, and in case of an equality of votes, the chair of the meeting has no second or casting vote.	
PART 14 – OFFICERS
 
14.1	Appointment of officers	
The board may, from time to time, appoint a president, secretary or any other officers that it considers necessary, and none of the individuals appointed as officers need be a member of the board.
 
14.2	Functions, duties and powers of officers	
The board may, for each officer:
 
 	(a)	determine the functions and duties the officer is to perform;	
 
 	(b)	entrust to and confer on the officer any of the powers exercisable by the directors on such terms and conditions and with such restrictions as the directors think fit; and	
 
 	(c)	from time to time revoke, withdraw, alter or vary all or any of the functions, duties and powers of the officer.	
 
14.3	Remuneration	
All appointments of officers are to be made on the terms and conditions and at the remuneration (whether by way of salary, fee, commission, participation in profits or otherwise) that the board thinks fit and are subject to termination at the pleasure of the board.
 
- 14 -

PART 15 – CERTAIN PERMITTED ACTIVITIES OF DIRECTORS
 
15.1	Other office of director	
A director may hold any office or place of profit with the Company (other than the office of auditor of the Company) in addition to his or her office of director for the period and on the terms (as to remuneration or otherwise) that the directors may determine.
 
15.2	No disqualification	
No director or intended director is disqualified by his or her office from contracting with the Company either with regard to the holding of any office or place of profit the director holds with the Company or as vendor, purchaser or otherwise.
 
15.3	Professional services by director or officer	
Subject to compliance with the provisions of the Business Corporations Act , a director or officer of the Company, or any corporation or firm in which that individual has an interest, may act in a professional capacity for the Company, except as auditor of the Company, and the director or officer or such corporation or firm is entitled to remuneration for professional services as if that individual were not a director or officer.
 
15.4	Remuneration and benefits received from certain entities	
A director or officer may be or become a director, officer or employee of, or may otherwise be or become interested in, any corporation, firm or entity in which the Company may be interested as a shareholder or otherwise, and, subject to compliance with the provisions of the Business Corporations Act , the director or officer is not accountable to the Company for any remuneration or other benefits received by him or her as director, officer or employee of, or from his or her interest in, such other corporation, firm or entity.
PART 16 – INDEMNIFICATION
 
16.1	Indemnification of directors	
The directors must cause the Company to indemnify its directors and former directors, and their respective heirs and personal or other legal representatives to the greatest extent permitted by Division 5 of Part 5 of the Business Corporations Act .
 
16.2	Deemed contract	
Each director is deemed to have contracted with the Company on the terms of the indemnity referred to in Article 16.1.
PART 17 – AUDITOR
 
17.1	Remuneration of an auditor	
The directors may set the remuneration of the auditor of the Company.
 
17.2	Waiver of appointment of an auditor	
The Company shall not be required to appoint an auditor if all of the shareholders of the Company, whether or not their shares otherwise carry the right to vote, resolve by a unanimous resolution to waive the appointment of an auditor. Such waiver may be given before, on or after the date on which an auditor is required to be appointed under the Business Corporations Act , and is effective for one financial year only.
PART 18 – DIVIDENDS
 
18.1	Declaration of dividends	
Subject to the rights, if any, of shareholders holding shares with special rights as to dividends, the directors may from time to time declare and authorize payment of any dividends the directors consider appropriate.
 
- 15 -

18.2	No notice required	
The directors need not give notice to any shareholder of any declaration under Article 18.1.
 
18.3	Directors may determine when dividend payable	
Any dividend declared by the directors may be made payable on such date as is fixed by the directors.
 
18.4	Dividends to be paid in accordance with number of shares	
Subject to the rights of shareholders, if any, holding shares with special rights as to dividends, all dividends on shares of any class or series of shares must be declared and paid according to the number of such shares held.
 
18.5	Manner of paying dividend	
A resolution declaring a dividend may direct payment of the dividend wholly or partly by the distribution of specific assets or of paid up shares or fractional shares, bonds, debentures or other debt obligations of the Company, or in any one or more of those ways, and, if any difficulty arises in regard to the distribution, the directors may settle the difficulty as they consider expedient, and, in particular, may set the value for distribution of specific assets.
 
18.6	Dividend bears no interest	
No dividend bears interest against the Company.
 
18.7	Fractional dividends	
If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend, that fraction may be disregarded in making payment of the dividend and that payment represents full payment of the dividend.
 
