EX-20.3 3 dex203.htm FINANCIAL STATEMENTS OF FRANCO-NEVADA MINING Financial Statements of Franco-Nevada Mining

Exhibit 20.3

 

AUDITORS’ REPORT

 

To the Directors of

Franco-Nevada Mining Corporation Limited

 

We have audited the consolidated balance sheets of Franco-Nevada Mining Corporation Limited as at March 31, 2001 and 2000 and the consolidated statements of earnings, retained earnings and cash flows for each of the years in the three-year period ended March 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with generally accepted auditing standards in Canada and the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

 

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2001 and 2000 and the results of its operations and cash flows for each of the years in the three-year period ended March 31, 2001 in accordance with Canadian generally accepted accounting principles.

 

LOGO

PricewaterhouseCoopers LLP

Chartered Accountants

 

Toronto, Ontario

April 30, 2001

 

Comments by Auditors for United States Readers on Canadian – United States Reporting Differences

 

In the United States, reporting standards for auditors require the addition of an explanatory paragraph, following the opinion paragraph, when there is a change in accounting principles that has a material effect on the comparability of the Company’s consolidated financial statements, such as the change described in Note 2 to the consolidated financial statements. Our report to the Directors dated April 30, 2001 is expressed in accordance with Canadian reporting standards which do not require a reference to such a change in accounting principles in the Auditors’ Report when the change is properly accounted for and adequately disclosed in the consolidated financial statements.

 

LOGO

PricewaterhouseCoopers LLP

Chartered Accountants

 

Toronto, Ontario

April 30, 2001

 

E-8

FRANCO-NEVADA MINING CORPORATION LIMITED

 

CONSOLIDATED BALANCE SHEETS

 

 

      

September 30, 2001

     

March 31, 2001

     

March 31, 2000

      

(unaudited)

              
       (thousands of Canadian dollars) (note 1)

Assets

                           

Current assets

                           

Cash and short-term investments

     

$

864,053

     

$

939,011

     

$

705,714

Receivables

     

 

22,281

     

 

14,991

     

 

18,862

Precious metals

     

 

44,224

     

 

13,612

     

 

27,584

Taxes recoverable

     

 

4,790

     

 

—  

     

 

—  

      
    
    
      

 

935,348

     

 

967,614

     

 

752,160

Investments in marketable securities (note 4)

     

 

134,396

     

 

160,800

     

 

248,869

Resource properties (note 5)

     

 

179,063

     

 

337,757

     

 

349,364

Capital assets (note 6)

     

 

9,264

     

 

81,579

     

 

70,498

Investment in Normandy Mining Limited

     

 

349,055

     

 

—  

     

 

—  

      
    
    
      

 

1,607,126

     

 

1,547,750

     

 

1,420,891

      
    
    

Liabilities

                           

Current liabilities

                           

Accounts payable

     

 

2,989

     

 

9,036

     

 

4,382

Taxes payable

     

 

—  

     

 

17,385

     

 

8,289

      
    
    
      

 

2,989

     

 

26,421

     

 

12,671

      
    
    

Future income taxes (note 9)

     

 

82,437

     

 

85,873

     

 

62,033

      
    
    

Shareholders’ equity

                           

Capital stock (note 7) (September 30, 2001—158,920,430 shares, March 31, 2001—158,630,670 shares, March 31, 2000—158,630,670 shares)

     

 

1,026,139

     

 

1,021,321

     

 

1,021,321

Retained earnings

     

 

421,533

     

 

344,516

     

 

303,601

Deferred foreign exchange gain (note 8)

     

 

74,028

     

 

69,619

     

 

21,265

      
    
    
      

 

1,521,700

     

 

1,435,456

     

 

1,346,187

      
    
    
      

$

1,607,126

     

$

1,547,750

     

$

1,420,891

      
    
    

 

 

E-9

FRANCO-NEVADA MINING CORPORATION LIMITED

 

CONSOLIDATED STATEMENTS OF EARNINGS

 

    

Six Months Ended

    

For the Years Ended

    

September 30, 2001

     

September 30, 2000

     

March 31, 2001

     

March 31, 2000

   

March 31, 1999

    

(unaudited)

     

(unaudited)

                   
    

(thousands of Canadian dollars except per share amounts) (note 1)

Revenues

                                         

Resource

   

$

51,323

 

   

$

41,142

 

   

$

95,596

 

   

$

81,970

   

$

72,777

Equity earnings in Normandy

   

 

11,215

 

   

 

—  

 

   

 

—  

 

   

 

—  

   

 

—  

Investment

   

 

22,902

 

   

 

38,960

 

   

 

82,035

 

   

 

38,607

   

 

43,330

    
  
  
  
  
    

 

85,440

 

   

 

80,102

 

   

 

177,631

 

   

 

120,577

   

 

116,107

    
  
  
  
  

Expenses

                                         

General and administration

   

 

3,164

 

   

 

4,848

 

   

 

10,688

 

   

 

7,554

   

 

5,508

Operating costs

   

 

371

 

   

 

473

 

   

 

1,141

 

   

 

1,396

   

 

1,573

Depletion and depreciation

   

 

3,192

 

   

 

8,866

 

   

 

13,856

 

   

 

15,069

   

 

14,280

Provision for mining assets

   

 

—  

 

   

 

—  

 

   

 

28,216

 

   

 

—  

   

 

—  

    
  
  
  
  
    

 

6,727

 

   

 

14,187

 

   

 

53,901

 

   

 

24,019

   

 

21,361

    
  
  
  
  

Earnings before taxes

   

 

78,713

 

   

 

65,915

 

   

 

123,730

 

   

 

96,558

   

 

94,746

    
  
  
  
  

Tax provision (note 9)

                                         

—current

   

 

25,959

 

   

 

23,770

 

   

 

49,641

 

   

 

27,100

   

 

26,163

—future

   

 

(2,361

)

   

 

(2,041

)

   

 

(5,783

)

   

 

5,463

   

 

5,129

    
  
  
  
  
    

 

23,598

 

   

 

21,729

 

   

 

43,858

 

   

 

32,563

   

 

31,292

    
  
  
  
  

Earnings from continuing operations

   

 

55,115

 

   

 

44,186

 

   

 

79,872

 

   

 

63,995

   

 

63,454

Gain on sale of discontinued operations (note 12)

   

 

21,902

 

   

 

—  

 

   

 

—  

 

   

 

—  

   

 

—  

Income from discontinued operations

   

 

—  

 

   

 

16,931

 

   

 

33,573

 

   

 

33,641

   

 

5,075

    
  
  
  
  

Net earnings

   

$

77,017

 

   

$

61,117

 

   

$

113,445

 

   

$

97,636

   

$

68,529

    
  
  
  
  

Earnings per share

                                         

Continuing operations

   

 

0.35

 

   

 

0.28

 

   

 

0.51

 

   

 

0.41

   

 

0.42

Discontinued operations

   

 

0.14

 

   

 

0.11

 

   

 

0.21

 

   

 

0.21

   

 

0.03

    
  
  
  
  

Total earnings per share

   

$

0.49

 

   

$

0.39

 

   

$

0.72

 

   

$

0.62

   

$

0.45

    
  
  
  
  

 

 

E-10

FRANCO-NEVADA MINING CORPORATION LIMITED

 

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

 

   

Six Months Ended

     

For the Years Ended

  
   

September 30, 2001

   

September 30, 2000

     

March 31, 2001

     

March 31, 2000

     

March 31, 1999

  
   

(unaudited)

   

(unaudited)

                       
   

(thousands of Canadian dollars) (note 1)

  
       

Beginning of period

  

$

344,516

   

$

303,601

 

   

$

303,601

 

   

$

253,554

 

   

