Quadra Mining Ltd. Announces 2009 Second Quarter Financial Results

VANCOUVER, BRITISH COLUBMIA--(Marketwire - Aug. 13, 2009) - (All figures, except per share amounts, are in $ US thousands unless otherwise stated or unless context requires otherwise) Quadra Mining Ltd. (the "Company" or "Quadra") QUA announces a net loss of $7,328 or $0.08 per share (basic) for the three months ended June 30, 2009 compared to earnings of $65,354 or $1.11 per share (basic) for the three months ended June 30, 2009. The Company generated operating income of $24,126 in the second quarter of 2009, however earnings were impacted by a derivative loss of $17,170 ($0.18 per share) which was a result of mark to market accounting losses on the Company's copper put options and the derivatives required for the Franke project loan. Operating cash flow before working capital decreased to $24,426 or $0.26 per share in the second quarter of 2009 compared to operating cash flow of $91,942 or $1.56 per share for the same period in 2008, due to lower average copper prices in the current year. Quadra recorded revenues of $95,566 million during the quarter from the sale of 31.7 pounds of copper and 23,152 ounces of gold. /T/ Operating and Financial Summary Three months ended Six months ended US $ 000s (except per share data June 30, June 30, June 30, June 30, and production data) 2009 2008 2009 2008 --------------------------------------------------------------------------- Revenues 95,566 180,570 201,882 378,602 Copper produced (million lbs) 29.7 44.6 73.0 86.6 Gold produced (ounces) 18,031 42,348 52,680 80,086 EBITDA (1) 27,984 105,550 70,757 222,594 Earnings (loss) for the period (7,328) 65,354 19,327 143,917 Basic (loss) earnings per share $ (0.08) $ 1.11 $ 0.24 $ 2.51 Diluted (loss) earnings per share $ (0.08) $ 1.06 $ 0.24 $ 2.41 Cash flow from operations before working capital (2) 24,426 91,942 64,946 187,014 Cash flow from operations before working capital - per share $ 0.26 $ 1.56 $ 0.81 $ 3.27 Net changes in non-cash working capital (23,625) (42,381) (36,328) (47,772) Cash flow from operations 801 49,561 28,618 139,242 (1) EBITDA is a non-GAAP financial measure which is defined as operating income less general and administrative costs and excluding accretion of asset retirement obligations, amortization, depletion and depreciation, and inventory adjustments. (2) Cash flow from operations before working capital is a non-GAAP financial measure and consists of cash provided from operating activities less net changes in non-cash working capital. /T/ Paul Blythe, President and CEO of Quadra comments; "Second quarter earnings were impacted by the previously reported lower than planned production at both Robinson and Carlota as well as by the copper price, which, although much improved from the first quarter, is still well below levels of a year ago. Earnings were also impacted by a $17 million accounting loss on derivatives related to copper put options, and collar contracts which were a requirement of the Franke project loan. The copper put options generated positive cashflow over the quarter, but nonetheless declined in value as a result of improving copper prices. The improving copper price also resulted in a reduction in value of the Franke derivatives, and it should be noted that the hedge price of $2.16/lb. impacts less than (10%) of the Company's expected production through the end of 2010. Without these derivative losses, earnings would have been positive in the range of $0.06 per share." "Quarterly production results at Robinson were lower than expected because of the inability to access hypogene ore in the Veteran pit which was required to blend with the supergene ore from the Wedge pit - a strategy that has historically improved metallurgical performance. Access to the hypogene ore was limited throughout the quarter, due to concerns with the stability of the north pit wall in Veteran by the Mine Safety and Health Administration (MSHA), the Federal enforcement agency responsible for safety and health in US mines. The operations team has subsequently agreed upon a plan with MSHA to resolve these issues, taking measures that include some changes to the pit design and increasing monitoring and fence protection. As a result, we reduced annual copper production guidance by 10 million pounds (7%) to 130 million pounds for the year. Gold production guidance remained the same. As a consequence of lower production, the cash cost on a unit basis was $1.59 for the second quarter, and $1.10 per pound for the first six months of the year." Paul Blythe continues; "Production at Carlota was below mine plan estimates in part because of lower than scheduled ore mined and in part because of lower than planned leaching rates. Ore mined was lower than scheduled as additional work required on the ultimate pit wall above the Pinto Creek Diversion delayed access to higher grade ore, requiring the reallocation of mining equipment to complete the diversion on schedule. The shortfall year to date is approximately 1 million tons of higher grade ore for the leach pad. Irrigation rates (flow of solution through the rock) have been 20% lower than anticipated due to the segregation of fines during the stacking procedures. Heap leach operations inherently face start up challenges in finding an optimum strategy for achieving optimum irrigation and extraction rates and the operation is testing a number of operating practice modifications and will likely do so for a while. Tests on areas where leaching is advanced or approaching completion suggests that the levels of recovery envisioned in the 43-101 can be achieved. At Carlota, we have reduced guidance to 35 million pounds of cathode copper from 50 million pounds." "Commissioning of the processing facilities at Franke was completed during the quarter and we began to build up the inventory of crushed and agglomerated leach material onto the leach pads. Pond construction issues were resolved but equipment selection and design issues with the primary crusher feeder are affecting our ability to operate at design capacity and resolution remains a work in progress. Notwithstanding these issues, the SX/EW plant is receiving copper bearing solution and the harvesting of copper cathode has commenced with our first shipment expected in September. Before year end, Franke is expected to add another 10 - 15 million pounds of copper to our production profile." Paul Blythe concludes; "On July 23rd we reported the positive results of the scoping study at our Sierra Gorda project in Chile. The substantial scale make it one of the largest copper development projects discovered in this decade and potentially one of the world's largest molybdenum mines in the first eight years of its at least 25 year mine life. The strong economics support moving forward to feasibility study with a view to moving the project through to production. Completion of the scoping study is a key stepping stone in looking for a partner to support the financing of the project.' 'With Franke as our third operation, we believe we are well positioned to capitalize on the strengthening metal market. With a healthy cash balance of $124 million we are also still actively pursuing our growth strategy of reaching 500 million pounds per year of copper from multiple sources of production." A summary of the financial statements together with the Management Discussion and Analysis ("MD&A") are provided below. The complete financial statements and the MD&A will be available at www.quadramining.com and www.sedar.com. The following Management Discussion and Analysis ("MD&A") of Quadra Mining Ltd. and its subsidiaries ("Quadra" or the "Company") has been prepared as at August 12, 2009 and is intended to be read in conjunction with the accompanying unaudited consolidated financial statements for the three month period ended June 31, 2009. This MD&A contains 'forward looking information' and reference to the cautionary statement at the end of this MD&A is advised. Additional information relating to the Company, including its Annual Information Form, is available on the SEDAR website at www.sedar.com. The Company is a reporting issuer in all provinces and territories of Canada and its common shares are traded on the Toronto Stock Exchange under the symbol: QUA. All financial information in this MD&A is prepared in accordance with the Canadian Generally Accepted Accounting Principles and all dollar amounts are expressed in thousands of United States dollars unless otherwise indicated. