First Quantum Minerals Ltd.

Transcription

1 Consolidated Financial Statements

2 Management s Responsibility for Financial Reporting The consolidated financial statements of First Quantum Minerals Ltd. and the information contained in the annual report have been prepared by and are the responsibility of the company s management. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada and, where appropriate, reflect management s best estimates and judgements based on currently available information. Management has developed and is maintaining a system of internal controls to obtain reasonable assurance that the company s assets are safeguarded, transactions are authorized and financial information is reliable. The company s independent auditors, PricewaterhouseCoopers LLP, who are appointed by the shareholders, conduct an audit in accordance with generally accepted auditing standards in Canada. Their report outlines the scope of their examination and gives their opinion on the consolidated financial statements. The Audit Committee of the Board of Directors meets periodically with management and the independent auditors to review the scope and results of the annual audit, and to review the consolidated financial statements and related financial reporting matters prior to approval of the consolidated financial statements. G. Clive Newall Martin Rowley President Chief Financial Officer March 13, 2001

3 PricewaterhouseCoopers LLP Chartered Accountants 1111 West Hastings Street Vancouver British Columbia Canada V6E 3R2 Telephone +1 (604) Facsimile +1 (604) Auditors Report To the Shareholders of First Quantum Minerals Ltd. We have audited the consolidated balance sheets of First Quantum Minerals Ltd. as at November 30, 2000 and 1999 and the consolidated statements of earnings and deficit and cash flows for the years then ended. 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 Canadian generally accepted auditing standards. 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 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. PricewaterhouseCoopers LLP Vancouver, B.C. Chartered Accountants February 28, 2001 (except for note 22, which is as at March 13, 2001) PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and other members of the worldwide PricewaterhouseCoopers organization.

4 Consolidated Balance Sheets As at Assets Current assets Cash and cash equivalents 2,595,236 1,703,412 Accounts receivable and prepaid expenses 16,729,919 2,231,355 Inventory (note 5) 17,744,692 2,600,834 37,069,847 6,535,601 Investments (note 7) 2,160,614 2,481,661 Mineral properties and deferred exploration costs (note 8) 1,387,037 1,170,456 Fixed assets (note 9) 86,974,711 47,762,445 Deferred financing fees (note 11) 981,332 1,014, ,573,541 58,964,464 Liabilities Current liabilities Accounts payable and accrued liabilities 16,619,238 6,417,538 Current portion of provision for retrenchment benefits (note 13) 3,033,100 - Current portion of long-term debt (note 10) 22,744,585 11,236,545 42,396,923 17,654,083 Deferred revenue (note 21) 106,075 1,142,400 Future income tax liability (note 12) 1,527,016 - Provision for retrenchment benefits (note 13) 11,407,119 - Provision for removal and restoration (note 3) 9,849,980 - Long-term debt (note 10) 29,729,875 15,534,513 95,016,988 34,330,996 Minority interest (note 3) 603,493 20,957 95,620,481 34,351,953 Shareholders Equity Share capital (note 14) 42,821,156 39,939,312 Deficit (9,868,096) (15,326,801) Going concern assumption (note 1) 32,953,060 24,612, ,573,541 58,964,464 Approved by the Board of Directors Michael D. Philpot Director Robert A. Watts Director The accompanying notes are an integral part of these financial statements.

5 Consolidated Statements of Earnings and Deficit For the years ended Revenues Copper 57,535,137 15,121,472 Acid 10,451,849 12,089,600 Cobalt 8,043,938 - Gold 4,474,026 5,978,794 Toll charges 9,088,568 - Management fees (note 6) 992,974 - Other 595,788 1,086,664 91,182,280 34,276,530 Costs and expenses Cost of sales 66,163,843 19,194,064 Depletion and amortization 10,632,076 8,528,881 Exploration 315, ,913 Foreign exchange gain (70,799) (243,043) Loss on disposal (note 6) 98,051 - General and administrative 1,605,849 1,314,878 Interest and financing fees on long-term debt 5,004,755 4,670,929 Write-down of mineral properties and deferred exploration costs (note 8) - 214,233 83,749,218 34,366,855 Earnings (loss) before income taxes, minority interest and equity loss 7,433,062 (90,325) Provision for current income taxes (note 12) 35,183 9,981 Future income tax recovery (note 12) (542,733) - Minority interest (note 6) 244,435 - Equity loss (note 3) 167,723 - Net earnings (loss) for the year 7,528,454 (100,306) Deficit - Beginning of year (15,326,801) (15,226,495) Future income tax adjustment (note 12) (2,069,749) - Deficit - End of year (9,868,096) (15,326,801) Earnings (loss) per common share (note 17) Basic 0.30 (0.00) Diluted 0.27 N/A The accompanying notes are an integral part of these financial statements.

