Exhibit 20.3
AUDITORS’ REPORT
To the Directors of
Franco-Nevada Mining Corporation Limited
We have audited the consolidated balance sheets ofFranco-Nevada Mining Corporation Limited as at March 31, 2001 and 2000 and the consolidated statements of earnings, retained earnings and cash flows for each of the years in the three-year period ended March 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in Canada and the 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.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2001 and 2000 and the results of its operations and cash flows for each of the years in the three-year period ended March 31, 2001 in accordance with Canadian generally accepted accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
April 30, 2001
Comments by Auditors for United States Readers on Canadian – United States Reporting Differences
In the United States, reporting standards for auditors require the addition of an explanatory paragraph, following the opinion paragraph, when there is a change in accounting principles that has a material effect on the comparability of the Company’s consolidated financial statements, such as the change described in Note 2 to the consolidated financial statements. Our report to the Directors dated April 30, 2001 is expressed in accordance with Canadian reporting standards which do not require a reference to such a change in accounting principles in the Auditors’ Report when the change is properly accounted for and adequately disclosed in the consolidated financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
April 30, 2001
E-8
FRANCO-NEVADA MINING CORPORATION LIMITED
CONSOLIDATED BALANCE SHEETS
September 30, 2001 | March 31, 2001 | March 31, 2000 | |||||||
(unaudited) | |||||||||
(thousands of Canadian dollars) (note 1) | |||||||||
Assets | |||||||||
Current assets | |||||||||
Cash and short-term investments | $ | 864,053 | $ | 939,011 | $ | 705,714 | |||
Receivables |
| 22,281 |
| 14,991 |
| 18,862 | |||
Precious metals |
| 44,224 |
| 13,612 |
| 27,584 | |||
Taxes recoverable |
| 4,790 |
| — |
| — | |||
| 935,348 |
| 967,614 |
| 752,160 | ||||
Investments in marketable securities (note 4) |
| 134,396 |
| 160,800 |
| 248,869 | |||
Resource properties (note 5) |
| 179,063 |
| 337,757 |
| 349,364 | |||
Capital assets (note 6) |
| 9,264 |
| 81,579 |
| 70,498 | |||
Investment in Normandy Mining Limited |
| 349,055 |
| — |
| — | |||
| 1,607,126 |
| 1,547,750 |
| 1,420,891 | ||||
Liabilities | |||||||||
Current liabilities | |||||||||
Accounts payable |
| 2,989 |
| 9,036 |
| 4,382 | |||
Taxes payable |
| — |
| 17,385 |
| 8,289 | |||
| 2,989 |
| 26,421 |
| 12,671 | ||||
Future income taxes (note 9) |
| 82,437 |
| 85,873 |
| 62,033 | |||
Shareholders’ equity | |||||||||
Capital stock (note 7) (September 30, 2001—158,920,430 shares, March 31, 2001—158,630,670 shares, March 31, 2000—158,630,670 shares) |
| 1,026,139 |
| 1,021,321 |
| 1,021,321 | |||
Retained earnings |
| 421,533 |
| 344,516 |
| 303,601 | |||
Deferred foreign exchange gain (note 8) |
| 74,028 |
| 69,619 |
| 21,265 | |||
| 1,521,700 |
| 1,435,456 |
| 1,346,187 | ||||
$ | 1,607,126 | $ | 1,547,750 | $ | 1,420,891 | ||||
E-9
FRANCO-NEVADA MINING CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF EARNINGS
Six Months Ended | For the Years Ended | |||||||||||||||||
September 30, 2001 | September 30, 2000 | March 31, 2001 | March 31, 2000 | March 31, 1999 | ||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||
(thousands of Canadian dollars except per share amounts) (note 1) | ||||||||||||||||||
Revenues | ||||||||||||||||||
Resource | $ | 51,323 |
| $ | 41,142 |
| $ | 95,596 |
| $ | 81,970 | $ | 72,777 | |||||
Equity earnings in Normandy |
| 11,215 |
|
| — |
|
| — |
|
| — |
| — | |||||
Investment |
| 22,902 |
|
| 38,960 |
|
| 82,035 |
|
| 38,607 |
| 43,330 | |||||
| 85,440 |
|
| 80,102 |
|
| 177,631 |
|
| 120,577 |
| 116,107 | ||||||
Expenses | ||||||||||||||||||
General and administration |
| 3,164 |
|
| 4,848 |
|
| 10,688 |
|
| 7,554 |
| 5,508 | |||||
Operating costs |
| 371 |
|
| 473 |
|
| 1,141 |
|
| 1,396 |
| 1,573 | |||||
Depletion and depreciation |
| 3,192 |
|
| 8,866 |
|
| 13,856 |
|
| 15,069 |
| 14,280 | |||||
Provision for mining assets |
| — |
|
| — |
|
| 28,216 |
|
| — |
| — | |||||
| 6,727 |
|
| 14,187 |
|
| 53,901 |
|
| 24,019 |
| 21,361 | ||||||
Earnings before taxes |
| 78,713 |
|
| 65,915 |
|
| 123,730 |
|
| 96,558 |
| 94,746 | |||||
Tax provision (note 9) | ||||||||||||||||||
—current |
| 25,959 |
|
| 23,770 |
|
| 49,641 |
|
| 27,100 |
| 26,163 | |||||
—future |
| (2,361 | ) |
| (2,041 | ) |
| (5,783 | ) |
| 5,463 |
| 5,129 | |||||
| 23,598 |
|
| 21,729 |
|
| 43,858 |
|
| 32,563 |
| 31,292 | ||||||
Earnings from continuing operations |
| 55,115 |
|
| 44,186 |
|
| 79,872 |
|
| 63,995 |
| 63,454 | |||||
Gain on sale of discontinued operations (note 12) |
| 21,902 |
|
| — |
|
| — |
|
| — |
| — | |||||
Income from discontinued operations |
| — |
|
| 16,931 |
|
| 33,573 |
|
| 33,641 |
| 5,075 | |||||
Net earnings | $ | 77,017 |
| $ | 61,117 |
| $ | 113,445 |
| $ | 97,636 | $ | 68,529 | |||||
Earnings per share | ||||||||||||||||||
Continuing operations |
| 0.35 |
|
| 0.28 |
|
| 0.51 |
|
| 0.41 |
| 0.42 | |||||
Discontinued operations |
| 0.14 |
|
| 0.11 |
|
| 0.21 |
|
| 0.21 |
| 0.03 | |||||
Total earnings per share | $ | 0.49 |
| $ | 0.39 |
| $ | 0.72 |
| $ | 0.62 | $ | 0.45 | |||||
E-10
FRANCO-NEVADA MINING CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Six Months Ended | For the Years Ended | ||||||||||||||||||
September 30, 2001 | September 30, 2000 | March 31, 2001 | March 31, 2000 | March 31, 1999 | |||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
(thousands of Canadian dollars) (note 1) | |||||||||||||||||||
Beginning of period | $ | 344,516 | $ | 303,601 |
| $ | 303,601 |
| $ | 253,554 |
| $ | 217,261 |
| |||||
Change in accounting for income taxes (note 2) |
| — |
| (17,009 | ) |
| (17,009 | ) |
| — |
|
| — |
| |||||
| 344,516 |
| 286,592 |
|
| 286,592 |
|
| 253,554 |
|
| 217,261 |
| ||||||
Earnings |
| 77,017 |
| 61,117 |
|
| 113,445 |
|
| 97,636 |
|
| 68,529 |
| |||||
Dividends |
| — |
| — |
|
| (55,521 | ) |
| (47,589 | ) |
| (32,236 | ) | |||||
End of period | $ | 421,533 | $ | 347,709 |
| $ | 344,516 |
| $ | 303,601 |
| $ | 253,554 |
| |||||
E-11
FRANCO-NEVADA MINING CORPORATION LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended | For the Years Ended | |||||||||||||||||||