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS Quadra is a mining company that owns and operates the Robinson copper mine ("Robinson Mine") near Ely, Nevada, which has been in production since 2004, the Carlota Mine ("Carlota"), a heap leach - SX/EW copper operation in Arizona, which commenced operations in 2008 and the Franke Mine ("Franke"), a heap leach - SX/EW copper project in northern Chile, currently in the testing and commissioning phase. The Company also owns the Sierra Gorda project ("Sierra Gorda"), a late stage exploration property in northern Chile, and a 99% interest in the Malmbjerg molybdenum project ("Malmbjerg") in Greenland. Quadra's strategic plan is based on growing to a production rate in excess of 500 million pounds of copper per year from diverse operations and with a pipeline of development projects in place for long term sustainability and growth. SECOND QUARTER AND RECENT HIGHLIGHTS: - The Company posted a loss for the quarter ended June 30, 2009 of $7,328 or $0.08 per share (basic) compared to earnings of $65,354 or $1.11 per share (basic) in the second quarter of 2008. Second quarter of 2009 earnings were impacted by a loss on derivatives of $17,170 or $0.18 per share (basic). - The Company generated cash flow from operating activities (before working capital changes)(i) of $24,426 for the second quarter of 2009 compared to $91,942 in the second quarter of 2008. - Revenues for the second quarter of 2009 were $95,566. The Robinson Mine generated net revenues of $79,754 from the sale of 24.2 million pounds of copper and 23,152 ounces of gold in concentrates compared to net revenues of $180,570 generated from the sale of 38.7 million pounds of copper and 35,403 ounces of gold in the second quarter of 2008. The Carlota Mine generated revenues of $15,812 in the second quarter of 2009 from the sale of 7.5 million pounds of copper cathodes. - Second quarter of 2009 production at both operations was below expectations. The Robinson Mine produced 22.9 million pounds of copper and 18,031 ounces of gold and Carlota produced 6.8 million pounds of copper cathode. - The cash cost per pound of copper produced(i) at the Robinson Mine was $1.59 per pound in the second quarter of 2009 and $1.10 per pound for the six month period ended June 30, 2009. - In April 2009, the Company completed the acquisition of Centenario Copper Corporation ("Centenario"), and its 100% owned Franke Mine, in exchange for 14,368,563 Quadra common shares and 574,000 Quadra options valued at $64.8 million. The first copper production at Franke is expected in the third quarter of 2009. - In April 2009, the Company completed a bought-deal equity financing for gross proceeds of $71.6 million. - In May 2009, the Company repaid the bank loan assumed from Centenario of $38.3 million (net of proceeds from the close-out of derivatives acquired on the acquisition of Centenario) and entered into a new $37.5 million syndicated project loan facility to fund the development of the Franke Mine. - The Company ended the second quarter of 2009 with $124.5 million of cash on hand. - In July 2009, the Company announced the completion of a scoping study for the Sierra Gorda project, which included a preliminary economic assessment and an updated mineral resource estimate and recommended proceeding to pre-feasibility and feasibility level studies. (i) See "Non-GAAP Financial Measures" for additional information. FINANCIAL PERFORMANCE Earnings The Company posted a loss of $7,328 or $0.08 per share (basic) for the quarter ended June 30, 2009, compared to earnings of $65,354 or $1.11 per share (basic) in the second quarter of 2008. This decrease in second quarter earnings is primarily due to the lower average copper prices in the current year and also because of lower sales volumes. Second quarter earnings in 2009 were also negatively impacted by a $17,170 accounting loss on derivatives which was a result of the significant increase in the copper price across the quarter and a $7,234 loss on sale of marketable securities. Earnings for the first six months of 2009 were $19,327 or $0.24 per share (basic) compared to $143,917 or $2.51 per share (basic) for the same six month period in 2008. The decreased earnings in 2009 are primarily due to lower copper prices and to lower metal sales volumes in the current year (see "Costs of Sales and Expenses"). The copper price increased from $1.83 per pound on March 31, 2009 to $2.32 per pound on June 30, 2009 resulting in positive adjustments on final settlement of provisionally priced sales recorded in the first quarter of 2009 and to the value of provisionally priced sales from the first quarter of 2009 that remained unsettled at June 30, 2009 (see section below "Revenues"). Operating Income Operating income for the three and six months ended June 30, 2009 and 2008 was comprised as follows: /T/ Three months ended Three months ended June 30, 2009 June 30, 2008 -------------------------- ------------------------- Robinson Carlota Total Robinson Carlota Total Revenues 79,754 15,812 95,566 180,570 - 180,570 Cost of sales (44,646) (14,157) (58,803) (60,546) - (60,546) Amortization, depletion, depreciation and accretion (6,546) (1,409) (7,955) (5,122) - (5,122) Royalties and mineral taxes (3,805) (877) (4,682) (10,901) - (10,901) -------------------------- ------------------------- Operating income 24,757 (631) 24,126 104,001 - 104,001 -------------------------- ------------------------- -------------------------- ------------------------- Six months ended Six months ended June 30, 2009 June 30, 2008 -------------------------- ------------------------- Robinson Carlota Total Robinson Carlota Total Revenues 177,030 24,852 201,882 378,602 - 378,602 Cost of sales (92,299) (23,224) (115,523) (127,766) - (127,766) Reversal of start-up inventory adjustment - 5,305 5,305 - - - Amortization, depletion, depreciation and accretion (11,248) (2,036) (13,284) (10,365) - (10,365) Royalties and mineral taxes (6,723) (1,287) (8,010) (20,095) - (20,095) -------------------------- ------------------------- Operating income 66,760 3,610 70,370 220,376 - 220,376 -------------------------- ------------------------- -------------------------- ------------------------- /T/ Operating income for the quarter ended June 30, 2009 decreased to $24,126 compared to $104,001 in the second quarter of 2008. Operating income for the six months ended June 30, 2009 decreased to $70,370 compared to $220,376 in the same period of 2008. These decreases in operating income are primarily due to lower average copper prices and lower sales volumes for the first six months of 2009 (see "Cost of Sales and Expenses"). Revenues Revenues are generated by the sale of copper concentrates from the Robinson Mine and copper cathodes from the Carlota Mine. Revenues are generally recognized at the time of delivery to a customer based on metal prices at that time, however, under Robinson's current sales contracts, which follow normal industry practice, final pricing for copper sold in concentrate is generally set at least three months after the time of arrival of a shipment at the customer's port of delivery. As a result, Robinson's quarterly revenues include estimated prices for sales, based on copper prices at quarter end, as well as pricing adjustments for sales that occurred in previous quarters, based on the actual price received and the price at quarter end for sales from previous quarters that were not settled in the quarter. Final pricing for Carlota's copper cathode sales is generally set in the month of shipment and therefore, pricing adjustments in subsequent periods tend to be very small for Carlota. In the quarter ended June 30, 2009, revenues from operations were $95,566, of which $15,812 were attributable to the sale of Carlota cathodes, compared to $180,570 for the second quarter of 2008. The decrease in revenue is primarily due to lower average copper prices in the current quarter and lower sales volumes as a result of the lower production in the second quarter of 2009 (see "Review of Operations and Projects"). In the second quarter of 2009, the Company sold a total of 31.7 million pounds of copper and 23,152 ounces of gold, compared to 38.7 million pounds of copper and 35,403 ounces of gold in the second quarter of 2008. Revenues from both operations for the first six months of 2009 were $201,882 compared to $378,602 for the same six month period of 2008. For the six month period ended June 30, 2009, the Company sold 72.1 million pounds of copper and 53,410 ounces of gold, compared to 77.6 million pounds of copper and 67,717 ounces of gold for the same period in 2008. The decrease in revenues in 2009 is primarily due to lower copper prices and lower sales volumes in the current year. As a result of the increasing copper price across the second quarter of 2009, revenues include positive pricing adjustments of $13.2 million related to the first quarter sales from Robinson. In addition, the Company recorded a positive price adjustment of $3.6 million related to the second quarter shipments from Robinson which were revalued at a price of $2.32 at June 30, 2009. At March 31, 2009, receivables included approximately 27.7 million pounds of copper provisionally valued at $1.83 per pound. During the second quarter, 21.2 million pounds of copper that was provisionally valued at March 31, 2009 was settled at an average final price of $2.14 per pound. In the second quarter, Robinson shipped approximately 24.1 million pounds of copper at an average provisional price of $2.02 per pound, of which 12 million pounds was settled during the quarter at an average final price of $2.13 per pound. At June 30, 2009, receivables include 18.6 million pounds of copper which has been provisionally valued at $2.32 per pound. Cost of Sales and Expenses Cost of sales for the quarter ended June 30, 2009 was $58,803 compared to $60,546 for the second quarter of 2008. For the six months ended June 30, 2009, cost of sales was $115,523 compared to $127,766 in the same period of 2008. The decrease in cost of sales for the first six months of the year is a result of the decrease in current year sales volumes and an accounting adjustment to capitalize $9,682 of pre-production stripping costs related to the new Ruth pit area at Robinson. As a result of the decline in copper prices in late 2008, the Company