$

217,261

 

Change in accounting for income taxes (note 2)

  

 

—  

   

 

(17,009

)

   

 

(17,009

)

   

 

—  

 

   

 

—  

 

   
  
  
  
  
   

 

344,516

   

 

286,592

 

   

 

286,592

 

   

 

253,554

 

   

 

217,261

 

Earnings

  

 

77,017

   

 

61,117

 

   

 

113,445

 

   

 

97,636

 

   

 

68,529

 

Dividends

  

 

—  

   

 

—  

 

   

 

(55,521

)

   

 

(47,589

)

   

 

(32,236

)

   
  
  
  
  

End of period

  

$

421,533

   

$

347,709

 

   

$

344,516

 

   

$

303,601

 

   

$

253,554

 

   
  
  
  
  

 

 

E-11

FRANCO-NEVADA MINING CORPORATION LIMITED

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    

Six Months Ended

     

For the Years Ended

  
    

September 30, 2001

     

September 30, 2000

     

March 31, 2001

     

March 31, 2000

     

March 31, 1999

  
    

(unaudited)

     

(unaudited)

                       
    

(thousands of Canadian dollars) (note 1)

  

Operating activities

                                             

Earnings from continuing operations

   

$

55,115

 

   

$

44,186

 

   

$

79,872

 

   

$

63,995

 

   

$

63,454

 

Non-cash items

                                             

In-kind revenue

   

 

(30,189

)

   

 

(19,206

)

   

 

(47,956

)

   

 

(56,116

)

   

 

(51,713

)

Depletion and depreciation

   

 

3,192

 

   

 

8,866

 

   

 

13,856

 

   

 

15,069

 

   

 

14,280

 

Future income taxes

   

 

(2,361

)

   

 

(2,041

)

   

 

(5,783

)

   

 

5,463

 

   

 

5,129

 

Provision for mining assets

   

 

—  

 

   

 

—  

 

   

 

28,216

 

   

 

—  

 

   

 

—  

 

Loss (gain) on sale of marketable securities

   

 

3,469

 

   

 

(15,097

)

   

 

(24,187

)

   

 

—  

 

   

 

—  

 

Equity earnings in Normandy

   

 

(11,215

)

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

Change in non-cash working capital:

                                             

Accounts receivable

   

 

(8,424

)

   

 

(683

)

   

 

4,274

 

   

 

(2,383

)

   

 

(3,246

)

Precious metals

   

 

149

 

   

 

2,598

 

   

 

56,852

 

   

 

49,950

 

   

 

64,993

 

Accounts payable

   

 

(7,490

)

   

 

103

 

   

 

775

 

   

 

(292

)

   

 

(282

)

Taxes payable

   

 

(19,948

)

   

 

4,629

 

   

 

13,938

 

   

 

(15,252

)

   

 

13,568

 

    
  
  
  
  
    

 

(17,702

)

   

 

23,355

 

   

 

119,857

 

   

 

60,434

 

   

 

106,183

 

    
  
  
  
  

Financing activities

                                             

Shares issued for cash

   

 

4,818

 

   

 

—  

 

   

 

—  

 

   

 

1,990

 

   

 

131,501

 

Dividends

   

 

—  

 

   

 

—  

 

   

 

(55,521

)

   

 

(47,589

)

   

 

(32,236

)

    
  
  
  
  
    

 

4,818

 

   

 

—  

 

   

 

(55,521

)

   

 

(45,599

)

   

 

99,265

 

    
  
  
  
  

Investing activities

                                             

Purchase of marketable securities

   

 

(740

)

   

 

—  

 

   

 

—  

 

   

 

(35,494

)

   

 

(144,809

)

Sale of marketable securities

   

 

23,038

 

   

 

37,984

 

   

 

118,107

 

   

 

—  

 

   

 

—  

 

Resource properties

   

 

(3,114

)

   

 

(1,338

)

   

 

(2,195

)

   

 

(9,189

)

   

 

(65,019

)

Capital assets

   

 

(1,102

)

   

 

(1,149

)

   

 

(1,900

)

   

 

(40

)

   

 

(782

)

Investment in Normandy

   

 

(82,584

)

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

Short-term investments

   

 

(101,572

)

   

 

(32,703

)

   

 

(76,464

)

   

 

28,891

 

   

 

(50,626

)

    
  
  
  
  
    

 

(166,074

)

   

 

2,794

 

   

 

37,548

 

   

 

(15,832

)

   

 

(261,236

)

    
  
  
  
  

Foreign exchange gain (loss)

   

 

198

 

   

 

2,886

 

   

 

8,317

 

   

 

(2,531

)

   

 

8,787

 

    
  
  
  
  

Discontinued operations

   

 

—  

 

   

 

(43,363

)

   

 

33,034

 

   

 

36,182

 

   

 

(66,513

)

    
  
  
  
  

Increase (decrease) in cash and cash equivalents

   

 

(178,760

)

   

 

(14,328

)

   

 

143,235

 

   

 

32,654

 

   

 

(113,514

)

Cash and cash equivalents—beginning of period

   

 

318,653

 

   

 

175,418

 

   

 

175,418

 

   

 

142,764

 

   

 

256,278

 

    
  
  
  
  

Cash and cash equivalents—end of period

  

$

139,893

 

   

$

161,090

 

   

$

318,653

 

   

$

175,418

 

   

$

142,764

 

Short-term investments

   

 

724,160

 

   

 

569,009

 

   

 

620,358

 

   

 

530,296

 

   

 

564,743

 

    
  
  
  
  

Cash and short-term investments—end of period

   

$

864,053

 

   

$

730,099

 

   

$

939,011

 

   

$

705,714

 

   

$

707,507

 

    
  
  
  
  

 

E-12

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

 

1.    Accounting Policies

 

The consolidated financial statements of Franco-Nevada Mining Corporation Limited (the “Company”) have been prepared in accordance with accounting principles generally accepted in Canada. Summarized below are the significant accounting policies used in these consolidated financial statements.

 

The accompanying unaudited interim financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in Canada. Certain information included in the Annual Financial Statements are not included herein. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these financial statements. Operating results for the period ended September 30, 2001 are not necessarily indicative of the results that may be expected for the full fiscal period ended December 31, 2001 (see note 12).

 

(a)  Basis of consolidation

 

The consolidated financial statements include the statements of the Company and its wholly owned subsidiaries.

 

(b)  Use of estimates

 

The preparation of the financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes. The most significant estimates and assumptions are related to taxes and the recoverability of resource property costs through future production. Actual results could be different from these estimates.

 

(c)  Cash and cash equivalents and short-term investments

 

Cash and cash equivalents include highly-liquid instruments with an original maturity of less than 90 days. The carrying amounts of cash and cash equivalents are stated at cost which approximates their fair value. The Company’s short-term investments include highly-liquid instruments with an original maturity of 90 days or more and are carried at cost, which approximates their fair value.

 

(d)  Precious metals and inventories

 

Precious metals inventory is valued at the period end spot price. Mine operating supplies are valued at the lower of average cost and net realizable value.

 

(e)  Investments in marketable securities

 

Investments in marketable securities are valued at cost until it is determined that a permanent impairment exists at which time a write-down is taken.

 

(f)  Resource properties

 

Mineral property and development costs

 

The Company records its interests in mineral properties at cost. Producing properties are amortized using the units-of-production method. For working interests, all investments in development and mineral rights are amortized over the proven and probable reserves of each property. Net Smelter Return Royalties and Net Profit Interests generally

 

E-13

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

comprise a one-time acquisition cost. The cost is amortized over the proven and probable reserves as provided to the Company by the property operator. The ultimate recovery of costs associated with non-producing properties is dependent upon the discovery and development of economic reserves or the profitable sale of the properties. If a property is abandoned or sold, the proceeds on the sale, less the cost of the property and any related deferred expenditures, are included in operations at that time. The Company periodically reviews its mineral properties to ascertain whether an impairment in value has occurred. Where a property is considered uneconomic it is written off.