6 Consolidated Statements of Cash Flows For the years ended Cash flows from operating activities Net earnings (loss) for the year 7,528,454 (100,306) Items not affecting cash Loss on disposal 98,051 - Minority interest 244,435 - Depletion and amortization 10,632,076 8,528,881 Amortization of financing fees on long-term debt 1,310,326 1,395,292 Equity loss 167,723 - Net recognition of deferred revenue (1,036,323) (75,414) Write-down of mineral properties - 214,233 Accrued interest on deferred liability 461,155 - Future income tax recovery (542,733) - 18,863,164 9,962,686 Change in non-cash operating working capital Decrease (increase) in accounts receivable and prepaid expenses (10,603,064) 2,900,199 Decrease (increase) in inventory (7,120,753) (258,611) Increase (decrease) in accounts payable and accrued liabilities 8,259,106 (2,685,150) (9,464,711) (43,562) 9,398,453 9,919,124 Cash flows from financing activities Financing fees paid on long-term debt - (330,000) Proceeds from long-term debt 28,411,778 13,500,000 Repayments of principal on long-term debt (13,493,677) (19,923,131) Proceeds from issue of common shares and warrants 1,520,595-16,438,696 (6,753,131) Cash flows from investing activities Payments to acquire capital assets (15,465,293) (2,347,888) Purchase of Mopani interest (9,569,348) - Proceeds from sale of capital assets 102,000 - Payments for exploration on mineral properties (132,689) (5,192) Purchase of investments - (233,834) Proceeds from sale of investments 120,005 - (24,945,325) (2,586,914) Increase in cash and cash equivalents 891, ,079 Cash and cash equivalents - Beginning of year 1,703,412 1,124,333 Cash and cash equivalents - End of year 2,595,236 1,703,412 Supplemental cash flow information (note 20) The accompanying notes are an integral part of these financial statements.

7 1 Going concern assumption These consolidated financial statements have been prepared on a going concern basis, which assumes that First Quantum Minerals Ltd. (the company or FQM) will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future. These consolidated financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used, that would be necessary if the going concern assumption were not appropriate. Such adjustments could be material. The recoverability of the amounts shown in the consolidated balance sheets for mineral properties and deferred exploration costs is dependent upon confirmation of economically recoverable reserves, confirmation of the company s interest in the underlying mining claims, the political and economic stability of the African countries involved, and the company s ability to obtain the necessary financing to fulfil its obligations as they arise and to obtain the necessary financing to complete the development and profitable production of its projects. The company estimates that it will have adequate funds available from current working capital, operations, and committed financing to meet its existing corporate, administrative, debt repayment and operational obligations for the coming year. The company will be required to meet the current portion of long-term debt of 22,744,585 (note 10) during the coming year. If adequate funds are not available from the sources noted above, then the company may be required to raise additional financing or reschedule debt repayments. While the company has been successful in the past in raising debt and equity financing and restructuring its debt, there is no assurance that the company will be able to raise the necessary funding to meet its obligations. The company also has significant development commitments in respect of Mopani Copper Mines Plc. (Mopani) that fall due in the next three years which may require additional financing. 2 Changes in accounting policies Income taxes Effective December 1, 1999, the company adopted the liability method of accounting for income taxes in accordance with the recommendations of the Canadian Institute of Chartered Accountants (CICA). Under this method, future tax assets and liabilities are based upon differences between financial reporting and tax bases of assets and liabilities measured using current income tax rates. The company has adopted the new recommendations retroactively without restating prior years financial statements. The cumulative effect of adopting the liability method of accounting for income taxes at December 1, 1999 was to increase the deficit by 2,069,749 and increase future income tax liability by 2,069,749. Loss and loss per share for 1999 remain unchanged. Prior to December 1, 1999, income taxes were accounted for by the deferral method. Earnings per share Effective November 30, 2000, the company changed its method of calculating earnings per share in accordance with the recommendations of the CICA. The company has adopted the new recommendations retroactively. (1)

8 3 Significant accounting policies Accounting principles and currency These financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles and are expressed in United States (U.S.) dollars. All references to dollars () are to U.S. dollars unless otherwise noted. Cdn. refers to Canadian dollars and Aus. refers to Australian dollars. Principles of consolidation The company acquired a 49% interest in Carlisa Investment Corp. (Carlisa) in April 2000 (see note 4), which holds a 90% interest in Mopani. Mopani owns the Nkana Copper Mine and Cobalt Refinery and the Mufulira Copper Mine, Smelter and Copper Refinery. The company also holds a 100% interest in the Bwana Mkubwa Copper Mine (BMML) in Zambia, a 95% interest in the Connemara Gold Mine (Connemara) in Zimbabwe, mineral properties in Zambia, and various interests in Zimbabwe and the Democratic Republic of Congo (DRC). These consolidated financial statements include the accounts of the company, its subsidiaries, and its proportionately consolidated joint venture companies. The principal subsidiaries and joint venture companies are Mopani, BMML and Sumtech (Pvt) Limited (Sumtech). The company proportionately consolidates its 49% interest in Carlisa, which owns 90% of Mopani, effective April The company also consolidates its 95% interest in Connemara and proportionately consolidates its interest in the Dusty Mining Joint Venture Ltd. (Dusty). Estimates, risks and uncertainties The preparation of financial statements in conformity with Canadian Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly. Realization of the company s assets is subject to risks and uncertainties, including reserve estimation; future copper, cobalt, sulphuric acid and gold prices; estimated costs of future production; changes in government legislation and regulations; and various operational factors. Foreign currency translation The company s foreign currency transactions have been translated into U.S. dollars at the rate of exchange in effect during the year, and any corresponding gains and losses are included in the determination of operating results. The company s foreign operations are considered to be integrated and, accordingly, have been translated using the temporal method. Under this method, monetary items are translated at the rate of exchange in effect at the balance sheet dates, and non-monetary items are translated at historical exchange rates. Revenue and expense (2)

