Carmen Copper Corporation

Transcription

1 Carmen Copper Corporation Financial Statements December 31, 2012 and 2011 and Independent Auditors Report SyCip Gorres Velayo & Co.

2 COVER SHEET C A R M E N C O P P E R C O R P O R A T I O N (Company s Full Name) C S SEC Registration Number Q u a d A l p h a C e n t r u m, P i o n e e r S t., M a n d a l u y o n g C i t y (Business Address: No. Street City/Town/Province) Fernando A. Rimando (632) (Contact Person) (Company Telephone Number) A A F S Month Day (Form Type) Month Day (Calendar Year) (Annual Meeting) Not Applicable (Secondary License Type, If Applicable) SEC Dept. Requiring this Doc. Articles IV and VI Amended Articles Number/Section Total Amount of Borrowings 9 P=924.7 million $302.9 million Total No. of Stockholders Domestic Foreign To be accomplished by SEC Personnel concerned File Number LCU Document ID Cashier S T A M P S Remarks: Please use BLACK ink for scanning purposes.

3 SyCip Gorres Velayo & Co Ayala Avenue 1226 Makati City Philippines Phone: (632) Fax: (632) BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015 SEC Accreditation No FR-3 (Group A), November 15, 2012, valid until November 16, 2015 INDEPENDENT AUDITORS REPORT The Stockholders and the Board of Directors Carmen Copper Corporation Report on the Financial Statements We have audited the accompanying financial statements of Carmen Copper Corporation (a wholly owned subsidiary of Atlas Consolidated Mining and Development Corporation), which comprise the statements of financial position as at December 31, 2012 and 2011, and the statements of comprehensive income, statement of changes in equity and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, and for such internal controls as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. A member firm of Ernst & Young Global Limited

4 - 2 - Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Carmen Copper Corporation as at December 31, 2012 and 2011, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Reporting Standards. Report on the Supplementary Information Required Under Revenue Regulations and Our audits were conducted for the purposes of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under revenue regulations and in Notes 26 and 27 to the financial statements, respectively, is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of the management of Carmen Copper Corporation. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO. John Nai Peng C. Ong Partner CPA Certificate No SEC Accreditation No AR-2 (Group A), March 29, 2012, valid until March 28, 2015 Tax Identification No BIR Accreditation No , April 11, 2012, valid until April 10, 2015 PTR No , January 2, 2013, Makati City March 8, 2013

5 - 1 - CARMEN COPPER CORPORATION STATEMENTS OF FINANCIAL POSITION ASSETS December 31 Current Assets Cash (Note 4) P=314,273,254 P=249,396,128 Short-term investments (Note 12) 4,740,312, ,518,576 Receivables (Note 5) 1,465,575, ,166,223 Inventories (Note 7) 824,728, ,427,216 Derivative assets (Note 6) 477,573,387 Other current assets (Note 8) 1,121,045, ,103,422 Total Current Assets 8,465,935,131 3,161,184,952 Noncurrent Assets Property, plant and equipment (Note 9) 17,959,314,317 13,836,275,673 Derivative assets (Note 6) 221,395,253 Deferred tax assets (Note 15) 49,897,609 80,073,626 Other noncurrent assets (Note 10) 1,476,822,575 1,286,123,790 Total Noncurrent Assets 19,486,034,501 15,423,868,342 TOTAL ASSETS P=27,951,969,632 P=18,585,053,294 LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued liabilities (Note 11) P=2,797,479,302 P=3,301,988,378 Dividends payable (Note 14) 1,000,000,000 Current portion of long-term debt and other interest-bearing liabilities (Note 12) 831,263,238 3,907,951,702 Derivative liabilities (Note 6) 7,589,596 18,928,870 Income tax payable (Note 15) 62, ,726 Total Current Liabilities 4,636,395,034 7,229,191,676 Noncurrent Liabilities Long-term debt and other interest-bearing liabilities - net of current portion (Note 12) 12,525,641,180 2,959,071,864 Liability for mine rehabilitation cost (Note 13) 110,513,789 94,782,472 Retirement benefits liability (Note 20) 159,379, ,302,400 Total Noncurrent Liabilities 12,795,534,569 3,156,156,736 Total Liabilities 17,431,929,603 10,385,348,412 Equity (Note 14) Capital stock - P=1 par value Authorized billion shares Issued and outstanding billion shares 1,909,820,561 1,909,820,561 Additional paid-in capital 3,748,511,439 3,748,511,439 Retained earnings 4,861,708,029 2,541,372,882 Total Equity 10,520,040,029 8,199,704,882 TOTAL LIABILITIES AND EQUITY P=27,951,969,632 P=18,585,053,294 See accompanying Notes to Financial Statements.