 

Oil and Gas Property

 

Oil and gas properties in which the Company has an interest are accounted for using the full-cost accounting method. Producing oil and gas royalty properties are carried at the lower of the cost and net recoverable amount. Depletion is provided on capitalized amounts using the units-of-production method. Net recoverable amount is the aggregate of estimated future net revenues from proven reserves less operating, administration, financial and income tax expense. Estimated future net revenues are determined using year-end prices.

 

(g)  Capital assets

 

Assets expected to remain productive throughout the property’s life are depreciated using the units-of-production method. Other assets are depreciated on a straight-line basis over their estimated useful lives. The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An asset is considered impaired when fair value, which is considered estimated undiscounted future cash flows derived from its operation, is below the asset’s carrying value. Future cash flows include estimates of recoverable ounces, gold prices and production levels. In estimating future cash flows, assets are grouped by segment business (ie. mining operations and oil and gas) as on this basis identifiable cash flows are independent of cash flows from other groups. Assumptions underlying future cash flow estimates are subject to risks and uncertainties.

 

(h)  Translation of foreign currency

 

Foreign operations are self-sustaining and are translated using the current rate method. Assets and liabilities are translated at exchange rates prevailing at the period-end and revenue and expense items at average exchange rates for the period. Translation adjustments arising from changes in exchange rates are accounted for as a separate component of shareholders’ equity. These adjustments will be included in operations upon realization.

 

(i)  Fair Values of Financial Instruments

 

The carrying value of Cash and Short Term Investments and Accounts Payable in the consolidated balance sheets approximate fair values due to the short-term duration of these instruments.

 

(j)  Revenue recognition

 

Gold and silver revenues from mining operations are recognized at the time of shipment from the mine site. The sole operating property of the Company, the Ken Snyder Mine, was sold effective April 2, 2001 (See note 12(a)). Revenue from royalty interests are recognized at the time title passes to the Company under the terms of the respective royalty agreement. Payment is received in cash or in-kind. In-kind receipts consist of physical quantities of gold, silver and platinum. The in-kind receipts are valued at prices on the date of receipt. In-kind revenue recognized for the six months ended September 30, 2001 and 2000 is $30.2 million (unaudited) and $19.2 million (unaudited), respectively. For the three years ended March 31, 2001, 2000 and 1999 in-kind revenue recognized totaled $48.0 million, $56.1 million and $51.7 million, respectively.

 

(k)  Reclamation and closure costs

 

For the Company’s sole operating property, the Ken Snyder Mine, reclamation and closure costs are accrued and charged to income over the estimated life of the mine using the units-of-production method based on

 

E-14

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

proven and probable reserves. Costs include expected future closure costs based upon current environmental laws and regulations. The Company disposed of the mine effective April 2, 2001 (See Note 12(a)). For royalty interests the Company does not accrue reclamation and closure costs as it is not liable for such costs.

 

The Company records reclamation costs for oil and gas working interest properties as reported by the operator. For oil and gas royalty interests the Company is not liable for such costs.

 

(l)  Foreign exchange contracts

 

The Company manages its foreign exchange exposure on anticipated net cash inflows in Australia through the use of forward contracts. Gains and losses are recognized and reported as a component of the related transactions.

 

(m)  Comparative figures

 

Certain comparative figures have been reclassified to conform with the current year’s presentation.

 

2.    Change in Accounting Policy

 

On April 1, 2000 the Company adopted the new Canadian Institute of Chartered Accountants recommendations for income taxes. Franco-Nevada provides for income taxes using the asset and liability method. Under this method, future tax assets and liabilities are determined based on differences between the financial accounting and tax bases of assets and liabilities and are measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse.

 

The Company has elected to adopt these standards retroactively without restatement. The cumulative effect of adopting the standard is an increase in future tax liabilities and a reduction in retained earnings of $17.0 million.

 

Prior to April 1, 2000, the Company followed the deferral method of tax allocation in accounting for income taxes.

 

3.    Business Merger

 

On September 20, 1999, the Company announced completion of the merger that resulted in Franco-Nevada Mining Corporation Limited (“Franco-Nevada”) merging with Euro-Nevada Mining Corporation Limited (“Euro-Nevada”). The merger of the Company and Euro-Nevada is accounted for as a pooling of interests which combines, at book value, the net assets and operations of the two companies. Accordingly, these financial statements have been prepared, and are presented as though the predecessor corporations had operated as a single entity since inception. Euro-Nevada shareholders received 0.77 Franco-Nevada shares for each Euro-Nevada share. Euro-Nevada had 101.2 million shares outstanding and, as a result, the Company issued 77.9 million additional common shares to former shareholders of Euro-Nevada.

 

The following tables set forth results of operations of the previously separate companies for the periods before the combination.

 

      

Franco-Nevada

   

Euro-Nevada

   

Combined

Three Months ended June 30, 1999 (unaudited)

                       

Revenue-continuing operations

     

$

17,145

   

$

11,576

   

$

28,721

Net earnings

     

 

14,892

   

 

10,611

   

 

25,503

Year ended March 31, 1999

                       

Revenue-continuing operations

     

 

70,777

   

 

45,330

   

 

116,107

Net earnings

     

$

43,711

   

$

24,818

   

$

68,529

 

E-15

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

 

4.    Investments in Marketable Securities

 

The Company holds the following investments:

 

    

March 2001

    

Carrying Value

   

Units held

Investment

      

Number

   

Class

Inco Limited (note a)

   

$

17,237

   

4,309

   

Warrants

Aber Diamond Corporation

   

 

69,507

   

7,717

   

Common

Duff & Phelps Utilities Income Inc.

   

 

14,208

   

1,000

   

Common

First Australia Prime Income Fund, Inc.

   

 

56,155

   

5,000

   

Common

Other

   

 

3,693

          
    
         
    

$

160,800

          
    
         
    

March 2000

Inco Limited

   

$

80,705

   

9,576

   

VBN

Aber Diamond Corporation

   

 

69,507

   

7,717

   

Common

Duff & Phelps Utilities Income Inc.

   

 

27,504

   

2,100

   

Common

First Australia Prime Income Fund, Inc.

   

 

51,767

   

5,000

   

Common

San Juan Basin Royalty Trust

   

 

14,503

   

2,000

   

Trust Units

Other

   

 

4,883

          
    
         
    

$

248,869

          
    
         
(a)   The Inco Limited (“Inco”) Class VBN Shares (“VBN Shares”) were tendered to Inco in December 2000 in exchange for 4,309,277 warrants of Inco (“warrants”) and cash proceeds of $7.50 per VBN Share. The Company recognized a gain of $8.3 million on the transaction.
(b)   The fair market value of investments at year-end is $179,153,753 (2000; $221,577,536).
(c)   On September 5, 2001, Franco-Nevada entered into an agreement to convert US$72.4 million principal amount (US$115.3 million with accrued interest as at September 30, 2001) of capital securities of Echo Bay Mines Ltd. (“Echo Bay”) into common shares of Echo Bay. Pending Echo Bay’s shareholder approval, Franco-Nevada expects to maintain a 49.5% interest in Echo Bay following conversion. (unaudited)

 

5.    Resource properties

 

    

2001

   

2000

    

Cost

     

Accumulated depletion

and writedowns

     

Net book value

   

Cost

     

Accumulated depletion

and writedowns

     

Net book value

Mining

                                                  

Producing property

                                                  

Net Smelter Returns

   

