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FINANCIAL INSTRUMENTS:
 3 Months Ended
Mar. 31, 2012
FINANCIAL INSTRUMENTS:  
FINANCIAL INSTRUMENTS:

NOTE 14 — 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 March 31, 2012 and December 31, 2011 (in millions):

 

 

 

As of March 31, 2012

 

As of December 31, 2011

 

 

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

2,745.9

 

$

3,128.2

 

$

2,745.7

 

$

2,974.9

 

 

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 10%, 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 March 31, 2012 and December 31, 2011:

 

 

 

Fair Value at Measurement Date Using:

 

Description

 

Fair Value as
of March
31, 2012

 

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

 

$

220.0

 

$

220.0

 

 

 

 

 

- Available for sale debt securities:

 

 

 

 

 

 

 

 

 

Corporate bonds

 

0.6

 

 

 

$

0.6

 

 

 

Asset backed obligations

 

0.1

 

 

 

0.1

 

 

 

Mortgage backed securities

 

6.6

 

 

 

6.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable:

 

 

 

 

 

 

 

 

 

- Derivatives - Not classified as hedges:

 

 

 

 

 

 

 

 

 

Provisionally priced sales:

 

 

 

 

 

 

 

 

 

Copper

 

60.0

 

60.0

 

 

 

 

 

Molybdenum

 

126.5

 

126.5

 

—

 

—

 

Total

 

$

413.8

 

$

406.5

 

$

7.3

 

$

—

 

 

 

 

Fair Value at Measurement Date Using:

 

Description

 

Fair Value as
of
December
31, 2011

 

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

 

$

514.6

 

$

514.6

 

 

 

 

 

- Available-for-sale debt securities:

 

 

 

 

 

 

 

 

 

Corporate bonds

 

0.5

 

 

 

$

0.5

 

 

 

Mortgage backed securities

 

6.8

 

 

 

6.8

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable:

 

 

 

 

 

 

 

 

 

- Derivatives – classified as cash flow hedges:

 

 

 

 

 

 

 

 

 

Zero cost collar

 

8.9

 

 

 

8.9

 

 

 

- Derivatives - Not classified as hedges:

 

 

 

 

 

 

 

 

 

Provisionally priced sales:

 

 

 

 

 

 

 

 

 

Copper

 

221.5

 

221.5

 

 

 

 

 

Molybdenum

 

138.1

 

138.1

 

—

 

—

 

Total

 

$

890.4

 

$

874.2

 

$

16.2

 

$

—

 

 

The Company’s short-term trading securities investments are classified as Level 1 because they are valued using quoted prices of the same securities.

 

The Company’s short-term available-for-sale investments are classified as Level 2 because they are valued using quoted prices for similar investments.  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. 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 financial 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 and a set of probabilities.  The Company generally classifies these instruments within Level 2 of the valuation hierarchy.  Such derivatives at March 31, 2012 and December 31, 2011, include zero cost collars.

 

The Company’s accounts receivables associated with provisionally priced copper sales are valued using quoted market prices based on the forward price on the LME or on the COMEX.  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.

 

There were no changes in the fair value of the Company’s Level 3 short-term investments (corporate bond, asset backed obligations, and mortgage backed securities) in the first quarter 2012 and 2011.