6 CARMEN COPPER CORPORATION STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 REVENUE (Note 6) Copper P=13,412,754,370 P=11,659,679,179 Gold 905,559, ,598,447 Silver 475,896 Magnetite 22,561,883 33,685,648 14,341,352,040 12,223,963,274 Less smelting and related charges 817,072, ,161,741 13,524,279,962 11,520,801,533 COSTS AND EXPENSES Mining and milling costs (Note 16) 8,170,093,083 7,433,820,090 General and administrative expenses (Note 17) 1,013,495, ,954,290 Mine products taxes and royalties (Note 16) 271,574, ,997,697 9,455,163,056 8,803,772,077 OTHER INCOME (CHARGES) Foreign exchange gain - net (Note 21) 385,973,358 17,696,560 Interest income (Note 4) 212,854,367 2,295,842 Finance charges (Note 12) (924,902,340) (514,758,185) Realized gain (loss) on derivatives (Note 6) (437,608,486) 428,206,916 Unrealized loss on derivatives (Note 6) (7,589,596) (208,420,940) Others - net (Note 12) 53,036,579 19,867,161 (718,236,118) (255,112,646) INCOME BEFORE INCOME TAX 3,350,880,788 2,461,916,810 PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 15) Current 369, ,554 Deferred 30,176,017 (80,073,626) 30,545,641 (79,456,072) NET INCOME 3,320,335,147 2,541,372,882 OTHER COMPREHENSIVE INCOME TOTAL COMPREHENSIVE INCOME P=3,320,335,147 P=2,541,372,882 See accompanying Notes to Financial Statements.

7 - 1 - CARMEN COPPER CORPORATION STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 Capital Stock (Note 14) Additional Paid-in Capital (Note 14) Retained Earnings (Deficit) Total Balances at January 1, 2011 P=1,909,820,561 P=4,707,508,969 (P=958,997,530) P=5,658,332,000 Equity restructuring (Note 14) (958,997,530) 958,997,530 Net income/total comprehensive income for the year 2,541,372,882 2,541,372,882 Balances at December 31, ,909,820,561 3,748,511,439 2,541,372,882 8,199,704,882 Net income/total comprehensive income for the year 3,320,335,147 3,320,335,147 Dividends declared at P=0.53 per share (Note 14) (1,000,000,000) (1,000,000,000) Balances at December 31, 2012 P=1,909,820,561 P=3,748,511,439 P=4,861,708,029 P=10,520,040,029 See accompanying Notes to Financial Statements.

8 CARMEN COPPER CORPORATION STATEMENTS OF CASH FLOWS Years Ended December 31 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=3,350,880,788 P=2,461,916,810 Adjustments for: Depreciation, depletion and amortization (Notes 9, 16 and 17) 1,702,358, ,128,786 Finance charges (Note 12) 924,902, ,758,185 Net realized loss (gain) on derivatives (Note 6) 437,608,486 (428,206,916) Retirement benefits costs (Note 20) 60,440,400 18,313,300 Provision for asset write-downs and possible losses on input VAT (Notes 9 and 10) 20,552, ,043,931 Net unrealized loss on derivatives (Note 6) 7,589, ,420,940 Net foreign exchange loss (gain) - net (385,973,358) 20,752,883 Interest income (Note 4) (212,854,367) (2,295,842) Operating income before working capital changes 5,905,505,259 3,945,832,077 Decrease (increase) in: Receivables (925,934,562) (228,892,583) Inventories 108,993,619 (385,380,612) Other current assets (656,942,082) (234,670,276) Short-term investments 7,730,110 Increase in accounts payable and accrued liabilities 158,633, ,360,388 Net cash generated from operations 4,590,255,976 3,627,979,104 Interest received 53,981,277 2,295,842 Interest paid (654,331,522) (523,514,038) Income taxes paid (629,452) (679,693) Benefits paid (Note 20) (3,363,200) (1,649,900) Net cash flows from operating activities 3,985,913,079 3,104,431,315 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property, plant and equipment (Note 9) (5,849,526,658) (3,551,588,721) Decrease (increase) in other noncurrent assets (190,698,785) 57,171,084 Net cash flows used in investing activities (6,040,225,443) (3,494,417,637) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt and other interest-bearing liabilities (Note 12) 13,951,366, ,280,602 Payments of long-term debt and other interest-bearing liabilities (Note 12) (6,546,067,744) (1,093,117,448) Short-term placements (Note 12) (4,277,084,066) Decrease in interest-free payables to related parties (Notes 11 and 19) (860,953,119) (332,759,548) Net cash flows from (used in) financing activities 2,267,261,817 (952,596,394) EFFECT OF EXCHANGE RATE CHANGES ON CASH (148,072,327) 25,020,337 NET INCREASE (DECREASE) IN CASH 64,877,126 (1,317,562,379) CASH AT BEGINNING OF PERIOD 249,396,128 1,566,958,507 CASH AT END OF PERIOD (Note 4) P=314,273,254 P=249,396,128 See accompanying Notes to Financial Statements.