$

167,121

     

$

(80,310

)

   

$

86,811

   

$

164,039

     

$

(55,876

)

   

$

108,163

Net Profit Interest

   

 

34,508

     

 

(6,221

)

   

 

28,287

   

 

33,747

     

 

(4,960

)

   

 

28,787

Working Interest

   

 

156,653

     

 

(20,398

)

   

 

136,255

   

 

122,519

     

 

(9,228

)

   

 

113,291

    
    
  
  
    
  
    

 

358,282

     

 

(106,929

)

   

 

251,353

   

 

320,305

     

 

(70,064

)

   

 

250,241

    
    
  
  
    
  

Non-producing property

                                                  

Net Smelter Returns

   

 

46,545

     

 

(16,183

)

   

 

30,362

   

 

38,166

     

 

(5,253

)

   

 

32,913

Net Profit Interest

   

 

3,222

     

 

—  

 

   

 

3,222

   

 

3,222

     

 

—  

 

   

 

3,222

Working Interest

   

 

37,582

     

 

(10,350

)

   

 

27,232

   

 

36,515

     

 

(761

)

   

 

35,754

    
    
  
  
    
  
    

 

87,349

     

 

(26,533

)

   

 

60,816

   

 

77,903

     

 

(6,014

)

   

 

71,889

    
    
  
  
    
  
    

$

445,631

     

$

(133,462

)

   

$

312,169

   

$

398,208

     

$

(76,078

)

   

$

322,130

    
    
  
  
    
  

Oil and Gas

                                                  

Producing property

                                                  

Net Smelter Returns

   

$

23,218

     

$

(7,467

)

   

$

15,751

   

$

23,122

     

$

(6,253

)

   

$

16,869

Working Interest

   

 

10,997

     

 

(2,273

)

   

 

8,724

   

 

10,997

     

 

(1,868

)

   

 

9,129

    
    
  
  
    
  
    

 

34,215

     

 

(9,740

)

   

 

24,475

   

 

34,119

     

 

(8,121

)

   

 

25,998

    
    
  
  
    
  

Non-producing property

                                                  

Net Smelter Returns

   

 

—  

     

 

—  

 

   

 

—  

   

 

472

     

 

—  

 

   

 

472

Working Interest

   

 

1,113

     

 

—  

 

   

 

1,113

   

 

764

     

 

—  

 

   

 

764

    
    
  
  
    
  
    

 

1,113

     

 

—  

 

   

 

1,113

   

 

1,236

     

 

—  

 

   

 

1,236

    
    
  
  
    
  
    

$

35,328

     

$

(9,740

)

   

$

25,588

   

$

35,355

     

$

(8,121

)

   

$

27,234

    
    
  
  
    
  

Total

   

$

480,959

     

$

(143,202

)

   

$

337,757

   

$

433,563

     

$

(84,199

)

   

$

349,364

    
    
  
  
    
  

 

For the year ended March 31, 2001, accumulated depletion and write-downs includes $21.4 million in write-downs for non-producing properties.

 

E-16

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

 

6.    Capital assets

 

    

March 2001

   

March 2000

    

Cost

   

Accumulated amortization

     

Net book value

   

Cost

     

Accumulated amortization

     

Net book value

Plant & mining equipment

   

$

49,115

   

$

(5,905

)

   

$

43,210

   

$

36,569

     

$

(2,278

)

   

$

34,291

Well equipment

   

 

9,121

   

 

(955

)

   

 

8,166

   

 

7,267

     

 

(725

)

   

 

6,542

Buildings

   

 

31,200

   

 

(4,461

)

   

 

26,739

   

 

27,860

     

 

(2,069

)

   

 

25,791

Other

   

 

5,998

   

 

(2,534

)

   

 

3,464

   

 

5,965

     

 

(2,091

)

   

 

3,874

    
  
  
  
    
  
    

$

95,434

   

$

(13,855

)

   

$

81,579

   

$

77,661

     

$

(7,163

)

   

$

70,498

    
  
  
  
    
  

 

7.    Capital stock

 

The Company has an unlimited number of authorized preferred and common shares.

 

    

March 2001

   

March 2000

   

March 1999

  

Issued and outstanding:

   

Number

   

$

   

Number

   

$

   

Number

     

$

  

Common shares

                                        

Beginning of year (note a)

   

158,631

   

$

1,014,348

   

158,357

   

$

1,009,537

   

152,293

 

   

$

861,653

 

Issued for cash

   

—  

   

 

—  

   

—  

   

 

—  

   

3,253

 

   

 

103,937

 

Issued for resource properties

   

—  

   

 

—  

   

—  

   

 

—  

   

957

 

   

 

25,693

 

Options exercised

   

—  

   

 

—  

   

274

   

 

4,811

   

185

 

   

 

3,472

 

Warrants exercised

   

—  

   

 

—  

   

—  

   

 

—  

   

1,669

 

   

 

17,603

 

    
  
  
  
  
  

End of year

   

158,631

   

$

1,014,348

   

158,631

   

$

1,014,348

   

158,357

 

   

$

1,012,358

 

    
  
  
  
  
  

Warrants (note b)

                                        

Beginning of year

   

4,380

   

$

6,973

   

4,380

   

$

6,973

   

4,830

 

   

$

484

 

Exercised

   

—  

   

 

—  

   

—  

   

 

—  

   

(1,084

)

   

 

(271

)

Issued

   

—  

   

 

—  

   

—  

   

 

—  

   

634

 

   

 

6,760

 

    
  
  
  
  
  

End of year

   

4,380

   

$

6,973

   

4,380

   

$

6,973

   

4,380

 

   

$

6,973

 

    
  
  
  
  
  
(a)   On September 20, 1999 Franco-Nevada Mining Corporation Limited merged with Euro-Nevada Mining Corporation Limited. See note 3. The 1999 comparative share capital amounts have been adjusted for the merger. The opening share capital dollar amount for fiscal 2000 is net of $2,821,000 of share issue costs incurred in the year.
(b)   The Company has two classes of warrants issued and outstanding. There are 2,246,336 Class A warrants each of which entitles the holder thereof to acquire four common shares of the Company at a price of $200 per warrant. There are 2,133,751 Class B warrants outstanding each of which entitles the holder thereof to acquire 3.08 common shares of the Company at a price of $100 per warrant. The Class A and B warrants expire on September 15, 2003 and November 12, 2003, respectively.
(c)   As at September 30, 2001, in addition to its 158,920,430 common shares, the Company has two classes of warrants issued and outstanding. See note 7 (b).
(d)   Franco-Nevada adopted a shareholders’ rights plan (the “Rights Plan”) on February 24th, 2000. The Rights Plan was approved by the shareholders of the Company on September 21, 2000. Under the Rights Plan, each Franco-Nevada common share carries with it the right to purchase shares of Franco-Nevada, at a discounted price, under certain circumstances and in the event of particular hostile efforts to acquire control of the Company. The rights are evidenced by and trade with the Franco-Nevada common shares.

 

E-17

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

(e)   Share Option Plan

 

Common share options outstanding at March 31, 2001, 2000 and 1999 under the share option plan are as follows:

 

    

March 2001

   

March 2000

   

March 1999

    

Number

     

Weighted Average Exercise Price

   

Number

     

Weighted Average Exercise Price

   

Number

     

Weighted Average Exercise Price

Outstanding at beginning of year

   

5,873,716

 

   

$

20.79

   

3,934,876

 

   

$

18.29

   

4,084,316

 

   

$

18.17

Changes during year

                                          

Granted

   

50,000

 

   

 

18.30

   

2,500,000

 

   

 

24.50

   

35,400

 

   

 

31.09

Exercised

   

—  

 

   

 

—  

   

(273,359

)

   

 

17.60

   

(184,840

)

   

 

17.88

Expired

   

(593,600

)

   

 

24.87

   

(287,801

)

   

 

21.92

   

—  

 

   

 

—  

    
  
  
  
  
  

Outstanding at end of year

   

5,330,116

 

   

 

20.31

   

5,873,716

 

   

 

20.79

   

3,934,876

 

   

 

18.29

    
  
  
  
  
  

Exercisable at end of year

   

1,656,068

 

   

$

16.65

   

1,283,416

 

   

$

16.16

   

1,103,914

 

   

$

15.33

    
  
  
  
  
  

 

The following table summarizes information about the share options outstanding at March 31, 2001.