September 30, 2001 | September 30, 2000 | March 31, 2001 | March 31, 2000 | March 31, 1999 | ||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
(thousands of Canadian dollars) (note 1) | ||||||||||||||||||||
Operating activities | ||||||||||||||||||||
Earnings from continuing operations | $ | 55,115 |
| $ | 44,186 |
| $ | 79,872 |
| $ | 63,995 |
| $ | 63,454 |
| |||||
Non-cash items | ||||||||||||||||||||
In-kind revenue |
| (30,189 | ) |
| (19,206 | ) |
| (47,956 | ) |
| (56,116 | ) |
| (51,713 | ) | |||||
Depletion and depreciation |
| 3,192 |
|
| 8,866 |
|
| 13,856 |
|
| 15,069 |
|
| 14,280 |
| |||||
Future income taxes |
| (2,361 | ) |
| (2,041 | ) |
| (5,783 | ) |
| 5,463 |
|
| 5,129 |
| |||||
Provision for mining assets |
| — |
|
| — |
|
| 28,216 |
|
| — |
|
| — |
| |||||
Loss (gain) on sale of marketable securities |
| 3,469 |
|
| (15,097 | ) |
| (24,187 | ) |
| — |
|
| — |
| |||||
Equity earnings in Normandy |
| (11,215 | ) |
| — |
|
| — |
|
| — |
|
| — |
| |||||
Change in non-cash working capital: | ||||||||||||||||||||
Accounts receivable |
| (8,424 | ) |
| (683 | ) |
| 4,274 |
|
| (2,383 | ) |
| (3,246 | ) | |||||
Precious metals |
| 149 |
|
| 2,598 |
|
| 56,852 |
|
| 49,950 |
|
| 64,993 |
| |||||
Accounts payable |
| (7,490 | ) |
| 103 |
|
| 775 |
|
| (292 | ) |
| (282 | ) | |||||
Taxes payable |
| (19,948 | ) |
| 4,629 |
|
| 13,938 |
|
| (15,252 | ) |
| 13,568 |
| |||||
| (17,702 | ) |
| 23,355 |
|
| 119,857 |
|
| 60,434 |
|
| 106,183 |
| ||||||
Financing activities | ||||||||||||||||||||
Shares issued for cash |
| 4,818 |
|
| — |
|
| — |
|
| 1,990 |
|
| 131,501 |
| |||||
Dividends |
| — |
|
| — |
|
| (55,521 | ) |
| (47,589 | ) |
| (32,236 | ) | |||||
| 4,818 |
|
| — |
|
| (55,521 | ) |
| (45,599 | ) |
| 99,265 |
| ||||||
Investing activities | ||||||||||||||||||||
Purchase of marketable securities |
| (740 | ) |
| — |
|
| — |
|
| (35,494 | ) |
| (144,809 | ) | |||||
Sale of marketable securities |
| 23,038 |
|
| 37,984 |
|
| 118,107 |
|
| — |
|
| — |
| |||||
Resource properties |
| (3,114 | ) |
| (1,338 | ) |
| (2,195 | ) |
| (9,189 | ) |
| (65,019 | ) | |||||
Capital assets |
| (1,102 | ) |
| (1,149 | ) |
| (1,900 | ) |
| (40 | ) |
| (782 | ) | |||||
Investment in Normandy |
| (82,584 | ) |
| — |
|
| — |
|
| — |
|
| — |
| |||||
Short-term investments |
| (101,572 | ) |
| (32,703 | ) |
| (76,464 | ) |
| 28,891 |
|
| (50,626 | ) | |||||
| (166,074 | ) |
| 2,794 |
|
| 37,548 |
|
| (15,832 | ) |
| (261,236 | ) | ||||||
Foreign exchange gain (loss) |
| 198 |
|
| 2,886 |
|
| 8,317 |
|
| (2,531 | ) |
| 8,787 |
| |||||
Discontinued operations |
| — |
|
| (43,363 | ) |
| 33,034 |
|
| 36,182 |
|
| (66,513 | ) | |||||
Increase (decrease) in cash and cash equivalents |
| (178,760 | ) |
| (14,328 | ) |
| 143,235 |
|
| 32,654 |
|
| (113,514 | ) | |||||
Cash and cash equivalents—beginning of period |
| 318,653 |
|
| 175,418 |
|
| 175,418 |
|
| 142,764 |
|
| 256,278 |
| |||||
Cash and cash equivalents—end of period | $ | 139,893 |
| $ | 161,090 |
| $ | 318,653 |
| $ | 175,418 |
| $ | 142,764 |
| |||||
Short-term investments |
| 724,160 |
|
| 569,009 |
|
| 620,358 |
|
| 530,296 |
|
| 564,743 |
| |||||
Cash and short-term investments—end of period | $ | 864,053 |
| $ | 730,099 |
| $ | 939,011 |
| $ | 705,714 |
| $ | 707,507 |
| |||||
E-12
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
1. Accounting Policies
The consolidated financial statements of Franco-Nevada Mining Corporation Limited (the “Company”) have been prepared in accordance with accounting principles generally accepted in Canada. Summarized below are the significant accounting policies used in these consolidated financial statements.
The accompanying unaudited interim financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in Canada. Certain information included in the Annual Financial Statements are not included herein. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these financial statements. Operating results for the period ended September 30, 2001 are not necessarily indicative of the results that may be expected for the full fiscal period ended December 31, 2001 (see note 12).
(a) Basis of consolidation
The consolidated financial statements include the statements of the Company and its wholly owned subsidiaries.
(b) Use of estimates
The preparation of the financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes. The most significant estimates and assumptions are related to taxes and the recoverability of resource property costs through future production. Actual results could be different from these estimates.
(c) Cash and cash equivalents and short-term investments
Cash and cash equivalents include highly-liquid instruments with an original maturity of less than 90 days. The carrying amounts of cash and cash equivalents are stated at cost which approximates their fair value. The Company’s short-term investments include highly-liquid instruments with an original maturity of 90 days or more and are carried at cost, which approximates their fair value.
(d) Precious metals and inventories
Precious metals inventory is valued at the period end spot price. Mine operating supplies are valued at the lower of average cost and net realizable value.
(e) Investments in marketable securities
Investments in marketable securities are valued at cost until it is determined that a permanent impairment exists at which time a write-down is taken.
(f) Resource properties
Mineral property and development costs
The Company records its interests in mineral properties at cost. Producing properties are amortized using the units-of-production method. For working interests, all investments in development and mineral rights are amortized over the proven and probable reserves of each property. Net Smelter Return Royalties and Net Profit Interests generally
E-13
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
comprise a one-time acquisition cost. The cost is amortized over the proven and probable reserves as provided to the Company by the property operator. The ultimate recovery of costs associated with non-producing properties is dependent upon the discovery and development of economic reserves or the profitable sale of the properties. If a property is abandoned or sold, the proceeds on the sale, less the cost of the property and any related deferred expenditures, are included in operations at that time. The Company periodically reviews its mineral properties to ascertain whether an impairment in value has occurred. Where a property is considered uneconomic it is written off.