18.8	Payment of dividends	
Any dividend or other distribution payable in cash in respect of shares may be paid by cheque, made payable to the order of the person to whom it is sent, and mailed:
 
 	(a)	subject to paragraphs (b) and (c), to the address of the shareholder;	
 
 	(b)	subject to paragraph (c), in the case of joint shareholders, to the address of the joint shareholder whose name stands first on the central securities register in respect of the shares; or	
 
 	(c)	to the person and to the address as the shareholder or joint shareholders may direct in writing.	
 
18.9	Receipt by joint shareholders	
If several persons are joint shareholders of any share, any one of them may give an effective receipt for any dividend, bonus or other money payable in respect of the share.
PART 19 – ACCOUNTING RECORDS
 
19.1	Recording of financial affairs	
The board must cause adequate accounting records to be kept to record properly the financial affairs and condition of the Company and to comply with the provisions of the Business Corporations Act .
PART 20 – EXECUTION OF INSTRUMENTS UNDER SEAL
 
20.1	Who may attest seal	
The Company’s seal, if any, must not be impressed on any record except when that impression is attested by the signature or signatures of:
 
 	(a)	any 2 directors;	
 
 	(b)	any officer, together with any director;	
 
- 16 -

 	(c)	if the Company has only one director, that director; or	
 
 	(d)	any one or more directors or officers or persons as may be determined by resolution of the directors.	
 
20.2	Sealing copies	
For the purpose of certifying under seal a true copy of any resolution or other document, the seal must be impressed on that copy and, despite Article 20.1, may be attested by the signature of any director or officer.
PART 21 – NOTICES
 
21.1	Method of giving notice	
Unless the Business Corporations Act or these Articles provides otherwise, a notice, statement, report or other record required or permitted by the Business Corporations Act or these Articles to be sent by or to a person may be sent by any one of the following methods:
 
 	(a)	mail addressed to the person at the applicable address for that person as follows:	
 
 	(i)	for a record mailed to a shareholder, the shareholder’s registered address,	
 
 	(ii)	for a record mailed to a director or officer, the prescribed address for mailing shown for the director or officer in the records kept by the Company or the mailing address provided by the recipient for the sending of that record or records of that class,	
 
 	(iii)	in any other case, the mailing address of the intended recipient;	
 
 	(b)	delivery at the applicable address for that person as follows, addressed to the person:	
 
 	(i)	for a record delivered to a shareholder, the shareholder’s registered address,	
 
 	(ii)	for a record delivered to a director or officer, the prescribed address for delivery shown for the director or officer in the records kept by the Company or the delivery address provided by the recipient for the sending of that record or records of that class,	
 
 	(iii)	in any other case, the delivery address of the intended recipient;	
 
 	(c)	sending the record by fax to the fax number provided by the intended recipient for the sending of that record or records of that class;	
 
 	(d)	sending the record by email to the email address provided by the intended recipient for the sending of that record or records of that class; or	
 
 	(e)	physical delivery to the intended recipient.	
 
21.2	Deemed receipt of mailing	
A record that is mailed to a person by ordinary mail to the applicable address for that person referred to in Article 21.1 is deemed to be received by the person to whom it was mailed on the day, Saturdays, Sundays and holidays excepted, following the date of mailing.
 
21.3	Certificate of sending	
A certificate signed by the secretary, if any, or other officer of the Company or of any other corporation acting in that behalf for the Company stating that a notice, statement, report or other record was addressed as required by Article 21.1, prepaid and mailed or otherwise sent as permitted by Article 21.1 is conclusive evidence of that fact.
 
21.4	Notice to joint shareholders	
A notice, statement, report or other record may be provided by the Company to the joint shareholders of a share by providing the notice to the joint shareholder first named in the central securities register in respect of the share.
 
- 17 -

21.5	Notice to trustees	
A notice, statement, report or other record may be provided by the Company to the persons entitled to a share in consequence of the death, bankruptcy or incapacity of a shareholder by:
 
 	(a)	mailing the record, addressed to them:	
 
 	(i)	by name, by the title of the legal personal representative of the deceased or incapacitated shareholder, by the title of trustee of the bankrupt shareholder or by any similar description, and	
 
 	(ii)	at the address, if any, supplied to the Company for that purpose by the persons claiming to be so entitled; or	
 
 	(b)	if an address referred to in Article 21.5(a)(ii) has not been supplied to the Company, by giving the notice in a manner in which it might have been given if the death, bankruptcy or incapacity had not occurred.	
PART 22 – SPECIAL RIGHTS AND RESTRICTIONS
 
22.1	Common shares	
Each Common share shall entitle the holder thereof to notice of and to attend and to cast one (1) vote for each matter to be decided at a general meeting of the Company.
 