recorded a write down of $15,249 in the fourth quarter of 2008 to adjust the value of the Carlota leach pad and cathode inventory to its net realizable value. In the first quarter of 2009, the Company reversed $5,305 of this inventory write down due to the increase in copper prices during the period, and the resulting increase in the estimated net realizable value of Carlota's inventory. Amortization, depletion and depreciation for the second quarter of 2009 were $6,962 compared to $4,297 for the second quarter of 2008. For the six months ended June 30, 2009, amortization, depletion and depreciation increased to $11,322 from $8,733 in the same period of 2008. The increase in amortization, depletion and depreciation is mainly due to the amortization of mineral property, plant and equipment at the Carlota Mine and the amortization of pre-production stripping costs at the Robinson Mine. The Carlota Mine was under construction in the first half of 2008 and therefore, no amortization, depletion and depreciation was recorded for Carlota in this period. Royalties and mineral taxes for the second quarter of 2009 were $4,682 compared to $10,901 for the second quarter of 2008. For the six months ended June 30, 2009, royalties and mineral taxes were $8,010 compared to $20,095 in 2008. This decrease in royalties and mineral taxes is primarily due to the lower copper prices and lower sales volumes in 2009. General and administrative expenses for the first six months of 2009 are generally in line with 2008. For the second quarter of 2009, general and administrative expenses were $4,098 compared to $3,573 for the second quarter of 2008, and for the first six months of 2009 general and administrative expenses were $7,591 compared to $8,147 in 2008. Stock-based compensation expense for the second quarter of 2009 was $2,075 compared to $3,976 for the second quarter of 2008. For the six months ended June 30, 2009, stock-based compensation expense was $3,595 compared to $5,187 in the same period of 2008. Stock-based compensation expense is based on the amortization of the fair value of options granted, as calculated on the date of the grant, over the two year vesting period. Options granted in 2009 had a lower initial fair value than 2008 option grants, which resulted in lower amortization in 2009. In the second quarter of 2009, the Company received cash proceeds of $6.6 million from the exercise of put options for 17.2 million pounds of copper. For the six months ended June 30, 2009, the Company received cash proceeds of $23.3 million from the exercise of put options for 35 million pounds of copper (see section below "Financial Instruments"). However, the significant increase in the price of copper during the first half of 2009 has resulted in a decrease in the fair value of the Company's copper put options and other derivatives, resulting in a loss on derivatives of $17,170 during the second quarter and $25,979 for the first six months of 2009. The loss on derivatives during the first half of 2008 related to a decline in value of copper put options. The Company recorded an income tax recovery of $187 in the three month period ended June 30, 2009, compared to income tax expense of $15,646 for the second quarter of 2008. For the six months ended June 30, 2009, the Company recorded an income tax expense of $5,981 compared to $37,583 for the same period of 2008. The tax expense for the first six months of 2009 has been recorded based on an estimated annual effective tax rate of 24% (2008: 23%). SUMMARY OF QUARTERLY RESULTS The following table summarizes the operating results of the most recent eight quarters (unaudited): To view the Summary of Quarterly Results table, please click on the following link: http://media3.marketwire.com/docs/quartsumm.pdf The quarterly performance of the Robinson Mine varies as a result of changes in head grade, metal recovery and waste stripping requirements. Due to the complex nature of the Robinson ore body, volatility in metal prices, and industry cost pressures the results have varied from quarter to quarter, and this is expected to continue in the future. The decline in the cash balance in the fourth quarter of 2008 is due to the decline in copper prices, and the resulting impact of settlement of provisional price adjustments. In the fourth quarter of 2008, the Company recorded a $96 million write down related to the impairment of the Malmbjerg mineral property. In the second quarter of 2009, the Company completed the acquisition of Centenario and, as a result, increased its total assets by $235 million and its total liabilities by $168 million. REVIEW OF OPERATIONS AND PROJECTS /T/ ROBINSON MINE (NEVADA) Three months Six months ended June 30 ended June 30 ----------------- ------------------ 2009 2008 2009 2008 Copper production (Million lbs) 22.9 44.6 59.6 86.6 Gold production (ozs) 18,031 42,348 52,680 80,086 Waste mined (Tonnes 000's) 11,606 14,462 19,985 29,994 Ore mined (Tonnes 000's) 3,775 3,704 7,268 7,064 Ore milled (Tonnes 000's) 3,164 3,454 6,571 6,995 ----------------- ------------------ Onsite costs $51,821 $61,229 $ 96,699 $16,809 Offsite costs $10,076 $15,303 $ 22,867 $33,195 ----------------- ------------------ Total onsite and offsite costs $61,897 $76,532 $119,566 $50,004 Capital expenditure $ 3,852 $14,157 $ 6,988 $21,046 ----------------- ------------------ By product credits - Gold and silver $24,508 $36,024 $ 52,162 $66,651 - Molybdenum $ 983 $ 100 $ 1,544 $ 647 ----------------- ------------------ Copper grade (%) 0.58 0.72 0.62 0.70 Gold grade (g/t) 0.25 0.51 0.34 0.48 Copper recovery 56.3% 81.8% 66.6% 80.3% Gold recovery 70.4% 75.2% 73.6% 74.4% /T/ During the three month period ended June 30, 2009, a total of 15.4 million tonnes of ore and waste were mined compared to 18.2 million tonnes in the same period of 2008. The decrease in waste mined was anticipated as part of the mine plan Copper production in the second quarter of 2009 was 22.9 million pounds, compared to 44.6 million pounds in the second quarter of 2008. Production in the second quarter of 2009 was lower than expected because of the inability to access hypogene ore in the Veteran pit which was required to blend with the supergene ore from the Wedge pit - a strategy that has historically improved metallurgical performance. Access to the hypogene ore was limited throughout the quarter, due to concerns with the stability of the north pit wall in Veteran by the Mine Safety and Health Administration (MSHA), the Federal enforcement agency responsible for safety and health in US mines. Gold production for the three month period ended June 30, 2009 was 18,031 ounces compared to 42,348 ounces for the second quarter of 2008. The decreased gold production in the second quarter 2009 is due to much lower gold head grade from the Kimbley/Wedge pit, but is in line with expectations. Robinson Operating and Capital Costs Operating costs are comprised of onsite and offsite costs (see "Non-GAAP Financial Measures"). Onsite costs include all stripping costs (including those capitalized for accounting purposes) and are primarily driven by the volume of waste and ore moved, payroll costs, supplies and equipment maintenance costs, and royalties. Onsite costs for the three month period ended June 30, 2009 were $51,821 compared to $61,229 for the second quarter of 2008. This decrease primarily relates to a $3.4 million reduction due to lower realized diesel prices, a $1.0 million reduction in tire expenses as a result of using radial tires instead of bias ply tires for the haulage fleet and a $4.5 million reduction in royalty expenses due to a decrease in sales volume and copper price. Onsite costs for the six month period ended June 30, 2009 were $96,699 compared to $116,809 the same period of 2008. The decrease primarily relates to a $4.2 million reduction due to the lower diesel fuel prices, a $2.5 million reduction in tire costs due to the use of radial tires instead of bias ply tires, a $6.5 million reduction in royalty payments as a result of the lower sales volume and copper price, and a $1.9 million reduction in maintenance costs due to the timing of component replacements. Offsite costs are primarily driven by smelting and refining charges, the volume of concentrate transported, and rail and ocean freight rates. Offsite costs for the three month period ended June 30, 2009 were $10,076 compared to $15,303 for the second quarter of 2008. For the first six months of 2009, offsite costs decreased to $22,867 from $33,195 in the same period of 2008. The reduction in offsite costs is due to lower ocean freight rates in the current quarter and lower concentrate sales volumes, which was partially offset by increases in rates for smelting and refining. The cash cost per pound of copper produced was $1.59 for the three month period ended June 30, 2009, compared to $0.91 for the second quarter of 2008. The cash cost per pound of copper produced was $1.10 for the six month period ended June 30, 2009, compared to $0.96 for the first six months of 2008. The increase in cash cost per pound in the current year is due to lower copper production partially offset by lower onsite costs. The cash cost per pound of copper produced is a non-GAAP term and consists of onsite costs (including all stripping costs), and offsite costs, less by-product revenue, divided by the pounds of copper produced in the period (see "Non-GAAP Financial Measures"). Capital expenditures