9 items are translated at the average rate of exchange in effect during the quarter in which they occur, except for depletion and amortization of assets, which are translated at the same exchange rates as the assets to which they relate. Gains or losses on the translation of monetary items are included in the consolidated statements of earnings (loss) and deficit. Cash and cash equivalents Cash and cash equivalents comprise cash at banks and on hand and other short-term deposits that may be settled on demand. Inventory Product inventories are valued at lower of average cost and net realizable value. Consumable stores are valued at the lower of purchase cost and replacement cost. Investments The company s investment in Anvil Mining NL (Anvil) is accounted for using equity method effective from December 1, Using the equity method, the investment is initially recorded at cost and the carrying value adjusted to reflect the company s pro rata share of earnings or losses. During the year ended November 30, 2000, the board of directors reviewed the accounting treatment of the investment in Anvil. The investment was previously carried at cost; however, management now believes that it has the ability and the intention to exercise significant influence over Anvil and the equity method is more appropriate. Significant influence is deemed to exist as two of Anvil s directors (including the chairman) are directors of FQM and the company is the single largest shareholder. The company now views the Anvil investment as its means of participating in the DRC and during the year has started to take a more active role in the activities of Anvil. The adoption of the equity method of accounting has resulted in an equity loss of 167,723 being recognized. Under the previous accounting, no equity loss would have been recognized. Mineral properties and deferred exploration costs Exploration and associated costs relating to non-specific projects/properties are expensed in the period incurred. Significant property acquisition costs and development costs relating to specific properties for which economically recoverable reserves are believed to exist are deferred until the project to which they relate is sold, abandoned or placed into production. No costs will be deferred on a mineral property that is considered to have an impairment in value. Property acquisition and mine development costs, including costs incurred during production to expand ore reserves within existing mine operations, are deferred and depleted on a units-of-production basis over proven and probable reserves. (3)

10 Management s estimate of proven and probable reserves is subject to risks and uncertainties affecting the recoverability of the company s investment in mineral properties. Although management has made its best estimate of these factors based on current conditions, it is reasonably possible that changes could occur in the near term that could adversely affect management s estimate of the recoverability of mineral properties and deferred costs and the need for asset impairment write-downs. Reviews are undertaken regularly to evaluate the carrying values of operating mines and development properties. If it is determined that the net recoverable amount is significantly less than the carrying value and the impairment in value is likely to be permanent, a write-down to the net recoverable amount is made by a charge to earnings. Fixed assets Fixed assets are recorded at cost less accumulated depletion and amortization. Costs recorded for plants under construction include all expenditures incurred in connection with the development and construction of the plants. Interest and financing costs that relate to the project and are incurred during the construction period are capitalized. No amortization is recorded until the plants are operational. The company provides for amortization on the following basis: Buildings Leasehold improvements Acid plant Drilling equipment Other plant and equipment Motor vehicles Furniture and office equipment Mineral properties Units-of-production Straight-line over the term of the lease 14% straight-line 10% straight-line Units-of-production 20% straight-line 10% - 30% straight-line/declining balance Units-of-production Deferred financing fees Costs incurred to obtain long-term debt are deferred and amortized on a basis consistent with the repayment terms of the underlying debt. Share capital Share capital issued for non-monetary consideration is recorded at an amount based on fair market value reduced by an estimate of transaction costs normally incurred when issuing shares for cash, but avoided, as determined by the board of directors of the company. Costs incurred for the issue of common shares are netted against share capital. (4)

11 Revenue recognition All metal production, with the exception of gold, is subject to long-term contracts for sale. Revenue from copper, cobalt and gold sales and tolling income is recognized upon despatch to customers. Acid revenue is recorded when a sales agreement has been entered into and the acid shipped. Transfer of the title of the copper, cobalt and gold sold varies depending on the agreements the products are sold under. Commodity hedging The company enters into derivative transactions with financial institutions only as commodity hedges and not for speculative purposes. Gains or losses as a result of hedge transactions are recognized in revenue in the same period in which the revenue from the hedged production is recorded. Gains or losses on contracts closed out early are included in deferred revenue and credited to revenues at the originally scheduled contract maturity date. The company has written call options as part of its overall strategy to manage the risk of commodity price fluctuations. The premiums received by the company are recorded as a liability and changes in the fair value of the liability are recognized currently in income. Earnings (loss) per share Earnings (loss) per share is calculated using the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated by using the treasury stock method whereby all options, warrants and equivalents are assumed to have been exercised at the beginning of the period and the proceeds from the exercise are assumed to have been used to purchase common shares at the average market price during the period. Environmental expenditures The operations of the company have been, and may in the future be, affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restoration costs. Both the likelihood of new regulations and their overall effect upon the company vary greatly from country to country and are not predictable. To date, the company has made no provision for post-closure reclamation costs at BMML and Connemara as these amounts are not readily determinable due to the lack of environmental studies undertaken that could generate a reasonable estimate of any provisions required. At Mopani, a provision for mine restoration and removal costs has been established based on an environmental impact statement compiled by Zambian Consolidated Copper Mines (ZCCM) prior to the acquisition of Mopani. Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or are capitalized and amortized, depending on their future economic benefits. (5)