22.2	Class A Preference shares issuable in series	
The Class A Preference shares may include one or more series and, subject to the Business Corporations Act , the directors may, by resolution, if none of the shares of any particular series are issued, alter the Articles of the Company and authorize the alteration of the Notice of Articles of the Company, as the case may be, to do one or more of the following:
 
 	(a)	determine the maximum number of shares of that series that the Company is authorized to issue, determine that there is no such maximum number, or alter any such determination;	
 
 	(b)	create an identifying name for the shares of that series, or alter any such identifying name; and	
 
 	(c)	attach special rights or restrictions to the shares of that series, or alter any such special rights or restrictions.	
 
22.3	Dissolution or winding up	
The holders of Class A Preference shares shall be entitled, on the liquidation or dissolution of the Company, whether voluntary or involuntary, or on any other distribution of its assets among its shareholders for the purpose of winding up its affairs, to receive, before any distribution is made to the holders of Common shares or any other shares of the Company ranking junior to the Class A Preference shares with respect to the repayment of capital on the liquidation or dissolution of the Company, whether voluntary or involuntary, or on any other distribution of its assets among its shareholders for the purpose of winding up its affairs, the amount paid up with respect to each Class A Preference share held by them, together with the fixed premium (if any) thereon, all accrued and unpaid cumulative dividends (if any and if preferential) thereon, which for such purpose shall be calculated as if such dividends were accruing on a day-to-day basis up to the date of such distribution, whether or not earned or declared, and all declared and unpaid non-cumulative dividends (if any and if preferential) thereon. After payment to the holders of the Class A Preference shares of the amounts so payable to them, they shall not, as such, be entitled to share in any further distribution of the property or assets of the Company, except as specifically provided in the special rights and restrictions attached to any particular series.
 
- 18 -

22.4	Class A Preference shares do not confer right to receive notice of, attend or vote at general meetings	
Except as may be set out in the rights and restrictions to any series of Class A Preference shares, holders of Class A Preference shares shall not be entitled, as such, to receive notice of, or to attend or vote at, any general meeting of shareholders of the Company.
PART 23 – ALTERATION TO ARTICLES
 
23.1	Authority to Alter Articles	
The directors may, by resolution, alter any part of these Articles unless the Business Corporations Act requires that such resolution be approved by the shareholders of the Company, then such alteration must be approved by the type of resolution specified in the Business Corporations Act .
 
23.2	Alteration of Authorized Share Structure	
Without limiting the generality of Article 23.1, the Company may by resolution of the directors:
 
 	(a)	create one or more classes or series of shares;	
 
 	(b)	if none of the shares of a class or series of shares are allotted or issued, eliminate any class or series of shares;	
 
 	(c)	increase, reduce or eliminate the maximum number of shares that the Company is authorized to issue out of any class or series of shares;	
 
 	(d)	establish a maximum number of shares that the Company is authorized to issue out of any class or series of shares for which no maximum is established;	
 
 	(e)	if the Company is authorized to issue shares of a class of shares with par value:	
 
 	(i)	decrease the par value of those shares; or	
 
 	(ii)	if none of the shares of that class of shares are allotted or issued, increase the par value of those shares;	
 
 	(f)	change all or any of its unissued, or fully paid issued, shares with a par value into shares without par value or any of its unissued shares without par value into shares with par value;	
 
 	(g)	consolidate all or any of its unissued, or fully paid issued, shares with par value into shares of larger par value;	
 
 	(h)	consolidate all or any of its unissued, or fully paid issued, shares without par value;	
 
 	(i)	subdivide all or any of its unissued, or fully paid issued, shares with par value into shares of smaller par value;	
 
 	(j)	subdivide all or any of its unissued, or fully paid issued, shares without par value;	
 
 	(k)	alter the identifying name of any of its shares; or	
 
 	(l)	otherwise alter its shares or authorized share structure when required or permitted to do so by the Business Corporations Act .	
 
- 19 -

23.3	Change of Name	
Without limiting the generality of Article 23.1, the Company may by resolution of the directors authorize an alteration to its Notice of Articles in order to change its name or adopt or change any  translation of that name.
PART 24 – SECTION 137 OF BUSINESS CORPORATIONS ACT
 
24.1	Definitions	
For the purposes of this Article 24, the following words shall have the following meanings:
 
 	(a)	“ KID ” means KHD Humboldt Wedag International (Deutschland) AG;	
 
 	(b)	“ KID Shares ” means that number of no par value bearer shares of KID held by the Company from time to time; and	
 
 	(c)	“ Shareholders Agreement ” means the shareholders agreement to be entered into by the Company in connection with the ownership of the KID Shares.	
 