Oil and Gas Property
Oil and gas properties in which the Company has an interest are accounted for using the full-cost accounting method. Producing oil and gas royalty properties are carried at the lower of the cost and net recoverable amount. Depletion is provided on capitalized amounts using the units-of-production method. Net recoverable amount is the aggregate of estimated future net revenues from proven reserves less operating, administration, financial and income tax expense. Estimated future net revenues are determined using year-end prices.
(g) Capital assets
Assets expected to remain productive throughout the property’s life are depreciated using the units-of-production method. Other assets are depreciated on a straight-line basis over their estimated useful lives. The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An asset is considered impaired when fair value, which is considered estimated undiscounted future cash flows derived from its operation, is below the asset’s carrying value. Future cash flows include estimates of recoverable ounces, gold prices and production levels. In estimating future cash flows, assets are grouped by segment business (ie. mining operations and oil and gas) as on this basis identifiable cash flows are independent of cash flows from other groups. Assumptions underlying future cash flow estimates are subject to risks and uncertainties.
(h) Translation of foreign currency
Foreign operations are self-sustaining and are translated using the current rate method. Assets and liabilities are translated at exchange rates prevailing at the period-end and revenue and expense items at average exchange rates for the period. Translation adjustments arising from changes in exchange rates are accounted for as a separate component of shareholders’ equity. These adjustments will be included in operations upon realization.
(i) Fair Values of Financial Instruments
The carrying value of Cash and Short Term Investments and Accounts Payable in the consolidated balance sheets approximate fair values due to the short-term duration of these instruments.
(j) Revenue recognition
Gold and silver revenues from mining operations are recognized at the time of shipment from the mine site. The sole operating property of the Company, the Ken Snyder Mine, was sold effective April 2, 2001 (See note 12(a)). Revenue from royalty interests are recognized at the time title passes to the Company under the terms of the respective royalty agreement. Payment is received in cash or in-kind. In-kind receipts consist of physical quantities of gold, silver and platinum. The in-kind receipts are valued at prices on the date of receipt. In-kind revenue recognized for the six months ended September 30, 2001 and 2000 is $30.2 million (unaudited) and $19.2 million (unaudited), respectively. For the three years ended March 31, 2001, 2000 and 1999 in-kind revenue recognized totaled $48.0 million, $56.1 million and $51.7 million, respectively.
(k) Reclamation and closure costs
For the Company’s sole operating property, the Ken Snyder Mine, reclamation and closure costs are accrued and charged to income over the estimated life of the mine using the units-of-production method based on
E-14
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
proven and probable reserves. Costs include expected future closure costs based upon current environmental laws and regulations. The Company disposed of the mine effective April 2, 2001 (See Note 12(a)). For royalty interests the Company does not accrue reclamation and closure costs as it is not liable for such costs.
The Company records reclamation costs for oil and gas working interest properties as reported by the operator. For oil and gas royalty interests the Company is not liable for such costs.
(l) Foreign exchange contracts
The Company manages its foreign exchange exposure on anticipated net cash inflows in Australia through the use of forward contracts. Gains and losses are recognized and reported as a component of the related transactions.
(m) Comparative figures
Certain comparative figures have been reclassified to conform with the current year’s presentation.
2. Change in Accounting Policy
On April 1, 2000 the Company adopted the new Canadian Institute of Chartered Accountants recommendations for income taxes. Franco-Nevada provides for income taxes using the asset and liability method. Under this method, future tax assets and liabilities are determined based on differences between the financial accounting and tax bases of assets and liabilities and are measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company has elected to adopt these standards retroactively without restatement. The cumulative effect of adopting the standard is an increase in future tax liabilities and a reduction in retained earnings of $17.0 million.
Prior to April 1, 2000, the Company followed the deferral method of tax allocation in accounting for income taxes.
3. Business Merger
On September 20, 1999, the Company announced completion of the merger that resulted in Franco-Nevada Mining Corporation Limited (“Franco-Nevada”) merging with Euro-Nevada Mining Corporation Limited (“Euro-Nevada”). The merger of the Company and Euro-Nevada is accounted for as a pooling of interests which combines, at book value, the net assets and operations of the two companies. Accordingly, these financial statements have been prepared, and are presented as though the predecessor corporations had operated as a single entity since inception. Euro-Nevada shareholders received 0.77 Franco-Nevada shares for each Euro-Nevada share. Euro-Nevada had 101.2 million shares outstanding and, as a result, the Company issued 77.9 million additional common shares to former shareholders of Euro-Nevada.
The following tables set forth results of operations of the previously separate companies for the periods before the combination.
Franco-Nevada | Euro-Nevada | Combined | |||||||
Three Months ended June 30, 1999 (unaudited) | |||||||||
Revenue-continuing operations | $ | 17,145 | $ | 11,576 | $ | 28,721 | |||
Net earnings |
| 14,892 |
| 10,611 |
| 25,503 | |||
Year ended March 31, 1999 | |||||||||
Revenue-continuing operations |
| 70,777 |
| 45,330 |
| 116,107 | |||
Net earnings | $ | 43,711 | $ | 24,818 | $ | 68,529 |
E-15
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
4. Investments in Marketable Securities
The Company holds the following investments:
March 2001 | |||||||
Carrying Value | Units held | ||||||
Investment | Number | Class | |||||
Inco Limited (note a) | $ | 17,237 | 4,309 | Warrants | |||
Aber Diamond Corporation |
| 69,507 | 7,717 | Common | |||
Duff & Phelps Utilities Income Inc. |
| 14,208 | 1,000 | Common | |||
First Australia Prime Income Fund, Inc. |
| 56,155 | 5,000 | Common | |||
Other |
| 3,693 | |||||
$ | 160,800 | ||||||
March 2000 | |||||||
Inco Limited | $ | 80,705 | 9,576 | VBN | |||
Aber Diamond Corporation |
| 69,507 | 7,717 | Common | |||
Duff & Phelps Utilities Income Inc. |
| 27,504 | 2,100 | Common | |||
First Australia Prime Income Fund, Inc. |
| 51,767 | 5,000 | Common | |||
San Juan Basin Royalty Trust |
| 14,503 | 2,000 | Trust Units | |||
Other |
| 4,883 | |||||
$ | 248,869 | ||||||
