TC 9.30.2013 10-Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
Or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                   to                                  
Commission File Number: 001-33783
THOMPSON CREEK METALS COMPANY INC.
(Exact name of registrant as specified in its charter)
British Columbia, Canada
(State or other jurisdiction of
incorporation or organization)
 
98-0583591
(I.R.S. Employer
Identification No.)
26 West Dry Creek Circle, Suite 810, Littleton, CO
(Address of principal executive offices)
 
80120
(Zip code)
(303) 761-8801
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o    No ý
As of November 11, 2013, there were 171,452,069 shares of the registrant's common stock, no par value, outstanding.



THOMPSON CREEK METALS COMPANY INC.
TABLE OF CONTENTS
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2




THOMPSON CREEK METALS COMPANY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except share data)
September 30,
 
December 31,
 
2013
 
2012
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
322.8

 
$
526.8

Accounts receivable
44.8

 
52.9

Accounts receivable-related parties
6.5

 
6.4

Product inventory
98.8

 
110.8

Material and supplies inventory
67.8

 
48.4

Prepaid expenses and other current assets
8.1

 
5.8

Income and mining taxes receivable
5.6

 
16.0

Restricted cash
21.8

 
37.1


576.2

 
804.2

Property, plant, equipment and development, net
2,824.4

 
2,538.9

Restricted cash
5.7

 
5.7

Reclamation deposits
7.5

 
30.1

Other assets
27.3

 
31.3


$
3,441.1

 
$
3,410.2

LIABILITIES AND SHAREHOLDERS' EQUITY

 

Current liabilities

 

Accounts payable and accrued liabilities
$
110.6

 
$
128.5

Income, mining and other taxes payable
0.6

 
0.6

Current portion of Gold Stream deferred revenue
22.7

 
—

Current portion of long-term debt
15.3

 
16.6

Current portion of long-term capital lease obligations
20.6

 
14.1

Deferred income tax liabilities
9.4

 
5.9

Other current liabilities
12.3

 
13.8


191.5

 
179.5

Gold Stream deferred revenue
758.8

 
669.6

Long-term debt
910.7

 
921.8

Long-term capital lease obligations
71.6

 
58.0

Other liabilities
7.3

 
5.3

Asset retirement obligations
36.1

 
36.6

Deferred income tax liabilities
105.3

 
137.5


2,081.3

 
2,008.3

Commitments and contingencies (Note 13)

 

Shareholders' equity

 

Common stock, no-par, 171,452,069 and 168,726,984 shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively
1,028.9

 
1,017.9

Additional paid-in capital
229.7

 
233.8

Retained earnings
87.8

 
92.3

Accumulated other comprehensive income (loss)
13.4

 
57.9


1,359.8

 
1,401.9


$
3,441.1

 
$
3,410.2

See accompanying notes to condensed consolidated financial statements.

3


THOMPSON CREEK METALS COMPANY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in millions, except per share amounts)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
REVENUES
 
 
 
 
 
 
 
Molybdenum sales
$
85.7

 
$
72.6

 
$
303.1

 
$
291.8

Tolling, calcining and other
5.1

 
2.3

 
14.2

 
10.2

Total revenues
90.8

 
74.9

 
317.3

 
302.0

COSTS AND EXPENSES
 
 
 
 
 
 
 
Cost of sales
 
 
 
 
 
 
 
Operating expenses
64.1

 
85.7

 
206.4

 
290.8

Depreciation, depletion and amortization
14.4

 
17.0

 
44.7

 
48.1

Total cost of sales
78.5

 
102.7

 
251.1

 
338.9

Selling and marketing
1.4

 
1.4

 
6.4

 
4.5

Accretion expense
0.6

 
0.5

 
2.0

 
1.6

General and administrative
5.1

 
7.0

 
17.7

 
22.1

Exploration
0.7

 
0.5

 
1.3

 
1.9

Total costs and expenses
86.3

 
112.1

 
278.5

 
369.0

OPERATING INCOME (LOSS)
4.5

 
(37.2
)
 
38.8

 
(67.0
)
OTHER (INCOME) EXPENSE
 
 
 
 
 
 
 
Goodwill impairment
—

 
47.0

 
—

 
47.0

Start-up costs
10.2

 
0.2

 
10.3

 
5.3

Change in fair value of common stock purchase warrants
—

 
—

 
—

 
(1.8
)
(Gain) loss on foreign exchange
(24.2
)
 
(21.3
)
 
30.0

 
(20.0
)
Interest and finance fees
0.7

 
1.5

 
0.9

 
4.5

Interest income
(0.4
)
 
(0.5
)
 
(0.9
)
 
(0.9
)
Other
0.2

 
0.1

 
—

 
(0.3
)
Total other (income) expense
(13.5
)
 
27.0

 
40.3

 
33.8

Income (loss) before income and mining taxes
18.0

 
(64.2
)
 
(1.5
)
 
(100.8
)
Income and mining tax expense (benefit)
4.2

 
(16.0
)
 
3.0

 
(38.9
)
NET INCOME (LOSS)
$
13.8

 
$
(48.2
)
 
$
(4.5
)
 
$
(61.9
)
COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
Foreign currency translation
29.4

 
62.0

 
(44.5
)
 
54.4

Total other comprehensive income (loss)
29.4

 
62.0

 
(44.5
)
 
54.4

Total comprehensive income (loss)
$
43.2

 
$
13.8

 
$
(49.0
)
 
$
(7.5
)

 
 
 
 
 
 
 
NET INCOME (LOSS) PER SHARE
 
 
 
 
 
 
 
Basic
$
0.08

 
$
(0.29
)
 
$
(0.03
)
 
$
(0.37
)
Diluted
$
0.06

 
$
(0.29
)
 
$
(0.03
)
 
$
(0.37
)
Weighted-average number of common shares
 
 
 
 
 
 
 
Basic
171.5

 
168.7

 
170.9

 
168.3

Diluted
216.5

 
168.7

 
170.9

 
168.3

See accompanying notes to condensed consolidated financial statements.

4


THOMPSON CREEK METALS COMPANY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
OPERATING ACTIVITIES







Net income (loss)
$
13.8


$
(48.2
)

$
(4.5
)

$
(61.9
)
Items not affecting cash:







Goodwill impairment
—


47.0


—


47.0

Change in fair value of common stock purchase warrants
—


—


—


(1.8
)
Depreciation, depletion and amortization
14.4


17.0


44.7


48.1

Accretion expense
0.6


0.5


2.0


1.6

Amortization of finance fees
—


0.9


—


2.1

Stock-based compensation
1.6


1.5


4.9


4.8

Product inventory write downs
11.8


21.6


23.4


42.5

Deferred income tax benefit
1.4


(11.7
)

(8.9
)

(34.4
)
Unrealized loss on derivative instruments
—


(0.4
)

—


1.7

Unrealized foreign exchange (gain) loss
(24.3
)

(20.0
)

30.0


(21.4
)
Change in working capital accounts (Note 17)
0.2


(4.9
)

(11.6
)

(42.3
)
     Cash generated by (used in) operating activities
19.5


3.3


80.0


(14.0
)
INVESTING ACTIVITIES









Capital expenditures
(112.9
)

(203.7
)

(387.5
)

(584.9
)
Capitalized interest payments
(19.1
)

(1.3
)

(54.5
)

(14.4
)
Restricted cash
3.1


(7.2
)

14.3


4.7

Disposition of assets
—


—


0.2


—

Reclamation refunds
27.9


—


28.1


24.3

Reclamation deposits
(6.8
)

—


(7.0
)

—

     Cash used in investing activities
(107.8
)

(212.2
)

(406.4
)