 

Range of Exercise Price

  

Number

Outstanding at Mar. 31/01

   

Weighted Average Remaining Contractual Life

  

Weighted Average Exercise Price

  

Number

Exercisable at Mar. 31/01

  

Weighted Average Exercise Price

$  4.35 – $13.64

  

1,133,186

   

3.6 years

  

$11.50

  

675,036

  

$10.05

$14.21 – $22.14

  

1,599,880

   

4.5 years

  

$18.67

  

662,742

  

$18.37

$23.57 – $35.43

  

2,597,050

   

8.0 years

  

$25.17

  

318,290

  

$27.09

(i)   Options granted under the Share Option Plan generally have a term of 10 years and vest evenly over their term. The exercise price of each option is the closing price of the Company’s common stock on the Toronto Stock Exchange on the day on which the option is granted.
(ii)   On September 20, 1999 the Company merged with Euro-Nevada Mining Corporation Limited. At the time of the merger there were 2,102,332 options of Euro-Nevada outstanding. These options were converted to 1,618,796 options of Franco-Nevada at a ratio of 0.77. The 1999 comparatives for share options have been adjusted for this transaction.

 

8.    Deferred foreign exchange gain

 

Components of deferred foreign exchange include:

 

    

March 2001

   

March 2000

Cash

   

$

25,362

   

$

15,170

Mineral properties

   

 

31,939

   

 

2,748

Marketable securities

   

 

10,538

   

 

2,650

Other

   

 

1,780

   

 

697

    
  
    

$

69,619

   

$

21,265

    
  

 

E-18

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

 

9.    Income Taxes

 

(a)  The Company’s effective tax rate differs from the combined Canadian federal and provincial statutory tax rate as follows:

 

    

March 2001

     

March 2000

     

March 1999

  

Tax at Canadian statutory rate

   

43

%

   

45

%

   

45

%

Lower U.S. tax rate on U.S. earnings

   

(10

)

   

(12

)

   

(13

)

Non-taxable earnings

   

—  

 

   

(2

)

   

(3

)

Capital and mining taxes

   

2

 

   

3

 

   

4

 

    
  
  

Effective tax rate

   

35

%

   

34

%

   

33

%

    
  
  

 

(b)  The following table depicts the primary temporary differences included in future income taxes as at March 31, 2001 and 2000. The 2000 comparative amounts have been presented after reflecting the $17.0 million effect of the implementation adjustment described in note 2.

 

    

March 2001

   

March 2000

Future income taxes:

          

Liabilities:

          

Mineral properties

   

65,169

   

64,395

Capital assets

   

16,445

   

10,734

Other

   

4,259

   

3,913

    
  

Net future income taxes

   

85,873

   

79,042

    
  

 

(c)  Details of income tax (credit) expense by jurisdiction are:

 

    

March 2001

     

March 2000

   

March 1999

Current

                 

United States

   

23,293

 

   

15,215

   

14,596

Canada

   

26,348

 

   

11,885

   

11,567

    
  
  
    

49,641

 

   

27,100

   

26,163

Future

                 

United States

   

866

 

   

2,319

   

621

Canada

   

(6,649

)

   

3,144

   

4,508

    
  
  
    

(5,783

)

   

5,463

   

5,129

 

(d)  Income taxes paid in 2001 were $45,249,276 (2000—$26,002,590, 1999—$19,357,381).

 

E-19

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

 

10.    Segment information

 

The Company operates in the Mining and Oil and Gas industries. The operations are evaluated and managed in two segments, namely, Mining royalties and Oil and Gas. Mining royalties include precious metals and base metal royalties and the Company’s exploration interests that are aimed at generating royalties. Oil and Gas operations are largely in Canada.

 

    

Six Months Ended

   

For the Years Ended

    

September 2001

   

September
2000

   

March 2001

   

March 2000

   

March 1999

    

(unaudited)

   

(unaudited)

               

Revenues

                                   

Mining royalties

   

$

37,798

   

$

27,800

   

$

66,030

   

$

64,771

   

$

61,589

Oil & gas

   

 

13,525

   

 

13,342

   

 

29,566

   

 

17,199

   

 

11,188

    
  
  
  
  
    

 

51,323

   

 

41,142

   

 

95,596

   

 

81,970

   

 

72,777

    
  
  
  
  

Operating costs

                                   

Mining royalties

   

 

43

   

 

136

   

 

341

   

 

196

   

 

155

Oil & gas

   

 

328

   

 

337

   

 

800

   

 

1,200

   

 

1,418

    
  
  
  
  
    

 

371

   

 

473

   

 

1,141

   

 

1,396

   

 

1,573

    
  
  
  
  

Depletion and depreciation

                                   

Mining royalties

   

 

2,312

   

 

7,237

   

 

11,555

   

 

11,269

   

 

11,089

Oil & gas

   

 

880

   

 

1,629

   

 

2,301

   

 

3,800

   

 

3,191

    
  
  
  
  
    

$

3,192

   

$

8,866

   

$

13,856

   

$

15,069

   

$

14,280

    
  
  
  
  

 

E-20

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

 

    

Six Months Ended

     

For the Years Ended

  
    

September 2001

     

September 2000

     

March
2001

     

March
2000

     

March
1999

  
    

(unaudited)

     

(unaudited)

                       

Segment income before taxes

                                             

Mining royalties

   

$

35,443

 

   

$

20,427

 

   

$

54,134

 

   

$

53,306

 

   

$

50,345

 

Oil & Gas

   

 

12,317

 

   

 

11,376

 

   

 

26,465

 

   

 

12,199

 

   

 

6,579

 

Provision for mining assets

   

 

—  

 

   

 

—  

 

   

 

(28,216

)

   

 

—  

 

   

 

—  

 

    
  
  
  
  
    

 

47,760

 

   

 

31,803

 

   

 

52,383

 

   

 

65,505

 

   

 

56,924

 

Investment earnings

   

 

22,902

 

   

 

38,960

 

   

 

82,035

 

   

 

38,607

 

   

 

43,330

 

Equity earnings in Normandy

   

 

11,215

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

General and administration

   

 

(3,164

)

   

 

(4,848

)

   

 

(10,688

)

   

 

(7,554

)

   

 

(5,508

)

    
  
  
  
  

Earnings before tax

   

 

78,713

 

   

 

65,915

 

   

 

123,730

 

   

 

96,558

 

   

 

94,746

 

Tax

   

 

(23,598

)

   

 

(21,729

)

   

 

(43,858

)

   

 

(32,563

)

   

 

(31,292

)

    
  
  
  
  

Earnings from continuing operations

   

 

55,115

 

   

 

44,186

 

   

 

79,872

 

   

 

63,995

 

   

 

63,454

 

Discontinued operations

   

 

21,902

 

   

 

16,931

 

   

 

33,573

 

   

 

33,641

 

   

 

5,075

 

    
  
  
  
  

Net earnings

   

 

77,017

 

   

 

61,117

 

   

 

113,445

 

   

 

97,636

 

   

 

68,529

 

    
  