12 Stock-based compensation The company has a stock option plan as described in note 15. No compensation expense is recognised when shares or stock options are issued to directors and employees. Consideration paid on exercise of the stock options is credited to share capital. 4 Acquisitions Carlisa On April 1, 2000, Carlisa was formed for the purposes of acquiring a 90% interest in Mopani. The company holds a 49% interest in Carlisa with Glencore International AG (Glencore AG) holding the remaining 51%. Carlisa acquired a 90% interest in Mopani with the remaining 10% interest being held by ZCCM. ZCCM s interest is a 5% free carried interest and a 5% repayable carried interest. On April 1, 2000, Mopani executed an Agreement for the Sale and Purchase of the Mufulira Mine, Smelter and Refinery, and the Nkana Mine, Concentrator and Cobalt Refinery Plant, with ZCCM and the Government of the Republic of Zambia. The table below presents the company s 49% proportionately consolidated share of the assets acquired: Net assets acquired at fair values Non-cash working capital 9,976,011 Capital assets 34,545,781 Provision for retrenchment (17,387,352) Provision for removal and restoration (9,849,980) 17,284,460 The purchase was financed by: Cash consideration 9,569,348 Deferred purchase payments 7,377,012 Minority interest 338,100 17,284,460 The company s interest in this acquisition was financed by a loan from Glencore Finance (Bermuda) Ltd. (Glencore Finance) (note 10) of 9,569,348. The deferred purchase payments presented above have been discounted and will require the total of 23,000,000 (the company s proportionate share of net present value is 7,377,012) to be paid in five equal instalments starting in January ZCCM, the original owner of the assets, acquired and maintained a minority interest in Mopani. ZCCM will also be provided with a copper price participation plan equal to 4,600,000 multiplied by 2% multiplied by the copper price received by Mopani over and above 0.85 per pound, payable for five years from 2003 and capped at 4,400,000. Mopani has also committed to invest 159,000,000 in the operations over the first three years. This commitment can be reduced (6)

13 by achieving certain production levels as defined in the Sale and Purchase Agreement. Mopani has committed to a further 343,000,000 of capital expenditures, subject to favourable feasibility studies and other contingent events. Cyprus Amax Zambia Ltd. During the year ended November 30, 2000, the company acquired Cyprus Amax Zambia Ltd. (Cymax) from Phelps Dodge Exploration Corporation. This acquisition has been recorded as mineral properties (note 8). Net assets acquired at fair values Mineral properties 108,892 Financed by Cash consideration 25,000 Shares (note 14) 83, ,892 5 Inventory Acid 130, ,185 Metal 1,849,331 - Metal-in-circuit 7,461, ,289 Ore-on-heaps 571,589 1,142,154 Product inventory 10,013,176 1,410,628 Consumable stores 7,731,516 1,190,206 Total inventory 17,744,692 2,600,834 (7)

14 6 Joint ventures Carlisa The company s 49% share of Carlisa has been proportionately consolidated and is summarized below: Current assets 31,604,524 Current liabilities (21,415,349) Long-term assets 47,343,244 Long-term liabilities (49,292,714) Minority interest (582,536) Net assets 7,657,169 Revenue 57,010,959 Costs and expenses 52,124,386 Net earnings before tax 4,886,573 Minority interest 244,435 Net earnings after minority interest 4,642,138 Cash from operating activities 3,799,721 Cash from financing activities 21,092,470 Cash used in investing activities (23,741,233) Commitments (see note 4) As remuneration for management services provided to Mopani by the company, Mopani will pay the company a management fee of 2% of the gross value of sales. This management fee has been accrued but is not payable until the working capital loan and the working capital standby facilities have been paid. The company has recognized in the statement of earnings and deficit an amount equal to 51% of the management fees due from Mopani. The remaining 49% has been eliminated on consolidation. (8)

15 The company consolidates its 95% interest in Connemara, which has a 50% interest in Dusty. The joint venture was formed with Dusty EarthMoving (Private) Limited to carry out earthmoving operations. The joint venture has been proportionately consolidated and is summarized below: Current assets - 469,342 Current liabilities - (272,825) Long-term assets 77, ,556 Long-term debt - (69,406) Net assets 77, ,667 Sales 1,077,901 1,917,002 Costs and expenses 1,089,196 2,060,688 Loss before tax (11,295) (143,686) Cash from operating activities 342, ,044 Cash from (used in) financing activities (809,029) (92,342) Cash used in investing activities 459,429 (49,580) During the year ended November 30, 2000, Dusty disposed of substantially all of its assets and liabilities resulting in a loss on disposal. Dusty is dormant as at November 30, Investments Anvil Mining NL Carrying value 2,160,164 2,481,661 The company holds 21,260,000 shares ( ,660,000 shares) representing a 16% ( %) interest in Anvil, a public company quoted on the Australian and Berlin Stock Exchanges. At November 30, 2000, the share price of Anvil was Aus ( Aus. 0.05) per share, which represents a market value of 484,182 ( ,134). Refer to note 3 for the accounting policy in respect of this investment. The company has granted a lien on the Anvil shares (note 10(j)). During the year ended November 30, 1999, the purchase consideration for 760,000 of these shares, which had been originally paid for by a company associated with a director, was repaid by the company. The price paid was Aus per share, which was the original cost of the shares, plus an interest component on commercial terms. (9)