(570.3
)
FINANCING ACTIVITIES








Proceeds from the Gold Stream Arrangement
12.9


120.0


111.9


210.0

Proceeds from senior unsecured note issuance
—


—


—


200.0

Proceeds from tangible equity units
—


—


—


220.0

Proceeds from sales leaseback transactions
—


49.3


37.8


49.3

Down payments on capital lease transactions
—


—


(4.6
)

—

Repayments of sale leaseback obligations
(3.5
)

—


(7.6
)

—

Repayments of capital lease obligations
(1.5
)

(6.2
)

(5.5
)

(7.4
)
Repayments of long-term debt
(4.6
)

(4.4
)

(12.8
)

(6.6
)
Issuance costs related to equity portion of tangible equity units
—


—


—


(6.4
)
Debt issuance costs
—


(3.0
)

—


(11.2
)
Proceeds (costs) from issuance of common shares, net
0.7


0.6


0.9


(0.3
)
Cash generated by financing activities
4.0


156.3


120.1


647.4

EFFECT OF EXCHANGE RATE CHANGES ON CASH
4.3


2.8


2.3


2.1

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(80.0
)

(49.8
)

(204.0
)

65.2

Cash and cash equivalents, beginning of period
402.8


409.5


526.8


294.5

Cash and cash equivalents, end of period
$
322.8


$
359.7


$
322.8


$
359.7

Supplementary cash flow information (Note 17)
 
 
 
 

 

See accompanying notes to condensed consolidated financial statements.

5


THOMPSON CREEK METALS COMPANY INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 2013
(UNAUDITED)
(in millions, except share data in thousands)
Common Stock
 
Additional Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
 
Shares
 
Amount
 
 
 
 
Balances at December 31, 2012
168,727

 
$
1,017.9

 
$
233.8

 
$
92.3

 
$
57.9

 
$
1,401.9

Amortization of stock-based compensation
—

 
—

 
4.6

 
—

 
—

 
4.6

Shares issued under stock-based compensation programs
616

 
3.9

 
(2.9
)
 
—

 
—

 
1.0

Tax benefit on issuance of tangible equity units
—

 
—

 
1.6

 
—

 
—

 
1.6

Tax benefit of stock option exercises
—

 
—

 
(0.3
)
 
—

 
—

 
(0.3
)
Settlement of prepaid common stock purchase contracts
2,109

 
7.1

 
(7.1
)
 
—

 
—

 
—

Comprehensive loss:


 


 


 


 


 


Net loss
—

 
—

 
—

 
(4.5
)
 
—

 
(4.5
)
Foreign currency translation
—

 
—

 
—

 
—

 
(44.5
)
 
(44.5
)
Total comprehensive loss
—

 
—

 
—

 
—

 
—

 
(49.0
)
Balances at September 30, 2013
171,452

 
$
1,028.9

 
$
229.7

 
$
87.8

 
$
13.4

 
$
1,359.8

See accompanying notes to condensed consolidated financial statements.

6
Table of Contents

THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)



1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. In compliance with those instructions, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”) have been condensed or omitted. This report should be read in conjunction with Thompson Creek Metals Company Inc.'s (“TCM,” “Company,” “we,” “us” or “our”) consolidated financial statements and notes contained in its Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. TCM bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.
Certain prior year amounts in the financial statements have been reclassified to conform to the current year presentation. Start-up costs of $0.2 million and $5.3 million for the three and nine months ended September 30, 2012, respectively, related to the mill expansion at Endako Mine were reclassified from operating expenses to start-up costs in the Consolidated Statements of Operations and Comprehensive Income (Loss) to disclose clearly the expenses related to ramping up to full production capacity. Restricted cash changes and Capital lease payments were reclassified from operating activities to investing activities in the Consolidated Statements of Cash Flows. Cash flow information for the three and nine months ended September 30, 2012 and the year ended December 31, 2012 have been represented for these adjustments. The following tables present the impact of the changes.
(in millions)
 
As Previously Reported
 
As Revised
Three months ended September 30, 2012 (unaudited)
 
 
 
 
Cash generated by (used in) operating activities
 
$
(18.8
)
 
$
3.3

Cash (used in) investing activities
 
(186.3
)
 
(212.2
)
Effect of exchange rate changes on cash
 
(1.0
)
 
2.8

(in millions)
 
As Previously Reported
 
As Revised
Nine months ended September 30, 2012 (unaudited)
 
 
 
 
Cash (used in) operating activities
 
$
(36.1
)
 
$
(14.0
)
Cash (used in) investing activities
 
(544.4
)
 
(570.3
)
Effect of exchange rate changes on cash
 
(1.7
)
 
2.1

(in millions)
 
As Previously Reported
 
As Revised
Year ended December 31, 2012
 
 
 
 
Cash (used in) operating activities
 
$
(82.8
)
 
$
(28.2
)
Cash (used in) investing activities
 
(762.7
)
 
(811.9
)
Cash generated by financing activities
 
1,077.3

 
1,071.8

Effect of exchange rate changes on cash
 
0.5

 
0.6


7
Table of Contents

THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)


The condensed consolidated financial statements include the accounts of TCM and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Financial amounts are presented in United States (“US”) dollars unless otherwise stated. References to C$ are Canadian dollars.
2. Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. Accounts receivable included trade receivables of $36.5 million and other receivables of $8.3 million as of September 30, 2013. Accounts receivable as of December 31, 2012 included trade receivables of $34.6 million and other receivables of $18.3 million. Other receivables primarily consisted of $5.0 million of Canadian Goods and Services Tax refundable to TCM as of September 30, 2013 and $12.9 million of Canadian Harmonized Sales Tax refundable to TCM as of December 31, 2012.
3. Inventory
The carrying value of product inventory was as follows:
(in millions)
 
September 30,
2013
 
December 31,
2012
Finished product
 
$
42.2

 
$
53.5

Work-in-process
 
29.3

 
32.3

Stockpiled material
 
27.3

 
25.0

 
 
$
98.8

 
$
110.8

As of September 30, 2013, the carrying value of TCM's in process and finished product inventory was $98.8 million, net of lower-of-cost-or-market write downs. Total write downs were $13.7 million and $27.6 million for the three and nine months ended September 30, 2013, respectively. Inventory write downs in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2013 included $5.4 million and $17.0 million, respectively, of inventory write downs in operating expenses and $1.0 million and $3.3 million, respectively, of inventory write downs in depreciation, depletion and amortization. In addition, for the three and nine months ended September 30, 2013, $7.3 million of inventory write downs are included in start-up costs, of which $0.9 million are related to depreciation, depletion, and amortization.
As of September 30, 2012, the carrying value of TCM's in process and finished product inventory exceeded the market value. Total write downs were $29.5 million and $57.2 million for the three and nine months ended September 30, 2012, respectively. Inventory write downs in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 included $21.6 million and $42.5 million, respectively, of inventory write downs in operating expenses and $7.9 million and $14.7 million, respectively, of inventory write downs in depreciation, depletion and amortization.
4. Property, Plant, Equipment and Development, net
Property, plant, equipment and development, net was comprised of the following:
(in millions)
 
September 30,
2013
 
December 31,
2012
Mining properties and mineral reserves
 
$
893.3

 
$
978.0

Mining and milling equipment and facilities
 
1,883.7

 
467.5

Processing facilities
 
166.4

 
165.8

Construction-in-progress
 
87.1

 
1,089.0

Other
 
18.6

 
18.2

 
 
3,049.1

 
2,718.5

Less: Accumulated depreciation, depletion and amortization
 
(224.7
)
 
(179.6
)
 