(a) | The Inco Limited (“Inco”) Class VBN Shares (“VBN Shares”) were tendered to Inco in December 2000 in exchange for 4,309,277 warrants of Inco (“warrants”) and cash proceeds of $7.50 per VBN Share. The Company recognized a gain of $8.3 million on the transaction. |
(b) | The fair market value of investments at year-end is $179,153,753 (2000; $221,577,536). |
(c) | On September 5, 2001, Franco-Nevada entered into an agreement to convert US$72.4 million principal amount (US$115.3 million with accrued interest as at September 30, 2001) of capital securities of Echo Bay Mines Ltd. (“Echo Bay”) into common shares of Echo Bay. Pending Echo Bay’s shareholder approval, Franco-Nevada expects to maintain a 49.5% interest in Echo Bay following conversion. (unaudited) |
5. Resource properties
2001 | 2000 | |||||||||||||||||||
Cost | Accumulated depletion and writedowns | Net book value | Cost | Accumulated depletion and writedowns | Net book value | |||||||||||||||
Mining | ||||||||||||||||||||
Producing property | ||||||||||||||||||||
Net Smelter Returns | $ | 167,121 | $ | (80,310 | ) | $ | 86,811 | $ | 164,039 | $ | (55,876 | ) | $ | 108,163 | ||||||
Net Profit Interest |
| 34,508 |
| (6,221 | ) |
| 28,287 |
| 33,747 |
| (4,960 | ) |
| 28,787 | ||||||
Working Interest |
| 156,653 |
| (20,398 | ) |
| 136,255 |
| 122,519 |
| (9,228 | ) |
| 113,291 | ||||||
| 358,282 |
| (106,929 | ) |
| 251,353 |
| 320,305 |
| (70,064 | ) |
| 250,241 | |||||||
Non-producing property | ||||||||||||||||||||
Net Smelter Returns |
| 46,545 |
| (16,183 | ) |
| 30,362 |
| 38,166 |
| (5,253 | ) |
| 32,913 | ||||||
Net Profit Interest |
| 3,222 |
| — |
|
| 3,222 |
| 3,222 |
| — |
|
| 3,222 | ||||||
Working Interest |
| 37,582 |
| (10,350 | ) |
| 27,232 |
| 36,515 |
| (761 | ) |
| 35,754 | ||||||
| 87,349 |
| (26,533 | ) |
| 60,816 |
| 77,903 |
| (6,014 | ) |
| 71,889 | |||||||
$ | 445,631 | $ | (133,462 | ) | $ | 312,169 | $ | 398,208 | $ | (76,078 | ) | $ | 322,130 | |||||||
Oil and Gas | ||||||||||||||||||||
Producing property | ||||||||||||||||||||
Net Smelter Returns | $ | 23,218 | $ | (7,467 | ) | $ | 15,751 | $ | 23,122 | $ | (6,253 | ) | $ | 16,869 | ||||||
Working Interest |
| 10,997 |
| (2,273 | ) |
| 8,724 |
| 10,997 |
| (1,868 | ) |
| 9,129 | ||||||
| 34,215 |
| (9,740 | ) |
| 24,475 |
| 34,119 |
| (8,121 | ) |
| 25,998 | |||||||
Non-producing property | ||||||||||||||||||||
Net Smelter Returns |
| — |
| — |
|
| — |
| 472 |
| — |
|
| 472 | ||||||
Working Interest |
| 1,113 |
| — |
|
| 1,113 |
| 764 |
| — |
|
| 764 | ||||||
| 1,113 |
| — |
|
| 1,113 |
| 1,236 |
| — |
|
| 1,236 | |||||||
$ | 35,328 | $ | (9,740 | ) | $ | 25,588 | $ | 35,355 | $ | (8,121 | ) | $ | 27,234 | |||||||
Total | $ | 480,959 | $ | (143,202 | ) | $ | 337,757 | $ | 433,563 | $ | (84,199 | ) | $ | 349,364 | ||||||
For the year ended March 31, 2001, accumulated depletion and write-downs includes $21.4 million in write-downs for non-producing properties.
E-16
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
6. Capital assets
March 2001 | March 2000 | |||||||||||||||||||
Cost | Accumulated amortization | Net book value | Cost | Accumulated amortization | Net book value | |||||||||||||||
Plant & mining equipment | $ | 49,115 | $ | (5,905 | ) | $ | 43,210 | $ | 36,569 | $ | (2,278 | ) | $ | 34,291 | ||||||
Well equipment |
| 9,121 |
| (955 | ) |
| 8,166 |
| 7,267 |
| (725 | ) |
| 6,542 | ||||||
Buildings |
| 31,200 |
| (4,461 | ) |
| 26,739 |
| 27,860 |
| (2,069 | ) |
| 25,791 | ||||||
Other |
| 5,998 |
| (2,534 | ) |
| 3,464 |
| 5,965 |
| (2,091 | ) |
| 3,874 | ||||||
$ | 95,434 | $ | (13,855 | ) | $ | 81,579 | $ | 77,661 | $ | (7,163 | ) | $ | 70,498 | |||||||
7. Capital stock
The Company has an unlimited number of authorized preferred and common shares.
March 2001 | March 2000 | March 1999 | |||||||||||||||
Issued and outstanding: | Number | $ | Number | $ | Number | $ | |||||||||||
Common shares | |||||||||||||||||
Beginning of year (note a) | 158,631 | $ | 1,014,348 | 158,357 | $ | 1,009,537 | 152,293 |
| $ | 861,653 |
| ||||||
Issued for cash | — |
| — | — |
| — | 3,253 |
|
| 103,937 |
| ||||||
Issued for resource properties | — |
| — | — |
| — | 957 |
|
| 25,693 |
| ||||||
Options exercised | — |
| — | 274 |
| 4,811 | 185 |
|
| 3,472 |
| ||||||
Warrants exercised | — |
| — | — |
| — | 1,669 |
|
| 17,603 |
| ||||||
End of year | 158,631 | $ | 1,014,348 | 158,631 | $ | 1,014,348 | 158,357 |
| $ | 1,012,358 |
| ||||||
Warrants (note b) | |||||||||||||||||
Beginning of year | 4,380 | $ | 6,973 | 4,380 | $ | 6,973 | 4,830 |
| $ | 484 |
| ||||||
Exercised | — |
| — | — |
| — | (1,084 | ) |
| (271 | ) | ||||||
Issued | — |
| — | — |
| — | 634 |
|
| 6,760 |
| ||||||
End of year | 4,380 | $ | 6,973 | 4,380 | $ | 6,973 | 4,380 |
| $ | 6,973 |
| ||||||
(a) | On September 20, 1999 Franco-Nevada Mining Corporation Limited merged with Euro-Nevada Mining Corporation Limited. See note 3. The 1999 comparative share capital amounts have been adjusted for the merger. The opening share capital dollar amount for fiscal 2000 is net of $2,821,000 of share issue costs incurred in the year. |
(b) | The Company has two classes of warrants issued and outstanding. There are 2,246,336 Class A warrants each of which entitles the holder thereof to acquire four common shares of the Company at a price of $200 per warrant. There are 2,133,751 Class B warrants outstanding each of which entitles the holder thereof to acquire 3.08 common shares of the Company at a price of $100 per warrant. The Class A and B warrants expire on September 15, 2003 and November 12, 2003, respectively. |
(c) | As at September 30, 2001, in addition to its 158,920,430 common shares, the Company has two classes of warrants issued and outstanding. See note 7 (b). |
(d) | Franco-Nevada adopted a shareholders’ rights plan (the “Rights Plan”) on February 24th, 2000. The Rights Plan was approved by the shareholders of the Company on September 21, 2000. Under the Rights Plan, each Franco-Nevada common share carries with it the right to purchase shares of Franco-Nevada, at a discounted price, under certain circumstances and in the event of particular hostile efforts to acquire control of the Company. The rights are evidenced by and trade with the Franco-Nevada common shares. |
E-17
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
(e) | Share Option Plan |
Common share options outstanding at March 31, 2001, 2000 and 1999 under the share option plan are as follows:
March 2001 | March 2000 | March 1999 | ||||||||||||||||
Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | Number | Weighted Average Exercise Price | |||||||||||||
Outstanding at beginning of year | 5,873,716 |
| $ | 20.79 | 3,934,876 |
| $ | 18.29 | 4,084,316 |
| $ | 18.17 | ||||||
Changes during year | ||||||||||||||||||
Granted | 50,000 |
|
| 18.30 | 2,500,000 |
|
| 24.50 | 35,400 |
|
| 31.09 | ||||||
Exercised | — |
|
| — | (273,359 | ) |
| 17.60 | (184,840 | ) |
| 17.88 | ||||||
Expired | (593,600 | ) |
| 24.87 | (287,801 | ) |
| 21.92 | — |
|
| — | ||||||
Outstanding at end of year | 5,330,116 |
|
| 20.31 | 5,873,716 |
|
| 20.79 | 3,934,876 |
|
| 18.29 | ||||||
Exercisable at end of year | 1,656,068 |
| $ | 16.65 | 1,283,416 |
| $ | 16.16 | 1,103,914 |
| $ | 15.33 | ||||||
The following table summarizes information about the share options outstanding at March 31, 2001.