9 CARMEN COPPER CORPORATION NOTES TO FINANCIAL STATEMENTS 1. Corporate Information and Authorization for the Issuance of the Financial Statements Carmen Copper Corporation (hereafter referred to as the Company ) is a stock corporation organized under the laws of the Philippines on September 16, 2004, primarily for the exploration, development and production of copper/gold in concentrate. The principal office of the Company is at Quad Alpha Centrum, 125 Pioneer St., Mandaluyong City. The minesite is located in Lutopan, Toledo, Cebu. In 2006, the Company entered into an Operating Agreement with Atlas Consolidated Mining and Development Corporation (ACMDC) for the conveyance to the Company of rights over the Toledo minesite, certain fixed assets and surface rights for a royalty fee mutually agreed by the parties. The agreement may be terminated by the Company upon 30 days prior written notice. On May 5, 2006, ACMDC entered into an Operating Agreement with the Company respecting the terms of the assignment by ACMDC to the Company of operating rights over the Toledo mining complex, and the right to acquire certain fixed assets. The agreement may be terminated by ACMDC upon 30 days prior written notice. In February 2012, the BOD approved the waiver of its entitlement to receive from the Company, pursuant to the Operating Agreement, royalties due from operations in In July 2011, the Company became a wholly owned subsidiary of ACMDC, when ACMDC purchased the combined 45.54% equity interest of CASOP Atlas Corporation and CASOP Atlas B.V. (collectively, CASOP) in the Company (see Note 14). Previously, in 2010 and 2009, ACMDC owned 54.46% and 64.94%, respectively, of the outstanding capital stock of the Company. ACMDC is listed with the Philippine Stock Exchange and is a holding company for various mining companies in the Philippines. The Company is registered with the Board of Investments (BOI) on a non-pioneer status as a new producer of copper concentrate. The Company is entitled to avail of the income tax holiday (ITH) incentive, among other incentives, for an initial period of four years from November 2007 to November The ITH incentive ( ITH Period ) was extended to October 31, 2012 by the BOI in June 2011 with the Company s use of the indigenous materials criterion. In 2012, the ITH Period was extended further to October 31, 2013 based on the Company s eligibility under the net foreign exchange earnings criterion pursuant to Art. 39 (a) (1) (ii) of EO 226, subject to the condition that the Company shall implement programs in line with its Corporate Social Responsibilities (CSR). The amount spent for CSR-based programs amounted to P=69.4 million in On March 8, 2013, the Board of Directors (BOD) approved and authorized the release of the financial statements of the Company as of and for the years ended December 31, 2012 and 2011.

10 Basis of Preparation The accompanying financial statements have been prepared on a historical cost basis except for derivative financial instruments and put option contracts, which have been measured at fair value. The financial statements are presented in Philippine Peso (Peso), which is the Company s functional currency. All amounts are rounded off to the nearest Peso, except when otherwise indicated. Statement of Compliance The accompanying financial statements have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). Changes in Accounting Policies and Disclosures The accounting policies adopted are consistent with those of the previous financial year except for the following new and amended PFRS and improvements to PFRS effective as of January 1, Except as otherwise indicated, the adoption of the following standards and amendments did not have any impact on the financial position or performance of the Company. PFRS 7, Financial Instruments: Disclosures - Transfers of Financial Assets (Amendment) The amendments require additional disclosures about financial assets that have been transferred but not derecognized to enhance the understanding of the relationship between those assets that have not been derecognized and their associated liabilities. In addition, the amendments require disclosures about continuing involvement in derecognized assets to enable users of financial statements to evaluate the nature of, and risks associated with, the entity s continuing involvement in those derecognized assets. The amendments affect disclosures only and have no impact on the Company s financial position or performance. PAS 12, Income Taxes - Deferred Tax: Recovery of Underlying Assets (Amendment) This amendment to PAS 12 clarifies the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that the carrying amount of investment property measured using the fair value model in PAS 40, Investment Property, will be recovered through sale and, accordingly, requires that any related deferred tax should be measured on a sale basis. The presumption is rebutted if the investment property is depreciable and it is held within a business model whose objective is to consume substantially all of the economic benefits in the investment property over time ( use basis), rather than through sale. Furthermore, the amendment introduces the requirement that deferred tax on non-depreciable assets measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be measured on a sale basis of the asset. The amendments are effective for periods beginning on or after January 1, Standards Issued but not yet Effective Standards issued but not yet effective up to the date of issuance of the Company s financial statements are listed below. This listing of standards and interpretations issued are those that the Company reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Company intends to adopt these standards when they become effective.