16 8 Mineral properties and deferred exploration costs Kolwezi 268, ,757 Likasi 999, ,699 Cymax (note 4) 108,892 - Other 10,000-1,387,037 1,170,456 Exploration costs incurred during the years ended were as follows: Balance - Beginning of year 1,170,456 1,379,497 Acquisitions 108,892-1,279,348 1,379,497 Deferred exploration for the year Geological and geochemistry 21,775 5,192 Reporting and administration 85, ,689 5,192 Written down during the year - (214,233) Balance - End of year 1,387,037 1,170,456 Kolwezi and Likasi Projects, DRC The company has agreements to earn interests in two joint venture companies to develop the Luilu and Kingamiambo tailings dumps in the DRC. The agreements are with a state-owned mining company, La Generale des Carrieres et des Mines (Gecamines), whereby Gecamines would retain 49%. The company has agreed to finance the feasibility studies and development of the tailings projects, the costs of which are repayable from up to 85% of net income. Due to the current political situation in the DRC, the company has curtailed all development activities in that country until the political climate stabilizes. Lone Star During the year ended November 30, 1999, the company abandoned its option on the Lone Star property and has written off deferred exploration costs of 214,233. (10)

17 9 Fixed assets 2000 fixed assets schedule 2000 Cost Accumulated depletion and amortization Net Mopani Copper Mines Land and buildings 10,135, ,258 9,857,079 Plant and equipment 35,220, ,820 34,279,849 Capital work-in-progress 2,719,125-2,719,125 Motor vehicles 940, , ,291 Furniture and office equipment 74,760 9,968 64,792 49,090,611 1,354,475 47,736,136 Bwana Mkubwa Copper Mine Mineral property 12,283,942 5,472,415 6,811,527 Land and buildings 2,888,162 1,103,682 1,784,480 Plant and equipment 33,808,595 12,841,402 20,967,193 Motor vehicles 503, , ,699 Furniture and office equipment 199, ,774 56,787 49,684,038 19,949,352 29,734,686 Connemara Gold Mine (1) Mineral property 6,523,602 1,298,447 5,225,155 Land and buildings 5,349,865 1,190,963 4,158,902 Motor vehicles 92,277 15,623 76,654 Furniture and office equipment 44,698 17,310 27,388 12,010,442 2,522,343 9,488,099 Corporate Furniture and office equipment 33,147 18,286 14,861 Leasehold improvements 4,499 3, ,646 21,856 15,790 Total 110,822,737 23,848,026 86,974,711 (1) Due to the foreign exchange regime in Zimbabwe, the company placed Connemara on a care and maintenance program during the year. The company believes that the current carrying value appropriately reflects the net recoverable amount of these assets. (11)

18 1999 fixed assets schedule 1999 Cost Accumulated depletion and amortization Net Bwana Mkubwa Copper Mine Mineral property 12,283,942 2,856,585 9,427,357 Land and buildings 3,006, ,751 2,400,102 Plant and equipment 33,401,892 7,917,583 25,484,309 Motor vehicles 497, , ,238 Furniture and office equipment 194,601 98,805 95,796 49,384,328 11,747,526 37,636,802 Connemara Gold Mine Mineral property 6,523, ,172 5,663,430 Land and buildings 4,465, ,954 3,688,733 Motor vehicles 1,255, , ,653 Furniture and office equipment 46,572 13,579 32,993 12,291,786 2,187,977 10,103,809 Corporate Furniture and office equipment 30,691 10,686 20,005 Leasehold improvements 4,499 2,670 1,829 35,190 13,356 21,834 Total 61,711,304 13,948,859 47,762,445 (12)

19 10 Long-term debt Glencore AG working capital loan (a) 12,250,000 - Glencore Finance initial loan (b) 9,569,348 - Investec Bank Limited loan (c) 9,534,513 13,348,318 ZCCM facility (d) 7,838,167 - Barclays Bank of Zambia Limited (e) 4,871,430 - FMO loan (1) (f) 4,000,000 5,500,000 Investec Syndicate loan (g) 2,000,000 5,000,000 Glencore AG working capital standby loan (h) 1,421,000 - CIBCWG note payable (i) 640, ,000 Marc Rich revolving credit facility (j) 50, ,000 Standard Chartered Bank Zambia Limited loan facility (k) 50, ,000 Gerald convertible debenture (l) - 833,333 Other 250, ,407 52,474,460 26,771,058 Less: Current portion 22,744,585 11,236,545 29,729,875 15,534,513 (1) The company is currently in breach of two ratio covenants in respect of the FMO loan. The lender does not consider the breaches as being substantive and has advised that there is no intention, at the current date, to take any actions as a result of the breaches. The scheduled future minimum payments required are as follows: ,744, ,313, ,442, ,702, ,554,741 Thereafter 2,715,725 52,474,460 (13)