24.2	Voting Rights of the KID Shares	
In accordance with section 137(1.1) of the Business Corporations Act and subject to the terms and conditions of the Shareholders Agreement, the directors by this Article 24.2 are granted the power to transfer the power to direct the voting of the KID Shares at any meeting of the shareholders of KID in which the Company is entitled to vote, or written consent in lieu of such meeting, to that party named in the Shareholders Agreement, or such other party as may be determined by the board from time to time and named in the Shareholders Agreement.
 
- 20 -

MFC Industrial Ltd.
(formerly Terra Nova Royalty Corporation)
(the “Company”)
Special Rights and Restrictions attached to the
Class A Preference Shares, Series 1
The rights and restrictions set out in this Schedule are made in addition to and do not alter or amend the special rights and restrictions set out in Articles 22.3 and 22.4 of the Articles of the Company.
 
1.	Voting Rights	
Subject to applicable law and the conditions attaching to the Class A Preference Shares, Series 1 (the “Series 1 Shares”) as a series, the holders of the Series 1 Shares (the “Series 1 Shareholders”) shall not be entitled to receive notice of or to attend or to vote at any meetings of shareholders of the Company.
 
2.	Issue Price	
The issue price for the Series 1 Shares shall be $1.00 per share (the “Redemption Amount”).
 
3.	Cumulative Fixed Preferential Dividend (when and if declared)	
The Series 1 Shareholders shall be entitled to receive and the Company shall pay to them always in preference and in priority to any payment of dividends on the common shares (the “Common Shares”) of the Company and any other shares of the Company ranking junior to the Series 1 Shares as and when declared by the board of directors (the “Directors”) of the Company out of moneys of the Company properly applicable to the payment of dividends, preferential, cumulative, cash dividends, accruing and cumulative from the date of issue, at the annual rate per Series 1 Share of 5% of the amount equal to the Redemption Amount.
 
4.	Liquidation, Dissolution or Winding-Up	
In the event of any distribution of the assets of the Company on the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or in the event of any other distribution of assets of the Company among its shareholders for the purpose of winding-up its affairs (the “Liquidation Distribution”), the Series 1 Shareholders shall be entitled to receive per Series 1 Share the Redemption Amount, together with all accrued and unpaid dividends thereon, before any amount shall be paid by the Company or any assets of the Company shall be distributed to holders of the Common Shares with respect to the Liquidation Distribution. After payment to the Series 1 Shareholders of the amounts so payable to them, the Series 1 Shareholders shall not be entitled to share in any further distribution of assets of the Company.
 
5.	Restrictions on Dividends and Issue or Retirement of Shares	
The Company shall not at anytime without, but may at anytime with, the approval of the Series 1 Shareholders given as specified in Section 6 hereof, authorize or issue any shares, other than additional series of preferred shares, ranking prior to or on parity with the Series 1 Shares, as to the payment of dividends or the distribution of assets in the event of any Liquidation Distribution. Furthermore, so long as any of the Series 1 Shares are outstanding, the Company shall not at anytime without, but may at anytime with, the approval of the Series 1 Shareholders given as specified in Section 6 hereof:
 
 	(a)	declare, pay or set apart for payment any dividends on the Common Shares; or	
 
 	(b)	issue any Series 1 Shares;	
unless, in each such case, all dividends then payable on the Series 1 Shares and on all other shares of the Company ranking on parity with the Series 1 Shares with respect to the payment of dividends, accrued to the most recently preceding payment date or dates, have been declared and paid or set aside for payment.

6.	Approval of Holders of Series A Preferred Shares	
Any approval required to be given hereunder at any time by the Series 1 Shareholders shall, except as otherwise required by the Business Corporations Act (British Columbia), be given by an instrument or instruments in writing signed by the Series 1 Shareholders holding not less than two-thirds of the then outstanding Series 1 Shares or by resolution passed by at least two-thirds of the votes cast at a meeting or adjourned meeting of the Series 1 Shareholders duly called and at which a quorum was present. In the event that such approval is to be given at a meeting of the Series 1 Shareholders, a quorum for the meeting shall consist of the Series 1 Shareholders, present in person or represented by proxy, of not less than a majority of the Series 1 Shares outstanding at the time of the meeting. If, however, Series 1 Shareholders holding a majority of the outstanding Series 1 Shares are not present in person or represented by proxy at such meeting within 30 minutes after the time for which the meeting was called and the meeting is adjourned to a subsequent date, a quorum for the adjourned meeting shall consist of the Series 1 Shareholders present in person or represented by proxy at such adjourned meeting.
 