11 - 3 - PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities (Amendments) These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a. The gross amounts of those recognized financial assets and recognized financial liabilities; b. The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts presented in the statement of financial position; c. The net amounts presented in the statement of financial position; d. The amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and e. The net amount after deducting the amounts in (d) from the amounts in (c) above. The amendments to PFRS 7 are to be retrospectively applied and are effective for annual periods beginning on or after January 1, The amendments affect disclosures only and have no impact on the Company s financial position or performance. PFRS 10, Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27. This addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27. The standard becomes effective for annual periods beginning on or after January 1, PFRS 11, Joint Arrangements PFRS 11 replaces PAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities - Non-Monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities using proportionate consolidation. Instead, jointly controlled entities that meet the definition of a joint venture must be accounted for using the equity method. The standard becomes effective for annual periods beginning on or after January 1, PFRS 12, Disclosure of Interests in Other Entities PFRS 12 includes all of the disclosures related to consolidated financial statements that were previously in PAS 27, as well as all the disclosures that were previously included in PAS 31 and PAS 28, Investments in Associates. These disclosures relate to an entity s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. The standard becomes effective for annual periods beginning on or after January 1, The adoption of PFRS 12 will affect disclosures only and have no impact on the Company s financial position or performance.

12 - 4 - PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. This standard should be applied prospectively as of the beginning of the annual period in which it is initially applied. Its disclosure requirements need not be applied in comparative information provided for periods before initial application of PFRS 13. The standard becomes effective for annual periods beginning on or after January 1, PAS 1, Presentation of Financial Statements - Presentation of Items of Other Comprehensive Income (OCI) (Amendments) The amendments to PAS 1 change the grouping of items presented in OCI. Items that can be reclassified (or recycled ) to profit or loss at a future point in time (for example, upon derecognition or settlement) will be presented separately from items that will never be recycled. The amendment becomes effective for annual periods beginning on or after July 1, The amendments will be applied retrospectively and will result to the modification of the presentation of items of OCI. The amendments affect presentation only and have no impact on the Company s financial position or performance. PAS 19, Employee Benefits (Revised) Amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and rewording. The revised standard also requires new disclosures such as, among others, a sensitivity analysis for each significant actuarial assumption, information on asset-liability matching strategies, duration of the defined benefit obligation, and disaggregation of plan assets by nature and risk. The amendments become effective for annual periods beginning on or after January 1, Once effective, the Company has to apply the amendments retroactively to the earliest period presented. The Company reviewed its existing employee benefits and determined that the amended standard has significant impact on its accounting for retirement benefits. The Company obtained the services of an external actuary to compute the impact to the financial statements upon adoption of the standard. The effects are detailed below: As at 31 December 2012 As at 1 January 2012 Increase (decrease) in: Statement of financial position Retirement benefit liability 132,175,700 54,297,000 Deferred tax asset 39,652,710 16,289,100 Other comprehensive income (82,276,496) (67,953,800) Retained earnings (121,929,206) (84,242,900) 2012 Statement of comprehensive income Net benefit cost (4,397,796) Income tax expense 1,319,339 Profit for the year 3,078,457