of $3.9 million in the second quarter of 2009 were primarily related to development of the Ruth pit and tailings dam work. Capital expenditures in the second quarter of 2009 were lower than the prior year due to the reduced exploration drilling program. Robinson Production Outlook The Company has agreed upon a plan with MSHA to resolve their concerns with respect to the stability of the north pit wall in the Veteran pit, taking measures that include some changes to the pit design, increased monitoring and installation of a protection fence. While mining of the hypogene ore in Veteran will resume in the third quarter, allowing continuation of the blending strategy, production guidance for copper has been reduced with the mine now expected to produce approximately 130 million pounds of copper in 2009 compared to the previous guidance of 140 million pounds. Gold production guidance of 100,000 ounces for 2009 remains unchanged. Robinson Cost Outlook Onsite costs (including stripping costs) are expected to be in line with guidance for 2009. The royalty costs are expected to be lower than the costs experienced in 2008 due to lower copper prices. The Company expects to spend $24 million on capital expenditures at the Robinson Mine during the remainder of 2009, primarily related to the development of the Ruth pit areas and an upgrade project to the flotation circuits in the mill targeted at improving recovery. /T/ CARLOTA MINE (ARIZONA) Three months ended Six months ended June 30, 2009 June 30, 2009 ------------------ ---------------- Copper cathode production (Million lbs) 6.8 13.4 Waste mined (Tonnes 000's) 4,997 9,515 Ore mined (Tonnes 000's) 1,325 3,056 Ore placed (Tonnes 000's) 1,325 3,057 ------------------ ---------------- Onsite costs $18,809 $36,841 Capital expenditure $ 7,706 $10,542 ------------------ ---------------- Copper grade (%) 0.29 0.27 /T/ During the three month period ended June 30, 2009, a total of 6.3 million tonnes of ore and waste were mined at Carlota. Ore mined in the second quarter of 2009 was lower than scheduled as additional bench development work was necessary to complete the ultimate pit wall above the Pinto Creek Diversion requiring the reallocation of mining equipment, which delayed accessing the higher grade ore in the plan. The diversion channel for Pinto Creek, key to accessing ore beneath the existing creek bed, remained on schedule. Activity in the second quarter of 2008 was related to construction activities and not comparable to 2009. Carlota produced its first copper cathode in December 2008 and the mine is currently focussed on ramping up production with 6.8 million pounds of copper produced in the second quarter and 13.4 million for the first six months of the year. Production in the second quarter of 2009 was below mine plan estimates in part because of lower than scheduled ore mined as noted and in part because of lower than planned leaching rates. Irrigation rates (flow of solution through the rock) have been 20% lower than anticipated due to the segregation of fines during the ore stacking procedures. The Company has subsequently revised ore stacking procedures and is adding equipment to potentially improve flow rates through the upper leach pad surface. Carlota Operating and Capital Costs Carlota's operating costs are mainly driven by the volume of waste and ore moved, payroll costs, supplies, process reagents, fuel, equipment maintenance costs, and royalties. Onsite costs for the three month period ended June 30, 2009 were $18,809 which is in line with the Company's expectations. Onsite costs for the second quarter of 2008 related to mine construction activities. Capital expenditures at the Carlota Mine were $7,706 in the second quarter of 2009 and primarily related to construction costs for the Pinto Creek diversion and the acquisition of two additional haul trucks. Carlota Production Outlook The revised ore stacking procedures, as well as access to the higher grade ore which is now scheduled for the second half of 2009, are expected to improve copper production in the fourth quarter of 2009 and going forward into 2010. However, expected copper production for 2009 has been reduced from 50 million to approximately 35 million pounds. The Pinto Creek Diversion channel is expected to be completed on plan early in the fourth quarter of 2009, allowing access to the ore body underlying the creek bed in that quarter. Carlota Cost Outlook Total cash operating costs at the Carlota Mine are expected to be approximately $75 million in 2009. To date, pricing for sulphuric acid has been lower than originally forecast but the impact of lower prices has been partially offset by slightly higher usage of other reagents and continued high prices for leach pad piping. The capital expenditures and bonding at the Carlota Mine for the remainder of 2009 are expected to be $21 million, mainly related to the diversion of the Pinto Creek and the phase two construction of the leach pad. FRANKE MINE (CHILE) On April 8, 2009 the Company completed the acquisition of Centenario Copper Corporation ("Centenario") and its 100% owned Franke Mine, a heap leach - SX/EW copper project in northern Chile. Franke is currently in the start-up phase. Quadra acquired all the outstanding common shares of Centenario through a plan of arrangement ("Arrangement") under the provisions of the Business Corporations Act. Under the terms of the Arrangement, the Centenario shareholders received 0.28 of a Quadra common share for each common share of Centenario. Outstanding options to acquire Centenario shares were exchanged for options to acquire Quadra shares, based on the same exchange ratio. A total of 14,368,563 common shares and 574,000 stock options of the Company were issued in exchange for all of the outstanding common shares and stock options of Centenario. Based on the closing Quadra share price on April 8, 2009, the fair value of the consideration, including transaction costs, was $66,892. Immediately upon completion of the acquisition the Company closed out Centenario's copper forward sales contracts and used the proceeds of $30.7 million to repay a portion of Centenario's existing long-term debt. The remaining loan balance of $38.3 million was repaid on May 14, 2009. On the same day, the Company received $37.5 million from a syndicate of lenders in connection with a project loan facility to finance the development of the Franke Mine (see "Liquidity and Capital Resources"). The Company also inherited accounts payable of $80.6 million on the acquisition of Centenario, and settled approximately $41 million of these liabilities during the second quarter of 2009. Since the acquisition, Quadra has also incurred additional capital expenditures of $17,160 on construction, start-up activities and other project development costs for the Franke Mine. The Franke processing plant was designed with a capacity of 66 million pounds of copper cathode production per annum over its current 9 year mine life. Prior to the acquisition of Centenario by Quadra, construction of the Franke Mine facilities had been substantially completed. However, Centenario's project funding issues had delayed mechanical completion and commencement of mining at the level required to meet the original start-up schedule. The senior management team has been put in place at the operation. The mining contractor remobilized and is mining in the Franke pit. The crushing and agglomeration system has been commissioned and is delivering material to the leach pads. The SX/EW plant has been commissioned and is receiving copper bearing solution from the leach pad. Subsequent to the end of the quarter, the operation commenced harvesting copper cathode. First shipments are expected in September. The ramp up schedule for the Franke Project has been impacted by residual design and construction issues, the most significant of which were the solution pond liner construction quality and the type and installation of primary crusher feeder. The pond issues were substantially resolved during the second quarter. The feeder will be replaced by the end of the year at which point we believe the crusher will be able to operate at design capacity. In the meantime, the present system is not capable of running at capacity and a temporary portable crusher will be used to mitigate the impact. Franke Mine Outlook While the crusher issues may cause delays in getting production to design capacity, the Company still expects to produce 10-15 million pounds of copper cathode at Franke in the remainder of 2009. The Company expects to incur capital and operating costs of approximately $50 million at the Franke Mine in the third and fourth quarters of 2009. SIERRA GORDA (CHILE) During the second quarter of 2009, the Company incurred costs of $1.7 million for advancement of the Sierra Gorda project. The principal activities were metallurgical testwork, geologic modeling for the resource estimate, and engineering studies required for the scoping study. Environmental studies related to monitoring and baseline data collection also continued. During the quarter, the Company also made land option payments of $1.0 million. On July 23, 2009 the Company announced the successful completion of the Sierra Gorda scoping study, including a preliminary economic assessment based on measured and indicated resources and an updated NI 43-101 compliant mineral resource estimate. The scoping study has been filed as a