FORM 6-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of     March 2009

 

Commission File Number   001-33783

THOMPSON CREEK METALS COMPANY INC.

401 Bay Street, Suite 2010
Toronto, Ontario
M5H 2Y4
(416) 860-1438

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F   o      Form 40-F   x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): __

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): __

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

 

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date:   March 19, 2009

THOMPSON CREEK METALS COMPANY INC.     /s/ Lorna D. MacGillivray                                  Lorna D. MacGillivray Assistant Secretary

EXHIBIT INDEX

EXHIBIT NUMBER

DESCRIPTION

99.1

Press Release dated March 19, 2009

99.2

Consolidated Financial Statements for the Years Ended December 31, 2008 and 2007

99.3

Management's Discussion and Analysis for the Years Ended December 31, 2008 and 2007

 

 

2

 

news release

401 Bay Street, Suite 2010,

Toronto, Ontario

 

 

 

March 19, 2009

 

THOMPSON CREEK ANNOUNCES 2008 FINANCIAL RESULTS

 

•

Record production of 26 million pounds Mo

•

Record revenues of $1.01 billion

•

Record cash flow from operations of $417.6 million

•

Record earning before special non-cash charges of $276.3 million

 

Overview (all in U.S. dollars):

•

Mining operations continued to perform well in the fourth quarter of 2008 with total molybdenum production rising 20% to 7.8 million pounds from 6.5 million pounds in the third quarter. Production in all of 2008 was a record 26 million pounds, up 59% from 16.4 million pounds in 2007.

•

Cash flow generated by operating activities totaled $181.0 million in the fourth quarter, up 64% from $110.3 million in the third quarter. In 2008, cash flow generated by operating activities was a record $417.6 million, up 129% from $182.6 million in 2007.

•

Debt was reduced during the year to $17.3 million on December 31, 2008 from $237.4 million a year earlier, while cash balances grew to $258 million on December 31, 2008 from $113.7 million a year earlier. Cash balances as of February 28, 2009 totaled $255 million.

•

Due to the weak global economic conditions and the sharp decline in molybdenum prices, fourth-quarter 2008 earnings were negatively affected by a partial write-down of goodwill assets and other special non-cash charges amounting to $93.1 million, which was equivalent to $0.76 per common and diluted share in the quarter. Fourth-

 

---

 

quarter net income before these special non-cash adjustments was $68.5 million or $0.56 per basic and diluted common share. However, the deduction of the special non-cash items resulted in a quarterly net loss of $24.6 million or $0.20 per basic and diluted common share, compared with net income in the 2008 third quarter of $100.6 million or $0.80 per basic and $0.74 per diluted common share.

•

In 2008, net income before special non-cash charges totaled a record $276.3 million or $2.31 per basic and $2.10 per diluted common share. After deduction of special non-cash charges, 2008 net income was $183.2 million or $1.53 per basic and $1.39 per diluted common share. In 2007, net income was $157.3 million or $1.43 per basic and $1.24 per diluted common share.

•

Average realized price on molybdenum sales was $21.72 per pound in the fourth quarter, down from $32.85 in the third quarter. For 2008, the average realized price was $30.04, up from $28.77 in 2007. The market price for molybdenum as of March 18, 2009 was in the range of $8.40 to $8.80 per pound.

•

In response to the decline in molybdenum prices, the Company had previously announced a revision of 2009 operating and capital expenditure plans aimed at conserving cash. The plans were based on expectations that molybdenum sales and production from the Company’s own mines will be between 20 and 24 million this year. Capital expenditures were reduced to approximately $60 million in 2009.

•

As a result of the revised plans, the Company now estimates that its molybdenum production cash costs will range between $7.25 and $8.25 per pound produced in 2009. Cash costs in 2008 averaged $6.01 per pound produced in the fourth quarter and $7.54 per pound produced during the full year.

 

Note: A conference call and webcast for analysts and investors is scheduled for Friday, March 20, 2009 at 8:30 a.m. Eastern.

 

Thompson Creek Metals Company Inc. (“the Company”), one of the world’s largest publicly traded, pure molybdenum producers, today announced financial results for the three and twelve months ended December 31, 2008 prepared in accordance with Canadian generally accepted accounting principles. All dollar amounts are in U.S. dollars unless otherwise indicated.

 

“Thompson Creek achieved strong operating performance in 2008 with total molybdenum production and sales volume exceeding guidance given earlier in the year,” said Kevin Loughrey, Chairman and Chief Executive Officer.

 

“Cash flow generated by operating activities rose by 129% to a record $417.6 million in 2008, which contributed to the Company’s success in paying off bank debt and building substantial cash balances of $258 million by year-end.

 

“As a result of last year’s strong financial performance and our recent actions to conserve cash, Thompson Creek is well positioned to continue operating its mines during the economic downturn and to consider possible acquisitions that will benefit shareholders.”

 

For 2009, in order to conserve cash in a period of lower prices and reduced demand for molybdenum, the Company, as previously announced, has reduced planned production to

 

 

2

 

---

 

match the expected level of molybdenum sales for the year and has significantly reduced capital expenditures. The Company is planning to produce 20 to 24 million pounds of molybdenum from its own mines this year at an average cash cost ranging between $7.25 and $8.25 per pound. Capital expenditures are expected to be $60 million.

 

“Our molybdenum sales have kept pace with production so far in the first quarter of 2009 and this suggests that we are on the right track operationally at this time, but we intend to remain flexible and ready to adjust our production higher or lower if there are substantial changes in market conditions in the future,” Mr. Loughrey stated.

 

“While the short-term market outlook is uncertain and dependent to a large degree on how long our traditional steel customers will continue with inventory destocking and low production, we expect molybdenum demand to improve and prices to strengthen in the medium-term future as the world economy recovers from recession.”

 

Fourth-Quarter Financial Results

 

The Company’s revenues were $181.6 million in the fourth quarter, compared with $331.1 million in the third quarter of 2008, and $197.8 million in the fourth quarter of 2007. The reduction in revenues from the third quarter of 2008 was due to a decrease in the average realized price to $21.72 per pound from $32.85 per pound and in total sales volume to 8.1 million pounds from 9.9 million pounds. Sales of molybdenum from the Company’s own mines were 6.6 million pounds in the fourth quarter, down from 6.9 million pounds in the third quarter, while sales of third-party molybdenum purchased, processed and resold were reduced to 1.6 million pounds in the fourth quarter from 3 million pounds in the third quarter.

 

The year-over-year decline in revenues reflected a decrease in the average realized price, offset to a large degree by generally higher production volumes and sales from the company’s mines in 2008 compared with 2007. Total sales in the fourth quarter of 2007 were 6.2 million pounds, comprised of sales from the Company’s own mines of 3.2 million pounds and sales of third-party molybdenum of 3.1 million pounds. The average realized sale price for molybdenum products in the fourth quarter of 2007 was $31.08 per pound.

 

After the deduction of operating, selling, marketing, depreciation, depletion and accretion costs, the Company generated income from mining and processing operations totaling $88.5 million the fourth quarter, down from $159 million in the third quarter of 2008 but up from $47.9 million in the fourth quarter of 2007.

 

Net income before special non-cash charges in the fourth quarter of 2008 was $68.5 million or $0.56 per basic and diluted common share. After deduction of special non-cash charges, the Company recorded a net loss in the fourth quarter of 2008 of $24.6 million or $0.20 per basic and diluted common share, compared with net income of $100.6 million or $0.80 per basic and $0.74 per diluted common share in the third quarter of 2008 and $28.8 million or $0.25 per basic and $0.22 per diluted share in the fourth quarter of 2007.

 

Special non-cash charges in the fourth quarter totaled $93.1 million or $0.76 per basic and diluted common share, comprising the write-down of goodwill assets of $68.2 million, a

 

 

3

 

---

 

change in tax valuation allowances of $23.1 million (related to the realization of tax assets for alternative minimum tax and stock compensation) and an after-tax valuation allowance against the carrying value of finished goods inventories of $1.8 million.

 

The per-share figures are based on a weighted-average number of shares outstanding of 122.6 million (basic) and 122.7 million (diluted) in the fourth quarter of 2008, compared with 125.0 million (basic) and 136.8 million (diluted) in the third quarter of 2008 and 113.3 million (basic) and 131.0 million (diluted) in the fourth quarter of 2007. At March 19, 2009, there were 122.3 million common shares, 24.5 million warrants and 8.9 million employee options outstanding.

 

Cash flow from operating activities was $181.0 million in the fourth quarter, compared with $110.3 million in the third quarter of 2008 and $45.7 million in the fourth quarter of 2007.

 

Cash balances were $258 million at December 31, 2008, compared with $151.7 million at September 30, 2008 and $113.7 million at December 31, 2007. Cash balances as of February 28, 2009 were $255 million.

 

The Company’s total debt on December 31, 2008 was $17.3 million in equipment loans.