13 - 5 - PAS 27, Separate Financial Statements (as revised in 2011) As a consequence of the issuance of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in the separate financial statements. The amendment becomes effective for annual periods beginning on or after January 1, PAS 28, Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the issuance of the new PFRS 11 and PFRS 12, PAS 28 has been renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment becomes effective for annual periods beginning on or after January 1, Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine This interpretation applies to waste removal costs ( stripping costs ) that are incurred in surface mining activity during the production phase of the mine ( production stripping costs ). If the benefit from the stripping activity will be realized in the current period, an entity is required to account for the stripping activity costs as part of the cost of inventory. When the benefit is the improved access to ore, the entity should recognize these costs as a non-current asset, only if certain criteria are met ( stripping activity asset ). The stripping activity asset is accounted for as an addition to, or as an enhancement of, an existing asset. After initial recognition, the stripping activity asset is carried at its cost or revalued amount less depreciation or amortization and less impairment losses, in the same way as the existing asset of which it is a part. The Company expects that this interpretation will not have any impact on its financial position or performance. The adoption will not have any significant impact on the financial statements since the Company s accounting policy on it stripping cost is aligned with this standard. This interpretation becomes effective for annual periods beginning on or after January 1, PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amendments) The amendments clarify the meaning of currently has a legally enforceable right to set-off and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendments to PAS 32 are to be retrospectively applied for annual periods beginning on or after January 1, The amendments affect presentation only and have no impact on the Company s financial position or performance. PFRS 9, Financial Instruments PFRS 9, as issued, reflects the first phase on the replacement of PAS 39 and applies to the classification and measurement of financial assets and liabilities as defined in PAS 39, Financial Instruments: Recognition and Measurement. Work on impairment of financial instruments and hedge accounting is still ongoing, with a view to replacing PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a business model that has the objective to hold the assets to collect the contractual cash flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding. All other debt instruments are subsequently measured at fair value through profit or loss. All equity financial assets are measured at fair value either through other comprehensive income (OCI) or profit or loss. Equity financial assets held for trading must be measured at fair value through profit or loss. For FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI.

14 - 6 - The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and measurement requirements for financial liabilities have been carried forward into PFRS 9, including the embedded derivative separation rules and the criteria for using the FVO. PFRS 9 is effective for annual periods beginning on or after January 1, The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Company s financial assets, but will potentially have no impact on the classification and measurement of financial liabilities. Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11 or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The SEC and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the final Revenue standard is issued by the International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed. Annual Improvements to PFRSs ( cycle) The Annual Improvements to PFRSs ( cycle) contain non-urgent but necessary amendments to PFRSs. The amendments are effective for annual periods beginning on or after January 1, 2013 and are applied retrospectively. Earlier application is permitted. PFRS 1, First-time Adoption of PFRS - Borrowing Costs The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing costs in accordance with its previous generally accepted accounting principles, may carry forward, without any adjustment, the amount previously capitalized in its opening statement of financial position at the date of transition. Subsequent to the adoption of PFRS, borrowing costs are recognized in accordance with PAS 23, Borrowing Costs. The amendment does not apply to the Company as it is not a first-time adopter of PFRS. PAS 1, Presentation of Financial Statements - Clarification of the requirements for comparative information The amendments clarify the requirements for comparative information that are disclosed voluntarily and those that are mandatory due to retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional comparative period does not need to contain a complete set of financial statements. On the other hand, supporting notes for the third balance sheet (mandatory when there is a retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements) are not required. The amendments affect disclosures only and have no impact on the Company s financial position or performance.

15 - 7 - PAS 16, Property, Plant and Equipment - Classification of servicing equipment The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be recognized as property, plant and equipment when they meet the definition of property, plant and equipment and should be recognized as inventory if otherwise. The amendment will not have any significant impact on the Company s financial position or performance. PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity instruments The amendment clarifies that income taxes relating to distributions to equity holders and to transaction costs of an equity transaction are accounted for in accordance with PAS 12, Income Taxes. The Company expects that this amendment will not have any impact on its financial position or performance. PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total assets and liabilities The amendment clarifies that the total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change from the amount disclosed in the entity s previous annual financial statements for that reportable segment. The amendment affects disclosures only and has no impact on the Company s financial position or performance. Cash Cash includes cash on hand and in banks. Financial Instruments Date of Recognition The Company recognizes a financial asset or a financial liability in the statement of financial position when it becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the settlement date. Initial Recognition and Classification of Financial Instruments Financial instruments are recognized initially at fair value. The initial measurement of financial instruments, except for those financial assets and liabilities at fair value through profit or loss (FVPL), includes transaction cost. On initial recognition, the Company classifies its financial assets in the following categories: financial assets at FVPL, loans and receivables, held-to-maturity (HTM) investments and available-for-sale (AFS) financial assets, as appropriate. Financial liabilities, on the other hand, are classified as financial liability at FVPL and other financial liabilities, as appropriate. The classification depends on the purpose for which the investments are acquired and whether they are quoted in an active market. Management determines the classification of its financial assets and financial liabilities at initial recognition and, where allowed and appropriate, re-evaluates such designation at each reporting date. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity net of any related income tax benefits.