Range of Exercise Price | Number Outstanding at Mar. 31/01 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable at Mar. 31/01 | Weighted Average Exercise Price | |||||
$ 4.35 – $13.64 | 1,133,186 | 3.6 years | $11.50 | 675,036 | $10.05 | |||||
$14.21 – $22.14 | 1,599,880 | 4.5 years | $18.67 | 662,742 | $18.37 | |||||
$23.57 – $35.43 | 2,597,050 | 8.0 years | $25.17 | 318,290 | $27.09 |
(i) | Options granted under the Share Option Plan generally have a term of 10 years and vest evenly over their term. The exercise price of each option is the closing price of the Company’s common stock on the Toronto Stock Exchange on the day on which the option is granted. |
(ii) | On September 20, 1999 the Company merged with Euro-Nevada Mining Corporation Limited. At the time of the merger there were 2,102,332 options of Euro-Nevada outstanding. These options were converted to 1,618,796 options of Franco-Nevada at a ratio of 0.77. The 1999 comparatives for share options have been adjusted for this transaction. |
8. Deferred foreign exchange gain
Components of deferred foreign exchange include:
March 2001 | March 2000 | |||||
Cash | $ | 25,362 | $ | 15,170 | ||
Mineral properties |
| 31,939 |
| 2,748 | ||
Marketable securities |
| 10,538 |
| 2,650 | ||
Other |
| 1,780 |
| 697 | ||
$ | 69,619 | $ | 21,265 | |||
E-18
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
9. Income Taxes
(a) The Company’s effective tax rate differs from the combined Canadian federal and provincial statutory tax rate as follows:
March 2001 | March 2000 | March 1999 | |||||||
Tax at Canadian statutory rate | 43 | % | 45 | % | 45 | % | |||
Lower U.S. tax rate on U.S. earnings | (10 | ) | (12 | ) | (13 | ) | |||
Non-taxable earnings | — |
| (2 | ) | (3 | ) | |||
Capital and mining taxes | 2 |
| 3 |
| 4 |
| |||
Effective tax rate | 35 | % | 34 | % | 33 | % | |||
(b) The following table depicts the primary temporary differences included in future income taxes as at March 31, 2001 and 2000. The 2000 comparative amounts have been presented after reflecting the $17.0 million effect of the implementation adjustment described in note 2.
March 2001 | March 2000 | |||
Future income taxes: | ||||
Liabilities: | ||||
Mineral properties | 65,169 | 64,395 | ||
Capital assets | 16,445 | 10,734 | ||
Other | 4,259 | 3,913 | ||
Net future income taxes | 85,873 | 79,042 | ||
(c) Details of income tax (credit) expense by jurisdiction are:
March 2001 | March 2000 | March 1999 | |||||
Current | |||||||
United States | 23,293 |
| 15,215 | 14,596 | |||
Canada | 26,348 |
| 11,885 | 11,567 | |||
49,641 |
| 27,100 | 26,163 | ||||
Future | |||||||
United States | 866 |
| 2,319 | 621 | |||
Canada | (6,649 | ) | 3,144 | 4,508 | |||
(5,783 | ) | 5,463 | 5,129 |
(d) Income taxes paid in 2001 were $45,249,276 (2000—$26,002,590, 1999—$19,357,381).
E-19
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
10. Segment information
The Company operates in the Mining and Oil and Gas industries. The operations are evaluated and managed in two segments, namely, Mining royalties and Oil and Gas. Mining royalties include precious metals and base metal royalties and the Company’s exploration interests that are aimed at generating royalties. Oil and Gas operations are largely in Canada.
Six Months Ended | For the Years Ended | ||||||||||||||
September 2001 | September | March 2001 | March 2000 | March 1999 | |||||||||||
(unaudited) | (unaudited) | ||||||||||||||
Revenues | |||||||||||||||
Mining royalties | $ | 37,798 | $ | 27,800 | $ | 66,030 | $ | 64,771 | $ | 61,589 | |||||
Oil & gas |
| 13,525 |
| 13,342 |
| 29,566 |
| 17,199 |
| 11,188 | |||||
| 51,323 |
| 41,142 |
| 95,596 |
| 81,970 |
| 72,777 | ||||||
Operating costs | |||||||||||||||
Mining royalties |
| 43 |
| 136 |
| 341 |
| 196 |
| 155 | |||||
Oil & gas |
| 328 |
| 337 |
| 800 |
| 1,200 |
| 1,418 | |||||
| 371 |
| 473 |
| 1,141 |
| 1,396 |
| 1,573 | ||||||
Depletion and depreciation | |||||||||||||||
Mining royalties |
| 2,312 |
| 7,237 |
| 11,555 |
| 11,269 |
| 11,089 | |||||
Oil & gas |
| 880 |
| 1,629 |
| 2,301 |
| 3,800 |
| 3,191 | |||||
$ | 3,192 | $ | 8,866 | $ | 13,856 | $ | 15,069 | $ | 14,280 | ||||||
E-20
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
Six Months Ended | For the Years Ended | |||||||||||||||||||
September 2001 | September 2000 | March | March | March | ||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
Segment income before taxes | ||||||||||||||||||||
Mining royalties | $ | 35,443 |
| $ | 20,427 |
| $ | 54,134 |
| $ | 53,306 |
| $ | 50,345 |
| |||||
Oil & Gas |
| 12,317 |
|
| 11,376 |
|
| 26,465 |
|
| 12,199 |
|
| 6,579 |
| |||||
Provision for mining assets |
| — |
|
| — |
|
| (28,216 | ) |
| — |
|
| — |
| |||||
| 47,760 |
|
| 31,803 |
|
| 52,383 |
|
| 65,505 |
|
| 56,924 |
| ||||||
Investment earnings |
| 22,902 |
|
| 38,960 |
|
| 82,035 |
|
| 38,607 |
|
| 43,330 |
| |||||
Equity earnings in Normandy |
| 11,215 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||
General and administration |
| (3,164 | ) |
| (4,848 | ) |
| (10,688 | ) |
| (7,554 | ) |
| (5,508 | ) | |||||
Earnings before tax |
| 78,713 |
|
| 65,915 |
|
| 123,730 |
|
| 96,558 |
|
| 94,746 |
| |||||
Tax |
| (23,598 | ) |
| (21,729 | ) |
| (43,858 | ) |
| (32,563 | ) |
| (31,292 | ) | |||||
Earnings from continuing operations |
| 55,115 |
|
| 44,186 |
|
| 79,872 |
|
| 63,995 |
|
| 63,454 |
| |||||
Discontinued operations |
| 21,902 |
|
| 16,931 |
|
| 33,573 |
|
| 33,641 |
|
| 5,075 |
| |||||
Net earnings |
| 77,017 |
|
| 61,117 |
|
| 113,445 |
|
| 97,636 |
|
| 68,529 |
| |||||
Revenue by geographic area | ||||||||||||||||||||
USA |
| 46,975 |
|
| 50,209 |
|
| 114,432 |
|
| 71,772 |
|
| 66,344 |
| |||||
Canada |
| 26,054 |