 

The Company’s mines produced 7.8 million pounds of molybdenum in the fourth quarter, up from 6.5 million pounds in the third quarter of 2008 and 3.4 million pounds in the fourth quarter of 2007. The Thompson Creek Mine produced 4.8 million pounds in the fourth quarter, up from 4.3 million pounds in the third quarter and 2.0 million pounds in the fourth quarter of 2007. The Company’s 75% share of the Endako Mine’s production was 3.0 million in the fourth quarter, compared with 2.2 million pounds in the third quarter and 1.5 million pounds in the fourth quarter of 2007.

 

The production amounts reflect molybdenum produced at the Thompson Creek and Endako mines but do not include molybdenum purchased from third parties, roasted and sold by the Company.

 

The weighted-average cash costs were $6.01 per pound produced in the fourth quarter of 2008, compared with $7.33 per pound produced in the third quarter of 2008 and $13.58 per pound produced in the fourth quarter of 2007. The decline was primarily due to increased production as a result of higher ore grades, recoveries and throughput at the Company’s mines. The cash costs include production costs for the mining, milling, roasting and packaging of molybdenum oxide and high-performance molybdenum disulfide (HPM) and deferred stripping costs (mining costs related to future planned production phases). At the Thompson Creek Mine, cash costs in the fourth quarter were $6.30 per pound produced (including deferred stripping costs of $1.64 per pound produced), compared with $7.38 per pound produced (including deferred stripping costs of $1.79 per pound produced) in the third quarter of 2008 and $14.48 per pound produced (including deferred stripping costs of $4.57 per pound produced) in the fourth quarter of 2007. The Endako Mine’s cash costs per pound produced were $5.54 per pound produced in the fourth quarter, compared with $7.23 per pound produced in the third quarter of 2008 and $12.39 per pound produced in the fourth quarter of 2007. There were no deferred stripping costs at Endako.

 

 

4

 

---

 

 

2008 Financial Results

 

Thompson Creek’s revenues were a record $1.01 billion in 2008, up 11% from $914.4 million a year earlier. The revenue gain reflected higher molybdenum sales volume and higher average realized sales prices in 2008. Total molybdenum sales rose to 33 million pounds from 31 million pounds. Molybdenum sold from the Company’s mines in 2008 increased to 22.3 million pounds from 19.5 million pounds sold in 2007, while sales of third-party molybdenum purchased, processed and resold declined to 10.7 million pounds in 2008 from 11.5 million pounds a year earlier. The average realized sales price was $30.04 per pound in 2008, compared with $28.77 per pound in 2007.

 

After the deduction of operating, selling, marketing, depreciation, depletion and accretion costs, the Company generated income from mining and processing operations totaling $430.2 million in 2008, up 43% from $301.0 million a year earlier.

 

Net income before special non-cash charges in 2008 was $276.3 million or $2.31 per basic and $2.10 per diluted common share. After deduction of $93.1 million in special non-cash charges, the Company recorded net income of $183.2 million or $1.53 per basic and $1.39 per diluted common share in 2008, compared with net income of $157.3 million or $1.43 per basic and $1.24 per diluted common share in 2007.

 

The per-share figures are based on a weighted-average number of shares outstanding of 119.5 million (basic) and 131.7 million (diluted) in 2008 versus 110.2 million (basic) and 126.6 million (diluted) in 2007.

 

Net income and earnings from mining and processing operations in 2007 were negatively affected by the inclusion in operating expenses of a non-cash acquisition expense related to the inventory portion of the purchase price adjustment associated with the Company’s purchase of Thompson Creek Metals Company USA in October 2006. This non-cash expense amounted to $29.6 million in the first quarter of 2007.

 

Cash flow from operating activities was $417.6 million in 2008, compared with $182.6 million a year earlier. The increase in cash flow from operations was mainly due to the higher revenues and net income before special non-cash charges, together with working capital adjustments related to the collection of accounts receivable and the drawdown of product inventory.

 

Capital expenditures totaled $114 million in 2008, comprised of $71 million of sustaining capital expenditures at the operating sites and $43 million of capital expenditures for the 75% share of the mill expansion at the Endako Mine. In 2007, capital expenditures were $14.6 million.

 

The Company’s mines produced 26 million pounds of molybdenum in 2008, up from 16.4 million pounds a year earlier. The Thompson Creek Mine produced 16.8 million pounds in the latest year, up from 9.3 million pounds in 2007, while the Company’s 75% share of Endako Mine’s production rose to 9.3 million pounds from 7.1 million pounds a year earlier.

 

 

5

 

---

 

 

The weighted-average cash costs were $7.54 per pound produced in 2008, compared with $10.03 per pound produced in 2007. The decline was primarily due to increased production as a result of higher ore grades, recoveries and throughput at the Company’s mines. The cash costs include production costs for the mining, milling, roasting and packaging of molybdenum oxide and HPM and deferred stripping costs (mining costs related to future planned production phases). At the Thompson Creek Mine, cash costs in 2008 were $7.75 per pound produced (including deferred stripping costs of $1.71 per pound produced), compared with $10.91 per pound produced (including deferred stripping costs of $3.69 per pound produced) in 2007. The Endako Mine’s cash costs per pound produced were $7.15 per pound produced in 2008, compared with $8.89 per pound produced in the fourth quarter of 2007. There were no deferred stripping costs at Endako.

 

On December 31, 2008, the Company had working capital of $356.3 million, including $258 million of cash balances, $55.0 million of receivables, no borrowings under its $35 million line of credit facility and $5.6 million as the current portion of equipment loans.

 

Outlook

 

Thompson Creek believes the long-term outlook for its business and the molybdenum market is positive. However, in order to conserve cash during the current economic uncertainty, the Company’s 2009 plans have been modified to reduce molybdenum production, cost profile and capital expenditures. The Company believes that these actions will ensure that adequate working capital levels are maintained.

 

The Company has reduced its planned level of molybdenum production for 2009 to match its expectations of sales volumes. As previously announced, the Company expects molybdenum production to be in the range of 20 to 24 million pounds this year, down from previous guidance of 31.5 to 34 million pounds. Production at the Thompson Creek Mine is expected to be 15 to 17 million pounds (down from previous guidance of 24.5 to 26 million pounds) and the Company’s 75% share of the Endako Mine production is forecast at 5 to 7 million pounds (down from previous guidance of 7 to 8 million pounds). The planned production reductions include a reduction in mill operation at the Thompson Creek Mine to 70% capacity (10 days on, four days off schedule), which began in March, a reduction in the Endako Mine production capacity to 80% and a temporary summer suspension of operations for approximately one month at both the Thompson Creek and Endako mines.

 

For 2009, total capital expenditures at the Company’s operating sites are expected to be approximately $60 million, including estimated sustaining capital spending at both mines and the Langeloth Metallurgical Facility totaling $38 million and the Company’s 75% share of the estimated mill expansion at the Endako Mine totaling $22 million. The Company previously had planned capital expenditures of approximately $300 million for 2009, including $149 million for its share of the mill expansion at the Endako Mine, $50 million for the Davidson Project and $101 million for sustaining capital expenditures at the operating sites. The Endako expansion project has been suspended until economic conditions improve. While the Company has also decided to delay the development decision for the Davidson Project, it is proceeding with environmental permitting.

 

 

 

6

 

---

 

 

The Company estimates that its 2009 cash costs will be $7.25 to $8.25 per pound of molybdenum produced. The cash costs include production costs for the mining, milling, roasting and packaging of molybdenum oxide and HPM and deferred stripping costs (mining costs related to future planned production phases). The Thompson Creek Mine’s cash costs are expected to be in the range of $7 to $8 per pound and include approximately $40 million (equivalent to $2.30 to $2.60 per pound produced) of stripping costs related to future planned production phases. The Company’s previous 2009 cash cost guidance, which excluded such stripping costs, was $5 to $6 per pound produced at the Thompson Creek Mine. At the Endako Mine, cash costs are estimated at $8 to $9 per pound produced, which is unchanged from previous guidance and assumes a US$/C$ exchange rate of 1.20 (also unchanged from previous guidance). The revised 2009 Endako Mine operating plan does not anticipate any stripping costs.

 

For 2009, the Company’s sales of molybdenum produced from its own mines are expected to be 20 to 24 million pounds. In addition, sales of molybdenum purchased, processed and resold for 2009 are expected to be 3 to 4 million pounds.

 

Operating cash flows for 2009, together with existing cash balances, a $35 million revolving credit facility and possible equipment financings, are expected to provide sufficient working capital for the Company to meet is anticipated cash requirements including capital spending, deferred stripping and working capital requirements. Based on current production plans, operating cash flows will be impacted by $20 to $24 million for every $1 per pound change in the average molybdenum price for 2009. The Company is positioned to react quickly to further changes in the molybdenum market in order to ensure adequate working capital levels are maintained.

 

During 2007, mineral reserves were recalculated and increased at both operating mines using a long-term price of $10 per pound for molybdenum sales and updated costs. Other than 2008 production, there have been no further changes to reserves as of December 31, 2008. Analysis of 2008 development drilling activities will continue at both mines during 2009 to complete the update to the mineral reserve and resource estimates. Given the current economic environment, there are no planned drilling activities at either mine in 2009.