 
$
2,824.4

 
$
2,538.9


8
Table of Contents
THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




The construction-in-progress balance included $74.5 million and $1,079.8 million related to TCM's Mt. Milligan project under construction in British Columbia ("Mt. Milligan") as of September 30, 2013 and December 31, 2012, respectively.
Capitalized assets related to Endako Mine, an open pit molybdenum mine in British Columbia in which TCM owns a 75% joint venture interest (the "Endako Mine"), were subject to an asset impairment during the year ended December 31, 2012. See Note 6 of TCM's 2012 Form 10-K for further discussion of the asset impairment.
Allowances, which will be used to offset future taxable income, generated from qualifying new mine development costs were included as reductions to property, plant, equipment and development in the Condensed Consolidated Balance Sheets by $67.0 million and $55.4 million as of September 30, 2013 and December 31, 2012, respectively.
5. Impairments
During the third quarter of 2013, we negotiated a contract with U.S. Energy to sell land originally acquired by one of our subsidiaries for easements related to the Mt. Emmons project, in respect of which we terminated our interest in 2011. See Note 21 for further discussion. We assessed the impact of this contract on the carrying value of the land, and recorded a pre-tax, non-cash write down of the land value of $0.8 million, representing a write down to the land's fair value of $1.2 million.
During the third quarter of 2012, TCM suspended waste stripping activity associated with the next phase of production at TC Mine. This decision coupled with declines in molybdenum prices represented significant changes in our business requiring us to evaluate our goodwill for impairment on an enterprise-wide basis at September 30, 2012. For purposes of this evaluation, estimates of after-tax discounted future cash flows of the individual reporting units were used. The estimated cash flows were derived from life-of-mine plans developed using long-term analyst consensus pricing reflective of the current price environment and management’s projections for operating costs. As a result of this evaluation, an impairment charge of $47.0 million was recorded for the three and nine months ended September 30, 2012. There were no long-lived asset impairments during the three or nine months ended September 30, 2012.
These impairment charges were included in total other (income) expense in our Consolidated Statements of Operations and Comprehensive Income (Loss) and excluded from our non-GAAP measures of adjusted net income (loss) and adjusted net income (loss) per share-basic and diluted. See "Non-GAAP Financial Measures" in Item 2 for the definition and calculation of adjusted net income (loss).
6. Derivative Financial Instruments
TCM enters into various derivative financial instruments in its normal course of operations, including, but not limited to, provisionally-priced and fixed-price contracts to buy or sell molybdenum, commodity forward contracts, forward currency contracts and common stock purchase warrant contracts. None of TCM's derivative instruments were treated as hedges for accounting purposes and all were recorded in the Condensed Consolidated Balance Sheets at fair value with changes in fair value recorded in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), except those contracts for which TCM has elected to apply the normal purchases and normal sales scope exception.
TCM is exposed to credit loss when counterparties with which it has entered into derivative transactions are unable to pay. To reduce counterparty credit exposure, TCM deals primarily with large, credit-worthy financial institutions and companies and limits credit exposure to each. TCM believes the counterparties to the contracts to be credit-worthy entities, and therefore, TCM believes credit risk of counterparty non-performance is relatively low.
The fair value of TCM's assets and liabilities measured at fair value on a recurring basis was immaterial to TCM's Condensed Consolidated Balance Sheets at September 30, 2013 and December 31, 2012.
For the three and nine months ended September 30, 2013, the impact of derivative instruments was immaterial to TCM's Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
For the three and nine months ended September 30, 2012, TCM recorded $1.2 million and $1.8 million, respectively, of gain and loss, respectively, within Loss on foreign exchange and nil and $1.8 million, respectively, of gains within Change in fair value of common stock purchase warrants in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The impact of other derivative instruments was immaterial to TCM's Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
7. Fair Value Measurement

9
Table of Contents
THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




US GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standards establish a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1
 
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2
 
Quoted prices in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3
 
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The following table sets forth TCM's liabilities measured at fair value by level within the fair value hierarchy. As required, liabilities were classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
(in millions)
 
Fair Value at September 30, 2013
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Liabilities:
 
 
 
 
 
 
 
 
Senior secured notes
 
$
386.4

 
$
—

 
$
386.4

 
$
—

Senior unsecured notes
 
513.2

 
—

 
513.2

 
—

Tangible equity units (tMEDS) (see Note 11)
 
18.9

 
—

 
—

 
18.9

 
 
$
918.5

 
$
—

 
$
899.6

 
$
18.9

(in millions)
 
Fair Value at December 31, 2012
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Liabilities:
 
 
 
 
 
 
 
 
Senior secured notes
 
$
363.5

 
$
—

 
$
363.5

 
$
—

Senior unsecured notes
 
478.9

 
—

 
478.9

 
—

Tangible equity units (tMEDS) (see Note 11)
 
27.8

 
—

 
—

 
27.8

 
 
$
870.2

 
$
—

 
$
842.4

 
$
27.8

The sensitivity to changes in the unobservable inputs and their impact on the fair value measurement of senior secured and unsecured notes can be significant. The significant unobservable inputs for the senior secured notes, senior unsecured notes and tMEDS are risk-free interest rates and credit spread assumptions. The risk-free interest rate and the credit spread are negatively correlated to the fair value measure. An increase in risk-free interest rates or the credit spread will decrease the fair value measure, and vice versa. TCM determined the fair value of senior secured and unsecured notes using a discounted cash flow valuation model, consisting of inputs such as risk-free interest rates and credit spreads. TCM determined the fair value of the debt component of tMEDS using a discounted cash flow model by obtaining yields for comparably-rated issuers trading in the market, considering the market yield of existing TCM debt and the credit rating of TCM.
There were no transfers into or out of Level 3 during the three and nine months ended September 30, 2013. TCM's policy is to recognize transfers into and out of Level 3 as of the actual date of the event or change in circumstances.
8. Leases
Capital Leases
On June 14, 2013, we entered into a sale-leaseback transaction with Caterpillar Financial Services Limited ("Caterpillar") with respect to certain Endako Mine equipment (the "Endako Sale Lease-Back"). We received $5.3 million in cash from Caterpillar for the sale of this equipment, which was subsequently leased back, after an upfront down payment of $1.4 million.

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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




The lease is considered to be a capital lease, with interest payments based on a fixed rate of 5.85%. The agreement includes certain non-financial covenants, and as of September 30, 2013, we were in compliance with these covenants. As of September 30, 2013, this resulted in a capital lease obligation of $3.8 million. For the three and nine months ended September 30, 2013, TCM incurred and paid $0.1 million of interest associated with the Endako Sale Lease-Back.
On March 30, 2011, TCM entered into an equipment financing facility with Caterpillar, as amended from time to time (the "Equipment Facility"), pursuant to which Caterpillar agreed to underwrite up to $132.0 million in mobile fleet equipment financing for the Mt. Milligan project. Each borrowing under the Equipment Facility represents a capital lease and has a term of 48 or 60 months. Interest on the amounts borrowed under the Equipment Facility is payable at either a floating rate of LIBOR+3.45% or fixed rates ranging from 5.30% to 5.60%, at TCM's option. TCM's ability to borrow under the Equipment Facility terminates in September 2014 (as agreed by Caterpillar), and any unused commitments under the Equipment Facility will then terminate and no longer be available to TCM. At the end of each 48- or 60-month lease period, TCM has the option to purchase the underlying equipment for a nominal sum. The Equipment Facility includes non-financial covenants, and as of September 30, 2013, TCM was in compliance with these covenants.
During the first half of 2013, TCM entered into two additional sale-leaseback transactions with Caterpillar under the Equipment Facility. Interest payments are based on a fixed rate of 5.50%.
As of September 30, 2013, TCM had received $37.8 million in cash from Caterpillar for the sale of equipment, which was subsequently leased back. The leases are considered capital leases resulting in an increase to TCM's capital lease obligation of $33.2 million after upfront payments of $4.6 million.
As of September 30, 2013, TCM had $88.4 million in outstanding borrowings under the Equipment Facility. As of December 31, 2012, TCM had $72.1 million in outstanding borrowings under the Equipment Facility.
Interest pertaining to the Equipment Facility is allocable to the cost of developing mining properties and to constructing new facilities and is capitalized until assets are ready for their intended use. For the three and nine months ended September 30, 2013, TCM capitalized $0.9 million and $3.7 million, respectively, of the interest and debt issuance costs associated with the Equipment Facility, and paid $1.4 million and $3.5 million, respectively, of interest related to the Equipment Facility.
During the three and nine months ended September 30, 2012, TCM capitalized $0.5 million and $0.8 million, respectively, of interest and debt issuance costs associated with the Equipment Facility and paid $0.1 million and $0.4 million, respectively, of interest related to the Equipment Facility.
Beginning in September 2013, in conjunction with the start-up phase at Mt. Milligan, TCM ceased capitalizing the interest and debt issuance costs associated with the leases under the Equipment Facility for Mt. Milligan as the related assets were placed in service. During the three and nine months ended September 30, 2013, TCM expensed $0.5 million of interest and debt issuance costs associated with the Equipment Facility.
TCM's total capital lease obligations consisted of the following:
(in millions)
 
