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FINANCIAL INSTRUMENTS:
 6 Months Ended
Jun. 30, 2011
FINANCIAL INSTRUMENTS:  
FINANCIAL INSTRUMENTS:

NOTE 17 — FINANCIAL INSTRUMENTS:

 

Subtopic 810-10 of ASC “Fair value measurement and disclosures — Overall” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy under Subtopic 810-10 are described below:

 

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 

Level 2 - Inputs that are observable, either directly or indirectly, but do not qualify as Level 1 inputs (i.e., quoted prices for similar assets or liabilities).

 

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

 

The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable (other than accounts receivable associated with provisionally priced sales) and accounts payable approximate fair value due to their short maturities.  Consequently, such financial instruments are not included in the following table that provides information about the carrying amounts and estimated fair values of other financial instruments that are not measured at fair value in the condensed consolidated balance sheet as of June 30, 2011 and December 31, 2010 (in millions):

 

 

 

As of June 30, 2011

 

As of December 31, 2010

 

 

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

2,750.4

 

$

2,854.1

 

$

2,760.4

 

$

2,982.7

 

 

Long-term debt is carried at amortized cost and its estimated fair value is based on quoted market prices classified as Level 1 in the fair value hierarchy.  The Mitsui loan is based on the present value of the cash flow discounted at 11.3%, which is the Company’s weighted average cost of capital.

 

Fair values of assets and liabilities measured at fair value on a recurring basis were calculated as follows as of June 30, 2011 and December 31, 2010:

 

 

 

Fair Value at June 30, 2011 Using:

 

Fair Value at December 31, 2010 Using:

 

Description

 

Fair
Value as
of
June 30,
2011

 

Quoted
prices in
active
markets
for
identical
assets

(Level 1)

 

Significant
other
observable
inputs

(Level 2)

 

Significant
unobservable
inputs
(Level 3)

 

Fair
Value as
of

December
31, 2010

 

Quoted
prices in
active
markets
for
identical
assets

(Level 1)

 

Significant
other
observable
inputs

(Level 2)

 

Significant
unobservable
inputs
(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short term investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- Trading securities

 

$

216.4

 

$

216.4

 

 

 

 

 

$

66.9

 

$

66.9

 

 

 

 

 

- Available for sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

0.5

 

 

 

0.5

 

 

 

0.4

 

 

 

$

0.4

 

 

 

Asset backed obligations

 

0.2

 

 

 

0.2

 

 

 

0.3

 

 

 

0.3

 

 

 

Mortgage backed securities

 

8.0

 

 

 

8.0

 

 

 

8.6

 

 

 

7.4

 

$

1.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- Derivatives — Not classified as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisionally priced sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Copper

 

322.9

 

322.9

 

 

 

 

 

60.7

 

60.7

 

 

 

 

 

Molybdenum

 

139.4

 

139.4

 

 

 

 

 

149.5

 

149.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability derivatives — Classified as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

(45.6

)

(45.6

)

 

 

 

 

(124.4

)

(124.4

)

 

 

 

 

Zero cost collar

 

(13.9

)

(13.9

)

—

 

—

 

(72.6

)

(72.6

)

—

 

—

 

Total

 

$

627.9

 

$

619.2

 

$

8.7

 

$

—

 

$

89.4

 

$

80.1

 

$

8.1

 

$

1.2

 

 

The Company classifies investments within Level 3 of the valuation hierarchy in certain cases where there is limited activity or less observable inputs to the valuation.  Investments classified within Level 3 as of December 31, 2010, include mortgage-backed securities.  These investments are valued by the fund’s management advisor taking into consideration different factors and methodologies considered appropriate in the circumstance.  Factors can include the following or a combination of the following, observed transactions, broker quotes, cash flow analysis, vendor prices and other factors as appropriate.

 

Derivatives are valued using internal models that use as their basis readily observable market inputs, such as time value, forward interest rates, volatility factors, and current and forward market prices for foreign exchange rates.  The Company generally classifies these instruments within Level 1 of the valuation hierarchy.  Such derivatives at June 30, 2011 and December 31, 2010, include copper swaps and zero cost collar.

 

The Company’s accounts receivables associated with provisionally priced copper sales of copper are valued using quoted market prices based on the forward price on the London Metal Exchange (LME) or on the Commodities Exchange (COMEX) in New York.  Such value is classified within Level 1 of the fair value hierarchy.  Molybdenum prices are established by reference to the publication Platt’s Metals Week and are considered Level 1 in the fair value hierarchy.

 

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 short-term investments (corporate bond, asset backed obligations, and mortgage backed securities) for the first six months of 2011 and 2010.

 

 

 

6 months ended June 30, 2011

 

6 months ended June 30, 2010

 

 

 

Available for sale debt securities:

 

Available for sale debt securities:

 

 

 

Corporate
bonds

 

Mortgage
backed
securities

 

Total

 

Corporate
bonds

 

Asset
backed
obligations

 

Mortgage
backed
securities

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1,

 

 

 

$

1.2

 

$

1.2

 

$

1.7

 

 

 

$

1.4

 

$

3.1

 

Unrealized gain (loss)

 

 

 

 

 

 

 

—

 

 

 

—

 

—

 

Purchases

 

 

 

 

 

 

 

—

 

 

 

—

 

—

 

Sales

 

 

 

 

 

 

 

(1.2

)

 

 

—

 

(1.2

)

Issuance

 

 

 

 

 

 

 

—

 

 

 

—

 

—

 

Settlements

 

 

 

 

 

 

 

—

 

 

 

—

 

—

 

Transfers in/out of Level 3

 

 

 

(1.2

)

(1.2

)

(0.3

)

 

 

(1.4

)

(1.7

)

Balance as of June 30,

 

 

 

$

—

 

$

—

 

$

0.2

 

 

 

$

—

 

$

0.2