EX-20 8 feb28ex203.txt EXHIBIT 20.3 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. /s/ PriceWaterhouseCoopers LLP 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. /s/ PriceWaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP Chartered Accountants Toronto, Ontario April 30, 2001 E-8 FRANCO-NEVADA MINING CORPORATION LIMITED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, MARCH 31, MARCH 31, 2001 2001 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, SEPTEMBER 30, MARCH 31, MARCH 31, MARCH 31, 2001 2000 2001 2000 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, SEPTEMBER 30, MARCH 31, MARCH 31, MARCH 31, 2001 2000 2001 2000 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, SEPTEMBER 30, MARCH 31, MARCH 31, MARCH 31, 2001 2000 2001 2000 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 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) -- -- -- -- --------- -------- -------- -------- --------- Total non-cash items.................... (6,915) (8,272) 12,102 20,532 19,409 --------- -------- -------- -------- --------- CASH FLOW FROM OPERATIONS............... 48,200 35,914 91,974 84,527 82,863 Change in non-cash working capital... (65,902) (12,559) 27,883 (24,093) 23,320 --------- -------- -------- -------- --------- (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 Marketable securities................ 22,298 37,984 118,107 (35,494) (144,809) 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 interest in mineral properties at cost. Producing properties are amortized on the units-of-production basis. The ultimate recovery of costs associated with non-producing properties is dependent E-13 FRANCO-NEVADA MINING CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE OTHERWISE INDICATED) 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 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 mine's life are depreciated using the units-of-production method. Other assets are depreciated on a straight-line basis over their estimated useful lives. (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 and royalty interests are recognized at the time of production. Payment is received in cash or in-kind. (K) 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. E-14 FRANCO-NEVADA MINING CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE OTHERWISE INDICATED) 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- EURO- NEVADA 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 ------------------------ UNITS HELD CARRYING --------------- INVESTMENT VALUE 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 --------------------------- UNITS HELD CARRYING ------------------ INVESTMENT VALUE NUMBER CLASS ---------- -------- ------ ----------- 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
MARCH 2001 MARCH 2000 ----------------------------- ----------------------------- NET NET ACCUMULATED BOOK ACCUMULATED BOOK COST DEPLETION VALUE COST DEPLETION VALUE -------- ----------- -------- -------- ----------- -------- Producing property.... $392,497 $(116,669) $275,828 $354,424 $(78,185) $276,239 Non-producing property 88,462 (26,533) 61,929 79,139 (6,014) 73,125 -------- --------- -------- -------- -------- -------- $480,959 $(143,202) $337,757 $433,563 $(84,199) $349,364 ======== ========= ======== ======== ======== ========
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 ---------------------------- ---------------------------- NET NET ACCUMULATED BOOK ACCUMULATED BOOK COST AMORTIZATION VALUE COST AMORTIZATION 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 24/th/, 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 ------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE NUMBER PRICE NUMBER PRICE NUMBER 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.
NUMBER WEIGHTED AVERAGE NUMBER RANGE OF OUTSTANDING AT REMAINING WEIGHTED AVERAGE EXERCISABLE AT WEIGHTED AVERAGE EXERCISE PRICE MAR. 31/01 CONTRACTUAL LIFE EXERCISE PRICE MAR. 31/01 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 MARCH 2001 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 MARCH MARCH 2001 2000 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 MARCH 2001 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 MARCH MARCH 2001 2000 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 SEPTEMBER MARCH MARCH MARCH 2001 2000 2001 2000 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 SEPTEMBER MARCH MARCH MARCH 2001 2000 2001 2000 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. 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 MARCH 2001 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 MARCH MARCH 2001 2000 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 ======== ======== ========
The summarized statements of cashflows for the discontinued operations are as follows:
MARCH MARCH MARCH 2001 2000 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. E-22 FRANCO-NEVADA MINING CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE OTHERWISE INDICATED) 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. 14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES For Canadian GAAP purposes Franco-Nevada has accounted for the investment in Normandy Mining Limited on an equity basis using the best information available from Normandy in the public domain. As Normandy has declined to provide a reconciliation of its results of operations in US GAAP for the period ended September 30, 2001 there is no basis for recording an adjustment to US GAAP. 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 SEPTEMBER MARCH MARCH MARCH 2001 2000 2001 2000 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) -- -- Income taxes........................................................... (3,582) 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 83,725 45,837 104,420 92,490 63,993 Discontinued operations(d)(e).......................................... 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.................... 111,110 47,020 104,633 91,183 62,512 Cumulative effect of change in accounting policy(e)(f).......................................................... -- (2,467) (2,467) (4,943) -- -------- -------- -------- ------- ------- Net earnings for the period reported under US GAAP after discontinued operations and changes in accounting policy........................... $111,110 $ 44,553 $102,166 $86,240 $62,512 ======== ======== ======== ======= =======
E-23 FRANCO-NEVADA MINING CORPORATION LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE OTHERWISE INDICATED) -------- (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 was required to write-down a marketable security investment in an earlier period. The provision and realized loss booked under Canadian GAAP in the period ended September 30, 2001 has been subsequently reversed as a result of the US GAAP adjustment. (d) 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 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. (e) 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 recognized revenue upon the delivery of gold dore to the refiner. The above amounts are net of tax of $1,328,000. (f) 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. (g) 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.
SIX MONTHS ENDED FOR THE YEARS ENDED ---------------------- ---------------------------- SEPTEMBER SEPTEMBER MARCH MARCH MARCH 2001 2000 2001 2000 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................................................. $ 0.53 $ 0.29 $ 0.66 $ 0.58 $ 0.41 Discontinued operations(d)(e)...................................... 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... 0.70 0.30 0.66 0.57 0.40 Cumulative effect of changes in accounting policy(e)(f)............ -- (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.......... $ 0.70 $ 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 ======== ======== ======== ======== ========
E-24 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 SEPTEMBER MARCH MARCH MARCH 2001 2000 2001 2000 1999 ----------- ----------- -------- -------- ------- (UNAUDITED) (UNAUDITED) STATEMENTS OF COMPREHENSIVE EARNINGS Net earnings for the period reported under US GAAP. $111,110 $ 44,553 $102,166 $ 86,240 $62,512 Other comprehensive earnings (net of tax): Foreign currency translation adjustment......... 4,749 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............................. $116,233 $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. 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.
SIX MONTHS ENDED FOR THE YEARS ENDED ---------------------- ----------------------------- SEPTEMBER SEPTEMBER MARCH MARCH MARCH 2001 2000 2001 2000 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.
(UNAUDITED) SEPTEMBER 2001 MARCH 2001 MARCH 2000 --------------------- --------------------- --------------------- CANADIAN US CANADIAN US CANADIAN US GAAP GAAP GAAP GAAP GAAP 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 Deferred taxes...................... 82,437 80,984 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................... 421,533 406,608 344,516 295,498 303,601 248,853 Deferred foreign exchange gain...... 74,028 70,972 69,619 66,223 21,265 20,149
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) 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. 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. 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) 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 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-27