Technical Report on SEDAR. The study describes an open pit and concentrator operation processing 111,000 tonnes of mill feed per day producing between 250 and 400 million pounds of copper per annum over a 25 year mine life at an average cash cost of $0.79 per pound. The project would also have significant molybdenum production, averaging 33 million pounds per year over the first eight years, and declining thereafter. This high level of molybdenum production results in an average cash cost of $0.34 per pound produced during these first eight years. Using a long term copper price of $2.00 per pound, molybdenum price of $12 per pound and gold price of $800 per ounce, the project produces an after-tax net present value (10% discount rate) of $622 million and an internal rate of return of 16%. The project has significant oxide measured and indicated resources that were assumed to be waste for the purposes of the scoping study but will be subject to future economic studies. As Quadra's 475 litres per second of water rights are not yet permitted, the study assumes that the water required for Sierra Gorda will be supplied from seawater, a higher capital and operating cost alternative. Sierra Gorda Outlook Based on the results of the scoping study, Quadra intends to advance the project towards pre-feasibility and feasibility studies at a cost of approximately $40 million. The next steps include further metallurgical testwork to better define molybdenum recovery and concentrate grade, progression of the Environmental Impact Study and associated permits, evaluation of all water supply options, infill drilling, and further trade-off and optimization studies to continue to improve project economics. The Company is pursuing discussions with potential partners with the objective of putting in place the financing for the project. MALMBJERG MOLYBDENUM PROJECT (GREENLAND) In May 2009, Malmbjerg Molybdenum A/S (a wholly owned subsidiary in Greenland) received the exploitation license for the project. While there were no significant expenditures at Malmbjerg during the first half of 2009, the Company did continue to advance environmental baseline studies and commitments associated with the Environmental Statement Impact Analysis. Malmbjerg Outlook Additional development expenditures at Malmbjerg have been suspended due to the recent declines in metal prices however, Quadra has commenced the search for a partner or partners to advance the project through to production. LIQUIDITY AND CAPITAL RESOURCES The Company generated cash flow from operations (excluding working capital changes) of $64.9 million for the six month period ended June 30, 2009 compared to $187.0 million in the first six months of 2008. Since the acquisition of Centenario on April 8, 2009, the Company has spent $17.1 million on the construction and development of the Franke Mine, and an additional $41 million was spent on settlement of pre-acquisition payables. Capital expenditures at the Robinson Mine in the first six months of 2009 were $7.0 million for mill equipment upgrades and development works for the Ruth pit area. The Company also spent $9.7 million on pre-production stripping at the Ruth pit area and paid $4.2 million in the period to increase environmental bonding related to the Robinson Mine. Capital expenditures at the Carlota Mine in the first six months of 2009 were $10.5 million for the purchase of equipment and construction of Pinto Creek Diversion. The Company spent $5.4 million at Sierra Gorda for exploration, development and land payments. During the second quarter of 2009, the Company sold marketable securities for proceeds of $13.0 million. On April 16, 2009, the Company completed a bought-deal equity financing with a syndicate of underwriters through which the Company issued 16,200,000 common shares at a price of C$4.65 per common share for gross proceeds of $62,275 (C$75,330). The underwriters also exercised an option to acquire an additional 2,430,000 common shares which increased the gross proceeds of the offering to $71,617 (C$86,630). Centenario's copper derivative positions were closed out on April 9, 2009 immediately after completion of the acquisition. The proceeds of $30.7 million were used to repay a portion of Centenario's existing long-term debt and the remaining loan balance of $38.3 million was repaid by May 14, 2009. On May 14, 2009 Quadra signed an agreement with a syndicate of lenders in which the lenders provided a $37.5 million secured project debt facility to a wholly-owned Chilean subsidiary of the Company. The proceeds of the loan are to be used to fund the development of the Franke Mine. The facility consists of an amortizing $30 million project finance facility and a $7.5 million working capital facility bearing interest at LIBOR plus 5.75% and 6.75%, respectively. The project loan facility is repayable with semi-annual principal repayments commencing in March 2010, with a final maturity date in March 2014. The working capital facility is repayable at the final maturity date in March 2014. The Company has the right to prepay the full facility at any time without penalty and the lenders have the ability to call a portion of the facility on a semi-annual basis in an amount equal to 67% of the excess cash flow from the Franke mine, as computed under the terms of the facility agreement (see "Financial Instruments"). At June 30, 2009, the Company had cash and cash equivalents of $124.5 million. These amounts are comprised of cash deposits and highly liquid investments that are readily convertible to cash. The counter-parties include banks, governments and government agencies. At June 30, 2009, the Company had working capital of $202.3 million as compared to $196.8 million at December 31, 2008. At June 30, 2009, accounts receivable and revenues include approximately 18.6 million pounds of copper that has been provisionally valued at $2.32 per pound. The final pricing for these provisionally priced sales is expected to occur between July 2009 and September 2009. Changes in the price of copper from the amounts used to calculate the provisional values will impact the Company's revenues and working capital position in the third quarter of 2009. On August 12, 2009 the copper price was $2.73/lb. Liquidity Outlook The Company's future profitability and cash position is highly dependent on the price of copper and gold. Future changes in the price of copper will also impact the final settlement price of provisionally priced sales. The Company has purchased copper put options to protect a minimum floor price for a portion of its future copper production, and the Company also has copper collar contracts which cap the copper sales price at $2.16/lb for 27.6 million pounds of copper from the Franke Mine through June 2010 (see "Financial Instruments"). Quadra expects to spend approximately $50 million at the Franke Mine in the second half of 2009 on capital and operation expenditures to bring it to a cash flow positive position, and an additional $12 million to settle historical payables that were inherited on the acquisition of Centenario. The Company also has capital requirements at its Robinson Mine and at the Carlota Mine, which is still ramping up production. The Company expects to spend $15 million in the remainder of 2009 on the Sierra Gorda pre-feasibility study. At current copper prices, Quadra expects to meet these funding requirements with existing cash on hand. In the event of sustained lower metal prices, and in order to maintain an appropriate cash balance, the Company may need to reduce or suspend operations and project development activities. In addition, if the Company's view of copper prices changes, the Company may elect to suspend mining operations in order to conserve mineral resources and cash. /T/ Commitments and contractual obligations ---------------------------------------------------------------------------- Payment Due By Period ---------------------------------------------------------------------------- Less than 1-2 2-3 3-4 4-5 After ($000's) 1 year years years years years 5 years Total ---------------------------------------------------------------------------- Long-term debt - 4,500 7,500 6,000 8,250 11,250 37,500 Reclamation liabilities - - - - - 104,357 104,357 Franke Mine contracts 13,570 21,702 21,819 22,827 21,799 112,371 214,088 Minimum lease payments (capital and operating) 7,070 16,657 8,167 2,361 610 - 34,865 ---------------------------------------------------------------------------- Total 20,640 42,859 37,486 31,189 30,658 227,978 390,810 ---------------------------------------------------------------------------- /T/ Long-term debt On May 14, 2009 Quadra signed an agreement with a syndicate of lenders in which the lenders provided a $37.5 million secured project debt facility to a wholly-owned Chilean subsidiary of the Company (see "Liquidity and Capital Resources"). Reclamation liabilities The Company has estimated total future reclamation costs of $104.4 million (undiscounted), which primarily relate to the closure of the Robinson, Carlota and Franke Mines. The Company has estimated the fair value of this liability to be $48.2 million at June 30, 2009 based on the estimated discounted future payments. To secure a portion of the closure costs related to the Robinson and Carlota Mines, the Company has posted environmental bonds and held cash in a reclamation trust totalling $59.7 million as at June 30, 2009. The