  
  
  

Revenue by geographic area

                                             

USA

   

 

46,975

 

   

 

50,209

 

   

 

114,432

 

   

 

71,772

 

   

 

66,344

 

Canada

   

 

26,054

 

   

 

28,499

 

   

 

60,120

 

   

 

45,228

 

   

 

46,232

 

Australia

   

 

11,215

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

Other

   

 

1,196

 

   

 

1,394

 

   

 

3,079

 

   

 

3,577

 

   

 

3,531

 

    
  
  
  
  
    

 

85,440

 

   

 

80,102

 

   

 

177,631

 

   

 

120,577

 

   

 

116,107

 

    
  
  
  
  

Segment capital expenditures

                                             

Mining royalties

   

 

2,602

 

   

 

1,271

 

   

 

2,265

 

   

 

8,924

 

   

 

61,446

 

Oil & gas

   

 

1,614

 

   

 

1,216

 

   

 

1,830

 

   

 

305

 

   

 

4,355

 

    
  
  
  
  
    

 

4,216

 

   

 

2,487

 

   

 

4,095

 

   

 

9,229

 

   

 

65,801

 

    
  
  
  
  

Identifiable assets by geographic area

                                             

USA

   

 

1,191,180

 

   

 

593,671

 

   

 

1,386,228

 

   

 

521,363

 

   

 

515,581

 

Canada

   

 

39,379

 

   

 

847,441

 

   

 

106,229

 

   

 

824,560

 

   

 

794,514

 

Australia

   

 

349,055

 

   

 

30,628

 

   

 

23,779

 

   

 

31,208

 

   

 

29,943

 

Other

   

 

27,512

 

   

 

42,776

 

   

 

31,514

 

   

 

43,760

 

   

 

49,487

 

    
  
  
  
  
    

 

1,607,126

 

   

 

1,514,516

 

   

 

1,547,750

 

   

 

1,420,891

 

   

 

1,389,525

 

    
  
  
  
  

Identifiable assets by segment

                                             

Mining royalties

   

 

215,263

 

   

 

317,899

 

   

 

172,225

 

   

 

236,483

 

   

 

227,424

 

Oil & gas

   

 

43,997

 

   

 

43,912

 

   

 

44,037

 

   

 

57,149

 

   

 

59,911

 

Mining operations

   

 

—  

 

   

 

193,902

 

   

 

231,371

 

   

 

172,237

 

   

 

176,002

 

    
  
  
  
  

Total assets for reportable segments

   

 

259,260

 

   

 

555,713

 

   

 

447,633

 

   

 

465,869

 

   

 

463,337

 

Cash and investments at cost

   

 

1,347,504

 

   

 

958,506

 

   

 

1,099,811

 

   

 

954,583

 

   

 

925,826

 

Other

   

 

362

 

   

 

297

 

   

 

306

 

   

 

439

 

   

 

362

 

    
  
  
  
  
    

$

1,607,126

 

   

$

1,514,516

 

   

$

1,547,750

 

   

$

1,420,891

 

   

$

1,389,525

 

    
  
  
  
  

 

 

E-21

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

11.    Commitments

 

(a)  Foreign Exchange Contracts

 

Franco has entered into foreign exchange contracts whereunder Franco-Nevada will receive Australian $4 million in June 2002 and 2003 at US$0.5873 and US$0.5882 respectively for each Australian dollar. These contracts were closed out subsequent to March 31, 2001.

 

(b)  Net Profits Interest

 

Franco-Nevada pays the contract operator of the Ken Snyder Mine a 5% net profit interest based upon the Company’s reported pre-tax profit from the mine. The amount of Net Profit Interest expense included in discontinued operations for the three years ended March 31, 2001, 2000 and 1999 is $2.1 million, $2.1 million and $0.4 million, respectively. No expense was incurred for the six month period ended September 30, 2001 as the mine was sold effective April 2, 2001 (See Note 12(a)). The Company incurred an expense of $1.1 million (unaudited) for the six months ended September 30, 2000.

 

12.    Subsequent Event

 

(a)  On April 2, 2001, the Company entered into an agreement with Normandy Mining Limited (“Normandy”), Australia’s largest gold producer, to exchange its Ken Snyder mine, US$48 million, and its Australian assets in return for a 19.99% interest in Normandy. On May 31, 2001 the transaction was consummated and Normandy issued 446.1 million freely-trading ordinary shares to Franco-Nevada. Franco-Nevada retained a minimum 5% NSR royalty over the Midas property, which escalates at gold prices over US$300 per ounce to a maximum of 10% at gold prices over US$400 per ounce.

 

The exchange of assets resulted in a pre-tax gain of $38.6 million to Franco-Nevada and has been classified as “Discontinued operations.” Income taxes of $16.7 million were recorded in connection with the exchange.

 

Amounts included in the consolidated balance sheets relating to discontinued operations are as follows:

 

    

March 2001

     

March 2000

  

Current assets

   

$

31,509

 

   

$

8,863

 

Non-current assets

   

 

223,525

 

   

 

195,237

 

Current liabilities

   

 

(8,880

)

   

 

(2,386

)

Non-current liabilities

   

 

(51,071

)

   

 

(17,486

)

    
  

Net assets of discontinued operations

   

$

195,083

 

   

$

184,228

 

    
  

 

The summarized statements of operations for the discontinued operations are as follows:

 

    

March 2001

     

March 2000

     

March 1999

  

Revenue

   

$

106,641

 

   

$

97,659

 

   

$

19,489

 

Expenses

   

 

(65,738

)

   

 

(50,413

)

   

 

(12,048

)

Taxes

   

 

(7,330

)

   

 

(13,605

)

   

 

(2,366

)

    
  
  

Net earnings from discontinued operations

   

$

33,573

 

   

$

33,641

 

   

$

5,075

 

    
  
  

 

E-22

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

 

The summarized statements of cashflows for the discontinued operations are as follows:

 

    

March 2001

     

March 2000

     

March 1999

  

Operating

   

$

65,948

 

   

$

56,016

 

   

$

4,708

 

Investing

   

 

(33,309

)

   

 

(19,358

)

   

 

(71,339

)

Foreign exchange

   

 

395

 

   

 

(476

)

   

 

118

 

    
  
  

Net cashflow from discontinued operations

   

$

33,034

 

   

$

36,182

 

   

$

(66,513

)

    
  
  

 

(b)  The Company has announced a change of its year end to December 31 effective for the period ended December 31, 2001.

 

13.    Legal Matters

 

(a)  Environmental

 

The Company’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment and believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.

 

(b)  Claims

 

The Company is from time to time involved in various claims, legal proceedings and complaints arising in the ordinary course of business. The Company is also subject to reassessment for income and mining taxes for certain years. It does not believe that adverse decisions in any pending or threatened proceeding related to any potential tax assessments or other matters, or any amount which it may be required to pay by reason thereof, will have material adverse effect on the financial condition or future results of operations of the Company.