 

Expenditures under an earn-in agreement on the Mount Emmons underground molybdenum project in Colorado are expected to be $5 to $7 million during 2009.

 

Additional information on the Company’s financial position is available in Thompson Creek’s Financial Statements and Management’s Discussion and Analysis for the period ended December 31, 2008, which will be filed with SEDAR (www.sedar.com) and posted on the Company’s website (www.thompsoncreekmetals.com).

 

 

 

 

 

 

7

 

---

 

 

Conference call and webcast

 

Thompson Creek will hold a conference call for analysts and investors to discuss its 2008 financial results on Friday, March 20, 2009 at 8:30 a.m. (Eastern).

 

Kevin Loughrey, Chairman and Chief Executive Officer, and Pamela Saxton, Chief Financial Officer, will be available to answer questions during the call.

 

To participate in the call, please dial 416-644-3415 or 1-800-732-9307 about five minutes prior to the start of the call.

 

A live audio webcast of the conference call will be available at www.newswire.ca and www.thompsoncreekmetals.com.

 

An archived recording of the call will be available at 416-640-1917 or 1-877-289-8525 (Passcode 21296593 followed by the number sign) from 10:30 a.m. on March 20 to 11:59 p.m. on March 27. An archived recording of the webcast will also be available at Thompson Creek’s website.

 

About Thompson Creek Metals Company Inc.

 

Thompson Creek Metals Company Inc. is one of the largest publicly traded, pure molybdenum producers in the world. The Company owns the Thompson Creek open-pit molybdenum mine and mill in Idaho, a metallurgical roasting facility in Langeloth, Pennsylvania and a 75% share of the Endako open-pit mine, mill and roasting facility in northern British Columbia. Thompson Creek has two high-grade underground molybdenum deposits, the Davidson Deposit near Smithers, B.C., and the Mount Emmons Deposit near Crested Butte, Colorado. The Company is continuing to pursue permitting of the Davidson Project and is evaluating the Mount Emmons Deposit. The Company has approximately 800 employees. Its principal executive office is in Denver, Colorado, and it has other executive offices in Toronto, Ontario and Vancouver, British Columbia. More information is available at www.thompsoncreekmetals.com.

 

Cautionary Note Regarding Forward-Looking Statements

 

This news release contains “forward-looking information” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation which may include, but is not limited to, statements with respect to the timing and amount of estimated future production. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Thompson Creek

 

 

8

 

---

 

and/or its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include those factors discussed in the section entitled “Risk Factors” in Thompson Creek’s current annual information form which is available on SEDAR at www.sedar.com and is incorporated in its Annual Report on Form 40-F filed with the United States Securities and Exchange Commission which is available at www.sec.gov. Although Thompson Creek has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as of the date of this news release and Thompson Creek does not undertake to update any such forward-looking statements, except in accordance with applicable securities laws. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements.

 

Readers should refer to Thompson Creek’s current annual information form which is available on SEDAR at www.sedar.com and is incorporated in its Annual Report on Form 40-F filed with the SEC which is available at www.sec.gov and subsequent continuous disclosure documents available at www.sedar.com and www.sec.gov for further information on mineral reserves and mineral resources, which is subject to the qualifications and notes set forth therein.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

---

 

 

Consolidated Balance Sheets

December 31,

(US dollars in millions)

 

 

		2008			2007
Assets
Current assets
Cash and cash equivalents	$	258.0		$	113.7
Accounts receivable		55.0			84.1
Product inventory		57.1			131.3
Material and supplies inventory		36.2			32.9
Prepaid expense and other current assets		6.3			4.6
Income and mining taxes recoverable		1.4			13.4
		414.0			380.0
Other assets		3.0			2.4
Restricted cash		14.2			10.0
Reclamation deposits		26.9			26.8
Property, plant and equipment		594.1			566.8
Goodwill		47.0			123.7
	$	1,099.2		$	1,109.7
Liabilities
Current liabilities
Accounts payable and accrued liabilities	$	36.5		$	60.4
Acquisition cost payable		–			100.0
Income and mining taxes payable		7.5			–
Current portion of long-term debt		5.6			67.2
Future income and mining taxes		8.1			6.4
		57.7			234.0
Long-term debt		11.7			170.2
Other liabilities		21.8			30.0
Asset retirement obligations		23.3			26.4
Future income and mining taxes		167.2			161.5
		281.7			622.1
Shareholders’ Equity
Common shares		484.1			268.1
Common share warrants		35.0			35.0
Contributed surplus		40.4			26.5
Retained earnings		304.3			129.8
Accumulated other comprehensive (loss) income		(46.3)			28.2
		817.5			487.6
	$	1,099.2		$	1,109.7

 

 

 

 

 

 

 

10

 

---

 

 

Consolidated Statements of Income

Years Ended December, 31

(US dollars in millions)

 

 

 

		2008			2007
Revenues
Molybdenum sales	$	992.2		$	891.1
Tolling and calcining		19.2			23.3
		1,011.4			914.4
Cost of sales
Operating expenses		524.2			554.5
Selling and marketing		10.1			9.0
Depreciation, depletion and amortization		45.2			48.2
Accretion		1.7			1.7
		581.2			613.4
Income from mining and processing		430.2			301.0
Other (income) expenses
Goodwill impairment		68.2			–
General and administrative		24.4			15.9
Stock-based compensation		15.6			16.3
Exploration and development		7.9			4.6
(Gain) loss on foreign exchange		(24.0)			4.3
Interest and finance fees		15.1			42.4
Interest income		(2.4)			(7.8)
Other		2.1			(3.0)
		106.9			72.7
Income before income and mining taxes		323.3			228.3
Income and mining taxes
Current		112.7			103.1
Future		27.4			(32.1)
		140.1			71.0
Net income	$	183.2		$	157.3
Net income per share
Basic	$	1.53		$	1.43
Diluted	$	1.39		$	1.24

 

 

 

11

 

---

 

 

Consolidated Statements of Cash Flows

Years ended December 31,

(US dollars in millions)

 

 

 

		2008			2007
Operating Activities
Net income	$	183.2		$	157.3
Items not affecting cash:
Goodwill impairment		68.2			–
Depreciation, depletion and amortization		45.2			48.2
Accretion		1.7			1.7
Accretion of finance fees		5.4			7.8
Stock-based compensation		15.6			16.3
Future income and mining taxes (recoverable)		27.4			(32.1)
Unrealized (gain) loss on derivative instruments		(13.1)			4.8
Gain on sales contracts		(2.3)			–
Change in non-cash working capital		86.3			(21.5)
Cash generated by operating activities		417.6			182.6
Investing Activities
Property, plant and equipment		(101.3)			(14.6)
Deferred stripping costs		(28.6)			(34.2)
Acquisition cost		(100.0)			–
Restricted cash		(4.2)			(1.6)
Reclamation deposit		(1.0)			(2.8)
Cash used in investing activities		(235.1)			(53.2)
Financing Activities
Proceeds from issuance of common shares, net of issue costs		223.9			50.8
Repurchase of common shares		(19.2)			–
Repayment of long-term debt		(262.1)			(168.2)
Proceeds from issuance of long-term debt		36.5			–
Cash used in financing activities		(20.9)			(117.4)
Effect of exchange rate changes on cash		(17.3)			3.7
Increase in cash and cash equivalents		144.3			15.6
Cash and cash equivalents, beginning of year		113.7			98.1
Cash and cash equivalents, end of year	$	258.0		$	113.7

 

 

 

12

 

 

---

 

For more information, please contact:   Wayne Cheveldayoff Director of Investor Relations Thompson Creek Metals Company Inc. Tel: 416-860-1438 Toll free: 1-800-827-0992 wcheveldayoff@tcrk.com

Dan Symons Renmark Financial Communications Inc. Tel.:514-939-3989 dsymons@renmarkfinancial.com

 

 

 

 

13

 

Management’s Responsibility for Financial Reporting

 

The accompanying consolidated financial statements of Thompson Creek Metals Company Inc. have been prepared by management and are in accordance with Canadian generally accepted accounting principles. Other information contained in this document has also been prepared by management and is consistent with the data contained in the consolidated financial statements. Certain comparative amounts have been reclassified to conform to the presentation adopted for 2008.

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting.

 

The Board of Directors oversees management’s responsibility for financial reporting and internal control systems. The Board’s review is accomplished principally through the Audit Committee, which is comprised of non-executive directors. The Audit Committee meets periodically with management and the independent auditors to review the scope and results of that annual audit and to review the financial statements and the related internal control matters before the financial statements are approved by the Board of Directors and submitted to the shareholders.

 

The consolidated financial statements have been audited by PricewaterhouseCoopers LLP on behalf of the shareholders and their report follows.

 

Management’s Report on Internal Control over Financial Reporting

 

The Corporation’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, are responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision of management, the Corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”). The Corporation’s internal control over financial reporting includes policies and procedures that:

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

As required by Section 404 of the Sarbanes Oxley Act of 2002 and National Instrument 52-109, management has conducted an evaluation of the Corporation’s internal control over financial reporting. The evaluation is based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Corporation's annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weakness in the Corporation’s internal control over financial reporting.

