EXHIBIT 20.3
AUDITORS' REPORT
TO THE DIRECTORS OF
FRANCO-NEVADA MINING CORPORATION LIMITED
We have audited the consolidated balance sheets of FRANCO-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.
/s/ PriceWaterhouseCoopers LLP
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.
/s/ PriceWaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Toronto, Ontario
April 30, 2001
E-8
FRANCO-NEVADA MINING CORPORATION LIMITED
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, MARCH 31, MARCH 31,
2001 2001 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, SEPTEMBER 30, MARCH 31, MARCH 31, MARCH 31,
2001 2000 2001 2000 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, SEPTEMBER 30, MARCH 31, MARCH 31, MARCH 31,
2001 2000 2001 2000 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, SEPTEMBER 30, MARCH 31, MARCH 31, MARCH 31,
2001 2000 2001 2000 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
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) -- -- -- --
--------- -------- -------- -------- ---------
Total non-cash items.................... (6,915) (8,272) 12,102 20,532 19,409
--------- -------- -------- -------- ---------
CASH FLOW FROM OPERATIONS............... 48,200 35,914 91,974 84,527 82,863
Change in non-cash working capital... (65,902) (12,559) 27,883 (24,093) 23,320
--------- -------- -------- -------- ---------
(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
Marketable securities................ 22,298 37,984 118,107 (35,494) (144,809)
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 interest in mineral properties at cost. Producing
properties are amortized on the units-of-production basis. The ultimate
recovery of costs associated with non-producing properties is dependent
E-13
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE OTHERWISE
INDICATED)
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
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 mine's life are
depreciated using the units-of-production method. Other assets are depreciated
on a straight-line basis over their estimated useful lives.
(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 and royalty interests are
recognized at the time of production. Payment is received in cash or in-kind.
(K) 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.
E-14
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE OTHERWISE
INDICATED)
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- EURO-
NEVADA 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
------------------------
UNITS HELD
CARRYING ---------------
INVESTMENT VALUE 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
---------------------------
UNITS HELD
CARRYING ------------------
INVESTMENT VALUE NUMBER CLASS
- ---------- -------- ------ -----------
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
MARCH 2001 MARCH 2000
----------------------------- -----------------------------
NET NET
ACCUMULATED BOOK ACCUMULATED BOOK
COST DEPLETION VALUE COST DEPLETION VALUE
-------- ----------- -------- -------- ----------- --------
Producing property.... $392,497 $(116,669) $275,828 $354,424 $(78,185) $276,239
Non-producing property 88,462 (26,533) 61,929 79,139 (6,014) 73,125
-------- --------- -------- -------- -------- --------
$480,959 $(143,202) $337,757 $433,563 $(84,199) $349,364
======== ========= ======== ======== ======== ========
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
---------------------------- ----------------------------
NET NET
ACCUMULATED BOOK ACCUMULATED BOOK
COST AMORTIZATION VALUE COST AMORTIZATION 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 24/th/, 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
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER 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.
NUMBER WEIGHTED AVERAGE NUMBER
RANGE OF OUTSTANDING AT REMAINING WEIGHTED AVERAGE EXERCISABLE AT WEIGHTED AVERAGE
EXERCISE PRICE MAR. 31/01 CONTRACTUAL LIFE EXERCISE PRICE MAR. 31/01 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 MARCH
2001 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 MARCH MARCH
2001 2000 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 MARCH
2001 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 MARCH MARCH
2001 2000 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 SEPTEMBER MARCH MARCH MARCH
2001 2000 2001 2000 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 SEPTEMBER MARCH MARCH MARCH
2001 2000 2001 2000 1999
----------- ----------- ---------- ---------- ----------
(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.
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 MARCH
2001 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 MARCH MARCH
2001 2000 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
======== ======== ========
The summarized statements of cashflows for the discontinued operations are
as follows:
MARCH MARCH MARCH
2001 2000 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.
E-22
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE OTHERWISE
INDICATED)
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.
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
For Canadian GAAP purposes Franco-Nevada has accounted for the investment in
Normandy Mining Limited on an equity basis using the best information available
from Normandy in the public domain. As Normandy has declined to provide a
reconciliation of its results of operations in US GAAP for the period ended
September 30, 2001 there is no basis for recording an adjustment to US GAAP.
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 MARCH MARCH MARCH
2001 2000 2001 2000 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) -- --
Income taxes........................................................... (3,582) 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 policy 83,725 45,837 104,420 92,490 63,993
Discontinued operations(d)(e).......................................... 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.................... 111,110 47,020 104,633 91,183 62,512
Cumulative effect of change in accounting
policy(e)(f).......................................................... -- (2,467) (2,467) (4,943) --
-------- -------- -------- ------- -------
Net earnings for the period reported under US GAAP after discontinued
operations and changes in accounting policy........................... $111,110 $ 44,553 $102,166 $86,240 $62,512
======== ======== ======== ======= =======
E-23
FRANCO-NEVADA MINING CORPORATION LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE OTHERWISE
INDICATED)
- --------
(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 was required to write-down a marketable security
investment in an earlier period. The provision and realized loss booked
under Canadian GAAP in the period ended September 30, 2001 has been
subsequently reversed as a result of the US GAAP adjustment.
(d) 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 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.
(e) 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 recognized revenue upon the
delivery of gold dore to the refiner. The above amounts are net of tax of
$1,328,000.
(f) 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.
(g) 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.
SIX MONTHS ENDED FOR THE YEARS ENDED
---------------------- ----------------------------
SEPTEMBER SEPTEMBER MARCH MARCH MARCH
2001 2000 2001 2000 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................................................. $ 0.53 $ 0.29 $ 0.66 $ 0.58 $ 0.41
Discontinued operations(d)(e)...................................... 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... 0.70 0.30 0.66 0.57 0.40
Cumulative effect of changes in accounting policy(e)(f)............ -- (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.......... $ 0.70 $ 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
======== ======== ======== ======== ========
E-24
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 SEPTEMBER MARCH MARCH MARCH
2001 2000 2001 2000 1999
----------- ----------- -------- -------- -------
(UNAUDITED) (UNAUDITED)
STATEMENTS OF COMPREHENSIVE EARNINGS
Net earnings for the period reported under US GAAP. $111,110 $ 44,553 $102,166 $ 86,240 $62,512
Other comprehensive earnings (net of tax):
Foreign currency translation adjustment......... 4,749 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............................. $116,233 $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.
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.
SIX MONTHS ENDED FOR THE YEARS ENDED
---------------------- -----------------------------
SEPTEMBER SEPTEMBER MARCH MARCH MARCH
2001 2000 2001 2000 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.
(UNAUDITED)
SEPTEMBER 2001 MARCH 2001 MARCH 2000
--------------------- --------------------- ---------------------
CANADIAN US CANADIAN US CANADIAN US
GAAP GAAP GAAP GAAP GAAP GAAP
---------- ---------- ---------- ---------- ---------- ----------
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
Deferred taxes...................... 82,437 80,984 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................... 421,533 406,608 344,516 295,498 303,601 248,853
Deferred foreign exchange gain...... 74,028 70,972 69,619 66,223 21,265 20,149
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)
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.
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.
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)
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 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-27