7.	Redemption by Company	
The Company may, at its option, in any such event or circumstance and upon providing notice to the Series 1 Shareholders, redeem any or all of the Series 1 Shares by paying to the respective Series 1 Shareholder for each Series 1 Share to be redeemed the Redemption Amount, together with all accrued and unpaid dividends thereon up to but not including the date of redemption and no more, provided that not less than ten (10) days’ notice in writing of such redemption must be given to the Series 1 Shareholders by the Company, such notice to be delivered by mailing or delivering to the registered address of the Series 1 Shareholders a notice specifying the number of Series 1 Shares to be redeemed, unless the Series 1 Shareholder waives any notice required to be given under this paragraph which waiver, whether given with or after the redemption, cures any default in giving such notice. Not less than ten (10) days following the date specified for redemption, the Series 1 Shareholders, whose Series 1 Shares are the subject of said redemption, shall present and surrender for cancellation at the designated place or places of redemption the share certificates representing the Series 1 Shares. If a part only of the Series 1 Shares represented by any share certificate is redeemed, a new share certificate for the balance of the Series 1 Shares shall be issued at the expense of the Company.
If not all of the outstanding Series 1 Shares are to be redeemed, the Series 1 Shares to be so redeemed shall be selected in such a manner as the Directors determine and need not be selected either in proportion to the number of the Series 1 Shares registered in the name of every or any particular Series 1 Shareholder.
 
8.	Retraction by Shareholder	
The Company will, in any such event or circumstance and upon receiving notice from a Series 1 Shareholder, redeem the number of Series 1 Shares registered in the name of such Series 1 Shareholder which are specified in the notice by paying to such Series 1 Shareholder for each Series 1 Share to be redeemed the Redemption Amount, together with all accrued and unpaid dividends thereon up to but not including the date of redemption and no more, provided however that not less than ten (10) days’ notice in writing of such redemption must be given to the Company by the Series 1 Shareholder seeking to have the Series 1 Shares redeemed, such notice to be delivered by mailing or delivering to the registered office of the Company a notice specifying the number of Series 1 Shares to be redeemed and surrendering the necessary number of share certificates for cancellation, unless the Company waives any notice required to be given under this paragraph which waiver, whether given before or after the redemption, cures any default in giving such notice. Notwithstanding anything herein to the contrary, any redemption of Series 1 Shares by the Company upon receipt of a retraction notice from a Series 1 Shareholder need not be made on a pro rata basis among every Series 1 Shareholder who holds Series 1 Shares.
 
9.	Consent Required for Transfer	
No Series 1 Shares may be sold, transferred or otherwise disposed of without the consent of the directors of the Company and the directors of the Company are not required to give any reason for refusing to consent to any such sale, transfer or other disposition.

MFC Industrial Ltd.
(formerly Terra Nova Royalty Corpoartion)
(the “Company”)
Special Rights and Restrictions attached to the
Class A Preference Shares, Series 2
The rights and restrictions set out in this Schedule are made in addition to and do not alter or amend the special rights and restrictions set out in Articles 22.3 and 22.4 of the Articles of the Company.
 
1.	Voting Rights	
Subject to applicable law and the conditions attaching to the Class A Preference Shares, Series 2 (the “Series 2 Shares”) as a series, the holders of the Series 2 Shares (the “Series 2 Shareholders”) shall not be entitled to receive notice of or to attend or to vote at any meetings of the holders of any class of common shares of the Company (the “Common Shares”).
 
2.	Issue Price	
The issue price for the Series 2 Shares shall be the fair market value of the common stock of the Company at the time of issue (the “Redemption Amount”).
 
3.	Cumulative Commercial Rate Preferential Dividend (when and if declared)	
The Series 2 Shareholders shall be entitled to receive and the Company shall pay to them always in preference and in priority to any payment of dividends on the Common Shares and any other shares of the Company ranking junior to the Series 2 Shares as and when declared by the board of directors (the “Directors”) of the Company out of moneys of the Company properly applicable to the payment of dividends, preferential, cumulative, cash dividends, accruing and cumulative from the date of issue, at the annual rate per Series 2 Share equal to the prevailing commercial rate on the date the dividend is declared by the Directors of the Company.
 
4.	Liquidation, Dissolution or Winding-Up	
In the event of any distribution of the assets of the Company on the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or in the event of any other distribution of assets of the Company among its shareholders for the purpose of winding-up its affairs (the “Liquidation Distribution”), the Series 2 Shareholders shall be entitled to receive per Series 2 Share the Redemption Amount, together with all accrued and unpaid dividends thereon, before any amount shall be paid by the Company or any assets of the Company shall be distributed to holders of the Common Shares with respect to the Liquidation Distribution. After payment to the Series 2 Shareholders of tile amounts so payable to them, the Series 2 Shareholders shall not be entitled to share in any further distribution of assets of the Company.
 