20 a) Glencore AG working capital loan (Mopani) By agreement dated March 31, 2000, between Mopani and Glencore AG, Glencore AG provided a 25,000,000 working capital loan facility to Mopani. The facility is provided for a period of three years, attracts an interest rate of LIBOR plus 3% and requires Mopani to grant a first ranking fixed and floating charge over all its assets. The agreement requires Mopani to pay Glencore AG, on a quarterly basis, the balance of surplus funds, as defined. No such payments were made during the year. As at November 30, 2000, FQM s portion is 12,250,000. b) Glencore Finance initial loan On March 29, 2000, in accordance with the Carlisa shareholders agreement, Glencore Finance provided the company with a 9,569,348 loan for the company s portion of the Mopani acquisition. The loan is interest free and is repayable on April 30, As consideration for the loan, Glencore Finance was granted 1,464,697 share purchase warrants (notes 14(a) and 16). c) Investec Bank Limited (Investec) loan The Investec loan bears interest at a rate of 6.5% per annum and is repayable in semi-annual payments over five years commencing on November 5, The company has pledged certain assets and rights to BMML as collateral. d) ZCCM facility Pursuant to a Sale and Purchase Agreement dated February 18, 2000, between ZCCM and Mopani, Mopani agreed to the payment of 23,000,000 in five equal annual instalments commencing on January 1, FQM s proportionate share of the net present value of the deferred purchase consideration payable is 7,838,167 (April 1, ,377,012). A rate of LIBOR plus 3% was used to calculate the net present value. e) Barclays Bank of Zambia Limited (Barclays) During the year ended November 30, 2000, an overdraft facility with Barclays in conjunction with funding requirements of Mopani was activated. The facility can be drawn down to 10,000,000. As at November 30, 2000, 9,941,694 was drawn down. The company s portion was 4,871,430. The facility is repayable on demand by the bank; however, subject to this overriding condition, the overdraft shall be available to December 15, Interest on the overdraft is charged at 1% above Barclays US base rate, which is currently 8%. f) FMO loan The FMO loan is between the company and Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden (FMO). The loan bears interest at a rate of LIBOR plus 5% and is repayable in 48 monthly instalments of 125,000 commencing on August 31, The loan is also subject to an annual facility fee of 25% of the amount of the loan outstanding on November 30 of each year and on the last principal repayment date, less interest paid during the same period. On August 16, 1999, the company (14)

21 issued 200,000 common shares to Investec Bank (Mauritius) Limited (Investec Mauritius) for a loan arrangement fee, and issued 157,800 common shares (note 14) and paid cash of 120,000 as a loan facility fee. g) Investec Syndicate loan The Investec Syndicate loan is with Investec Mauritius, ING Bank NV (ING), and Westdeutsche Landesbank Girozentrale (WestLB) (collectively, the Investec Syndicate), BMML and the company. The Investec Syndicate loan bears interest at LIBOR plus 4% and is repayable in 24 monthly instalments of 250,000 commencing on August 31, The Investec Syndicate loan is guaranteed by the company and collateralized by the investment in BMML. For facilitating the Investec Syndicate loan, the company paid cash of 210,000 and also granted share purchase warrants exercisable into 1,500,000 shares of the company at a price of Cdn per share for a five-year period. A value of 500,000 was assigned to these warrants (note 14). h) Glencore AG working capital standby loan As part of the Mopani shareholder agreement (note 10(a)), if the working capital loan is fully drawn then Glencore AG shall provide a standby facility of a 15,000,000 working capital loan. Mopani is required to grant a second ranking fixed and floating charge over all its assets. The standby facility is for a three-year period and attracts an interest rate of LIBOR plus 3%, and Mopani must repay surplus funds on a quarterly basis in a similar manner to that provided in the Glencore AG working capital loan agreement. As at November 30, 2000, FQM s proportionate share of this facility was 1,421,000. i) CIBCWG note payable During the year ended November 30, 1999, the company settled the 12,000,000 loan due to Canadian Imperial Bank of Commerce Wood Gundy (CIBCWG). The settlement involved the following: principa l repayment of 12,000,000, outstanding interest payment of 570,210, and part payment of accrued fees of 240,000; the deferral of fees of 600,000 included in accounts payable, to be repaid in monthly instalments of 50,000; the issue of 1,250,000 common shares (note 14); the restructuring of share purchase warrants (note 16); and the issue of a 640,000 zero coupon note payable, maturing on July 30, j) Marc Rich Investment Ltd. (Marc Rich) revolving credit facility Marc Rich has provided a 1,000,000 revolving credit line that bears interest at LIBOR plus 2%, payable monthly, maturing on December 31, Pursuant to the terms of the agreement, the company was required to mortgage 20,500,000 shares of Anvil (note 7) owned by the company in favour of Marc Rich. k) Standard Chartered Bank Zambia Limited loan facility BMML had a short-term loan facility of up to 540,000 for a 12-month period from July 1, The facility bore interest at LIBOR plus 3% and was repayable in 12 monthly instalments of 30,000. The residual balance of this loan was rolled forward after its original maturity date for a further six months. (15)

22 l) Gerald Metals Ltd. (Gerald) convertible debenture During the year ended November 30, 1999, the lender extended the repayment of the convertible loan. The company has paid the balance at 83,333 per month from November 9, Accrued but unpaid interest was also payable monthly at a rate of 30-day LIBOR plus 3.25%. As part of the terms of the extension, the company issued to Gerald 150,000 share purchase warrants exercisable at a price of Cdn per share on or before September 9, These warrants were valued at 65,593 (note 14). The facility bore interest at LIBOR plus 2% with interest payable monthly and principal repayable on September 9, At the lender s option, the principal was convertible to a maximum of 465,178 units of the company, each unit comprising one common share and one non-transferable share purchase warrant. 11 Deferred financing fees November 30, 2000 Opening Additions Amortization Closing Glencore AG - 1,277, , ,289 Investec Syndicate loan 591, , ,670 FMO loan 294,852-78, ,224 CIBCWG note payable 83,352-46,203 37,149 Gerald convertible debenture 44,430-44,430 - November 30, ,014,301 1,277,357 1,310, ,332 Opening Additions Amortization Closing CIBCWG senior secured loan - 1,236,139 1,236,139 - Investec Syndicate loan - 710, , ,667 FMO loan - 314,509 19, ,852 CIBCWG note payable - 83,352-83,352 Gerald convertible debenture - 65,593 21,163 44,430-2,409,593 1,395,292 1,014,301 (16)