|
| 28,499 |
|
| 60,120 |
|
| 45,228 |
|
| 46,232 |
| |||||
Australia |
| 11,215 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||
Other |
| 1,196 |
|
| 1,394 |
|
| 3,079 |
|
| 3,577 |
|
| 3,531 |
| |||||
| 85,440 |
|
| 80,102 |
|
| 177,631 |
|
| 120,577 |
|
| 116,107 |
| ||||||
Segment capital expenditures | ||||||||||||||||||||
Mining royalties |
| 2,602 |
|
| 1,271 |
|
| 2,265 |
|
| 8,924 |
|
| 61,446 |
| |||||
Oil & gas |
| 1,614 |
|
| 1,216 |
|
| 1,830 |
|
| 305 |
|
| 4,355 |
| |||||
| 4,216 |
|
| 2,487 |
|
| 4,095 |
|
| 9,229 |
|
| 65,801 |
| ||||||
Identifiable assets by geographic area | ||||||||||||||||||||
USA |
| 1,191,180 |
|
| 593,671 |
|
| 1,386,228 |
|
| 521,363 |
|
| 515,581 |
| |||||
Canada |
| 39,379 |
|
| 847,441 |
|
| 106,229 |
|
| 824,560 |
|
| 794,514 |
| |||||
Australia |
| 349,055 |
|
| 30,628 |
|
| 23,779 |
|
| 31,208 |
|
| 29,943 |
| |||||
Other |
| 27,512 |
|
| 42,776 |
|
| 31,514 |
|
| 43,760 |
|
| 49,487 |
| |||||
| 1,607,126 |
|
| 1,514,516 |
|
| 1,547,750 |
|
| 1,420,891 |
|
| 1,389,525 |
| ||||||
Identifiable assets by segment | ||||||||||||||||||||
Mining royalties |
| 215,263 |
|
| 317,899 |
|
| 172,225 |
|
| 236,483 |
|
| 227,424 |
| |||||
Oil & gas |
| 43,997 |
|
| 43,912 |
|
| 44,037 |
|
| 57,149 |
|
| 59,911 |
| |||||
Mining operations |
| — |
|
| 193,902 |
|
| 231,371 |
|
| 172,237 |
|
| 176,002 |
| |||||
Total assets for reportable segments |
| 259,260 |
|
| 555,713 |
|
| 447,633 |
|
| 465,869 |
|
| 463,337 |
| |||||
Cash and investments at cost |
| 1,347,504 |
|
| 958,506 |
|
| 1,099,811 |
|
| 954,583 |
|
| 925,826 |
| |||||
Other |
| 362 |
|
| 297 |
|
| 306 |
|
| 439 |
|
| 362 |
| |||||
$ | 1,607,126 |
| $ | 1,514,516 |
| $ | 1,547,750 |
| $ | 1,420,891 |
| $ | 1,389,525 |
| ||||||
E-21
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
11. Commitments
(a) Foreign Exchange Contracts
Franco has entered into foreign exchange contracts whereunder Franco-Nevada will receive Australian $4 million in June 2002 and 2003 at US$0.5873 and US$0.5882 respectively for each Australian dollar. These contracts were closed out subsequent to March 31, 2001.
(b) Net Profits Interest
Franco-Nevada pays the contract operator of the Ken Snyder Mine a 5% net profit interest based upon the Company’s reported pre-tax profit from the mine. The amount of Net Profit Interest expense included in discontinued operations for the three years ended March 31, 2001, 2000 and 1999 is $2.1 million, $2.1 million and $0.4 million, respectively. No expense was incurred for the six month period ended September 30, 2001 as the mine was sold effective April 2, 2001 (See Note 12(a)). The Company incurred an expense of $1.1 million (unaudited) for the six months ended September 30, 2000.
12. Subsequent Event
(a) On April 2, 2001, the Company entered into an agreement with Normandy Mining Limited (“Normandy”), Australia’s largest gold producer, to exchange its Ken Snyder mine, US$48 million, and its Australian assets in return for a 19.99% interest in Normandy. On May 31, 2001 the transaction was consummated and Normandy issued 446.1 million freely-trading ordinary shares to Franco-Nevada. Franco-Nevada retained a minimum 5% NSR royalty over the Midas property, which escalates at gold prices over US$300 per ounce to a maximum of 10% at gold prices over US$400 per ounce.
The exchange of assets resulted in a pre-tax gain of $38.6 million to Franco-Nevada and has been classified as “Discontinued operations.” Income taxes of $16.7 million were recorded in connection with the exchange.
Amounts included in the consolidated balance sheets relating to discontinued operations are as follows:
March 2001 | March 2000 | |||||||
Current assets | $ | 31,509 |
| $ | 8,863 |
| ||
Non-current assets |
| 223,525 |
|
| 195,237 |
| ||
Current liabilities |
| (8,880 | ) |
| (2,386 | ) | ||
Non-current liabilities |
| (51,071 | ) |
| (17,486 | ) | ||
Net assets of discontinued operations | $ | 195,083 |
| $ | 184,228 |
| ||
The summarized statements of operations for the discontinued operations are as follows:
March 2001 | March 2000 | March 1999 | ||||||||||
Revenue | $ | 106,641 |
| $ | 97,659 |
| $ | 19,489 |
| |||
Expenses |
| (65,738 | ) |
| (50,413 | ) |
| (12,048 | ) | |||
Taxes |
| (7,330 | ) |
| (13,605 | ) |
| (2,366 | ) | |||
Net earnings from discontinued operations | $ | 33,573 |
| $ | 33,641 |
| $ | 5,075 |
| |||
E-22
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
The summarized statements of cashflows for the discontinued operations are as follows:
March 2001 | March 2000 | March 1999 | ||||||||||
Operating | $ | 65,948 |
| $ | 56,016 |
| $ | 4,708 |
| |||
Investing |
| (33,309 | ) |
| (19,358 | ) |
| (71,339 | ) | |||
Foreign exchange |
| 395 |
|
| (476 | ) |
| 118 |
| |||
Net cashflow from discontinued operations | $ | 33,034 |
| $ | 36,182 |
| $ | (66,513 | ) | |||
(b) The Company has announced a change of its year end to December 31 effective for the period ended December 31, 2001.
13. Legal Matters
(a) Environmental
The Company’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment and believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.
(b) Claims
The Company is from time to time involved in various claims, legal proceedings and complaints arising in the ordinary course of business. The Company is also subject to reassessment for income and mining taxes for certain years. It does not believe that adverse decisions in any pending or threatened proceeding related to any potential tax assessments or other matters, or any amount which it may be required to pay by reason thereof, will have material adverse effect on the financial condition or future results of operations of the Company.