September 30, 2013

 
December 31, 2012

Equipment capital leases
 
$
25.3

 
$
29.8

Equipment facility sales-leaseback
 
63.1

 
42.3

Total obligation under equipment facility
 
88.4

 
72.1

Endako sale-leaseback
 
3.8

 
—

Total capital lease obligation
 
$
92.2

 
$
72.1

9. Debt
TCM's total debt consisted of the following:

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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




(in millions)
 
September 30, 2013

 
December 31, 2012

Senior secured notes, net of discount
 
$
347.2

 
$
346.8

Senior unsecured notes
 
550.0

 
550.0

tMEDS
 
22.3

 
30.6

Equipment loans
 
6.3

 
10.6

Other
 
0.2

 
0.4

Total debt
 
926.0

 
938.4

Less: current portion
 
(15.3
)
 
(16.6
)
Total long-term debt
 
$
910.7

 
$
921.8

9.75% Senior Secured Notes
On November 27, 2012, TCM issued $350.0 million of 9.75% senior secured notes that mature on December 1, 2017 (the “2017 Notes”). The proceeds received in the offering were $336.8 million, net of financing fees of $10.0 million and a discount of $3.2 million.
Interest on the 2017 Notes is payable on February 1 and August 1 of each year, and the first interest payment occurred on February 1, 2013. For the three and nine months ended September 30, 2013, TCM paid $17.0 million and $23.1 million of interest, respectively. For the three and nine months ended September 30, 2013, TCM capitalized $9.2 million and $27.5 million, respectively, of the interest, discount amortization and debt issuance costs related to the 2017 Notes. See Note 10 of TCM's 2012 Form 10-K for further discussion.
For purposes of the fair market value disclosed in Note 7, the carrying value of the 2017 Notes as of September 30, 2013 was lower than their fair value of approximately $386.4 million.
12.5% Senior Unsecured Notes
On May 11, 2012, TCM issued $200.0 million of 12.5% senior unsecured notes that mature on May 1, 2019 (the “2019 Notes”). The proceeds received in the offering were $193.1 million, net of financing fees of $6.9 million.
Interest on the 2019 Notes is payable on May 1 and November 1 of each year, and the first interest payment occurred on November 1, 2012. For the nine months ended September 30, 2013, TCM paid $12.5 million of interest. For the three and nine months ended September 30, 2013, TCM capitalized $6.5 million and $19.5 million, respectively, of interest and debt issuance costs associated with the 2019 Notes. See Note 10 of TCM's 2012 Form 10-K for further discussion.
For purposes of the fair market value disclosed in Note 7, the carrying value of the 2019 Notes as of September 30, 2013 was lower than their fair value of approximately $206.5 million.
7.375% Senior Unsecured Notes
On May 20, 2011, TCM issued $350.0 million of 7.375% senior unsecured notes that mature on June 1, 2018 (the "2018 Notes"). The proceeds received in the offering were $339.9 million, net of financing fees of $10.1 million.
Interest is payable on June 1 and December 1 of each year, and the first interest payment occurred on December 1, 2011. For the nine months ended September 30, 2013, TCM paid $12.9 million of interest. For the three and nine months ended September 30, 2013, $6.8 million and $20.4 million, respectively, of interest and debt issuance costs related to the 2018 Notes was capitalized. See Note 10 of TCM's 2012 Form 10-K for further discussion.
For purposes of fair market value disclosed in Note 7, the carrying value of the 2018 Notes as of September 30, 2013 was higher than their fair value of approximately $306.7 million.
Mobile Mining Equipment Loans
On December 8, 2010, TCM executed an equipment financing agreement with Caterpillar in the amount of $12.8 million secured by six units of mobile mining equipment purchased by TCM during 2010. This fixed-rate loan bears interest at 3.6%, is scheduled to mature no later than December 8, 2015 and has an outstanding payable amount of $6.0 million as of September 30, 2013. TCM has an additional fixed-rate loan with Caterpillar bearing interest at 5.9% that is scheduled to mature no later than October 31, 2013 and has an outstanding payable amount of $0.3 million as of September 30, 2013.

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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




10. Gold Stream Arrangement
Pursuant to an agreement dated October 2010, as subsequently amended in December 2011 and August 2012, with a subsidiary of Royal Gold, Inc. ("Royal Gold") (referred to as the "Gold Stream Arrangement"), TCM agreed to sell Royal Gold 52.25% of the refined gold production from Mt. Milligan for a total upfront payment of $781.5 million plus $435 per ounce, or the prevailing market rate if lower than $435 per ounce, when the gold is delivered. Pursuant to this Gold Stream Arrangement, through September 30, 2013, TCM has received total cash payments of $781.5 million from Royal Gold, comprised of a payment of $12.9 million on September 1, 2013, $37.0 million on June 1, 2013, $62.0 million on March 4, 2013, and payments of $305.0 million in 2012, $138.1 million in 2011 and $226.5 million in 2010.
TCM must maintain a deposit record during the term of the Gold Stream Arrangement wherein TCM reduces the $781.5 million paid by Royal Gold by the difference between the current market price, if higher than $435 per ounce at the time of a sale of refined gold to Royal Gold, and $435 per ounce, multiplied by the amount of refined gold sold in such sale. If, at the end of the initial 50-year term of the agreement, the total deposit amount reflected in the deposit record has not been reduced to nil, TCM must pay to Royal Gold the remaining balance reflected in the deposit record.
Royal Gold has a security interest in all of the Mt. Milligan assets until its total deposit amount has been reduced to nil. Royal Gold's security interest is subject to subordination to project or corporate financings by TCM, except that, in such circumstances, Royal Gold retains a first priority interest in 52.25% of the refined gold from Mt. Milligan. The agreement with Royal Gold also restricts TCM's ability to incur debt in excess of $350 million that is secured by the Mt. Milligan assets until the earlier of the date upon which 425,000 ounces of refined gold have been sold and delivered to Royal Gold pursuant to the agreement or the date upon which the aggregate dollar amount of the difference between the market price for the gold delivered to Royal Gold under the agreement and the price actually paid by Royal Gold pursuant to the terms of the agreement exceeds $280 million. After the total deposit amount has been reduced to nil, Royal Gold's security will consist solely of its first priority interest in 52.25% of the refined gold. The cash payments received under the Gold Stream Arrangement are recorded as deferred revenue in TCM's Condensed Consolidated Balance Sheets. Once Mt. Milligan is in production and begins delivering gold to Royal Gold, the liability will be amortized over the life of the mine based on the amount of gold delivered.
In the event of any default under the Gold Stream Arrangement, Royal Gold could require TCM to repay the deposits received from Royal Gold, which amounts totaled $781.5 million as of September 30, 2013.
11. Tangible Equity Units (tMEDS)
On May 11, 2012, TCM completed a public offering of 8,800,000 tMEDS with a stated value of $25.00 each. Each tMEDS unit consists of a prepaid common stock purchase contract and a senior amortizing note due May 15, 2015. The prepaid common stock purchase contracts were recorded as additional paid-in-capital (a component of shareholders' equity), net of issuance costs, and the senior amortizing notes, which bear interest at 11.68% per annum, were recorded as long-term debt. Issuance costs associated with the debt component were recorded as deferred financing costs within other assets on the Condensed Consolidated Balance Sheets, and are being amortized using the straight-line method over the term of the instrument to May 15, 2015. The unamortized deferred financing costs related to the tMEDS were $0.7 million as of September 30, 2013. For the three and nine months ended September 30, 2013, TCM paid $0.7 million and $2.4 million, respectively, in interest and capitalized interest and debt issuance costs of $0.8 million and $2.6 million, respectively, associated with tMEDS. For each of the three and nine months ended September 30, 2012, TCM paid $1.1 million and capitalized interest and debt issuance costs of $1.2 million and $1.8 million, respectively, associated with tMEDS.
At any time prior to the third business day immediately preceding May 15, 2015, the holder of a purchase contract may settle such purchase contract early. Purchase contracts settled prior to November 10, 2012 were settled at 4.3562 shares, which is 95% of the minimum settlement rate. Purchase contracts settled on or after November 11, 2012 but prior to the third business day preceding May 15, 2015 are settled for 4.5855 shares, subject in either case to certain adjustments. No purchase contracts were settled and no shares of common stock were issued relating to the tMEDS during the three months ended September 30, 2013. During the nine months ended September 30, 2013, holders settled 460,000 purchase contracts, and TCM issued 2,109,330 shares of common stock. No purchase contracts were settled and no shares of common stock were issued relating to the tMEDS during 2012.
For purposes of the fair market value disclosed in Note 7, the carrying values of the tMEDS as of September 30, 2013 were higher than their fair values of approximately $18.9 million.