 

E-23

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

 

14.    Differences Between Canadian and United States Generally Accepted Accounting Principles

 

Canadian GAAP varies in certain significant respects from the principles and practices generally accepted in the United States (“US GAAP”). The effect of these principal measurement differences on the Company’s consolidated financial statements are quantified below and described in the accompanying notes:

 

Statements of Earnings

(in thousands of Canadian dollars except per share data)

 

    

Six Months Ended

     

For the Years Ended

  
    

September
2001

     

September 2000

     

March 2001

     

March 2000

     

March 1999

  
    

(unaudited)

     

(unaudited)

                       

Net earnings for the period reported under Canadian GAAP

   

$

77,017

 

   

$

61,117

 

   

$

113,445

 

   

$

97,636

 

   

$

68,529

 

Mineral properties expense(a)

   

 

(1,938

)

   

 

(1,890

)

   

 

8,576

 

   

 

(5,236

)

   

 

(7,637

)

Business merger costs(b)

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

(2,821

)

   

 

—  

 

Fair market value adjustment of marketable securities(c)

   

 

12,228

 

   

 

(21,629

)

   

 

(21,971

)

   

 

—  

 

   

 

—  

 

Equity earnings of Normandy Mining Limited(d)

   

 

(23,872

)

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

Income taxes

   

 

3,663

 

   

 

8,239

 

   

 

4,370

 

   

 

2,911

 

   

 

3,101

 

    
  
  
  
  

Net earnings for the period reported under US GAAP before US GAAP difference on discontinued operations and changes in accounting
policy

   

 

67,098

 

   

 

45,837

 

   

 

104,420

 

   

 

92,490

 

   

 

63,993

 

Discontinued operations(e)(f)

   

 

27,385

 

   

 

1,183

 

   

 

213

 

   

 

(1,307

)

   

 

(1,481

)

    
  
  
  
  

Net earnings for the period reported under US GAAP after discontinued operations and before changes in accounting policy

   

 

94,483

 

   

 

47,020

 

   

 

104,633

 

   

 

91,183

 

   

 

62,512

 

Cumulative effect of change in accounting
policy(f)(g)

   

 

—  

 

   

 

(2,467

)

   

 

(2,467

)

   

 

(4,943

)

   

 

—  

 

    
  
  
  
  

Net earnings for the period reported under US GAAP after discontinued operations and changes in accounting policy

   

$

94,483

 

   

$

44,553

 

   

$

102,166

 

   

$

86,240

 

   

$

62,512

 

    
  
  
  
  
(a)   In accordance with United States GAAP, the Company would be required to charge all costs of mineral properties exploration to earnings as incurred until proven economic reserves are established. In fiscal 2001, the Company recorded a provision against mining assets which contains mineral property assets already expensed under US GAAP. This has resulted in a reduction in the provision under US GAAP of $8,576,000.
(b)   Under US GAAP, merger costs are expensed as incurred. Under Canadian GAAP, the costs are considered a capital transaction and netted against capital stock.
(c)   Under US GAAP, the Company wrote down its investment in Aberdeen Asia-Pacific Prime Income Fund (formerly First Australia Prime Income Fund) in September 2000 as it was determined that the investment was permanently impaired under US GAAP guidelines. However, under Canadian GAAP there is no specifically defined period for determining impairment and, in management’s estimation, the investment was determined to be impaired at September 2001. The provision and realized loss recorded under Canadian GAAP in the period ended September 30, 2001 is reversed in the reconciliation as a result of the US GAAP adjustment already being recorded in September 2000. Additionally, under Canadian GAAP, investments in marketable securities are accounted for at cost. Under US GAAP, investments in marketable securities that are classified as available for sale are adjusted to the quoted value of the marketable securities at each period end. Unrealized gains or losses on the marketable securities are recorded in Accumulated other comprehensive income (loss) under US GAAP.
(d)   The Company is required to reflect it’s equity earnings of Normandy Mining Limited for the six months ended September 30, 2001 in accordance with US GAAP.
(e)  

The Company disposed of its Ken Snyder Mine in Nevada and Australian division to Normandy Mining Limited (“Normandy”) of Australia in exchange for an equity interest in Normandy. The gain recognized on

 

E-24

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

 

the transaction under Canadian GAAP has been adjusted for differences between carrying costs of the Ken Snyder Mine and Australian division under US GAAP. The above amounts are net of tax.

(f)   Effective January 1, 2001 the Company implemented Staff Accounting Bulletin (“SAB”) Note 101, Revenue Recognition for US GAAP purposes. According to SAB 101, there are numerous conditions depicting when revenue can be recognized. Under Canadian GAAP, the Company recognizes revenues from mining operations at the time of shipment from the mine site. Revenue from royalty interests are recognized at the time title passes to the Company under terms of the respective agreement. The above amounts are net of tax of $1,328,000.
(g)   Statement of Position 98-5 was adopted during fiscal 2000 which requires start-up costs to be expensed as incurred. Under Canadian GAAP, start-up costs are deferred and amortized over the mine life. The above adjustment is net of tax of $2,362,000.
(h)   The Company accounts for its share options under Canadian GAAP, which in the Company’s circumstances are not different from the amounts that would be determined under the provisions of the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related Interpretations. Accordingly, no compensation expense for its share option plan has been recorded in the consolidated statements of operations for the six months ended September 30, 2000 and 2001 and the fiscal years ending March 31, 2001, 2000 and 1999.
(i)   US GAAP requires different Statement of Operations classifications compared to Canadian GAAP. Equity in earnings of equity method investment (i.e. the Normandy Mining Limited investment) and investment income are generally classified below operating income but before net income.

 

    

Six Months Ended

     

For the Years Ended

  
    

September 2001

   

September 2000

     

March 2001

     

March 2000

     

March 1999

  
    

(unaudited)

   

(unaudited)

                       

Basic earnings per share

                                           

Net earnings per share for the period reported under US GAAP before US GAAP difference on discontinued operations and changes in accounting policy

   

$

0.43

   

$

0.29

 

   

$

0.66

 

   

$

0.58

 

   

$

0.41

 

Discontinued operations(e)(f)

   

 

0.17

   

 

0.01

 

   

 

0.00

 

   

 

(0.01

)

   

 

(0.01

)

    
  
  
  
  

Net earnings per share for the period reported under US GAAP after discontinued operations and before changes in accounting policy

   

 

0.60

   

 

0.30

 

   

 

0.66

 

   

 

0.57

 

   

 

0.40

 

Cumulative effect of changes in accounting policy(f)(g)

   

 

—  

   

 

(0.02

)

   

 

(0.02

)

   

 

(0.03

)

   

 

—  

 

    
  
  
  
  

Net earnings per share for the period reported under US GAAP after discontinued operations and changes in accounting policy

   

$

0.60

   

$

0.28

 

   

$

0.64

 

   

$

0.54

 

   

$

0.40

 

    
  
  
  
  

Weighted average number of common shares outstanding (thousands)

   

 

158,662

   

 

158,631

 

   

 

158,631

 

   

 

158,521

 

   

 

154,898

 

    
  
  
  
  

 

    

Six Months Ended

   

For the Years Ended

    

September 2001

   

September 2000

   

March 2001

   

March 2000

     

March 1999

    

(unaudited)

   

(unaudited)

                 

Statements of Comprehensive Earnings

                                     

Net earnings for the period reported under US GAAP

   

$

94,483

   

$

44,553

   

$

102,166

   

$

86,240

 

   

$

62,512

Other comprehensive earnings (net of tax):

                                     

Foreign currency translation adjustment

   

 

4,485

   

 

21,043

   

 

46,074

   

 

(23,695

)

   

 

27,161

Unrealized (loss)/gain on marketable securities

   

 

374

   

 

49,514

   

 

51,776

   

 

(33,111

)

   

 

9,427

    
  
  
  
  

Comprehensive earnings

   

$

99,342

   

$

115,110

   

$

200,016

   

$

29,434

 

   

$

99,100

    
  
  
  
  

 

The above amounts are net of taxes as follows: September 2001: $272,000, September 2000: $20,867,000, March 2001: $16,913,000, March 2000: ($15,443,000) and March 1999: $4,780,000.

 

E-25

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

 

The statements of comprehensive earnings provide a measure of all changes in equity the company that results from transactions with other than shareholders and other economic events that occur during the period.

 

The combined impact of notes (a) through (i) has been reflected on the Statements of Cash Flows and Balance Sheets below. No additional adjustments are reflected in the tables.