Company revises the reclamation plan and cost estimate for the Robinson Mine annually as required by US Bureau of Land Management and adjusts the amount of the bond accordingly. The reclamation plan and cost estimate for the Carlota Mine is updated every five years as required by the regulator and the amount of the bond is adjusted accordingly. Franke Mine contracts The Company has a long-term supply contract for sulphuric acid for use in the copper extraction process at the Franke Mine. The minimum commitment under the contract is estimated to be $4,050 per annum subject to adjustment based on the prevailing copper prices over the term of the contract which expires in 2022. The copper price adjustment requires, on an annualized basis, an additional $375 be paid for each $0.10/lb that the copper price exceeds a base price of $1.10/lb. The Franke Mine also has a long-term supply contract for industrial water. The minimum commitment under the contract is estimated to be approximately $1,060 per annum subject to adjustment based on the prevailing copper prices over the term of the contract which expires in 2020. The copper price adjustment requires, on an annualized basis, that approximately an additional $120 be paid for each $0.15/lb that the copper price exceeds a base price of $1.50/lb. The Company has also entered into various supply and other contracts for operation and development of the Franke Mine. MARKET TRENDS AND FUNDAMENTALS Between 2006 and mid 2008, the growing demand for copper, particularly in China, coupled with an inability of the copper industry to increase supply due to a lack of immediate development projects, together with a weakening U.S. dollar led to a substantial increase in the copper price. The subsequent global credit and consumer confidence crises and the resulting global economic downturn led to a collapse in the price of copper, which reached a low of $1.26 per pound in December 2008, before recovering to $1.83 per pound at the end of the first quarter and $2.32 per pound at the end of the second quarter, primarily as a result of Chinese buying. The outlook for copper is dependent on the global economy and Chinese stocking strategies as well as supply side and scrap market response. The following graph shows the inventory level, as published by the London Metal Exchange ("LME"), of copper and the spot price of copper from 2006 to July 31, 2009. To view the LME Copper Price & Inventory graph, please click on the following link: http://media3.marketwire.com/docs/lmecopper.pdf At June 30, 2009 the closing spot price was $2.32 per pound. At August 12, 2008, the closing spot price was $2.73 per pound. The reference price of copper metal is determined by trading on the LME, where the price is set in U.S. dollars at the end of each business day. FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS The Company's revenues and cash flows are subject to fluctuations in the market price of copper and gold. In addition, there is a time lag between the time of initial payment on shipment and final pricing, and changes in the price of copper and gold during this period impact the Company's revenues and working capital position. The following table summarizes the impact of the changes in copper price on the Company's after tax earnings for 2009, excluding the impact of changes in fair value of derivatives: /T/ ------------------------------------------------ Impact on the after tax Copper price earnings (excluding derivatives) ------------------------------------------------ + $0.20/lb 15,259 ------------------------------------------------ - $0.20/lb (15,259) ------------------------------------------------ /T/ In recognition of the volatility of copper prices the Company has instituted a floor price protection program to protect the minimum floor price for a portion of its anticipated copper sales. In the first six months of 2009, the Company received cash proceeds of $23.3 million from the exercise of put options for 35 million pounds of copper at a strike price of $2.50/lb. During the second quarter of 2009, the Company purchased an additional 89.5 million pounds of copper put options with a strike price of $1.50/lb at a cost of $3.4 million. The expiry dates of these options are between May and December 2009. At June 30, 2009 the following copper put options were outstanding: /T/ Expiry Pounds (millions) Strike price Fair value ---------------------------------------------------------------------------- July to September 2009 40.8 $ 1.50 81 October to December 2009 39.9 $ 1.50 805 ---------------------------------------------------------------------------- Total 80.7 $ 1.50 886 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- /T/ Under the terms of the Franke project loan facility, the Company was required to enter into a copper price protection program in order to establish a minimum floor price for a portion of anticipated copper sales from the Franke mine. In May 2009 the Company entered into zero cost copper collars for 27.6 million lbs. of copper and also purchased copper put options for 15 million lbs at a cost of $4.9 million. At June 30, 2009 the fair values of put and collar instruments outstanding are as follows: /T/ Pounds Floor Cap Fair Expiry (millions) Instrument price price value ------------------------------------------------------------------------ July 2009 to June 2010 27.6 Collar $ 1.79 $ 2.16 (8,566) July 2010 to December 2010 15.0 Put $ 1.79 3,461 ------------------------------------------------------------------------ Total 42.6 (5,105) ------------------------------------------------------------------------ ------------------------------------------------------------------------ /T/ Under the terms of these contracts, if the average LME cash price for the month is less than the strike price of the put option or the floor price of the collar, the Company will receive the difference in price for the contracted number of pounds. If the average LME cash price for the month is higher than the cap price of the collar, the Company will pay the difference in price for the contracted number of pounds. The counter-parties consist of several international financial institutions. The Company monitors its counter-party exposures and does not believe there are any credit or collection issues at the current time. The change in fair value of these instruments is recorded as a derivative gain or loss on the statement of earnings. The following table summarizes the impact of different copper prices on the Company's cash flows from copper put options and collars in the second half of 2009 and 2010: /T/ -------------------------------------------------------------------------- Cash flows from copper Cash flows from copper put options and collars put options and collars Copper price for the remainder of 2009 for 2010 -------------------------------------------------------------------------- $1.50/lb 2,262 10,092 -------------------------------------------------------------------------- $2.00/lb - - -------------------------------------------------------------------------- $2.50/lb (2,652) (11,832) -------------------------------------------------------------------------- $3.00/lb (6,552) (29,232) -------------------------------------------------------------------------- /T/ During 2008, the Company entered into NYMEX heating oil futures contracts for 7.8 million gallons at a strike price of $2.51/gallon with no cost for the period of December 2008 to November 2009. During the six months ended June 30, 2009, the Company settled 3.9 million gallons of NYMEX heating oil with cash payments to the counterparty of $4,128 recorded in cost of sales on the statement of earnings. During the quarter ended June 30, 2009, the Company entered into an additional 1.5 million gallons of NYMEX heating oil futures contracts at a strike price of $2.00/gallon with settlement dates between December 2009 and April 2010. At June 30, 2009, the fair value of the fuel contract liabilities decreased to $2,062. As a result, the Company recorded an unrealized derivative gain of $4,605 for the six month period ended June 30, 2009. At June 30, 2009 the following NYMEX heating oil futures contracts remain outstanding (December 31, 2008 - 7.2 million gallons): /T/ Expiry Gallons (millions) Strike price Fair value -------------------------------------------------------------------------- July to November 2009 3.3 $ 2.51 (2,062) December 2009 to April 2010 1.5 $ 2.00 - -------------------------------------------------------------------------- Total 4.8 $ 2.35 (2,062) -------------------------------------------------------------------------- -------------------------------------------------------------------------- /T/ CONTINGENCIES (a) The Company was originally served with four lawsuits that were filed in Chilean courts against the Company's wholly-owned Chilean subsidiary, Minera Quadra Chile Limitada. The lawsuits were filed on August 13, 2007, April 2, 2008, June 20, 2008 and July 10, 2008. Based on advice of Chilean counsel, Quadra believes that the option agreements are valid and that the legal claims are without merit. The company settled one of the lawsuits in the second quarter of 2009 for less than $0.5 million. The remaining plaintiffs are minority shareholders in the "sociedades legales mineras" (SLM) or legal mining companies that owned certain of the mining tenements that were optioned to Quadra in 2004. In two