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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




12. Stock-Based Compensation
Long-Term Incentive Plan
On May 6, 2010, TCM's shareholders approved the 2010 Long-Term Incentive Plan ("LTIP"). The LTIP allows TCM to grant stock options, share appreciation rights, restricted shares, restricted share units ("RSUs"), performance share units ("PSUs") or shares granted as bonus compensation. As of September 30, 2013, TCM has granted stock options, PSUs and RSUs under the LTIP, as discussed below.
TCM does not realize a tax benefit for stock-based awards granted to Canadian employees under the current Canadian tax law.
i)   Stock Options
The expiration date and vesting provisions of stock options granted are established at the time an award is made. Stock options generally vest over three years and are exercisable over a period of time not to exceed 10 years from the grant date but generally expire five years from the grant date. When an option is exercised, TCM issues the requisite shares from authorized but unissued common stock. The exercise price of options granted prior to March 1, 2011 is equal to the greater of: (i) the volume 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 grant date occurs in a trading black-out period, the weighted-average trading price over the five consecutive trading days immediately after the black-out period has been lifted. The exercise price of options granted after March 1, 2011 is equal to the volume weighted-average trading price of the underlying shares over the five consecutive trading days immediately before the grant date.
The following table summarizes stock option activity during the nine months ended September 30, 2013:
(options in thousands)
 
Options
 
Weighted-Average
Exercise Price
 
 
(000's)
 
(a)
Stock options outstanding at January 1, 2013
 
2,459

 
$
11.50

Granted
 
366

 
3.43

Exercised
 
—

 
—

Canceled/expired/forfeited
 
(564
)
 
12.99

Stock options outstanding at September 30, 2013
 
2,261

 
$
9.83

(a)
The weighted-average exercise price of options outstanding is shown in US dollars as the majority of the options granted starting in 2011 have an exercise price denominated in US dollars. Options with a Canadian dollar strike price have been converted to US dollars for disclosure purposes using the exchange rates on the respective date of grant.
For the three and nine months ended September 30, 2013, TCM recorded compensation expense related to stock options of $0.1 million and $0.5 million, respectively.
For the three and nine months ended September 30, 2012, TCM recorded compensation expense related to stock options of $0.2 million and $0.8 million, respectively.
ii)    Performance Share Units
The following table summarizes the PSU activity during the nine months ended September 30, 2013:
(units in thousands)
 
Units
 
Weighted-Average
Fair Value
 
 
(000's)
 
 
Outstanding at January 1, 2013
 
845

 
$
11.95

PSUs granted
 
933

 
4.21

Canceled/expired/forfeited
 
(242
)
 
11.89

Outstanding at September 30, 2013
 
1,536

 
$
7.26


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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




The vesting of the PSUs granted prior to January 1, 2012 is contingent upon the performance of TCM's share price relative to the established award price. At each anniversary date during the vesting period, if the per share closing price of TCM's common stock on such date is at or higher than the award price, then the awards will vest one-third on each anniversary date, and the requisite shares will be issued from authorized but unissued common stock. If the closing price is less than the award price, and therefore, the market condition is not achieved, then those PSUs do not vest and are carried forward to the following anniversary date. PSUs not vested at the end of the three-year vesting period will expire.
The vesting of the PSUs granted during 2013 and 2012 is contingent upon two performance metrics: 1) TCM's Total Shareholder Return (TSR) relative to the Russell 2000 Index during the three-year performance period and 2) the proven and probable mine reserves replaced by TCM during the three-year performance period. The PSUs cliff vest three years from the date of issuance upon achievement of the above metrics.
All PSUs granted are accounted for at fair value using a Monte Carlo simulation valuation model on the date of grant. The Monte Carlo model is based on random projections of stock price paths. Expected volatility is calculated using a weighted average of historical daily volatilities and implied volatility and represents the extent to which TCM's stock price performance is expected to fluctuate during each of the three calendar-year periods of the award's anticipated term.
For the three and nine months ended September 30, 2013, TCM recorded compensation expense related to the PSUs of $0.7 million and $2.0 million, respectively.
For the three and nine months ended September 30, 2012, TCM recorded compensation expense related to the PSUs of $0.7 million and $2.0 million, respectively.
iii)     Restricted Stock Units
The following table summarizes RSU activity during the nine months ended September 30, 2013:
(units in thousands)
 
Units
 
Weighted-Average
Fair Value
 
 
(000's)
 
 
Outstanding at January 1, 2013
 
534

 
$
9.30

RSUs granted
 
965

 
3.31

RSUs vested and common shares issued
 
(259
)
 
9.35

Canceled/expired/forfeited
 
(60
)
 
6.62

Outstanding at September 30, 2013
 
1,180

 
$
4.52

TCM accounts for RSUs at fair value, which is based on the market value of TCM's common shares on the day of grant and recognized over the vesting period of three years. Upon vesting, TCM will issue the requisite shares from authorized but unissued common stock.
For the three and nine months ended September 30, 2013, TCM recorded compensation expense related to the RSUs of $0.6 million and $1.9 million, respectively.
For the three and nine months ended September 30, 2012, TCM recorded compensation expense related to the RSUs of $0.7 million and $1.8 million, respectively.
13. Commitments and Contingencies
Legal Matters
Below are descriptions of certain legal actions that involve certain properties of TCM. Although the results of legal actions cannot be predicted with certainty, it is the opinion of management that the resolution of these actions is not likely to have a material adverse effect on TCM's future consolidated financial position, results of operations or cash flows.
In May 2010, the Stellat'en First Nation filed a petition in the Supreme Court of British Columbia against the British Columbia Minister of Energy, Mines and Petroleum Resources and TCM alleging that Endako Mine and the mill expansion project at Endako Mine represent infringements of the aboriginal title of the petitioners and impacts to their aboriginal rights, and that the government breached its duty to consult with the Stellat'en First Nation in relation to the impacts of Endako Mine