23 12 Income taxes Effective December 1, 1999, the company adopted CICA Standard 3465, Accounting for Income Taxes. a) The income taxes shown in the consolidated statements of earnings and deficit differ from the amounts obtained by applying statutory rates to the earnings (loss) before provision for income taxes due to the following: Earnings (loss) before income taxes, minority interest and equity loss 7,433,062 (90,325) Statutory tax rate 45% 50% Income taxes at statutory rates 3,344,878 (45,138) Non-deductible differences - (83,038) Valuation allowance adjustment (1,536,269) 985,833 Difference in foreign tax rate (1,808,609) (857,657) Current tax expense 35,183 9,981 Future income tax recovery (542,733) - Net tax expense (recovery) (507,550) 9,981 b) The company has Canadian non-capital loss carryforwards of 8,106,180 that may be available for tax purposes. The losses expire as follows: Expiry date , , , ,329, ,929, ,558, ,012,536 8,106,180 c) The following table sets out changes in the future income tax liability for the current year: Adjustment to opening deficit 2,069,749 Future income tax recovery (542,733) 1,527,016 (17)

24 Subject to certain restrictions, the company has certain operating losses and exploration and development expenditures available to reduce taxable income of future years. Future tax benefits that may arise as a result of these losses and resource deductions have not been recognized in these financial statements. The company has certain non-canadian non-capital loss carryforwards which have not been recognized. 13 Provision for retrenchment benefits At the time of the acquisition of Mopani, the company acquired an obligation pursuant to the Mukoba Pension Scheme for those employees who are members of the scheme and also provided for retrenchment costs for certain employees. Full provision has been made in respect of past service with ZCCM on the basis of an actuarial valuation. The company s proportionate share of the net present value of this obligation at acquisition was 17,387,352. As at the end of the year, the company had recorded its proportionate share of this current and long-term liability. The total liability recognized is 14,440,219. (18)

25 14 Share capital Authorized 100,000,000 common shares without par value Issued Number of shares Amount Number of shares Amount Balance - Beginning of year 24,656,037 39,614,176 23,048,237 38,174,583 Exercise of stock options (note 15) 117, , Assigned value of warrants issued (a) - 1,277, ,593 Special warrants issued for cash (b) and (note 16) - 1,402, Special warrants converted to common shares (note 16) 550, Shares issued for settlement of debt (c) 395, ,136 1,250, ,491 Shares issued for arrangement fee (c) and (d) 50,000 83, , ,725 Shares issued for facility fee (c) ,800 85,784 Issued - End of year 25,768,537 42,821,156 24,656,037 39,614,176 Allotted but not issued (c) , ,136 Balance - End of year 25,768,537 42,821,156 25,051,037 39,939,312 Represented by: Common shares 39,200,378 37,595,892 Warrants 3,469,908 2,192,550 Contributed surplus 150, ,870 42,821,156 39,939,312 a) On March 31, 2000, the company issued 1,464,697 warrants at an assigned value of 1,277,357 to Glencore Finance as part of a financing agreement for the acquisition of Mopani. Each warrant is convertible into one common share of the company at an exercise price of Cdn Of these warrants, 1,000,000 expire on September 30, 2001 and 464,697 expire on March 31, During the year ended November 30, 1999, the company issued 1,500,000 share purchase warrants with an assigned value of 500,000 as a fee for facilitating the Investec Syndicate loan (note 10(g)). In addition, the company issued 150,000 share purchase warrants with an ascribed value of 65,593 to extend the Gerald convertible debenture (note 10(l)). (19)

26 b) On March 15, 2000, the company issued 550,000 special warrants for cash proceeds of Cdn per special warrant, with an assigned value of 1,402,958. Each special warrant is convertible into one common share of the company at no additional cost for a period of one year from the date of issuance of the special warrants. c) During the year ended November 30, 1999, the company agreed to issue 395,000 common shares and 35,000 cash in satisfaction of outstanding accounts payable owed by the company. At November 30, 1999, these shares were allotted but not yet issued. During the year ended November 30, 1999, the company issued 1,250,000 common shares as part of the settlement of the CIBCWG loan (note 10(i)). The company also issued 200,000 and 157,800 common shares to Investec Mauritius and FMO, respectively, as fees on new long-term debt (note 10(f)). d) During the year ended November 30, 2000, the company issued 50,000 common shares as a finder s fee for the acquisition of Cymax s assets. The shares were issued at an ascribed value of Cdn Share stock options Share stock options Number of shares Weighted average exercise price Cdn. Number of shares Weighted average exercise price Cdn. Outstanding - Beginning of year 1,995, ,460, Granted 275, , Exercised (117,500) Cancelled (60,000) 4.28 (200,000) 1.10 Lapsed - (190,910) 3.73 Outstanding - End of year 2,092, ,995, (20)