5.	Restrictions on Dividends and Issue or Retirement of Shares	
The Company shall not at anytime without, but may at anytime with, the approval of the Series 2 Shareholders given as specified in Section 6 hereof, authorize or issue any shares, other than additional series of preferred shares, ranking prior to or on parity with the Series 2 Shares, as to the payment of dividends or the distribution of assets in the event of any Liquidation Distribution. Furthermore, so long as any of the Series 2 Shares are outstanding, the Company shall not at anytime without, but may at anytime with, the approval of the Series 2 Shareholders given as specified in Section 6 hereof:
 
 	(a)	declare, pay or set apart for payment any dividends on the Common Shares; or	
 
 	(b)	issue any Series 2 Shares;	

unless, in each such case, all dividends then payable on the Series 2 Shares and on all other shares of the Company ranking on parity with the Series 2 Shares with respect to the payment of dividends, accrued to the most recently preceding payment date or dates, have been declared and paid or set aside for payment.
 
6.	Approval of Holders of Series 2 Shares	
Any approval required to be given hereunder at any time by the Series 2 Shareholders shall, except as otherwise required by the Business Corporations Act (British Columbia), be given by an instrument or instruments in writing signed by the Series 2 Shareholders holding not less than two-thirds of the then outstanding Series 2 Shares or by resolution passed by at least two-thirds of the votes cast at a meeting or adjourned meeting of the Series 2 Shareholders duly called and at which a quorum was present. In the event that such approval is to be given at a meeting of the Series 2 Shareholders, a quorum for the meeting shall consist of the Series 2 Shareholders, present in person or represented by proxy, of not less than a majority of the Series 2 Shares outstanding at the time of the meeting. If, however, Series 2 Shareholders holding a majority of the outstanding Series 2 Shares are not present in person or represented by proxy at such meeting within 30 minutes after the time for which the meeting was called and the meeting is adjourned to a subsequent date, a quorum for the adjourned meeting shall consist of the Series 2 Shareholders present in person or represented by proxy at such adjourned meeting.
 
7.	Retraction and Redemption	
Subject to provisions of the Business Corporations Act (British Columbia) and upon the occurrence of any of the following events or circumstances:
 
 	(i)	a change in the control of the Company (due to any person acquiring greater than 50% of the voting shares in the capital of the Company, the commencement of a tender offer for control of the Company by a third party other than a holder of the Series 2 Shares, or proxy solicitation by a third party);	
 
 	(ii)	the Company becoming insolvent or being unable to meet its liabilities as they come due; or	
 
 	(iii)	any action taken by the Company whereby it seeks protection from its creditors,	
the Company will redeem the Series 2 Shares registered in the name of the holder by paying the Redemption Amount, together with all accrued and unpaid dividends thereon up to but not including the date of redemption and no more.
 
8.	Consent Required for Transfer	
No Series 2 Shares may be sold, transferred or otherwise disposed of without the consent of the directors of the Company and the directors of the Company are not required to give any reason for refusing to consent to any such sale, transfer or other disposition.

EXHIBIT 1.2
Date and Time: November 24, 2011 09:13 AM Pacific Time

	  	Mailing Address:
PO BOX 9431 Stn Prov Govt.
Victoria Be V8W 9V3
 
www.corporateonline.gov.bc.ca	  	Location:
2nd Floor - 940 Blanshard St.
Victoria BC
250 356-8626	

Notice of Articles
BUSINESS CORPORATlONS ACT

 
This Notice of Articles was issued by the Registrar on: October 11, 2011 08:00 AM Pacific Time
Incorporation Number:                         BC0778539 
Recognition Date and Time:    December 28, 2006 01:50 PM Pacific Time as a result of an  Amalgamation
NOTICE OF ARTICLES
Name of Company:
MFC INDUSTRIAL LTD.
REGISTERED OFFICE INFORMATION

Mailing Address:	  	Delivery Address:	
1000 CATHEDRAL PLACE	  	1000 CATHEDRAL PLACE	
925 WEST GEORGIA STREET	  	925 WEST GEORGIA STREET	
VANCOUVER BC V6C 3L2	  	VANCOUVER BC V6C 3L2	
CANADA	  	CANADA	
		
RECORDS OFFICE INFORMATION	  		
		
Mailing Address:	  	Delivery Address:	
1000 CATHEDRAL PLACE	  	1000 CATHEDRAL PLACE	
925 WEST GEORGIA STREET	  	925 WEST GEORGIA STREET	
VANCOUVER BC V6C 3L2	  	VANCOUVER BC V6C 3L2	
CANADA	  	CANADA	
 