E-23
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
14. Differences Between Canadian and United States Generally Accepted Accounting Principles
Canadian GAAP varies in certain significant respects from the principles and practices generally accepted in the United States (“US GAAP”). The effect of these principal measurement differences on the Company’s consolidated financial statements are quantified below and described in the accompanying notes:
Statements of Earnings
(in thousands of Canadian dollars except per share data)
Six Months Ended | For the Years Ended | |||||||||||||||||||
September | September 2000 | March 2001 | March 2000 | March 1999 | ||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
Net earnings for the period reported under Canadian GAAP | $ | 77,017 |
| $ | 61,117 |
| $ | 113,445 |
| $ | 97,636 |
| $ | 68,529 |
| |||||
Mineral properties expense(a) |
| (1,938 | ) |
| (1,890 | ) |
| 8,576 |
|
| (5,236 | ) |
| (7,637 | ) | |||||
Business merger costs(b) |
| — |
|
| — |
|
| — |
|
| (2,821 | ) |
| — |
| |||||
Fair market value adjustment of marketable securities(c) |
| 12,228 |
|
| (21,629 | ) |
| (21,971 | ) |
| — |
|
| — |
| |||||
Equity earnings of Normandy Mining Limited(d) |
| (23,872 | ) |
| — |
|
| — |
|
| — |
|
| — |
| |||||
Income taxes |
| 3,663 |
|
| 8,239 |
|
| 4,370 |
|
| 2,911 |
|
| 3,101 |
| |||||
Net earnings for the period reported under US GAAP before US GAAP difference on discontinued operations and changes in accounting |
| 67,098 |
|
| 45,837 |
|
| 104,420 |
|
| 92,490 |
|
| 63,993 |
| |||||
Discontinued operations(e)(f) |
| 27,385 |
|
| 1,183 |
|
| 213 |
|
| (1,307 | ) |
| (1,481 | ) | |||||
Net earnings for the period reported under US GAAP after discontinued operations and before changes in accounting policy |
| 94,483 |
|
| 47,020 |
|
| 104,633 |
|
| 91,183 |
|
| 62,512 |
| |||||
Cumulative effect of change in accounting |
| — |
|
| (2,467 | ) |
| (2,467 | ) |
| (4,943 | ) |
| — |
| |||||
Net earnings for the period reported under US GAAP after discontinued operations and changes in accounting policy | $ | 94,483 |
| $ | 44,553 |
| $ | 102,166 |
| $ | 86,240 |
| $ | 62,512 |
| |||||
(a) | In accordance with United States GAAP, the Company would be required to charge all costs of mineral properties exploration to earnings as incurred until proven economic reserves are established. In fiscal 2001, the Company recorded a provision against mining assets which contains mineral property assets already expensed under US GAAP. This has resulted in a reduction in the provision under US GAAP of $8,576,000. |
(b) | Under US GAAP, merger costs are expensed as incurred. Under Canadian GAAP, the costs are considered a capital transaction and netted against capital stock. |
(c) | Under US GAAP, the Company wrote down its investment in Aberdeen Asia-Pacific Prime Income Fund (formerly First Australia Prime Income Fund) in September 2000 as it was determined that the investment was permanently impaired under US GAAP guidelines. However, under Canadian GAAP there is no specifically defined period for determining impairment and, in management’s estimation, the investment was determined to be impaired at September 2001. The provision and realized loss recorded under Canadian GAAP in the period ended September 30, 2001 is reversed in the reconciliation as a result of the US GAAP adjustment already being recorded in September 2000. Additionally, under Canadian GAAP, investments in marketable securities are accounted for at cost. Under US GAAP, investments in marketable securities that are classified as available for sale are adjusted to the quoted value of the marketable securities at each period end. Unrealized gains or losses on the marketable securities are recorded inAccumulated other comprehensive income (loss)under US GAAP. |
(d) | The Company is required to reflect it’s equity earnings of Normandy Mining Limited for the six months ended September 30, 2001 in accordance with US GAAP. |
(e) | The Company disposed of its Ken Snyder Mine in Nevada and Australian division to Normandy Mining Limited (“Normandy”) of Australia in exchange for an equity interest in Normandy. The gain recognized on |
E-24
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
the transaction under Canadian GAAP has been adjusted for differences between carrying costs of the Ken Snyder Mine and Australian division under US GAAP. The above amounts are net of tax. |
(f) | Effective January 1, 2001 the Company implemented Staff Accounting Bulletin (“SAB”) Note 101, Revenue Recognition for US GAAP purposes. According to SAB 101, there are numerous conditions depicting when revenue can be recognized. Under Canadian GAAP, the Company recognizes revenues from mining operations at the time of shipment from the mine site. Revenue from royalty interests are recognized at the time title passes to the Company under terms of the respective agreement. The above amounts are net of tax of $1,328,000. |
(g) | Statement of Position 98-5 was adopted during fiscal 2000 which requires start-up costs to be expensed as incurred. Under Canadian GAAP, start-up costs are deferred and amortized over the mine life. The above adjustment is net of tax of $2,362,000. |
(h) | The Company accounts for its share options under Canadian GAAP, which in the Company’s circumstances are not different from the amounts that would be determined under the provisions of the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related Interpretations. Accordingly, no compensation expense for its share option plan has been recorded in the consolidated statements of operations for the six months ended September 30, 2000 and 2001 and the fiscal years ending March 31, 2001, 2000 and 1999. |
(i) | US GAAP requires different Statement of Operations classifications compared to Canadian GAAP. Equity in earnings of equity method investment (i.e. the Normandy Mining Limited investment) and investment income are generally classified below operating income but before net income. |
Six Months Ended | For the Years Ended | ||||||||||||||||||
September 2001 | September 2000 | March 2001 | March 2000 | March 1999 | |||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||
Basic earnings per share | |||||||||||||||||||
Net earnings per share for the period reported under US GAAP before US GAAP difference on discontinued operations and changes in accounting policy | $ | 0.43 | $ | 0.29 |
| $ | 0.66 |
| $ | 0.58 |
| $ | 0.41 |
| |||||
Discontinued operations(e)(f) |
| 0.17 |
| 0.01 |
|
| 0.00 |
|
| (0.01 | ) |
| (0.01 | ) | |||||
Net earnings per share for the period reported under US GAAP after discontinued operations and before changes in accounting policy |
| 0.60 |
| 0.30 |
|
| 0.66 |
|
| 0.57 |
|
| 0.40 |
| |||||
Cumulative effect of changes in accounting policy(f)(g) |
| — |
| (0.02 | ) |
| (0.02 | ) |
| (0.03 | ) |
| — |
| |||||
Net earnings per share for the period reported under US GAAP after discontinued operations and changes in accounting policy | $ | 0.60 | $ | 0.28 |
| $ | 0.64 |
| $ | 0.54 |
| $ | 0.40 |
| |||||
Weighted average number of common shares outstanding (thousands) |
| 158,662 |
| 158,631 |
|
| 158,631 |
|
| 158,521 |
|
| 154,898 |
| |||||
Six Months Ended | For the Years Ended | |||||||||||||||
September 2001 | September 2000 | March 2001 | March 2000 | March 1999 | ||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Statements of Comprehensive Earnings | ||||||||||||||||
Net earnings for the period reported under US GAAP | $ | 94,483 | $ | 44,553 | $ | 102,166 | $ | 86,240 |
| $ | 62,512 | |||||
Other comprehensive earnings (net of tax): | ||||||||||||||||
Foreign currency translation adjustment |
| 4,485 |
| 21,043 |
| 46,074 |
| (23,695 | ) |
| 27,161 | |||||
Unrealized (loss)/gain on marketable securities |
| 374 |
| 49,514 |
| 51,776 |
| (33,111 | ) |
| 9,427 | |||||
Comprehensive earnings | $ | 99,342 | $ | 115,110 | $ | 200,016 | $ | 29,434 |
| $ | 99,100 | |||||
The above amounts are net of taxes as follows: September 2001: $272,000, September 2000: $20,867,000, March 2001: $16,913,000, March 2000: ($15,443,000) and March 1999: $4,780,000.
E-25
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
The statements of comprehensive earnings provide a measure of all changes in equity the company that results from transactions with other than shareholders and other economic events that occur during the period.
The combined impact of notes (a) through (i) has been reflected on the Statements of Cash Flows and Balance Sheets below. No additional adjustments are reflected in the tables.