27 At November 30, 2000, the following share stock options were outstanding: Number of shares Original exercise price Cdn. New exercise price Cdn. Expiry date Director stock options 75, December 16, , February 3, , January 29, , January 29, , April 21, , April 21, , April 21, , July 21, , September 14, ,385,000 Employee stock options 17, February 3, , February 3, , February 3, , July 7, , March 3, , August 5, , July 21, , September 13, , November 12, , December 15, , August 30, , August 30, ,500 Outstanding and exercisable - End of year 2,092,500 The company has a director and employee stock option plan. Under the terms of the plan, the company may grant options to its directors and employees for up to 5,027,107 (1999-2,170,714) shares of common stock. The exercise price per share, maximum term and options granted, and the vesting period under the plan are determined by the board of directors and the regulators. On July 21, 1999, certain director and employee share stock options were repriced as shown above. The repricing of directors options is subject to shareholder approval. (21)

28 16 Share purchase and special warrants Number of shares Weighted average exercise price Cdn. Number of shares Weighted average exercise price Cdn. Outstanding - Beginning of year 2,650, ,218, Granted 2,014, ,650, Exercised (550,000) Cancelled - (4,500,000) 3.50 Lapsed - (718,766) 6.19 Outstanding - End of year 4,114, ,650, As at November 30, 2000, the following share purchase warrants were outstanding: Number of shares Exercise price Cdn. Expiry date 150, September 9, ,000, September 30, , March 31, ,500, August 11, ,000, August 13, ,114,697 During the year ended November 30, 2000, as part of the acquisition of Mopani, Glencore AG was granted 1,000,000 and 464,697 share purchase warrants, with exercise prices of 3.75 per share and expiry dates of September 30, 2001 and March 31, 2002, respectively. During the year ended November 30, 2000, the company sold 550,000 special warrants at 3.75 per special warrant. These warrants were exercised during the year ended November 30, 2000 (note 14(b)). During the year ended November 30, 1999, as part of the CIBCWG debt settlement, the company exchanged 4,500,000 share purchase warrants, with an exercise price of Cdn 3.50 per share and varying maturity dates, for 1,000,000 new warrants exercisable at Cdn 2.25 per share for a five-year period until August 13, (22)

29 17 Earnings per share In calculating the income available to common shareholders, no adjustment was required to net earnings for the year as disclosed in the consolidated statements of earnings and deficit. The following table represents the adjustments that were made to the weighted average number of shares as a result of dilutive securities: Weighted average shares outstanding 25,203,278 Effect of dilutive securities Warrants 1,324,107 Options 915,473 Adjusted weighted average for dilutive securities 27,442,858 The following warrants and options were not included in the calculation of diluted earnings per share as the average derivatives exercise price was greater than the average market price of the common shares: Exercise price Maturity date 1,000,000 warrants 3.75 September 30, ,697 warrants 3.75 March 31, ,000 options 2.95 February 3, ,000 options 3.50 January 29, ,000 options 3.50 March 3, ,000 options 4.28 April 21, 2002 Subsequent to year end, the company entered into a private placement. Reference should be made to note 22 when anticipating future earnings per share. 18 Segmented information a) The company s reportable operating segments are strategic business units that produce different products or services. Each business unit is managed separately because each requires different technology and marketing strategies. The company s four reportable operating segments are three mining operations and corporate administration. (23)

30 i) The Mopani operations comprise the Mufulira Division in Zambia, which mines, processes, smelts and refines grade A copper cathodes (MCM-LME board) directly and on a toll basis, and the Nkana Mine, which mines and processes copper and cobalt ores, directly and on a toll basis, and directly and indirectly refines the copper and cobalt ores into finished copper and cobalt products. ii) iii) iv) The Bwana Mkubwa Copper Mine in Zambia produces grade A copper cathodes from ore in tailings dumps and sulphuric acid for use in the copper segment and for sale to third parties. The Connemara Gold Mine near Gweru, Zimbabwe produces gold. The corporate administration segment is responsible for the evaluation and acquisition of new mineral properties, regulatory reporting, corporate administration, and portions of the company s financing. b) The company accounts for inter-segment sales and transfers at cost. No profit or loss is recorded on inter-segment sales. For the year ended November 30, 2000, segmented information is presented as follows: Mopani (Zambia) Bwana Mkubwa (Zambia) Connemara (Zimbabwe) Corporate administration Total Revenues from external customers 57,010,959 28,108,533 4,524,672-89,644,164 Other income 72, ,047 16,963 1,140,430 1,538,116 Inter-segment sales (cost of sales) (406,394) 406, Cost of sales 48,629,552 12,763,400 4,770,891-66,163,843 Segment gross profit 8,047,689 16,059,574 (229,256) 1,140,430 25,018,437 Depletion and amortization 1,344,422 8,326, ,151 18,551 10,632,076 General and administrative ,605,849 1,605,849 Exploration , ,443 Foreign exchange gain - (4,279) (10,038) (56,482) (70,799) Loss on disposal ,976 33,319 98,051 Interest and financing fees 860,528 1,585, ,343 2,272,255 5,004,755 Segment profit (loss) before tax 5,842,739 6,150,516 (1,511,688) (3,048,505) 7,433,062 Minority interest 244, ,435 Equity loss , ,723 Future income tax recovery - (542,733) - - (542,733) Tax - 33,145 2,038-35,183 Segment profit (loss) 5,598,304 6,660,104 (1,513,726) (3,216,228) 7,528,454 Capital asset additions 49,090, , ,617 2,456 50,011,084 Total assets 78,977,768 32,610,313 10,224,233 6,761, ,573,541 (24)