of the cases, the plaintiffs are requesting that the option agreements to purchase the mining tenements be declared null and void. The plaintiffs in these cases are claiming that the SLM's were not authorized to sell the mining tenements. In the third case, the plaintiffs argue that if any of the first two cases are successful, then further option agreements are invalid by virtue of the fact that the option agreements were intended to be exercised in either all or none of the cases. The first two lawsuits relate to three of the ten option agreements that the Company entered into with respect to its Sierra Gorda mineral property. Although Quadra believes that the option agreements are valid and that the legal claims are without merit, the outcome is uncertain. The proceedings are subject to the procedural and substantive laws of Chile, and the allegations are based on the actions of the Optioners, in respect of which Quadra has no direct knowledge. The Company intends to vigorously defend these claims, however there is no assurance that it will be successful. (b) The Company is subject to other lawsuits from time to time which are not disclosed on the grounds that they are not believed to be material. TRANSACTIONS WITH RELATED PARTIES One of the directors of the Company is a partner of an affiliate of Blake, Cassels & Graydon LLP. During the three and six months ended June 30, 2009, the Company incurred legal fees of $166 and $295 with that entity (three and six months ended June 30, 2008: $260 and $414 respectively), all of which were at normal business terms. CRITICAL ACCOUNTING POLICIES AND ESTIMATES In preparing financial statements management has to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Based on historical experience, current conditions and expert advice, management makes assumptions that are believed to be reasonable under the circumstances. These estimates and assumptions form the basis for judgments about the carrying value of assets and liabilities and reported amounts for revenues and expenses. Different assumptions would result in different estimates and actual results may differ materially from results based on these estimates. These estimates and assumptions are also affected by management's application of accounting policies. Critical accounting policies and estimates are those that affect the consolidated financial statements materially and involve a significant level of judgment by management. Mineral Properties Mineral property development costs, including exploration, mine construction, and stripping costs, are capitalized until production is achieved, and are then amortized over the remaining life of the mine based on proven and probable reserves. The determination of the extent of reserves is a complex task in which a number of estimates and assumptions are made. These involve the use of geological sampling and models as well as estimates of future costs. New knowledge derived from further exploration and development of the ore body may also affect reserve estimates. In addition the determination of economic reserves depends on assumptions on long-term commodity prices and in some cases exchange rates. An impairment loss is recognized for a mineral property if its carrying value exceeds the total undiscounted cash flows expected from its use and disposal. Undiscounted cash flows for mineral properties are estimated based on a number of assumptions including management's view of long-term commodity prices, proven and probable reserves, estimated value beyond proven and probable reserves, and estimates of future operating, capital, and reclamation costs. Based on management's view of future metal prices and cost assumptions, the carrying value of the Company's mineral properties was not impaired at June 30, 2009 Revenue Recognition Sales are recognized and revenues are recorded at market prices when title transfers and the rights and obligations of ownership pass to the customer. The majority of the Company's product is sold under pricing arrangements where final prices are determined by quoted market prices in a period subsequent to the date of sale. For sales of Robinson's concentrates, final pricing is generally determined three to four months after the date of sale. The Company estimates provisional pricing for its product based on forward prices for the expected date of the final settlement. Subsequent variations in price are recognized as revenue adjustments as they occur until the price is finalized. As a result, revenues include estimated prices for sales in that period as well as pricing adjustments for sales that occurred in the previous period. These types of adjustments can have a material impact on revenues. Asset Retirement Obligations, Reclamation and Mine Closure Due to uncertainties concerning environmental remediation, the ultimate cost to the Company of future site restoration could differ from the amounts provided. In previous years the Company has revised its estimate of the timing and amount of closure costs at the Robinson Mine, which resulted in adjustments to the liability recorded in the Company's financial statements. In 2008, the Company revised its estimate of the amount of closure costs at the Carlota Mine. Accordingly, an adjustment to the liability was recorded in the Company's financial statements. The estimate of the total liability for future site restoration costs is subject to change based on cost inflation, amendments to laws and regulations and may also change as new information concerning the Company's operations becomes available. The Company is not able to determine the impact on its financial position, if any, of environmental laws and regulations that may be enacted in the future. Future Income Tax Assets Management believes that uncertainty exists regarding the realization of certain future tax assets and therefore a valuation allowance has been recorded as of June 30, 2009. At June 30, 2009 the Company had additional available U.S. Alternative Minimum Tax Credits of $17.7 million, which have not been recognized due to the uncertainty of realization. The Company also has not recognized the benefit of the tax basis of Carlota and Franke in excess of the acquisition price, and non-capital losses. However, the Company has recognized a net current future income tax asset for other temporary differences created between the tax and accounting basis of assets and liabilities in the United States. Management estimates that, using long term copper prices in line with its mine plan estimates, the future taxable income will be sufficient to utilize the future tax assets which have been recognized. CHANGE IN ACCOUNTING POLICY In the fourth quarter of 2008, the Company adopted CICA Handbook Section 3064 "Goodwill and Intangible Assets". Accordingly, the deferred start up costs at the Robinson Mine and the increase in value of the deferred gold consideration related to the Carlota Mine that were previously capitalized to mineral property, plant and equipment should now be expensed. This change in accounting policy has been applied retroactively and the financial statements for the three and six months ended June 30, 2008 have been restated. A summary of the effect of this change is shown below: /T/ Three months Six months ended June 30, ended June 30, 2008 2008 ------------- ------------- Decrease in depreciation, depletion and amortization (468) (955) (Decrease) increase in interest and other expense (67) 2,339 (Increase) decrease in future income tax expense 187 (485) ------------- ------------- Decrease (increase) in earnings and comprehensive income (348) 899 ------------- ------------- ------------- ------------- Decrease (increase) in earnings per share - basic $ (0.01) $ 0.02 Decrease (increase) in earnings per share - diluted $ (0.01) $ 0.02 /T/ OUTSTANDING SHARE DATA The Company had 99,156,310 common shares issued and outstanding common shares at June 30, 2009. As of August 12, 2009 the Company had 99,156,310 common shares issued and outstanding. INTERNAL CONTROL OVER FINANCIAL REPORTING The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. On April 8, 2009, the Company completed the acquisition of Centenario. As a result, Centenario is a business that Quadra has acquired not more than 365 days before the last day of the period covered by the interim filings. Management believes that the internal controls and procedures of Centenario have a material effect on its financial reporting internal controls. Quadra is integrating Centenario's operations and will be expanding its internal control over financial reporting compliance project to include Centenario over the next year. Quadra will exclude Centenario from its disclosure controls and procedures and internal controls over financial reporting assessments for the year ended December 31, 2009, as permitted by NI 52-109 and applicable rules relating to business acquisitions. The internal controls over financial reporting at the corporate level remain unchanged and will continue to be applied to the additional financial information provided for quarterly reporting procedures. Management believes that the corporate-level control environment is sufficiently strong and will continue to mitigate risk of material error or fraud. CONVERSION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS") Canadian publicly listed companies are required to use IFRS, replacing Canadian GAAP effective fiscal years beginning