 

    

Six Months Ended

     

For the Years Ended

  
    

September 2001

     

September 2000

     

March 2001

     

March 2000

     

March 1999

  
    

(unaudited)

     

(unaudited)

                       

Statements of Cash Flows

                                             

The following summarizes the cash flow amounts in accordance with US GAAP.

Operating activities

   

$

(19,640

)

   

$

21,466

 

   

$

116,257

 

   

$

52,377

 

   

$

98,546

 

Investing activities

   

 

(164,136

)

   

 

4,683

 

   

 

41,148

 

   

 

(10,596

)

   

 

(253,599

)

Financing activities

   

 

4,818

 

   

 

—  

 

   

 

(55,521

)

   

 

(42,778

)

   

 

99,265

 

Foreign exchange

   

 

198

 

   

 

2,886

 

   

 

8,317

 

   

 

(2,531

)

   

 

8,787

 

Discontinued operations

                                             

Operating

   

 

—  

 

   

 

(20,152

)

   

 

65,781

 

   

 

54,709

 

   

 

3,062

 

Investing

   

 

—  

 

   

 

(22,573

)

   

 

(33,142

)

   

 

(18,051

)

   

 

(69,693

)

Foreign exchange

   

 

—  

 

   

 

(638

)

   

 

395

 

   

 

(476

)

   

 

118

 

Opening cash and cash equivalents

   

 

318,653

 

   

 

175,418

 

   

 

175,418

 

   

 

142,764

 

   

 

256,278

 

Closing cash and cash equivalents

   

 

139,893

 

   

 

161,090

 

   

 

318,653

 

   

 

175,418

 

   

 

142,764

 

Closing cash and short-term investments

   

 

864,053

 

   

 

730,099

 

   

 

939,011

 

   

 

705,714

 

   

 

707,507

 

 

Balance Sheets

 

The following summarizes the balance sheet amounts in accordance with US GAAP where different from the amounts reported under Canadian GAAP.

 

    

September 2001

   

March 2001

   

March 2000

    

Canadian GAAP

   

US
GAAP

   

Canadian GAAP

   

US
GAAP

   

Canadian GAAP

   

US
GAAP

Precious metals

   

$

44,224

   

$

44,224

   

$

13,612

   

$

10,155

   

$

27,584

   

$

27,584

Investments in marketable securities

   

 

134,396

   

 

165,881

   

 

160,800

   

 

179,154

   

 

248,869

   

 

221,578

Resource properties

   

 

179,063

   

 

173,263

   

 

337,757

   

 

286,421

   

 

349,364

   

 

291,844

Investment in Normandy Mining Limited

   

 

349,055

   

 

324,787

   

 

—  

   

 

—  

   

 

—  

   

 

—  

Deferred taxes

   

 

82,437

   

 

73,607

   

 

85,873

   

 

67,577

   

 

62,033

   

 

49,380

Capital stock

   

 

1,026,139

   

 

1,028,960

   

 

1,021,321

   

 

1,024,142

   

 

1,021,321

   

 

1,024,142

Retained earnings

   

 

421,533

   

 

389,981

   

 

382,077

   

 

295,498

   

 

303,601

   

 

248,853

Deferred foreign exchange gain

   

 

74,028

   

 

70,708

   

 

69,619

   

 

66,223

   

 

21,265

   

 

20,149

 

New Standards for Canadian GAAP

 

In late 2000, the Canadian Institute of Chartered Accountants (“CICA”) issued a revised standard, Section 3500, “Earnings Per Share”. Public companies with quarterly reporting requirements must calculate basic and fully diluted earnings per share in accordance with the new standard. Diluted earnings per share will now be calculated using the “Treasury Stock Method”. The new section will be implemented for the fiscal period ended December 31, 2001.

 

E-26

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

 

In August 2000, the CICA issued a new standard, Section 1751, “Interim Financial Statements” effective for interim periods in fiscal years beginning on or after January 1, 2001. This standard requires interim financial statements, at a minimum, to include an income and cash flow statement for the quarter and year to date periods, a balance sheet and a statement of retained earnings along with detailed notes to the financial statements. Management does not expect a significant impact on the financial statements of the Company upon the adoption of the new standard.

 

The CICA recently issued new Handbook Sections 1581, “Business Combinations” and 3062, “Goodwill and Other Intangible Assets”. Effective July 1, 2001, the standards require that all business combinations be accounted for using the purchase method. Additionally, effective January 1, 2002, goodwill and intangible assets with an indefinite life will no longer be amortized to earnings and will be assessed for impairment on an annual basis in accordance with the new standards, including a transitional impairment test whereby any resulting impairment will be charged to opening retained earnings. Management does not expect a significant impact on the financial statements of the Company upon the adoption of the new standard.

 

In March 2000, the Accounting Standards Board of the CICA issued Accounting Guideline No. 11, “Enterprises in the Development Stage”. The guideline addresses three specific issues: (a) capitalization of costs and expenditures, (b) impairment and (c) disclosure. Prior to its issuance, development stage entities were exempt from following certain aspects of Canadian GAAP. This guideline will require that all companies account for transactions based on the underlying characteristics of the transaction rather than the maturity of the enterprise. The guideline is effective no later than fiscal periods beginning on or after April 1, 2000. The Company is aware that there are two alternative views of how this guideline affects mining companies with respect to the capitalization of exploration costs. CICA Handbook Section 3061 “Property, Plant and Equipment” states that “For a mining property, the cost of the asset includes exploration costs if the enterprise considers that such costs have the characteristics of property, plant and equipment.” The Company considers that exploration costs incurred meet the characteristics of property, plant and equipment and accordingly defers such costs. Under the view adopted by the Company, deferred exploration costs would not automatically be subject to regular assessments of recoverability, unless conditions such as those in Accounting Guideline No. 11 exist. Under the alternative view, there would be a regular assessment of capitalized exploration costs. Assessment of the probability of recoverability of deferred exploration costs from future operations would require the preparation of a projection based on objective evidence of economic reserves, such as a feasibility study. The Company’s interpretation of the guideline will not have a significant impact on the financial statements. However, if the second view is accepted, all deferred exploration costs would be written off as of the beginning of fiscal 2001. This write-off would be treated as a change in accounting principle. The result would be a reduction of resource properties of $49.0 million, a decrease to retained earnings of $30.9 million and a reduction to future taxes of $18.1 million. The impact for the fiscal year ended March 31, 2001 would be a reduction in resource properties of $3.5 million, net income of $2.3 million and future taxes of $1.2 million. For the six-month periods ended September 30, 2000 and 2001 the reduction to resource properties, net income and future taxes would be $1.9 million, $1.2 million and $0.7 million, respectively. The CICA is currently evaluating this issue to determine the appropriate interpretation of the guideline and CICA Handbook Section 3061.

 

New Standards for US GAAP

 

In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination and SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination

 

E-27

FRANCO-NEVADA MINING CORPORATION LIMITED

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)

(tabular amounts in thousands of Canadian dollars except where otherwise indicated)

 

whether acquired individually or with a group of other assets. These standards require all future business combinations to be accounted for using the purchase method of accounting. The Company is required to adopt SFAS No. 141 for business combinations after July 1, 2001 and 142 on a prospective basis as of January 1, 2002. Management does not expect a significant impact on the financial statements of the Company upon the adoption of the new standard.

 

The Financial Accounting Standards Board has recently issued FASB No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”. FAS 144 supersedes FAS 121 and the accounting and reporting provisions of APB 30 for segments of a business to be disposed of. The pronouncement is effective January 1, 2002, and will be adopted by the Company at that time. Management does not expect a significant impact on the financial statements of the Company upon the adoption of the new standard.

 

E-28