16 - 8 - The Company has no AFS financial assets and HTM investments as of December 31, 2012 and Determination of Fair Value The fair value of financial instruments that are actively traded in organized financial markets is determined by reference to quoted market bid prices at the close of business on the reporting date. For investments and all other financial instruments where there is no active market, fair value is determined using generally acceptable valuation techniques. Such techniques include using arm s length market transactions; reference to the current market value of another instrument, which are substantially the same; discounted cash flow analysis and other valuation models. Day 1 Difference Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 difference) in profit or loss unless it qualifies for the recognition as some other type of asset. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognized in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the amount of Day 1 difference. Financial Assets and Financial Liabilities at FVPL Financial assets and financial liabilities are classified in this category if acquired principally for the purpose of selling or repurchasing in the near term or upon initial recognition, it is designated by management as at FVPL. Financial assets and financial liabilities at FVPL are designated by management on initial recognition as at FVPL if the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different basis; or (ii) the assets and liabilities are part of a group of financial assets, financial liabilities or both, which are managed and their performances are evaluated on a fair value basis in accordance with a documented risk management or investment strategy; or (iii) the financial instrument contains an embedded derivative that would need to be separately recorded. Derivatives, including separated embedded derivatives, are also categorized as held at FVPL, except those derivatives designated and considered as effective hedging instruments. Assets and liabilities classified under this category are carried at fair value in the statement of financial position. Changes in the fair value of such assets are accounted for in profit or loss. The Company s financial assets and liabilities at FVPL consist of derivative assets, derivative liabilities and put option contracts as of December 31, 2012 and Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivables. After initial measurement, loans and receivables are subsequently carried at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process.

17 - 9 - Loans and receivables are included in current assets if maturity is within 12 months from the reporting date. Otherwise, these are classified as noncurrent assets. As of December 31, 2012 and 2011, the Company s loans and receivables consist of Cash, Short-term investments and Receivables. Financial Liabilities at FVPL Financial liabilities at FVPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVPL. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by PAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in profit or loss. The Company s financial liabilities at FVPL pertain to the derivative liabilities in the statements of financial position in 2012 and Other Financial Liabilities Other financial liabilities are initially recorded at fair value, less directly attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognized in the Company s profit or loss when the liabilities are derecognized as well as through the amortization process. As of December 31, 2012 and 2011, other financial liabilities consist of Accounts payable and accrued liabilities, Payable to related parties and Long-term debt and other interest-bearing liabilities. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the statement of financial position. Impairment of Financial Assets The Company assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (an incurred loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the contracted parties or a group of contracted parties is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization, and where observable data indicate that there is measurable decrease in the estimated future cash flows such as changes in arrears or economic conditions that correlate with defaults.

18 Loans and Receivables The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of the loss shall be recognized in profit or loss. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. In relation to receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognized when they are assessed as uncollectible. Derecognition of Financial Assets and Financial Liabilities Financial Assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when: the rights to receive cash flows from the asset have expired; the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass through arrangement; or the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay. Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Company s continuing involvement is the amount of the transferred asset that the Company may repurchase,

19 except that in the case of a written put option (including a cash-settled option or similar provision) on asset measured at fair value, the extent of the Company s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. Financial Liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognized in profit or loss. Derivatives and Hedging Derivative financial instruments (e.g., currency and commodity derivatives such as forwards, swaps and option contracts to economically hedge exposure to fluctuations in copper prices) are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Derivatives are accounted for at FVPL, where any gains or losses arising from changes in fair value on derivatives are taken directly to net profit or loss for the year, unless the transaction is designated as effective hedging instrument. For the purpose of hedge accounting, hedges are classified as: a. fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability; or b. cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a forecast transaction; or c. hedges of a net investment in a foreign operation. A hedge of the foreign currency risk of a firm commitment is accounted for as a cash flow hedge. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument s effectiveness in offsetting the exposure to changes in the hedged item s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges which meet the strict criteria for hedge accounting are accounted for as follows: Fair Value Hedges Fair value hedges are hedges of the Company s exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the derivative is remeasured at fair value and gains and losses from both are recognized in profit or loss.