BC0778539 Page: 1 of 3

DIRECTOR INFORMATION

Last Name, First Name, Middle Name:	  		
Smith , Michael John	  		
		
Mailing Address:	  	Delivery Address:	
UNIT 803, 8/F, DINA HOUSE	  	UNIT 803, 8/F, DINA HOUSE	
RUTTONJEE CENTRE	  	RUTTONJEE CENTRE	
11 DUDDELL STREET, CENTRAL	  	11 DUDDELL STREET, CENTRAL	
CHINA	  	CHINA	

 
			
Last Name, First Name, Middle Name:	  		
Zhao, Shuming	  		
		
Mailing Address:	  	Delivery Address:	
22 HANKOU ROAD	  	22 HANKOU ROAD	
NANJING	  	NANJING	
CHINA	  	CHINA	

 
			
Last Name, First Name, Middle Name:	  		
Prakash, Ravin	  		
		
Mailing Address:	  	Delivery Address:	
0202A THE LABURNUM SUSHANT LOK	  	0202A THE LABURNUM SUSHANT LOK	
GURGAON	  	GURGAON	
INDIA	  	INDIA	

 
			
Last Name, First Name, Middle Name:	  		
Rigg, Robert Ian	  		
		
Mailing Address:	  	Delivery Address:	
21 - 4957 MARINE DRIVE	  	21 - 4957 MARINE DRIVE	
WEST VANCOUVER BC V7W 2P5	  	WEST VANCOUVER BC V7W 2P5	
CANADA	  	CANADA	

 
			
Last Name, First Name, Middle Name:	  		
Chatterjee, Indrajit	  		
		
Mailing Address:	  	Delivery Address:	
J-1035 PALAM VIHAR	  	J-1035 PALAM VIHAR	
GURGAON	  	GURGAON	
INDIA	  	INDIA	
RESOLUTION DATES:
Date(s) of Resolution(s) or Court Order(s) attaching or altering Special Rights and Restrictions attached to a class or a series of shares:
May 16, 2007
March 29, 2010
March 29, 2010
April 4, 2011
 
BC0778539 Page: 2 of 3

AUTHORIZED SHARE STRUCTURE

 
					
1.      No Maximum	  	Common Shares	  	Without Par Value	
			
	  		  	With Special Rights or	
	  		  	Restrictions attached	

 
					
2.      No Maximum	  	Class A Common Shares	  	Without Par Value	
			
	  		  	With Special Rights or	
	  		  	Restrictions attached	

 
					
3.      No Maximum	  	Class A Preference Shares	  	Without Par Value	
			
	  		  	With Special Rights or	
	  		  	Restrictions attached	
			
1       No Maximum	  	Class A Preference, Series 1	  	Special Rights or	
	  		  	Restrictions are attached	
			
2.      No Maximum	  	Class A Preference, Series 2	  	Special Rights or	
	  		  	Restrictions are attached	
			
3.      No Maximum	  	Class A Preference, Series 3	  	Special Rights or	
	  		  	Restrictions are attached	
 
BC0778539 Page: 3 of 3

EXHIBIT 1.3
DUPLICATE

	  	Number: BC0778539	
CERTIFICATE
OF
CHANGE OF NAME
BUSINESS CORPORATIONS ACT 
I Hereby Certify that TERRA NOVA ROYALTY CORPORATION changed its name to MFC INDUSTRIAL LTD. on September 30, 2011 at 12:01 AM Pacific Time.

	  	Issued under my hand at Victoria, British Columbia
On September 30, 2011	
	  		
	  	RON TOWNSHEND	
	  	Registrar of Companies	
	  	Province of British Columbia
Canada	