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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




and the mill expansion. The petitioners sought a declaration that the Provincial Crown did not fulfill its duty to consult with them in relation to the mill expansion project, a declaration that the mining permits and/or tenures held by TCM are invalid, an order quashing or setting aside the decision to issue a permit amendment to TCM and an injunction prohibiting further construction or alterations relating to the mill expansion project. The matter was heard by the Supreme Court of British Columbia in a hearing that took place in the first quarter of 2011. In August 2011, the Court dismissed the petitioners' claims in full. The Stellat'en First Nation subsequently filed a notice of appeal from that decision to the Court of Appeal of British Columbia seeking to have the decision of the Supreme Court of British Columbia set aside and seeking an order staying the permit amendment and any future permitting until the Province has engaged in further consultation. The government and TCM filed materials in response to the notice of appeal, and the matter was heard by the Court of Appeal in a hearing that took place in November 2012. In September 2013, the Court dismissed the petitioners’ appeal in full.
In April 2012, the Stellat'en First Nation filed a new petition in the Supreme Court of British Columbia against the British Columbia Minister of Energy, Mine and Petroleum Resources and TCM making similar allegations to those discussed above in relation to a new permit amendment and new water license granted to TCM in March 2012 for Endako Mine. In April 2012, the parties agreed to put this matter into abeyance. No date for hearing the new petition has been set.
Molybdenum Purchases
In the normal course of operations, TCM enters into agreements for the purchase of molybdenum. As of September 30, 2013, TCM had commitments to purchase approximately 8.9 million pounds of molybdenum sulfide concentrate throughout the remainder of 2013 to 2016, to be priced at a discount to the market price for molybdenum oxide at the time of purchase.
Molybdenum Sales
In the normal course of operations, TCM enters into certain molybdenum sales contracts where it sells future production at fixed prices. As of September 30, 2013, TCM had commitments to sell approximately 231,000 pounds of molybdenum oxide for the remainder of 2013 through 2015 at an average price of $13.20 per pound.
Copper Concentrate Sales Agreements
In 2012, TCM entered into three copper concentrate sales agreements, whereby TCM, among other things, agreed to sell an aggregate of approximately 85% of the copper-gold-silver concentrate produced at Mt. Milligan during 2013 and 2014 and an aggregate of approximately 120,000 dry metric tons (“DMT”) in each of the two calendar years thereafter. Under one of the agreements, TCM has the option to sell to the counterparty, and the counterparty has the obligation to purchase from TCM, additional concentrate up to an amount equal to 40,000 DMT per year during each of 2015 and 2016. Pricing under these concentrate sales agreements will be determined by reference to specified published reference prices during the applicable quotation periods. Payment for the concentrate will be based on the price for the agreed copper, gold and silver content of the shipments delivered, less smelting and refining charges and certain other deductions, if applicable. The copper smelting and refining charges will be negotiated in good faith and agreed by the parties for each contract year based on terms generally acknowledged as industry benchmark terms. The gold and silver refining charges are as specified in the agreements.
Capital Purchase Commitments
As of September 30, 2013, TCM had open purchase orders, contracts and capital purchase commitments of $9.7 million for engineering and equipment related to the development of Mt. Milligan and open purchase orders, contracts and capital purchase commitments of $20.0 million for the development of the permanent operations residence at Mt. Milligan.
Other Commitments and Contingencies
In April 2010, TCM entered into a credit support agreement with British Columbia Hydro and Power Authority ("BC Hydro") related to the mill expansion project at Endako Mine. Under this agreement, TCM was required to post financial assurance in an amount equal to BC Hydro's estimated out-of-pocket costs for work on the Endako mill expansion project. The amount of the financial assurance as of June 30, 2013 was approximately C$16.5 million, comprised of a guarantee for C$5.3 million and a surety bond for approximately C$11.2 million. In September 2013, BC Hydro completed its scheduled review of incremental revenues generated from Endako Mine and released TCM from the C$5.3 million guarantee and the approximate C$11.2 million surety bond. As of September 30, 2013, TCM has no further obligation to provide financial assurance to BC Hydro under the credit support agreement.

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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




In October 2012, in contemplation of the deferral of Phase 8 stripping activities, TCM entered into arrangements with certain employees of TC Mine designed to retain and reward eligible employees for their contribution to the continued successful operation of TC Mine through the end of Phase 7. Employees who are eligible for participation in these arrangements are to be paid within 60 days of the end of Phase 7, as determined by the Company.
During the third quarter of 2013, TCM replaced certain reclamation bond arrangements relating to Endako Mine and Mt. Milligan with letters of credit secured by a guarantee and cash collateral. Under the arrangements, the ACE Group, a surety company, provided a guarantee to Export Development Canada ("EDC"), who provided a guarantee to Royal Bank of Canada ("RBC"), who issued letters of credit to the British Columbia Ministry of Energy and Mines. In exchange for the surety company's guarantee, TCM has provided $7.0 million of cash collateral to the ACE Group and will pay total annual fees of approximately 1.7% of the total reclamation bond guarantee to the ACE Group, EDC, and RBC.
Three contractors have asserted claims pertaining to work performed under contracts relating to the construction of Mt. Milligan. The claims primarily relate to alleged productivity losses or alleged delays. The Company believes the claims are without merit and intends to defend itself vigorously in connection with such claims.
14. Income and Mining Tax Expense (Benefit)
Income and mining taxes for the three months ended September 30, 2013 and 2012 was an expense of $4.2 million and a benefit of $16.0 million, respectively. Income and mining taxes for the nine months ended September 30, 2013 and 2012 was an expense of $3.0 million and a benefit of $38.9 million, respectively. The tax expense for the three and nine months ended September 30, 2013 differs from the tax that would result from applying the Canadian federal and provincial income tax rates primarily due to the following items: the US percentage depletion benefit; the pre-tax Endako Mine book loss, which has no tax benefit as a result of a valuation allowance recognized, in part, as a result of the asset impairment in the fourth quarter of 2012; and the increase in our deferred tax liabilities as a result of an increase in the British Columbia provincial income tax rate. The tax expense for the nine months ended September 30, 2013 also differs due to the reduction of a valuation allowance, in part, as a result of the tax treatment of interest expense. The tax expense for the three and nine months ended September 30, 2013 included $0.4 million loss on foreign exchange. The tax benefit for the three and nine months ended September 30, 2012 differs from the tax that would result from applying the Canadian federal and provincial income tax rates primarily due to the US percentage depletion benefit and a non-taxable loss due to the goodwill impairment. The tax benefit for the nine months ended September 30, 2012 was also impacted by an immaterial correction of $1.8 million related to the British Columbia mineral tax associated with TCM's share of the mill expansion costs at Endako Mine. The adjustment relates to the three months ended December 31, 2011.