 

As at December 31, 2008 the Corporation did not maintain effective control over the period end financial reporting process. Specifically, the Corporation did not perform a timely and rigorous review over the application of complex GAAP in both the US GAAP reconciliation and goodwill impairment processes. This control deficiency resulted in a material audit adjustment to goodwill and related disclosures in the

 

Corporation’s consolidated financial statements for the year ended December 31, 2008. Unless remediated, this control deficiency could result in a material misstatement to goodwill and the US GAAP reconciliation note disclosure that would result in a material misstatement of the Corporation’s consolidated financial statements that would not be prevented or detected.

 

Because of the material weakness, management has concluded that the Corporation's internal control over financial reporting was not effective as at December 31, 2008.

 

The effectiveness of our internal controls over financial reporting as at December 31, 2008 has been audited by PricewaterhouseCoopers LLP, our independent auditors, who have expressed their opinion in their report included with our annual consolidated financial statements.

 

 

 

 

 

 

March 19, 2009

Independent Auditors’ Report

 

To the Shareholders of Thompson Creek Metals Company Inc.,

 

We have completed an integrated audit of Thompson Creek Metals Company Inc.’s 2008 consolidated financial statements and of its internal control over financial reporting as at December 31, 2008 and an audit of its 2007 consolidated financial statements. Our opinions, based on our audits, are presented below.

Consolidated financial statements

We have audited the accompanying consolidated balance sheets of Thompson Creek Metals Company Inc. as at December 31, 2008 and December 31, 2007, and the related consolidated statements of income, shareholder’s equity, comprehensive income, and cash flows for each of 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 audit of the Company’s financial statements as at December 31, 2008 and for the year then ended in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). We conducted our audit of the Company’s financial statements as at December 31, 2007 and for the year then ended in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. A financial statement audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at December 31, 2008 and December 31, 2007 and the results of its operations and its cash flows for each of the years then ended in accordance with Canadian generally accepted accounting principles.

Internal control over financial reporting

We have also audited Thompson Creek Metals Company Inc.’s internal control over financial reporting as at December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial

 

reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

As required by Section 404 of the Sarbanes Oxley Act of 2002 and National Instrument 52-109, management has conducted an evaluation of the Corporation’s internal control over financial reporting. The evaluation is based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual financial statements will not be prevented or detected on a timely basis. As at December 31, 2008 a material weakness in the period end financial reporting process was identified, specifically in the application of complex GAAP in both the US GAAP reconciliation and goodwill impairment processes, as described in the accompanying Management’s Report on Internal Control over Financial Reporting

 

We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2008 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

 

In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as at December 31, 2008 based on criteria established in Internal Control – Integrated Framework issued by the COSO.

 

 

(signed) PricewaterhouseCoopers LLP

 

Chartered Accountants

Vancouver, British Columbia

March 19, 2009

 

 

 

Consolidated Balance Sheets

December 31,

(US dollars in millions)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

- 5 -

 

 

Consolidated Statements of Income

Years Ended December, 31

(US dollars in millions)

 

 

Consolidated Statements of Comprehensive Income

Years ended December 31,

(US dollars in thousands)

 

 

 

 

Consolidated Statements of Cash Flows

Years ended December 31,

(US dollars in millions)

 

 

 

 

Consolidated Statements of Shareholders’ Equity

Years ended December 31,

(US dollars in millions)

 

 

 

 

Thompson Creek Metals Company Inc. is a Canadian molybdenum mining corporation with vertically integrated mining, milling, processing and marketing operations in Canada and the United States (“US”). The US operations include the Thompson Creek Mine (mine and mill) in Idaho, the Langeloth Metallurgical Roasting Facility in Pennsylvania, as well as all roasting and sales of third party purchased material. The Canadian operations consist of a 75% joint venture interest in the Endako Molybdenum Mine Joint Venture (“Endako Mine”) (mine, mill and roaster) in British Columbia. In addition, the Corporation has two high-grade underground molybdenum development projects, the 100% owned Davidson molybdenum property (“Davidson Project”), located in British Columbia, and an option to acquire up to 75% of the Mount Emmons molybdenum property, located in Colorado.

The accompanying consolidated financial statements have been prepared according to Canadian generally accepted accounting principles (“Canadian GAAP”). All financial figures are presented in US dollars unless otherwise stated. Material measurement differences between Canadian GAAP and generally accepted accounting principles in the United States (“US GAAP”) are described in Note 25.

The consolidated financial statements include the accounts of the Corporation and its subsidiaries. The principal subsidiaries of the Corporation are:

 

These consolidated financial statements also include the Corporation’s pro rata share of its 75% joint venture interest in the Endako Mine.

All intercompany accounts and transactions have been eliminated on consolidation.

The measurement currency of the Corporation and its US operations is the US dollar. Monetary assets and liabilities denominated in foreign currencies are translated into US dollars at exchange rates in effect at the balance sheet date with resulting gains or losses being reported in other income or expense in the computation of net income. Other non-monetary assets and liabilities are translated at historic rates. Revenues, expenses and cash flows completed in foreign currencies are translated into US dollars at average exchange rates, except for depreciation, depletion and amortization which is recorded at historical rates.

 

The Corporation’s interest in the Endako Mine is accounted for as a self-sustaining operation. The Endako Mine’s measurement currency is the Canadian dollar. The Endako Mine’s assets and liabilities are translated at exchange rates in effect at the balance sheet date and revenues and expenditures are translated at average exchange rates. Differences arising from these foreign currency translations are recorded in the consolidated statements as other comprehensive income.

 

 

The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities as at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period. As the estimation process is inherently uncertain, actual future outcomes could differ from current estimates and assumptions, potentially having material effects on future financial statements.

 

Cash is comprised of cash deposits held at banks. Cash equivalents are financial instruments issued or guaranteed by major financial institutions and governments that have an original maturity date of less than 90 days. Cash equivalents are considered financial instruments and have been designated as “available for sale” and have been recorded at fair value.

Accounts receivable are carried at the lower of amortized cost or net realizable value. Accounts receivable are written off as they are determined to be uncollectible.

Product inventories are carried at the lower of cost or net realizable value. Cost is comprised of production costs for ore produced and processed from the Corporation’s mines and amounts paid for molybdenum concentrate purchased from third parties. Production costs include the costs of materials, costs of processing and roasting, direct labor, stock-based compensation, mine site and processing facility overhead costs and depreciation, depletion and amortization. Stripping costs are included in the cost of inventory produced unless the stripping activity can be shown to be a betterment of the mineral property, in which case stripping costs are capitalized. The Corporation uses the first-in, first-out cost method for production and sales of product inventory.

Materials and supplies inventories are carried at the lower of cost or net realizable value.

Property, plant and equipment are recorded at cost. Fixed plant and machinery are amortized using the units-of-production method over the estimated life of the ore body based on recoverable pounds to be produced from estimated proven and probable mineral reserves. Facilities, mobile and other equipment are depreciated on either a declining-balance basis or a straight-line basis over the shorter of their estimated useful life and the life of the mine. Repairs and maintenance costs are charged to expense as incurred, except when these repairs significantly extend the life of the asset or result in an operating improvement. In these instances, the repairs related to the betterment are capitalized as part of plant and equipment and amortized over the period benefited by the repair.

The Corporation capitalizes the costs to acquire mineral properties. On acquisition of a mineral property, the Corporation estimates the fair value of proven and probable mineral reserves as well as the value beyond proven and probable mineral reserves and records these amounts as assets at the date of acquisition. Mineral properties in production are amortized over the life of the mine using the units-of-production method based on recoverable pounds to be mined from estimated proven and probable mineral reserves. The cost assigned to value beyond proven and probable mineral reserves is not amortized. However, as new information is gained or economics change, mineral reserves may be converted into proven and probable mineral reserves at which time the capitalized costs associated with mineral reserves are reclassified as costs subject to amortization.

 

 

The Corporation maintains cash deposits that are restricted to the funding of reclamation costs. Cash deposits are required under a reclamation insurance policy that the Corporation has purchased for the Thompson Creek Mine. For the Endako Mine, the Corporation has placed cash on deposit to fund future reclamation costs anticipated under a reclamation plan approved by the Province of British Columbia. The Corporation has also placed cash on deposit for the Davidson Project. Reclamation deposits are designated as available-for-sale, are recorded at fair value, and are classified as a non-current asset.

 

Acquisitions are accounted for using the purchase method whereby assets and liabilities acquired are recorded at their fair values as of the date of acquisition and any excess of the purchase price over such fair value is recorded as goodwill. Goodwill is identified and assigned to reporting units by preparing estimates of the fair value of each reporting unit and comparing this amount to the carrying value of assets and liabilities in the reporting unit. Goodwill is not amortized.