EXHIBIT 8.1
MFC INDUSTRIAL LTD.
LIST OF SIGNIFICANT SUBSIDIARIES AS AT MARCH 30, 2012

 	  	Country of Incorporation	  	Beneficial  Interest (1)	 	
MFC Commodities GmbH	  	Austria	  	 	100	% 	
MFC Trade & Financial Service GmbH	  	Austria	  	 	100	% 	
IC Managementservices GmbH	  	Austria	  	 	100	% 	
Global Bulk Transport GmbH	  	Austria	  	 	100	% 	
International Trade Services GmbH	  	Austria	  	 	100	% 	
MFC Metal Trading GmbH	  	Austria	  	 	100	% 	
Magnum Minerals Private Limited	  	India	  	 	100	% 	
AFM Aluminiumfolie Merseburg GmbH	  	Germany	  	 	55	% 	
MAW Mansfelder Aluminiumwerk GmbH	  	Germany	  	 	55	% 	
MFC (A) Ltd	  	Marshall Islands	  	 	100	% 	
MFC (D) Ltd	  	Marshall Islands	  	 	100	% 	
Brock Metals s.r.o.	  	Slovakia	  	 	100	% 	
M Financial Corp.	  	Barbados	  	 	100	% 	
Mednet (Shanghai) Medical Technical Developing Co., Ltd	  	China	  	 	90	% 	
Hangzhou Zhe-er Optical Co. Ltd	  	China	  	 	46	% 	
MFC Corporate Services AG	  	Switzerland	  	 	100	% 	
 
Notes:
(1)	Percentages rounded to nearest whole number	

EXHIBIT 12.1
SARBANES-OXLEY CEO CERTIFICATION
I, Michael Smith, certify that:
 
1.	I have reviewed this Annual Report on Form 20-F of MFC Industrial Ltd.;	
 
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;	
 
4.	The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:	
 
 	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	(c)	Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	(d)	Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and	
 
5.	The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of company’s board of directors (or persons performing the equivalent functions):	
 
 	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and	
 
 	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.	
Date: March 30, 2012

/s/ Michael Smith	
By:	 	Michael Smith	
Title:	 	Chief Executive Officer	

EXHIBIT 12.2
SARBANES-OXLEY CFO CERTIFICATION
I, Michael Smith, certify that:
 
1.	I have reviewed this Annual Report on Form 20-F of MFC Industrial Ltd.;	
 
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;	
 
4.	The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:	
 
 	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	(c)	Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	(d)	Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and	
 
5.	The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of company’s board of directors (or persons performing the equivalent functions):	
 
 	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and	
 
 	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.	
Date: March 30, 2012

/s/ Michael Smith	
By:	 	Michael Smith	
Title:	 	Interim Chief Financial Officer	

EXHIBIT 13.1
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of MFC Industrial Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Annual Report”), I, Michael Smith, as Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
 
 	(i)	the Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
 
 	(ii)	the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

Date:  March 30, 2012	
	
/s/ Michael Smith	
By:     Michael Smith	
Title:  Chief Executive Officer	
This certification accompanies this Annual Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

EXHIBIT 13.2
CERTIFICATION OF
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of MFC Industrial Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Annual Report”), I, Michael Smith, as interim Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
 
 	(i)	the Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
 
 	(ii)	the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

Date:  March 30, 2012	
	
/s/ Michael Smith	
By:     Michael Smith	
Title:  Interim Chief Financial Officer	
This certification accompanies this Annual Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

EXHIBIT 15.1

March 30, 2012
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C.
20549-7561 USA
Dear Sirs/Madams:
We have read Item 16F of MFC Industrial Ltd.’s Form 20-F dated March 30, 2012, and have the following comments:
 
1.	We agree with the statements made in paragraphs two, three and four in the section “Change in Registrant’s Certifying Accountant — Resignation of a Member of NEXIA International, Davidson & Company LLP”.	
 
2.	We have no basis on which to agree or disagree with other statements of the registrant contained therein.	
Yours very truly,
“DAVIDSON & COMPANY LLP”
DAVIDSON & COMPANY LLP
Chartered Accountants

1200 – 609 Granville Street, P.O. Box 10372, Pacific Centre, Vancouver, B.C., Canada V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172

EXHIBIT 15.2
CONSENT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement 333-143183 and 333-171009 on Form S-8 of our reports dated March 30, 2012, relating to the consolidated financial statements of MFC Industrial Ltd. (formerly Terra Nova Royalty Corporation) and subsidiaries (collectively the “Company”), and the effectiveness of the Company’s internal control over financial reporting, appearing in the Annual Report on Form 20-F of the Company for the year ended December 31, 2011.
/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants
Vancouver, Canada
March 30, 2012

EXHIBIT 15.3

CONSENT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement 333-143183 on Form S-8 and Registration Statement 333-171009 on Form S-8 of our report dated March 31, 2011, relating to the consolidated financial statements of MFC Industrial Ltd. (formerly Terra Nova Royalty Corporation) (“MFC”) (which report expresses an unqualified opinion) appearing in the Annual Report on Form 20-F of MFC for the year ended December 31, 2011.
“DAVIDSON & COMPANY LLP”

Vancouver, Canada	  	Chartered Accountants	
		
March 30, 2012	  		

1200 – 609 Granville Street, P.O. Box 10372, Pacific Centre, Vancouver, B.C., Canada V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172