15. Net Income (Loss) per Share
The following is a reconciliation of net income (loss) and weighted-average common shares outstanding for purposes of calculating diluted net loss per share for the three and nine months ended September 30, 2013 and 2012:
(in millions, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2013
 
2012
 
2013
 
2012
Net income (loss)
 
$
13.8

 
$
(48.2
)
 
$
(4.5
)
 
$
(61.9
)
Basic weighted-average number of shares outstanding
 
171.5

 
168.7

 
170.9

 
168.3

Effect of dilutive securities
 
 
 
 
 
 
 
 
Share-based awards
 
0.1

 
—

 
—

 
—

Prepaid common stock purchase contracts
 
44.9

 
—

 
—

 
—

Diluted weighted-average number of shares outstanding
 
216.5

 
168.7

 
170.9

 
168.3

Net income (loss) per share
 
 
 
 
 
 
 
 
Basic
 
$
0.08

 
$
(0.29
)
 
$
(0.03
)
 
$
(0.37
)
Diluted
 
$
0.06

 
$
(0.29
)
 
$
(0.03
)
 
$
(0.37
)
For the three months ended September 30, 2013, approximately 1.5 million PSUs were excluded from the computation of diluted weighted-average shares as the award prices exceeded the price of TCM's common stock as of September 30, 2013. For

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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




the three months ended September 30, 2013, approximately 1.9 million stock options and 1.2 million RSUs were excluded from the computation of diluted weighted-average shares as the effect would have been anti-dilutive under the treasury stock method.
For the nine months ended September 30, 2013, TCM was in a net loss position, and approximately 1.5 million PSUs, 2.0 million stock options, 1.2 million RSUs and 44.9 million shares for the settlement of the tMEDS purchase contracts were excluded from the computation of diluted weighted-average shares.
For the three and nine months ended September 30, 2012, approximately 2.5 million stock options and 0.9 million PSUs were excluded from the computation of diluted weighted-average shares as the exercise prices exceeded the average price of TCM's common stock for the period.
16. Related Party Transactions
Total sales by TCM to Sojitz, TCM's Endako Mine joint venture partner, were $19.0 million and $54.3 million for the three and nine months ended September 30, 2013, respectively. These sales represented 20.9% and 17.1% of TCM's total revenues for the three and nine months ended September 30, 2013, respectively.
Total sales by TCM to Sojitz were $21.8 million and $67.0 million for the three and nine months ended September 30, 2012, respectively. These sales represented 29.1% and 22.2% of TCM's total revenues for the three and nine months ended September 30, 2012, respectively.
For the three and nine months ended September 30, 2013, TCM recorded management fee income of $0.1 million and $0.2 million, respectively, and selling and marketing costs of $0.1 million and $0.4 million, respectively, from Sojitz.
For the three and nine months ended September 30, 2012, TCM recorded management fee income of nil and $0.2 million, respectively, and selling and marketing costs of $0.1 million and $0.4 million, respectively, from Sojitz.
As of September 30, 2013 and December 31, 2012, TCM's related accounts receivable owed from Sojitz were $6.5 million and $6.4 million, respectively.
17. Supplementary Cash Flow Information
 (in millions)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Change in working capital accounts:
 
 
 
 
 
 
 
Accounts receivable
$
10.8

 
$
24.3

 
$
7.9

 
$
33.8

Product inventory
(21.0
)
 
(33.4
)
 
(16.6
)
 
(68.3
)
Material and supplies inventory
(14.3
)
 
(1.0
)
 
(20.4
)
 
(1.6
)
Prepaid expenses and other current assets
6.8

 
(0.1
)
 
(2.4
)
 
0.5

Income and mining taxes receivable
1.7

 
(0.7
)
 
10.1

 
(6.0
)
Accounts payable and accrued liabilities
16.5

 
2.3

 
10.5

 
(3.4
)
Income, mining and other taxes payable
(1.1
)
 
0.5

 
(1.5
)
 
(0.5
)
Non-cash property, plant and equipment
0.8

 
3.2

 
0.8

 
3.2

 
$
0.2

 
$
(4.9
)
 
$
(11.6
)
 
$
(42.3
)
Cash interest paid (1)
$
19.1

 
$
1.4

 
$
54.5

 
$
14.8

Income and mining taxes paid, net (2)
$
1.4

 
$
(7.8
)
 
$
1.7

 
$
3.3

(1)
For the three and nine months ended September 30, 2013, the cash interest paid of $19.1 million and $54.5 million, respectively, had been previously capitalized related to the Company's debt, as described in Note 9. For the three and nine months ended September 30, 2012, the cash interest paid of $1.4 million and $14.8 million, respectively, had been previously capitalized related to the Company's debt, as described in Note 9.

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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




(2)
For the three months and nine months ended September 30, 2013 and 2012, a refund was received for $4.1 million and $9.0 million, respectively, of Canadian taxes related to prior year tax returns. In addition, a refund was received for $3.1 million of United States taxes in the first half of 2013, related to prior year tax returns.
Non-cash Investing and Financing Activities
(in millions)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Investing activities
 
 
 
 
 
 
 
Acquisition of property, plant and equipment under the Equipment Facility (see Note 8)
$
—

 
$
(51.0
)
 
$
—

 
$
(54.7
)
Increase in capital expenditure accrual
$
—

 
$
(33.6
)
 
$
—

 
$
(13.4
)
Capitalized debt costs (1)
$
24.2

 
$
—

 
$
73.7

 
$
—

Financing activities
 
 
 
 
 
 
 
Capital leases (2)
$
—

 
$
6.6

 
$
—

 
$
10.3

(1)
Included capitalized interest, amortization of deferred financing costs and debt discounts.
(2)
Excluded sale-leaseback capital leases.
18. Concentration of Credit Risk
TCM is exposed to counterparty risk from its cash and cash equivalent balances and its reclamation deposits held by financial institutions and governmental entities. TCM monitors its positions with, and the credit quality of, the financial institutions and companies in which it invests its cash and cash equivalents and that hold its reclamation deposits. Counterparties to cash balances and its reclamation deposits, other than balances maintained in various bank operating accounts, are US and Canadian institutions and the US and Canadian governments.
TCM manages its credit risk from its accounts receivable through its collection activities. As of September 30, 2013, TCM had three customers who owed TCM more than $3.0 million and accounted for approximately 27.4% of total accounts and other receivables outstanding. Another eight customers had balances greater than $1.0 million but less than $3.0 million that accounted for approximately 25.8% of total accounts and other receivables. All of these customers were compliant with applicable credit terms and scheduled payment dates.
TCM's maximum counterparty and credit risk exposure is the carrying value of its cash and cash equivalents and accounts receivable. The carrying amounts of accounts receivable, accounts payable, accrued liabilities and fixed-rate debt, excluding the 2017 Notes, 2018 Notes, 2019 Notes and tMEDS, as discussed in Notes 9 and 11, approximated fair value as of September 30, 2013.
19. Segment Information
TCM has three reportable segments, based on products and geography: US Operations Molybdenum, Canadian Operations Molybdenum and Copper-Gold. The US Operations Molybdenum segment includes all mining, milling, mine site administration, roasting and sale of molybdenum products from TC Mine and the Langeloth Facility, including the roasting at the Langeloth Facility of molybdenum products from Endako Mine and all roasting and sales of third-party purchased material. The Canadian Operations Molybdenum segment includes all mining, milling, mine site administration, roasting and sale of molybdenum products from the 75% owned Endako Mine. The Copper-Gold segment includes all expenditures and site administration from Mt. Milligan, including all development costs until September 2013, when the Mine moved into the start-up phase. The Inter-segment represents the elimination of management fee income, revenue and cost of sales of product transported from the Canadian Operations to the US Operations for processing.
TCM's chief operating decision makers (Chief Executive Officer and Chief Operating Officer) evaluate segment performance based on segment revenue less costs and expenses. TCM attributes other income and expenses to the reporting segments if the income or expense is directly related to segment operations, as described above. TCM does not allocate corporate expenditures such as general and administrative, exploration and interest income and expense items to its reporting

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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




segments, unless such expenditures are directly related to segment operations. Segment information for the three and nine months ended September 30, 2013 and 2012 was as follows:
For the three months ended September 30, 2013:
(in millions)
US
Operations
Molybdenum
 
Canadian
Operations
Molybdenum
 
Copper-Gold
 
Inter-
segment
 
Total
Revenues
 
 
 
 
 
 
 
 
 
Molybdenum sales
$
67.1

 
$
19.1

 
$
—

 
$
(0.5
)
 
$
85.7

Tolling, calcining and other
5.1

 
—

 
—

 
—

 
5.1


72.2

 
19.1

 
—

 
(0.5
)
 
90.8

Cost and expenses
 
 
 
 
 
 
 
 
 
Operating expenses
44.8

 
19.8

 
—

 
(0.5
)
 