The Corporation evaluates the carrying amount of goodwill for impairment on an annual basis or when events or changes in circumstances indicate that the related carrying amount may not be recoverable. If the carrying value of a reporting unit exceeds its fair value, then the Corporation compares the implied fair value of the reporting unit’s goodwill to its carrying amount, and any excess of the carrying value over the fair value is charged against earnings. Assumptions underlying fair value estimates are subject to significant risk and uncertainties.

In evaluating goodwill for impairment, estimates of after-tax discounted future cash flows of the individual mining operations are used to perform the test for impairment. The estimated cash flows used to assess recoverability of the Corporation’s goodwill are derived from current life-of-mine plans developed using near-term price forecasts reflective of the current price environment and management’s projections for long-term average metal prices and operating costs.

 

At December 31, 2008, the Corporation evaluated its goodwill for impairment, which resulted in the recognition of a goodwill impairment charge of $68.2 million (see Note 4).

 

 

 

The Corporation enters into various arrangements such as interest rate protection agreements, foreign currency forward contracts, and molybdenum purchase and sale contracts. The Corporation does not consider any of these arrangements as hedging relationships, nor does it designate these contracts as “normal sales and purchase contracts”.

 

Financial and derivative instruments, including embedded derivatives, are recorded at fair values on the Corporation’s balance sheet, with gains and losses in each period included in other comprehensive income or net income. Fair values are determined using valuation techniques. These techniques use assumptions based on market conditions existing at the balance sheet date.

The Corporation uses the liability method of accounting for income and mining taxes. Under the liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax losses and other deductions carried forward.

In a business acquisition, the cost of the acquisition is allocated to the assets and liabilities acquired by reference to their fair values at the date of acquisition. Temporary differences that exist between the assigned values and the tax bases of the related assets and liabilities result in either future tax liabilities or assets. These future tax assets and liabilities are treated as identifiable assets and liabilities when allocating the cost of the purchase.

Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. A reduction in respect of the potential benefit of a future tax asset, a valuation allowance, is recorded against any future tax asset if it is not more likely than not to be realized. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period in which the change is substantively enacted.

Future obligations to retire an asset including site closure, dismantling, remediation and ongoing treatment and monitoring are recorded as a liability at fair value at the time incurred. The fair value determination is based on estimated future cash flow, the current credit adjusted risk-free discount rate and an estimated inflation factor. The value of asset retirement obligations is evaluated on an annual basis or as new information becomes available on the expected amounts and timing of cash flows required to discharge the liability and accreted to full value over time through periodic charges to earnings. These changes in value are recorded in the period in which they are identified and when costs can be reasonably quantified, and are capitalized as part of the asset’s carrying value and amortized over the asset’s estimated useful life.

 

In September 2008, the Corporation announced its’ Notice of Intention to make a Normal Course Issuer Bid ("NCIB") to purchase for cancellation, from time to time, as the Corporation considers advisable, its issued and outstanding common shares. Through December 31, 2008, the Corporation repurchased 2.8 million common shares for cancellation at an average price of Cdn$7.41 per share. Approximately 12.3 million common shares can be acquired under this NCIB until September 28, 2009, or such earlier time as the NCIB is completed or terminated at the option of the Corporation. The price to be paid will be the market price at the time of acquisition.

 

When the cost of the shares is less than the assigned value of the shares, the cost is allocated first to share capital, in an amount equal to the stated or assigned value of the shares and any difference to contributed surplus and retained earnings.

 

 

 

The Corporation recognizes revenue from molybdenum sales upon the transfer of title of the metal to third parties and when collection is reasonably assured. The Corporation recognizes tolling and calcining revenue under contractual arrangements when the services are performed.

The Corporation recognizes a liability for the future obligation associated with an employee severance and retention program for certain employees who were employed at the time of the acquisition of Thompson Creek USA. The obligation is payable in June 2012, or earlier under certain conditions according to the provisions of the program. The liability is increased with the passage of time, and the cost is charged as an expense during the period according to the payment formula, which is based on the employee’s compensation.

The Corporation has a separate arrangement for employees who are not eligible to participate in the above program, and who were hired after the acquisition of Thompson Creek USA.  If the Corporation incurs an obligation under this program, the cost is charged to expense.  This charge is calculated according to the employee’s length of service.

Additional information regarding the Corporation’s severance and retention program is included in Note 10, Other Liabilities, and Note 12, Employee Benefits.

The Corporation accounts for all stock-based compensation using the fair-value method. Under this method, the fair value of stock options at grant date is estimated using the Black-Scholes option pricing model. Compensation expense is recognized on a straight-line basis over the stock option vesting period. Proceeds arising from the exercise of stock options are credited to share capital.

Earnings per share calculations are based on the weighted average number of common shares issued and outstanding during the year. Diluted earnings per share are calculated using the treasury stock method, which assumes that outstanding stock options and warrants with an average exercise price less than the average market price of the Corporation’s common shares are exercised and the proceeds are used to repurchase common shares at the average market price of the common shares for the period. In years in which a loss is incurred, the effect of potential issuances of shares under options and warrants would be anti-dilutive and therefore basic and diluted losses per share are the same.

Certain comparative information has been reclassified to conform to the current year’s presentation.

Accounting Changes

 

Effective January 1, 2008, the Corporation adopted Canadian Institute of Chartered Accountants (“CICA”) handbook Section 3862, “Financial Instruments – Disclosure”, Section 3863, “Financial Instruments – Presentation”, and Section 1535, “Capital Disclosures”. Section 3862, “Financial Instruments – Disclosure” and Section 3863, “Financial Instruments – Presentation”, replace existing Section 3861, “Financial Instruments – Disclosure and Presentation”. The new disclosure requirements of Section 3862 are to enable users to evaluate the significance of financial instruments on financial position and performance, as well as the nature and extent of risks the Corporation is exposed to from financial instruments and how those risks

 

 

are being managed. Section 3863 carries forward, unchanged, the presentation requirements of existing Section 3861.

 

Section 1535, “Capital Disclosures” requires the Corporation to provide disclosures on its objectives, policies and processes for managing capital.

 

The adoption of these new accounting standards did not impact the amounts reported in the Company’s financial statements, however, it did result in expanded note disclosure (see Note 22 and Note 23).

 

 

Effective January 1, 2008, the Corporation adopted the new CICA Handbook Section 3031, "Inventories". This new standard replaced the existing Section 3030 “Inventories” and provides more prescriptive guidance on the measurement and disclosure of inventory. Key requirements of this new standard include that inventories be measured at the lower of cost and net realizable value and the reversal of previous write-downs of inventory to net realizable value when there has been a subsequent increase in the value of this inventory. During 2008, the Corporation provided a valuation allowance of $3.0 million against the carrying value of its product inventory to net realizable value (See Note 5).

Accounting Policy Developments

In February 2008, the CICA issued Section 3064, “Goodwill and Intangible Assets”, replacing Section 3062, “Goodwill and Other Intangible Assets” and Section 3450, “Research and Development Costs”. Various changes have been made to other sections of the CICA Handbook for consistency purposes. Section 3064 establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The new Section will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Corporation will adopt the new standards for its fiscal year beginning January 1, 2009. The Corporation does not expect that the adoption of this standard will have a material effect on its consolidated financial statements.

In February 2008, the Canadian Accounting Standards Board confirmed that publicly accountable enterprises will be required to adopt IFRS for fiscal years beginning on or after January 1, 2011, with earlier adoption permitted. Accordingly, the conversion to IFRS will be applicable to the Corporation’s reporting no later than in the first quarter of 2011, with restatement of comparative information presented. The conversion to IFRS will impact the Corporation’s accounting policies, information technology and data systems, internal control over financial reporting, and disclosure controls and procedures. The transition may also impact business activities, such as foreign currency and hedging activities, certain contractual arrangements, debt covenants, and compensation arrangements.

4. Acquisition of Thompson Creek USA

On October 26, 2006, the Corporation acquired Thompson Creek USA (“Thompson Creek USA”), a private Corporation with producing molybdenum mines and processing facilities in Canada and the US. On closing, the Corporation paid $574.5 million in cash for all of the outstanding shares of Thompson Creek USA. Subsequent to the closing date, the Corporation paid an additional $61.5 million related to certain acquired accounts receivable pursuant to the acquisition agreement. In addition, at December 31, 2007, the Corporation had recorded an amount of $100.0 million as contingent consideration payable on this acquisition based on the market price of molybdenum during 2007. This amount was paid in January 2008.

 

 

The Corporation may be responsible for a further contingent payment in early 2010 of $25.0 million if the average price of molybdenum exceeds $15.00 per pound in 2009.

This acquisition has been accounted for using the purchase method, whereby the purchase consideration was allocated to the estimated fair values of the assets acquired and liabilities assumed at the effective date of the purchase.  As the purchase price exceeded the fair value of the net identifiable assets acquired, the Corporation recorded goodwill of $121.6 million on this transaction.  This goodwill was allocated to two reporting units, US Operations ($80.0 million) and Canadian Operations ($41.6 million).  