on or after January 1, 2011. The Company has appointed a project manager to lead the conversion to IFRS. The project manager is working with other members of the finance group to execute the implementation plan. An initial diagnostic review of significant IFRS differences has been completed by the Company's external auditors as part of the project planning. The project planning is substantially completed. While the effects of IFRS have not yet been fully determined, the Company has identified several key areas where it is likely to be impacted by accounting policy changes, including the accounting for Property, Plant & Equipment, Asset Retirement Obligations, and Business Combinations. Further detailed analysis of these areas is underway, and no decisions have yet been made with regard to accounting policy choices. A more detailed review of the impact of IFRS on the Company's consolidated financial statements, and other areas of the Company, is in progress and is expected to be completed by the end of 2009. Any changes required to systems and controls will be identified as the project progresses. Draft financial statements and disclosure information will be prepared for each quarter in 2010 and reporting under IFRS will commence in the first quarter of 2011. NON-GAAP FINANCIAL MEASURES The cash cost per pound of copper produced, and onsite costs and offsite costs are non-GAAP financial measures that do not have a standardized meaning under Canadian Generally Accepted Accounting Principles ("GAAP"), and as a result may not be comparable to similar measures presented by other companies. Management uses these statistics to monitor operating costs and profitability. Onsite costs include mining costs (including all pre-stripping costs), equipment operating lease costs, mill costs, mine site general and administration costs, environmental costs and royalties. Offsite costs include the costs of transportation, smelting and refining of concentrate. For financial statement reporting purposes, smelting and refining costs are netted against revenues. Costs of sales, as reported on the statement of operations, is different that the costs of production because of changes in concentrate inventory levels. The following table shows a reconciliation of these non-GAAP financial measures to the consolidated statements of operations: /T/ Three months ended Six months ended June 30 June 30 ------------------ ----------------- 2009 2008 2009 2008 Cost of sales 44,646 60,546 92,299 127,766 Adjustment for change in concentrate inventory 9,026 5,753 3,255 1,583 Refining and treatment charges 4,487 4,026 9,902 9,735 Capitalized stripping costs 1,230 - 9,681 - Royalties 2,508 6,207 4,429 10,920 ------------------ ----------------- Total onsite and offsite costs 61,897 76,532 119,566 150,004 By-product revenues (25,491) (36,124) (53,706) (67,298) ------------------ ----------------- 36,406 $ 40,408 65,860 $ 82,706 Copper production (million lbs.) 22.9 44.6 59.6 86.6 ------------------ ----------------- Cash cost per pound of copper produced at the Robinson mine $ 1.59 $ 0.91 $ 1.10 $ 0.96 ------------------ ----------------- ------------------ ----------------- /T/ Cashflow from operating activities (before working capital changes) is also not a defined term under GAAP, and consists of cash provided from operating activities less net changes in non-cash working capital. August 12, 2009 This Press Release, which also includes the MD&A contains "forward-looking information" that is based on Quadra's expectations, estimates and projections as of the dates as of which those statements were made. This forward-looking information includes, among other things, statements with respect to Quadra's business strategy, plans, outlook, financing plans, long-term growth in cash flow, earnings per share and shareholder value, projections, targets and expectations as to reserves, resources, results of exploration (including targets) and related expenses, property acquisitions, mine development, mine operations, mine production costs, drilling activity, sampling and other data, estimating grade levels, future recovery levels, timing and production and shipment from the Franke Mine, future production levels, capital costs, costs savings, cash and total costs of production of copper, gold and other minerals, expenditures for environmental matters, projected life of Quadra's mines, reclamation and other post closure obligations and estimated future expenditures for those matters, completion dates for the various development stages of mines, availability of water for milling and mining, future copper, gold, molybdenum and other mineral prices (including the long-term estimated prices used in calculating Quadra's mineral reserves), end-use demand for copper, currency exchange rates, debt reductions, use of future tax assets, timing of expected sales and final pricing of concentrate sales, the percentage of anticipated production covered by option contracts or agreements, anticipated outcome of litigation, anticipated impact of converting to IFRS and personnel issues. Generally, this forward-looking information can be identified by the use of forward-looking terminology such as "outlook", "anticipate", "project", "target", "believe", "estimate", "expect", "intend", "should", "scheduled", "will", "plan" and similar expressions. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause Quadra's actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, and developed based on assumptions about such risks, uncertainties and other factors set out herein, including but not limited to: - uncertainties relating to fluctuations copper and other metal prices; - uncertainties related to the possible recalculation or reduction in the Company's mineral reserves and resources; - uncertainties related to actual capital costs, operating costs and expenditures, production schedules and economic returns from the Company's mining projects; - uncertainties related to the current global financial conditions; - uncertainties related to the availability of future financing necessary to undertake mining, processing, development and exploration activities on Quadra's properties; - uncertainties related to scoping study assumptions that are based on preliminary testwork; - Quadra's substantial reliance on the Robinson Mine for revenues; - uncertainties related to Quadra's ability to expand or replace depleted reserves; - risks related to the integration of businesses and assets acquired by Quadra, including the recent acquisition of Centenario; - inherent hazards and risks associated with mining operations; - inherent uncertainties associated with mineral exploration; - uncertainties related to the competitiveness of the mining industry; - risks associated with Quadra being subject to government regulation, including changes in regulation; - risks associated with Quadra being subject to extensive environmental laws and regulations, including achange in regulation; - risks associated with Quadra's need for governmental license and permits; - risks that Quadra's title to its property is being challenged pursuant to certain lawsuits currently underway in Chile; - risks that Quadra's may not be granted all definitive surface rights necessary for exploitation of Sierra Gorda; - risk that Quadra may not find a suitable partner or obtain project financing for Sierra Gorda; - political and country risk; - risk of water shortages and risks associated with competition for water; - Quadra's need to attract and retain qualified personnel; - risk of shortages of key supplies, including tires; - increases in off-site transportation and concentrate processing costs; - Quadra's dependence on one railroad and one port to ship copper from the Robinson Mine; - risks associated with the mineralogy, and particularly complex mineralogy at the Robinson Mine; - risks related to the stability of mine pit walls; - risks related to the need for reclamation activities on Quadra's properties, including the nature of reclamation required and uncertainty of costs estimates related thereto; - uncertainties related to the amount of funding required to achieve full production levels at the Franke Mine; - uncertainties related to the construction quality and structural design at the Franke Mine; - uncertainties related to production ramp-up at the Carlota Mine; - risks associated with costs of operating supplies, including sulphuric acid; - inherent risks associated with existing and future litigation; - risks associated with taxation; - risks related to Quadra's shareholder rights plan; - risks associated with potential conflicts of interest; - risks in the nature of investments; and - risk related to hedging contracts and exposure to the credit risk of counterparties. A discussion of these and other factors that may affect Quadra's actual results, performance, achievements or financial position is contained in the filings by Quadra with the Canadian provincial securities regulatory authorities, including Quadra's Annual Information Form. This list is not exhaustive of the factors that may affect our forward-looking information. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking information. Quadra disclaims any intent or obligations to update or revise publicly any forward-looking statements whether as a result of new information, estimates or options, future events or results or otherwise, unless required to do so by law.