64.1

Selling and marketing
1.8

 
(0.1
)
 
—

 
(0.3
)
 
1.4

Depreciation, depletion and amortization
8.2

 
5.7

 
—

 
—

 
13.9

Accretion expense
0.3

 
0.2

 
0.1

 
—

 
0.6


55.1

 
25.6

 
0.1

 
(0.8
)
 
80.0

Segment revenue less costs and expenses
17.1

 
(6.5
)
 
(0.1
)
 
0.3

 
10.8

Other segment expenses
 
 
 
 
 
 
 
 
 
(Gain) loss on foreign exchange
0.1

 
0.3

 
(4.2
)
 
—

 
(3.8
)
Segment income (loss) before income and mining taxes
$
17.0

 
$
(6.8
)
 
$
4.1

 
$
0.3

 
$
14.6

For the three months ended September 30, 2012:
(in millions)
US
Operations
Molybdenum
 
Canadian
Operations
Molybdenum
 
Copper-Gold
 
Inter-
segment
 
Total
Revenues
 
 
 
 
 
 
 
 
 
Molybdenum sales
$
53.4

 
$
19.7

 
$
—

 
$
(0.5
)
 
$
72.6

Tolling, calcining and other
2.3

 
—

 
—

 
—

 
2.3


55.7

 
19.7

 
—

 
(0.5
)
 
74.9

Cost and expenses
 
 
 
 
 
 
 
 
 
Operating expenses
59.3

 
26.9

 
—

 
(0.5
)
 
85.7

Selling and marketing
1.0

 
0.7

 
—

 
(0.3
)
 
1.4

Depreciation, depletion and amortization
4.8

 
11.6

 
—

 
—

 
16.4

Accretion expense
0.4

 
0.1

 
—

 
—

 
0.5


65.5

 
39.3

 
—

 
(0.8
)
 
104.0

Segment revenue less costs and expenses
(9.8
)
 
(19.6
)
 
—

 
0.3

 
(29.1
)
Other segment income
 
 
 
 
 
 
 
 
 
(Gain) loss on foreign exchange
(1.2
)
 
(2.1
)
 
(6.0
)
 
—

 
(9.3
)
Segment income (loss) before income and mining taxes
$
(8.6
)
 
$
(17.5
)
 
$
6.0

 
$
0.3

 
$
(19.8
)

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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




For the nine months ended September 30, 2013:
(in millions)
US
Operations
Molybdenum
 
Canadian
Operations
Molybdenum
 
Copper-Gold
 
Inter-
segment
 
Total
Revenues
 
 
 
 
 
 
 
 
 
Molybdenum sales
$
246.2


$
57.4


$
—


$
(0.5
)
 
$
303.1

Tolling, calcining and other
14.2

 
—

 
—

 
—

 
14.2


260.4

 
57.4

 
—

 
(0.5
)
 
317.3

Cost and expenses
  
 
  
 
  
 
  
 
  
Operating expenses
150.1

 
56.8

 
—

 
(0.5
)
 
206.4

Selling and marketing
5.3

 
1.9

 
—

 
(0.8
)
 
6.4

Depreciation, depletion and amortization
24.9

 
18.4

 
—

 
—


43.3

Accretion expense
1.0

 
0.7

 
0.3

 
—

 
2.0


181.3

 
77.8

 
0.3

 
(1.3
)
 
258.1

Segment revenue less costs and expenses
79.1

 
(20.4
)
 
(0.3
)
 
0.8

 
59.2

Other segment expenses
 
 
 
 
 
 
 
 
 
(Gain) loss on foreign exchange
0.5


0.8


5.9


—

 
7.2

Segment income (loss) before income and mining taxes
$
78.6

 
$
(21.2
)
 
$
(6.2
)
 
$
0.8

 
$
52.0


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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




For the nine months ended September 30, 2012:
(in millions)
US
Operations
Molybdenum
 
Canadian
Operations
Molybdenum
 
Copper-Gold
 
Inter-
segment
 
Total
Revenues
 
 
 
 
 
 
 
 
 
Molybdenum sales
$
227.9

 
$
65.6

 
$
—

 
$
(1.7
)
 
$
291.8

Tolling, calcining and other
10.2

 
—

 
—

 
—

 
10.2


238.1

 
65.6

 
—

 
(1.7
)
 
302.0

Cost and expenses
 
 
 
 
 
 
 
 
 
Operating expenses
213.4

 
79.0

 
—

 
(1.6
)
 
290.8

Selling and marketing
3.2

 
2.2

 
—

 
(0.9
)
 
4.5

Depreciation, depletion and amortization
16.0

 
30.6

 
—

 
—

 
46.6

Accretion expense
1.2

 
0.3

 
0.1

 
—

 
1.6


233.8

 
112.1

 
0.1

 
(2.5
)
 
343.5

Segment revenue less costs and expenses
4.3

 
(46.5
)
 
(0.1
)
 
0.8

 
(41.5
)
Other segment income
 
 
 
 
 
 
 
 
 
(Gain) loss on foreign exchange
(1.1
)
 
(2.1
)
 
(5.0
)
 
—

 
(8.2
)
Segment income (loss) before income and mining taxes
$
5.4

 
$
(44.4
)
 
$
4.9

 
$
0.8

 
$
(33.3
)
Reconciliation of Segment Income (Loss) to Net Income (Loss)
(in millions)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Segment income (loss)
$
14.6

 
$
(19.8
)
 
$
52.0

 
$
(33.3
)
Other expense (income)
 
 
 
 
 
 
 
Goodwill impairment
—

 
47.0

 
—

 
47.0

Change in fair value of common stock purchase warrants
—

 
—

 
—

 
(1.8
)
General and administrative
5.1

 
7.0

 
17.7

 
22.1

Start-up costs
10.2


0.2


10.3


5.3

Exploration
0.7

 
0.5

 
1.3

 
1.9

Interest expense (income), net
0.3

 
1.0

 
—

 
3.6

(Gain) loss on foreign exchange
(20.4
)
 
(12.0
)
 
22.8

 
(11.8
)
Corporate depreciation
0.5

 
0.6

 
1.4

 
1.5

Other
0.2

 
0.1

 
—

 
(0.3
)
Income (loss) before income and mining taxes
18.0

 
(64.2
)
 
(1.5
)
 
(100.8
)
Income and mining tax expense (benefit)
4.2

 
(16.0
)
 
3.0

 
(38.9
)
Net income (loss)
$
13.8

 
$
(48.2
)
 
$
(4.5
)
 
$
(61.9
)
Other segment information regarding capital expenditures, assets and liabilities, including the assets and liabilities attributed to corporate operations, was as follows (in millions):

22
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THOMPSON CREEK METALS COMPANY INC.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Unaudited)




As of September 30, 2013
 US Operations Molybdenum
 
 Canadian Operations Molybdenum
 
 Copper-Gold
 
 Inter-segment
 
 Total
Capital expenditures (1)
$
3.2

 
$
2.0

 
$
382.1

 
$
0.2

 
$
387.5

Property, plant, equipment and development, net
$
262.1

 
$
173.9

 
$
2,385.2

 
$
3.2

 
$
2,824.4

Assets
$
501.1

 
$
240.9

 
$
2,465.6

 
$
233.5

 
$
3,441.1

Liabilities
$
81.5

 
$
23.0

 
$
910.2

 
$
1,066.6

 
$
2,081.3

As of December 31, 2012
 US Operations Molybdenum
 
 Canadian Operations Molybdenum
 
 Copper-Gold
 
 Inter-segment
 
 Total
Capital expenditures (2)
$
20.1

 
$
84.0

 
$
480.3

 
$
0.5

 
$
584.9

Property, plant, equipment and development, net
$
285.5

 
$
189.5

 
$
2,058.7

 
$
5.2

 
$
2,538.9

Assets
$
473.9

 
$
257.1

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