In accordance with Canadian GAAP, the carrying value of goodwill is tested for impairment on an annual basis or when events or circumstances indicate that the related carrying amount may not be recoverable on a reporting unit basis. The Corporation has two reporting units: US Operations, and Canadian Operations (see Note 24). As of December 31, 2007, the Corporation performed its annual impairment test, and no impairment of goodwill was identified.

In evaluating goodwill for impairment, estimates of after-tax discounted future cash flows of the individual operations were used to estimate the fair value. The estimated cash flows used to assess recoverability of the Corporation’s goodwill were derived from current life-of-mine plans developed using near-term price forecasts reflective of the current price environment and management’s projections for long-term average molybdenum prices, operating costs, capital expenditures and cost of capital. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment.

Goodwill was assessed for impairment using a two-step approach. The first step compared the fair value of the reporting unit to its carrying value. The Corporation performed this test and determined that the fair value of both of its reporting units were less than their respective carrying values, which required the Corporation to perform the second step test. This step compared the fair value of each reporting unit’s goodwill to its carrying amount. The Corporation determined that the fair value of goodwill of both of its reporting units was less than the respective goodwill carrying amount, which required the Corporation to recognize an impairment of goodwill for both US operations ($33.0 million) and Canadian operations ($35.2 million), or a total impairment charge of $68.2 million.

The Corporation has assumed a long term molybdenum price of between $11 and $12 per pound in its goodwill assessment. Although the Corporation believes these pricing estimates are reasonable, such estimates are subject to significant uncertainties and judgments. If the Corporation’s estimate of long term pricing was to change, additional goodwill impairment charges may be required in future periods. Such charges could be material.

The following table summarizes activity related to goodwill:

 

 

 

5. Inventory

In 2008, of the $42.9 million classified as finished product, $19.4 million was valued at net realizable value, which resulted in a charge to cost of sales of $3.0 million. This charge was caused by a decrease in the market price of molybdenum during the fourth quarter of 2008 to below $10.00 per pound. In 2007, the $94.7 million classified as finished product was valued at cost, which was lower than net realizable value.

The Corporation values stockpiled ore at the lower of cost or net realizable value. The Corporation’s 75% owned Endako Mine has incurred costs for stockpiled ore that are not recognized in inventory as the ore grade of this material is below the cut-off grade for further processing, and at current market prices, the material has no net realizable value. The costs for this ore have been included in cost of sales (2008 - $2.7 million; 2007 - $4.7 million).

6. Property, Plant and Equipment

 

The following table summarizes activity related to stripping costs that have been deferred:

 

 

 

 

 

 

The Endako Mine Joint Venture is an unincorporated joint venture in which the Corporation has a 75% interest.

The following table presents a summary of the Corporation’s 75% pro-rata share of the assets, liabilities, revenue, expenses, net earnings and cash flows of the joint venture. The assets and liabilities presented below include fair-value purchase adjustments arising from the Corporation’s acquisition of its 75% interest in the joint venture.

 

The Corporation uses foreign currency forward contracts to fix the rate of exchange for Canadian dollars at future dates in order to reduce the Corporation’s exposure to foreign currency fluctuations on cash flows related to its share of the Endako Mine’s operations. The terms of these contracts are less than one year. At December 31, 2008, the Corporation had open forward currency contracts with a total commitment to purchase Cdn$6.0 million at an average rate of US$0.81 (2007 – Cdn$21.0 million at an average rate of US$1.04).

The Corporation does not consider these contracts to be hedges for accounting purposes and has determined these contracts to be derivative instruments, the fair value of which was an asset of $0.1 million at December 31, 2008 (2007 – liability of $0.6 million). The asset has been included in other assets and the liability has been included in accounts payable and accrued liabilities on the Corporation’s consolidated balance sheets. For the year ended December 31, 2008, a loss of $2.7 million has been included in other expense on the

 

Corporation’s consolidated statements of income related to these contracts (2007 – gain of $2.3 million).

The Corporation enters into agreements to sell and purchase molybdenum at prices to be determined in the future. The future pricing mechanism of these agreements constitutes an embedded derivative which must be bifurcated and separately recorded. Changes to the fair value of embedded derivatives related to molybdenum sales agreements are included in molybdenum sales revenue in the determination of net income. At December 31, 2008, the fair value of these embedded derivatives was an asset of $0.1 million (December 31, 2007 – no agreements) and has been included in accounts receivable on the Corporation’s balance sheets. For the year ended December 31, 2008, a gain of $0.1 million has been included in molybdenum sales on the Corporation’s consolidated statements of income (2007 - no sales agreements in prior year).

Changes to the fair value of the embedded derivatives related to molybdenum purchases are included in operating expenses in the determination of net income. At December 31, 2008, the fair value of these embedded derivatives was a liability of $0.7 million (December 31, 2007 - $0.3 million liability). For the year ended December 31, 2008, a gain of $20.5 million has been included in operating expenses on the Corporation’s consolidated statements of income (2007 - $8.6 million loss).

The Corporation has forward sales contracts with fixed-price agreements under which it is required to sell certain future molybdenum production at prices that are different than the prevailing market price. Forward sales contracts in place at December 31, 2008, cover the period 2009 to 2011. At December 31, 2008, the Corporation had committed to sell approximately 1.0 million pounds at an average market price of approximately $19.57 per pound. At December 31, 2008, these contracts had a positive mark-to-market value totaling $4.5 million (2007 - $2.4 million in other assets and $9.5 million in other liabilities). The current portion of $1.5 million has been included in other assets on the Corporation’s consolidated balance sheet. For the year ended December 31, 2008, a gain of $11.5 million related to these forward sales contracts has been included as molybdenum sales on the Corporation’s consolidated statements of income (2007 - $7.0 million loss) (See Note 10).

Long-term debt consists of:

 

In June 2008, the Corporation made payments totaling $219.4 million to fully settle remaining amounts owing on its first lien credit facility. In connection with the repayment of the first lien credit facility, the Corporation expensed the remaining $4.4 million in deferred finance fees.

 

In August 2008, the Corporation completed a renegotiation of the terms of its first lien revolving

 

 

 

collateralized line of credit. As part of this renegotiation, the facility’s availability was increased to $35.0 million from $22.5 million and the applicable interest rate was reduced to LIBOR plus 2.5%, down from the original LIBOR plus 4.75%. The facility is secured by all of the Corporation’s assets except for the Davidson Project and Endako Mine properties and related assets and includes standard financial and non-financial covenants, including ratio tests for leverage, interest coverage and working capital. At December 31, 2008 the Corporation was in compliance with these covenants. At December 31, 2008, drawings on this facility were $nil (December 31, 2007 – $nil). The Corporation’s equipment loan with a fixed rate bears interest at 5.9%. At December 31, 2008, this loan totaled $13.6 million and is scheduled to mature no later than 2013. The loans with variable rates bear interest at LIBOR plus 2.0%. At December 31, 2008 these loans totaled $3.7 million and are scheduled to mature no later than 2010. At December 31, 2008, the one-month LIBOR rate applicable to this facility was 0.4% (December 31, 2007 – 4.6%). These loans are collateralized by certain mining equipment.

Maturities of long-term debt obligations are as follows:

 

 

The following table summarizes activity related to interest and finance fees:

 

 

 

10.        Other Liabilities

Other liabilities consist of:

 

The Corporation maintains an employee severance and retention program for certain individuals. As at December 31, 2008, the Corporation had recorded a liability of $14.5 million related to this program (December 31, 2007 – $10.8 million). The Corporation has set aside funding for this liability by making periodic contributions to a trust fund based upon program participants’ salaries. The trust fund assets totaled $14.2 million at December 31, 2008 (December 31, 2007 – $10.0 million) and have been presented as restricted cash, a long-term asset, on the Corporation’s consolidated balance sheets. The Corporation recognized an expense of $4.9 million in 2008 (2007 - $3.9 million) for the employee retention and severance program.

The Corporation incurred an expense of $1.8 million in 2008 (2007 - $nil) for severance and retention bonuses for the restructuring and transitioning of the corporate finance function from Vancouver, B.C. to Denver, Colorado.

On acquisition of Thompson Creek USA, the Corporation acquired an unfavorable contractual agreement to sell 10% of certain production at the Thompson Creek Mine at an amount that may be less than the then prevailing market price. Deliveries under this contract commenced in 2007 and continue through to 2011. As at December 31, 2008, the Corporation has a liability of $7.3 million related to future deliveries under this agreement (December 31, 2007 – $9.7 million). As this contractual agreement is satisfied by delivery of product, the liability is being drawn down with an offsetting adjustment to molybdenum sales in the determination of net income. For the year ended December 31, 2008, $2.4 million related to this obligation had been realized and included in molybdenum sales. (2007 – $0.3 million).

Asset retirement obligations arise from the acquisition, development, construction and normal operation of mining property, plant and equipment, due to government controls and regulations that protect the environment on the closure and reclamation of mining properties. The Corporation has future obligations to retire its mining assets including dismantling, remediation and ongoing treatment and monitoring of sites. The exact nature of environmental issues and costs, if any, which the Corporation may encounter in the future are subject to change, primarily because of the changing character of environmental requirements that may be enacted by governmental agencies.