Six Months Ended | For the Years Ended | |||||||||||||||||||
September 2001 | September 2000 | March 2001 | March 2000 | March 1999 | ||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
Statements of Cash Flows | ||||||||||||||||||||
The following summarizes the cash flow amounts in accordance with US GAAP. | ||||||||||||||||||||
Operating activities | $ | (19,640 | ) | $ | 21,466 |
| $ | 116,257 |
| $ | 52,377 |
| $ | 98,546 |
| |||||
Investing activities |
| (164,136 | ) |
| 4,683 |
|
| 41,148 |
|
| (10,596 | ) |
| (253,599 | ) | |||||
Financing activities |
| 4,818 |
|
| — |
|
| (55,521 | ) |
| (42,778 | ) |
| 99,265 |
| |||||
Foreign exchange |
| 198 |
|
| 2,886 |
|
| 8,317 |
|
| (2,531 | ) |
| 8,787 |
| |||||
Discontinued operations | ||||||||||||||||||||
Operating |
| — |
|
| (20,152 | ) |
| 65,781 |
|
| 54,709 |
|
| 3,062 |
| |||||
Investing |
| — |
|
| (22,573 | ) |
| (33,142 | ) |
| (18,051 | ) |
| (69,693 | ) | |||||
Foreign exchange |
| — |
|
| (638 | ) |
| 395 |
|
| (476 | ) |
| 118 |
| |||||
Opening cash and cash equivalents |
| 318,653 |
|
| 175,418 |
|
| 175,418 |
|
| 142,764 |
|
| 256,278 |
| |||||
Closing cash and cash equivalents |
| 139,893 |
|
| 161,090 |
|
| 318,653 |
|
| 175,418 |
|
| 142,764 |
| |||||
Closing cash and short-term investments |
| 864,053 |
|
| 730,099 |
|
| 939,011 |
|
| 705,714 |
|
| 707,507 |
|
Balance Sheets
The following summarizes the balance sheet amounts in accordance with US GAAP where different from the amounts reported under Canadian GAAP.
September 2001 | March 2001 | March 2000 | ||||||||||||||||
Canadian GAAP | US | Canadian GAAP | US | Canadian GAAP | US | |||||||||||||
Precious metals | $ | 44,224 | $ | 44,224 | $ | 13,612 | $ | 10,155 | $ | 27,584 | $ | 27,584 | ||||||
Investments in marketable securities |
| 134,396 |
| 165,881 |
| 160,800 |
| 179,154 |
| 248,869 |
| 221,578 | ||||||
Resource properties |
| 179,063 |
| 173,263 |
| 337,757 |
| 286,421 |
| 349,364 |
| 291,844 | ||||||
Investment in Normandy Mining Limited |
| 349,055 |
| 324,787 |
| — |
| — |
| — |
| — | ||||||
Deferred taxes |
| 82,437 |
| 73,607 |
| 85,873 |
| 67,577 |
| 62,033 |
| 49,380 | ||||||
Capital stock |
| 1,026,139 |
| 1,028,960 |
| 1,021,321 |
| 1,024,142 |
| 1,021,321 |
| 1,024,142 | ||||||
Retained earnings |
| 421,533 |
| 389,981 |
| 382,077 |
| 295,498 |
| 303,601 |
| 248,853 | ||||||
Deferred foreign exchange gain |
| 74,028 |
| 70,708 |
| 69,619 |
| 66,223 |
| 21,265 |
| 20,149 |
New Standards for Canadian GAAP
In late 2000, the Canadian Institute of Chartered Accountants (“CICA”) issued a revised standard, Section 3500, “Earnings Per Share”. Public companies with quarterly reporting requirements must calculate basic and fully diluted earnings per share in accordance with the new standard. Diluted earnings per share will now be calculated using the “Treasury Stock Method”. The new section will be implemented for the fiscal period ended December 31, 2001.
E-26
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
In August 2000, the CICA issued a new standard, Section 1751, “Interim Financial Statements” effective for interim periods in fiscal years beginning on or after January 1, 2001. This standard requires interim financial statements, at a minimum, to include an income and cash flow statement for the quarter and year to date periods, a balance sheet and a statement of retained earnings along with detailed notes to the financial statements. Management does not expect a significant impact on the financial statements of the Company upon the adoption of the new standard.
The CICA recently issued new Handbook Sections 1581, “Business Combinations” and 3062, “Goodwill and Other Intangible Assets”. Effective July 1, 2001, the standards require that all business combinations be accounted for using the purchase method. Additionally, effective January 1, 2002, goodwill and intangible assets with an indefinite life will no longer be amortized to earnings and will be assessed for impairment on an annual basis in accordance with the new standards, including a transitional impairment test whereby any resulting impairment will be charged to opening retained earnings. Management does not expect a significant impact on the financial statements of the Company upon the adoption of the new standard.
In March 2000, the Accounting Standards Board of the CICA issued Accounting Guideline No. 11, “Enterprises in the Development Stage”. The guideline addresses three specific issues: (a) capitalization of costs and expenditures, (b) impairment and (c) disclosure. Prior to its issuance, development stage entities were exempt from following certain aspects of Canadian GAAP. This guideline will require that all companies account for transactions based on the underlying characteristics of the transaction rather than the maturity of the enterprise. The guideline is effective no later than fiscal periods beginning on or after April 1, 2000. The Company is aware that there are two alternative views of how this guideline affects mining companies with respect to the capitalization of exploration costs. CICA Handbook Section 3061 “Property, Plant and Equipment” states that “For a mining property, the cost of the asset includes exploration costs if the enterprise considers that such costs have the characteristics of property, plant and equipment.” The Company considers that exploration costs incurred meet the characteristics of property, plant and equipment and accordingly defers such costs. Under the view adopted by the Company, deferred exploration costs would not automatically be subject to regular assessments of recoverability, unless conditions such as those in Accounting Guideline No. 11 exist. Under the alternative view, there would be a regular assessment of capitalized exploration costs. Assessment of the probability of recoverability of deferred exploration costs from future operations would require the preparation of a projection based on objective evidence of economic reserves, such as a feasibility study. The Company’s interpretation of the guideline will not have a significant impact on the financial statements. However, if the second view is accepted, all deferred exploration costs would be written off as of the beginning of fiscal 2001. This write-off would be treated as a change in accounting principle. The result would be a reduction of resource properties of $49.0 million, a decrease to retained earnings of $30.9 million and a reduction to future taxes of $18.1 million. The impact for the fiscal year ended March 31, 2001 would be a reduction in resource properties of $3.5 million, net income of $2.3 million and future taxes of $1.2 million. For the six-month periods ended September 30, 2000 and 2001 the reduction to resource properties, net income and future taxes would be $1.9 million, $1.2 million and $0.7 million, respectively. The CICA is currently evaluating this issue to determine the appropriate interpretation of the guideline and CICA Handbook Section 3061.
New Standards for US GAAP
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination and SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination
E-27
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
(tabular amounts in thousands of Canadian dollars except where otherwise indicated)
whether acquired individually or with a group of other assets. These standards require all future business combinations to be accounted for using the purchase method of accounting. The Company is required to adopt SFAS No. 141 for business combinations after July 1, 2001 and 142 on a prospective basis as of January 1, 2002. Management does not expect a significant impact on the financial statements of the Company upon the adoption of the new standard.
The Financial Accounting Standards Board has recently issued FASB No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”. FAS 144 supersedes FAS 121 and the accounting and reporting provisions of APB 30 for segments of a business to be disposed of. The pronouncement is effective January 1, 2002, and will be adopted by the Company at that time. Management does not expect a significant impact on the financial statements of the Company upon the adoption of the new standard.
E-28