The following table details items affecting asset retirement obligations for future mine closure and reclamation costs in connection with the Corporation’s Thompson Creek Mine, the 75% owned Endako Mine and Davidson Project:

 

 

A mine reclamation and closure plan is also in place for the Endako Mine. In connection with this plan, the British Columbia Ministry of Energy, Mines and Petroleum Resources has required security in the amount of $5.4 million as of December 31, 2008 (2007 - $6.7 million) of which the Corporation’s proportionate share is $4.2 million (2007 – $5.0 million). As of December 31, 2008, the Corporation estimates its proportionate share of the non-discounted inflation-adjusted reclamation costs for the Endako Mine will total $12.7 million (2007 – $17.1 million) and anticipates that these costs will be incurred over the period 2009 to 2035. The estimated future reclamation costs for the Endako Mine have been discounted using rates ranging from 5.5% to 7.5% which reflect the underlying funding arrangements.

The Corporation’s Davidson Project is presently in the exploration stage. Estimated undiscounted future reclamation costs for the project of $0.3 million (2007 – $0.3 million) are the result of disturbance to the site caused by recent development activities. The estimated future reclamation costs for the Davidson Project have been discounted using rates ranging from 6.6% to 7.5% which reflect the underlying funding arrangements at the time these costs were identified. At December 31, 2008, the amount of $0.3 million had been set aside to fund this future obligation (2007 – $0.3 million).

Defined Contribution Pension Plans

The Corporation, through its subsidiaries, maintains defined contribution pension plans available to certain employees.

 

The Corporation’s 401(k) Savings Plan (the "Plan") is a defined contribution pension plan and covers all individuals employed in the US. The Plan is subject to the provisions of the US Employee Retirement Income Security Act of 1974, as amended, and Section 401(k) of the US Internal Revenue Code. The assets of the Plan are held and the related investment transactions are executed by the Plan's trustee. Administrative fees, including accounting and attorney fees, are paid by the Corporation on behalf of the Plan. The Corporation contributed approximately $1.5 million to the Plan for the year ended December 31, 2008 (2007 – $0.9 million). The Corporation may make additional contributions to the Plan at its sole discretion, however, the Corporation has no further obligation relating to benefits under this Plan.

The Endako Mine maintains a defined contribution pension plan (the "Endako Plan") covering all of its employees. The assets of the Endako Plan are held and the related investment transactions are executed by the Endako Plan's trustee. Administrative fees, including any accounting and legal fees are paid by the Endako Mine on behalf of the Endako Plan. The Endako Mine contributed $0.8 million (2007 – $0.7 million) to the Endako Plan for the year ended December 31, 2008 and the Corporation has recorded its proportionate share of these contributions. The Corporation has no further obligation relating to pension benefits under this Plan.

Other Benefits

The Corporation provides post-retirement health care benefits to certain retired former unionized employees at the Corporation’s Langeloth metallurgical processing facility. The Corporation paid $0.1 million in premiums to provide this benefit for the year ended December 31, 2008 (2007 – $0.1 million).

The Corporation recognizes a liability for the future obligation associated with an employee severance and retention program for certain employees who were employed at the time of the acquisition of Thompson Creek USA. The obligation is payable in June 2012, or earlier under certain conditions according to the provisions of the program. The liability is increased with the passage of time, and the cost is charged as an expense during the period according to the payment formula, which is based on the employee’s compensation. See Note 10 for additional information.

The Corporation has a separate arrangement for employees who are not eligible to participate in the above program, and who were hired after the acquisition of Thompson Creek USA.  If the Corporation incurs an obligation under this program, the cost is charged to expense.  This charge is calculated according to the employee’s length of service.

The authorized share capital of the Corporation is comprised of an unlimited number of common shares (2008 – 122,253,257 issued; 2007 – 113,363,938 issued) and an unlimited number of preferred shares, issuable in series with terms determinable upon issuance (2008 and 2007 – nil issued).

A summary of common share transactions is as follows:

 

 

 

 

In February 2007, the Corporation renounced, for income tax purposes, exploration expenses of Cdn$3.1 million to the purchasers of the Corporation’s flow-through common shares. As a result of this renunciation, the Corporation recorded a future tax liability and corresponding share issue cost of $0.9 million.

In April 2007, the Corporation brokered a private placement of 3,000,000 common shares at a price of Cdn$12.00 per common share for total gross proceeds of $31.9 million with $0.9 million in share issue costs.

In June 2008, the Corporation completed an equity financing of 10,914,700 common shares at a price of Cdn$21.50 per share for net proceeds of $218.1 million.

In September 2008, the Corporation filed a Normal Course Issuer Bid (the “Bid”) with the Toronto Stock Exchange.  Under the Bid, the Corporation may purchase a maximum of 12,300,000 common shares for cancellation including up to 6,252,303 common shares though the facilities of the New York Stock Exchange.  To date, the Corporation has purchased and cancelled an aggregate of 2,802,815 common shares.  The Bid expires after twelve months on September 28, 2009. 

A summary of common share warrant transactions is as follows:

In October 2006 the Corporation issued 20,930,000 warrants in connection with the acquisition of Thompson Creek USA. Additionally, on this date the Corporation also issued 3,613,591 warrants to a former shareholder of Thompson Creek USA. Each warrant entitles the holder to purchase one common share of the Corporation at a price of Cdn$9.00 until October 23, 2011. The Corporation determined the fair value allocated to these warrants to be Cdn$1.70 based on a pro-rata allocation of the fair value of common shares issued and the estimated fair value of the warrants issued using the Black-Scholes model and applying the following assumptions: expected life of 5 years; expected volatility of 45.8%; risk free interest rate of 4.02%; and an expected dividend of 0%.

 

 

The Corporation has a stock option plan for directors, officers, employees and consultants, enabling them to purchase common shares. The maximum number of shares that may be issued pursuant to this plan and all options granted there-under is limited to 11,174,916 common shares effective May 10, 2007. The expiry date and vesting provisions of options granted are established at the time an award is made. The exercise price of option grants awarded is the greater of: (i) the weighted-average trading price of the underlying shares on the Toronto Stock Exchange over the five consecutive trading days immediately before the grant date and, (ii) if the award date occurs in a trading black-out period, the weighted-average trading price over the five consecutive trading days immediately after the black-out has been lifted.

The Corporation uses the fair value method of accounting for stock-based compensation and recognized a stock-based compensation expense of $15.6 million for the year ended December 31, 2008 (2007 – $16.3 million).

The following table summarizes the status of the stock option plan and changes during the years ended December 31, 2008 and 2007:

The following table summarizes information about stock options outstanding and exercisable at December 31, 2008:

The following weighted average assumptions were used in computing the fair value of stock options granted for the periods noted:

 

 

 

 

The Corporation made the determination that the historic volatility of its common share price was characteristic of a development Company rather than of the operating Company upon acquisition of Thompson Creek USA in 2006. In computing the fair value of option grants made subsequent to the acquisition of Thompson Creek USA, the Corporation has utilized an expected volatility that has been computed using a weighted average of the average volatility of a peer group of operating mining companies and the Corporation’s actual share price volatility from the date it acquired Thompson Creek USA. Further, in the absence of reliable evidence to support a lesser estimated expected life, the Corporation used the full contractual life of option awards in determining the fair value of options awarded subsequent to the acquisition of Thompson Creek USA until October 2007. An estimated life based on actual experience has been used in determining the fair value of options awarded after October 2007.

The Corporation has entered into commitments to buy Canadian dollars at future dates at established exchange rates (see Note 8(a)).

 

The Corporation has committed to sell a certain amount of production at a defined price that may be less than market (see Note 8(c) and Note 10).

 

In the normal course of operations, the Corporation enters into agreements for the purchase of molybdenum. As at December 31, 2008, the Corporation had commitments to purchase approximately 4.1 million pounds of molybdenum sulfide concentrates in 2009 to be priced at a discount to the market price for molybdenum oxide at the time of purchase.

 

As at December 31, 2008, the Corporation had commitments related to the purchase of major mill equipment for its share of the Endako mill expansion of approximately $22.0 million in 2009 and approximately $18.0 million in 2010.

 

In January 2008, a payment of $100.0 million was made to the former shareholders of Thompson Creek Metals Company USA to settle an acquisition price adjustment recorded in 2007 related to the market price of molybdenum in 2007. The Corporation may be responsible for a further contingent payment in early 2010 of $25.0 million if the average price of molybdenum exceeds $15.00 per pound in 2009.

In August 2008, the Corporation signed an option with U.S. Energy Corp. (“USE”) to acquire up to 75% of a molybdenum property in Colorado.  The Corporation made a $0.5 million payment to USE upon signing the agreement and in January 2009, the Corporation made another payment of $1.0 million to USE. Under the terms of the agreement, unless the agreement is terminated early, the Corporation will continue to make annual payments of $1.0 million to USE for the remaining period of five years beginning January 1, 2010 and ending January 1, 2014. The Corporation can earn the right to acquire a 15% interest in the property by

- 25 -

 

 

spending a total of $15.0 million on the property, including the direct payments to USE, by June 30, 2011.  The Corporation can earn a 50% interest in the property by spending a cumulative total of $50.0 million on the property by July 31, 2018.  If the price of molybdenum drops below $12.50 for 12 consecutive weeks, the agreement contains a force majeure provision which allows a suspension of the required payments under the option agreement (excluding the Minimum Payments to USE) without terminating such agreement. If the Corporation terminates the agreement during the option period, there would be no further obligations under this agreement except that advance or shortfall payments made to date are forfeited and the Corporation remains obligated to maintain the property in good standing for a period of three months thereafter. Should the Corporation obtain a 50% interest in the property, the Corporation may elect to form a 50/50 joint venture with USE, or may elect to increase its interest in the property to 75% by incurring an additional $350.0 million in project expenditures, for a cumulative total of $400.0 million in expenditures and payments.

 

The Corporation considered the Davidson Project to have the characteristics of property, plant and equipment and therefore, option payments were initially capitalized. Given the recent economic circumstances, further development of the project was postponed in late 2008 until economic conditions improve. As a result, property payments of $2.4 million were expensed in 2008.

Income and mining taxes differ from the amount that would result from applying the Canadian federal and provincial income tax rates to earnings before income taxes. The differences result from the following items:

 

 

 

 

 

Future Income and Mining Taxes

Future income and mining taxes arise from temporary differences in the recognition of income and expenses for financial reporting and tax purposes. The significant components of future income and mining tax assets and liabilities at December 31 are as follows:

 

 

 

 

Tax Loss and Credit Carry Forwards

At December 31, 2008, the Corporation has the following loss and credit carry forwards available for tax purposes (losses and credits shown by tax jurisdiction and year of expiry):

 

 

 

 

 

 

For the year ended December 31, 2008, 2,237,333 stock options and nil warrants (2007 - 2,000,500 stock options and nil warrants) have been excluded from the computation of diluted securities as these would be considered to be anti-dilutive.

Consolidated sales to members of a group of companies affiliated with the other participant in the Endako Mine joint venture were $235.7 million for the year ended December 31, 2008, representing 23.3% of the Corporation’s total revenues for 2008 (2007 - $176.1 million and 19.2%). For the year ended December 31, 2008, the Corporation recorded management fee income of $0.8 million (2007 - $0.7 million) and selling and marketing costs of $1.6 million (2007 - $1.4 million) from this group of companies. At December 31, 2008, the Corporation’s accounts receivable included $8.9 million owing from this group of companies (2007 - $8.9 million).

 

 

 

 

 

 

The Corporation’s activities expose it to a variety of financial risks which include foreign exchange risk, interest rate risk, commodity price risk, credit risk and liquidity risk.

 

The Corporation enters into foreign currency exchange forward contracts, molybdenum forward sales contracts, provisionally-priced contracts for the purchase and sale of molybdenum to manage its exposure to fluctuations in foreign exchange rates and molybdenum prices.

 

The carrying amounts of financial instruments including accounts receivable, accounts payable and accrued liabilities and fixed and variable rate debt approximate fair value as of December 31, 2008 and 2007, respectively.

The Corporation does not acquire, hold, or issue financial instruments for trading or speculative purposes. Derivative instruments are used to manage certain market risks resulting from fluctuations in foreign currency exchange rates. On a limited basis, the Corporation enters into forward contracts for the purchase of Canadian dollars.

The Corporation monitors its positions with, and the credit quality of, the financial institutions it invests with. As of the balance sheet date, and periodically throughout the year, the Corporation has maintained balances in various operating accounts in excess of federally insured limits. In August 2008, the Corporation changed its policy and adopted an investment policy where investments are limited to government backed financial instruments.

The Corporation controls credit risk related to accounts receivable through credit approvals, credit limits, and monitoring procedures. Management considers the credit of each individual customer, including payment history and other commercial business factors.

Foreign Exchange Risk

 

The US dollar is the measurement currency of the majority of the Corporation’s activities. However, the Canadian dollar is the measurement currency of the Corporation’s interest in its joint venture operation. The Corporation has potential currency exposures in respect of items denominated in currencies other than the operations’ measurement currency. The Corporation’s foreign exchange exposures include:

 

 

The Corporation enters into foreign exchange forward contracts to manage these exposures. As at December 31, 2008, the Corporation had forward exchange contracts for Cdn$6.0 million to sell US dollars / buy Canadian dollars at a weighted average exchange rate of US$0.81. All foreign exchange forward contracts are due within the year. As at December 31, 2008, the fair value of these contracts is an asset of $0.1 million.

 

With other variables unchanged, each $0.10 strengthening (weakening) of the US dollar against the Canadian dollar would result in an increase (decrease) of approximately $3.3 million in net earnings for the year ended December 31, 2008. Further, each $0.10 strengthening (weakening) of the US dollar against the Canadian

 

 

 

dollar would not result in a change in other comprehensive income for the year ended December 31, 2008.

 

Interest Rate Risk

 

The Corporation has invested and borrowed at variable rates. Cash and cash equivalents receive interest based on market interest rates. Some of the Corporation’s debt facilities are variable rate facilities based on LIBOR and prime rates.

 

For the year ended December 31, 2008, with other variables unchanged, a 1% change in the LIBOR rate would have an insignificant impact on net earnings or cash. There would be no effect on other comprehensive income.

 

Commodity Price Risk

 

The Corporation enters into certain molybdenum sales contracts where it sells future molybdenum production with fixed prices. These fixed prices may be different than the quoted market prices at the date of sale. The Corporation physically delivers molybdenum under these contracts; however, has chosen not to use the normal usage exemption and therefore treats these contracts as non-financial derivatives. The fair value is recorded on the balance sheet with changes in fair value recorded in revenue. The fair value is calculated using a discounted cash flow based on estimated forward prices. The Corporation uses an average of long-term prices as forecast by independent analysts.

 

As at December 31, 2008, the fair value of the Corporation’s fixed forward sales contracts is as follows:

 

 

The Corporation also enters into molybdenum sale and purchase agreements with provisional pricing mechanisms where the final prices are determined by quoted market prices subsequent to the date of the purchase. As a result, the value of the respective trade receivable and trade payable changes as the underlying market price changes. This component of these contracts is an embedded derivative, which is initially recorded at fair value with subsequent changes in fair value recorded in revenue and operating expenses, respectively. The Corporation uses the latest Platts Metals Week published molybdenum oxide price as the estimated forward price.

 

As at December 31, 2008, the fair value of embedded derivatives in the provisionally priced sale and purchase agreements is as follows:

 

 

 

 

 

For the year ended December 31, 2008, with other variables unchanged, a 10% change in the molybdenum price would have an insignificant impact on the change in the fair value of the molybdenum forward sales contracts and the provisionally priced molybdenum purchase and sales contracts. As at December 31, 2008, there would be no effect on other comprehensive income.

 

Counterparty and Credit Risk

 

The Corporation is exposed to counterparty risk from its current cash balances, investments in money market instruments and its insurance policy to provide financial assurance of future mine reclamation costs at its mines. Counterparties to current cash balances, money market instruments, government treasury bills and its insurance policy are established financial institutions and governments. The Corporation manages these counterparty risks by establishing approved counterparties and assigning limits to each counterparty.

 

The Corporation manages its credit risk from its accounts receivable through established credit monitoring activities. As at December 31, 2008 the Corporation had four customers which owed the Corporation more than $5.0 million each and accounted for approximately 43% of all receivables owing, which subsequently were collected in early 2009. There were another two customers having balances greater than $2.0 million but less than $5.0 million that accounted for 10% of total receivables, which also were collected in early 2009. The Corporation’s maximum credit risk exposure is the carrying value of its accounts receivable.

 

Liquidity Risk

 

The Corporation manages its liquidity risk by maintaining cash and cash equivalent balances and by utilizing its line of credit. Surplus cash is invested in a range of 30-180 day government backed financial instruments under the Corporation’s investment policy. As at December 31, 2008, the Corporation had an unutilized line of credit of $35.0 million.

 

As at December 31, 2008, contractual undiscounted cash flow requirements for financial assets and liabilities, including interest payments are as follows:

 

 

On acquisition of Thompson Creek USA, the Corporation acquired a contractual agreement to sell 10% of certain production at the Thompson Creek Mine at an amount that may be less than the then prevailing market price. Deliveries under this contract commenced in 2007 and continue through to 2011. As at December 31, 2008, the Corporation had recorded a liability of $7.3 million related to future deliveries under this agreement (December 31, 2007 – $9.7 million).

 

As at December 31, 2008, the Corporation had commitments to purchase approximately 4.1 million pounds of molybdenum in 2009 to be priced at a discount to the market price for molybdenum oxide at the time of purchase.

 

Financial Assets and Liabilities by Category

 

As at December 31, 2008 and 2007, the Corporation’s financial assets and liabilities are categorized as follows:

 

 

 

 

 

 

Fair Values

 

Cash and cash equivalents represent cash and financial market instruments with maturity less than